Medusa Share Discussion Threads

[chipperfrd] 22/7/2015 15:56

Tightfist,

I have been calculating All-Costs (ie all-in sustaining costs plus non-recurring CAPEX) for the last few quarters and my calculations worked out to be within a couple of $/oz of the numbers reported by MML. So I have reasonable confidence in the method employed.

Dec-14 quarter AISC was $989/oz (ie cash costs [$380] x production [26,859 oz] = $10,206,420 plus Total Outflows [$16.3m] = $26.506m divided by Production [26,859]).

Obviously, the number of oz produced makes a significant difference and the production is a function of [tonnes milled] x [grade] x [recovery]. For Dec-14 quarter this was tonnes [160,251] x grade [5.56] x recovery [93%] all divided by 31.1 in order to get to oz - actual being 26,859 oz.

March quarter had higher grade [5.84] and improved recovery [94%] but tonnes milled was lower at [135,725] because of the loss of the L8 shaft for 2 weeks in January whilst the modifications were carried out. Hence production fell to [23,940oz]. Operational costs were around $1m lower at [$9.360m) and outflows were just $100k higher at [$16.4m]. But the reduced production made a difference of c. $100/oz to AISC at [$1073/oz].

We don't yet have the operational report for the June quarter but it would seem reasonable that tonnes milled have moved up above the Dec-14 figure to c. 170kt. It would also appear reasonable that grade and recovery are similar to the Mar-15 figures of 5.84 and 94%, which would put production at c. 30.3koz. However, investment outflows will have moved up due to the expenditure on the service shaft by c. $3m/qtr. Hence I estimate AIC will be c. $1,038/oz for the quarter.

In a similar fashion I estimate that the following 4 quarters will be at an AIC of c. $1,014/oz.

Once the service shaft is completed the non-recurring additional expenditure ceases and total outflows (ie Exploration [$2.75m], Capital works [$2.1m], Development [$10m], Corporate G&A [$1.8m]) should return to c. $16.65m/qtr. Which point to a sustaining level of costs (ie AISC) of c. $780/oz.

That level of AISC assumes Tonnes milled [204kt], Diluted Reserve Grade [7.2], Recovery [94%] which results in production of c. 44koz/qtr.

So, by my estimation, the long term break-even AISC for Co-O is c. $800/oz, but in order to hold at that level they need to haul and process at close to 2,500tpd (ie they need to maintain stope mining on c. 100 stopes and continue to develop adequate new stopes to maintain that rate. So I doubt that manning levels could be trimmed further without impacting production.

Arguably, they could reduce surface exploration but underground drilling at Co-O is non-discretionary.

Given the narrow, near-vertical, vein system at Co-O they are not able to use machinery without significantly diluting ore grade - so I do not think it likely that they can change from the manually intensive stope mining methods employed there.

On the wider picture regarding a sustainable gold price anywhere near $800/oz: I can find very few miners who are currently working with AISCs of that order.

From the 2014 final results:
Randgold was $726
Lake Shore was $804
Beadell was $814
Caledonia was $822
Regis was $844
St Barbara was $888
Kingsgate was $908
Oceanagold was $980 (inc copper)
Newmont was $981
Highland was $987
Anglogold was $996
Northern Star was $997
Evolution was $1,003
Newcrest was $1,017
Centamin was $1,021
Kirkland Lake was $1,024
Kinross was $1,026
Polymetal was $1,034
Goldfields was $1,041
Perseus was $1,092
Patagonia was $1,104
Nord Gold was $1,104
Endeavour was $1,116
Polyus was $1,153
Pan African was $1,166
Barrick was $1,196
Acacia was $1,213
Shanta was $1,227
Eldorado was $1,258
Trans Siberian was $1,259
Silverlake was $1,266
Gold Resource was $1,277
Agnico was $1,297
Orasur was $1,326
Harmony was $1,332
Mandalay was $1,363
Anglo Asian was $1,371
Minera was $1,399
Avocet was $1,412
Petropavlovsk was $1,444
Goldcorp was $1,577
Yamana was $1,617

There are a few others but I need to limit this post!

Each of the above miners has a different story and some will likely improve whereas others are likely to go the other way, but it would take a book to discuss the merits (or otherwise) of so many differing stocks. But the takeaway should be that very few miners are likely to survive gold holding at anywhere near $800/oz for very long. In other words, MML ought to be 'one of the last men standing' in the event of such a scenario!

Chip

[deka1] 22/7/2015 13:10

TF , exploration expenditure including underground for the March qtr was $3.1 mil, I have no idea how to take out the surface drilling expends from that number, but lets say can save $1 million of that, has the new shaft already been paid for ? I cant remember lol.

