Medusa Share Discussion Threads

[chapv] 06/8/2015 13:22

maybe the slamming of gold is intended to make us all think it is worthless!

[chipperfrd] 06/8/2015 13:18

Over the first 29 weeks of 2015 some 1,410t of gold have been sold into wholesale Chinese demand. That corresponds to an annual rate of c. 2,519t for 2015 - which is a large percentage of the c. 2,700t of fresh mine supply.

When you then add in the demand from India, Russia, Turkey, Kazakhstan, et al, let alone all the small buyers in the West, it is not surprising that available metal is constrained and more metal has to be freed up out of the ETFs.

If Central Banks in the West are so firmly of the opinion that gold is worthless then the simple answer is for