Gold now in the1080s

[deka1] 22/7/2015 12:26

TF hi,thanks for your take on it,
I am looking at a scenario with gold at say 950, because the way things are going sub 1000 gold is a possibility ,so what would a company do in that situation ,how would they carry on in a break even scenario.
First they have to get back into some sort of profit,and if (g0d forbid)gold went to 950 and stayed there for many months, the only way is to reduce prod costs to bring the operation back to profit, and imo stopping all surface explo work is top of the list,so how much is being spent on that at the moment, I will have to look at the company report.the underground drilling has to continue, its the nature of the beast,the only other way I can see to cut costs significantly is to reduce the work force without that action effecting production,is that possible,greater use of machines maybe where possible.
carry no dead wood.

[tightfist] 22/7/2015 10:59

Hi deka,

It would be interesting to see (after the Service Shaft installation) what the Sustaining Capex, Development and Exploration costs can be pruned down to in a new survival scenario of flat-lining Co-O production at 130kOz, and NOT drilling to prove-up increasing resources at Co-O, or progressing expansion plans into properties beyond Co-O.

That scenario is surely more attractive than the impact of laying people off and getting into a unit production cost upward spiral, or, even worse, care-and-maintenance mode.

I think Chip could throw some numbers at my Survival Scenario, but the Survival Cash Costs should be substantially below the current PoG. Not withstanding the cash pile that has been accumulated over the past ten months.

[adyfc] 22/7/2015 07:58

Can't be long 'till the mine will be mothballed, not making any money at these prices. Crazy to continue holding.

[stevea171] 21/7/2015 16:47

Dek. Yes, there's a couple of thousand tons of home produced gold since 2009 the Chinese are sitting on that has not been exported plus even more that they have been importing so this new figure of 1660 tons gold they say they have is just the first step of a process of getting nearer to the true figure.

I would expect in months to come the 1660 ton declaration will be added to now that they have made the first change to their gold holdings since 2009.

The reason for the latest smash in the gold price could be this Chinese statement but what about the take down that has been going on every day for the past month since $1200 gold was last breached?

I believe there was intention for all of this past month that $1130 gold (previous low) would be taken out significantly as part of the continuing war on gold, miners and PM investment community. There have been many economic and world events in the past month that would normally be gold positive but in every case they have been gold negative this time round. Those calling the shots are beating a broken drum because now there are physical silver and gold shortages which are likely to get worse. As usual a failing strategy (like QE) is not changed but it's assumed the failure is because there has not been enough of the medicine!

I think now that this $1080 gold objective has been achieved the pressure will come off to see what the effects are and gold will bounce back somewhat. Whether it will be hit again down the road if people don't learn the lesson they are supposed to learn and stop buying the physical I have no means of knowing ....

[deka1] 21/7/2015 15:54

Steve, I been looking at the various reasons put out by the talking heads for gold drop over the past few days,one of the reasons is China putting out its gold reserves , first time since 2009,saying the reserves are up now to 1660t, from around 1050 in 2009,
BUT am I correct in believing that China does not sell any homegrown gold into the market?, because since 2010 China has been producing an average of around 400t a year, so if China has produced 1600t from 2010 upto 2014 and they don't sell any, then China should be sitting on at least 2650t right now, not 1660t that they purport to hold, and that's without buying any in the open market (such as it is) OR am I missing something here????

[deka1] 21/7/2015 11:19

Cheers Steve.
I think global production for 2015 must come in significantly lower than the previous few years numbers,the amount of small operations that have shut down over the last couple years , all those 20-30-40 koz operations with very high costs,it must add up .

[stevea171] 21/7/2015 11:08

Dek. By now it's likely most PM miners have made most of the savings they can incl cutting into the bone of mining operations and overheads. So not a lot more of savings to go for, apart from stopping all exploration and further high grading. Shuttering an operation would be the final drastic step.

Is this the final capitulation for the miners some have been waiting for?

With MML, Geoff has plenty of experience and is well on top of things so can respond to events and gold price changes quickly and appropriately. With just a single operation and productivity measures in process but not fully implemented. So some of the savings in Co-O mining operations are still coming through incl the new payment scheme for the stope miners.

[justinjjbuk] 21/7/2015 11:05

It would be helpful if management could proactively discuss how they will respond to a low gold price environment. For example, a couple of scenarios where gold stays at $1,100 or falls to $1,000.

[deka1] 21/7/2015 10:34

Hi Steve , if gold drops to 900 I doubt that any gold mid / large miner can turn a profit,
would they still be able to operate in a break even scenario, and if so for how long?

[stevea171] 21/7/2015 09:48

Dek. We must be nearer the bottom than the top in this fully manipulated take down! So the PTB get another $50 off the gold price and crucify the miners.

Now everyone is talking about $1000 gold or $850. Doubt it! Certainly not now. This could be the last hurrah .... although I have thought that before.

Picked up some summer sale priced MML in the carnage last night. Spread betters and margin traders getting crucified, baling out ....
Volume the last 2 days has rocketed. 1.2 million followed by 2.6 million last night cf about 350k recently.

Results soon. Shold see some sense return to the share price
Hold in there & keep trucking!!!!!! :-)

[arja] 21/7/2015 00:18

“The talk of the day though has been centred squarely on gold,” IG chief market strategist Chris Weston said. The gold spot price plunged $US49 in the space of 10 minutes during morning trade, crashing through the $US1,100 level to its lowest point since March 2010.

“Talk from one local bank has been that five tonnes was dumped onto the Shanghai exchange — which is a huge order regardless of the time of day,” Mr Weston said.

“The question is why would you hold gold, apart from the fact that everyone is now bearish?” Mr Weston pointed to the fact that the US Federal Reserve and the Bank of England are openly talking about raising interest rates, sending both nations’ currencies higher, which compete with gold as the safe haven investment.

Meanwhile, the price of iron ore was holding steady at the $US50 mark.

[arja] 21/7/2015 00:13

deka1 - maybe but it takes 2 sides to do a deal but I agree that such a big seller will have that effect . I just rely on the chart and notice gold again under $1100 at $1097 after hitting $1071 yesterday in the mini crash . MML chart support is 50 as perhaps worst case scenario but dangerous to hold any gold stocks sadly .

[augustusgloop] 20/7/2015 12:52

Nobody dumped 20 ton of paper gold.

When people take spreadbets on the POG falling - somebody must take the opposite position.

Each contract has two sides.

There are massive trades everyday in Euro against dollars.
But when do you ever hear that 200 trillion of euros was dumped on the market?
At the same time the relevant value of dollars could be thought to be dumped on the market.

These markets work in the same way.

JPM act like a casino operator on the POG.
During a day they may take buys for 20 tonnes of gold and sells for 20 tonnes of gold.
Mug-punters, led astray by zero hedge, King World news and chip, believe that JPM are now on the line for an additional 20 tonnes of gold.

No wonder mug-punters lose money!

[deka1] 20/7/2015 11:40

Arja hi someone dumped over 20 ton of paper gold on the Asian open last night,
all the PM miners got hit hard,the way its going no gold miners will be making a profit if it goes below 1100, the industry will go on care and maint, nobody will be producing,but there will be plenty of paper gold going about LOL

[deka1] 20/7/2015 08:51

Soon the Artisanal miners will be the only ones left,
I posted on here over a year ago that maybe the USA and China had done a deal,
in which china did not crash the usa bond market by selling the two trillion they were said to be holding in a shortish space of time, in return for cheap gold, as china slowly unwound its USA bonds, might be something in that imo.

[deka1] 20/7/2015 08:45

Flash crash

[deka1] 20/7/2015 07:37

For the past year or so I firmly believed that 1200 was as low as gold would go,
and MML would be still making good money ,now I have no idea how low the price will be forced down, sub 1000 is very possible the way things are going,and I don't think any miner in the world will be profitable at that price if it does go that low.
Its like the USA wants to shut down all gold production on the Planet.

[arja] 20/7/2015 07:30

article above was spot on but surprised to see MML down 10.5 at 73.5 and nCM too hit hard . Tempted to buy as maybe oversold but held off !

[stevea171] 19/7/2015 14:39

If you have a spare hour some time this documentary on Philippines gold mining may be of interest to contrast with Medusa's operation:

Diwalwal, the Wild West of gold mining on Mindanao, not far to the south of Co-O, 7 mil oz gold.

Artisanal mining for the past 33 years which is on-going. In 1982, the discovery of gold on this mountain triggered a gold rush to an area of 729 hectares. In the opinion of the Department of Environment and Natural Resources (DENR), it is ‘the largest gold deposit in the world’. An estimated $1.8 billion worth of gold reserves remain untapped in the 5,000-hectare mountain where some 20,000 small-scale miners operate, many illegally.

Diwalwal, the Cursed Gold of the Philippines. Good quality in English, by French documentary maker Philippe Couture. 57 mins.

hxxp://www.cultureunplugged.com/documentary/watch-online/play/51799/Diwalwal--the-Cursed-Gold-of-the-Philippines

[ben144] 19/7/2015 13:37

For those interested in mining companies check this Interview with Charles Gibson: Head of Mining at Edison Research

[bluelynx] 19/7/2015 12:46

Interesting article showing Short selling of gold contracts are at extreme levels of 179K, which previously has led to very strong price increases due to short covering. I did not realise that traders have access to leverage of up to 29 to 1 in gold futures contracts which is madness.

Any how even given the record high short contracts stated in the 321.com article, I sure the major Banks and Fed would love to break gold price support of $1,130. Let hope they can't. Surely it will be difficult for them to increase the number of Short contracts a lot above 179K.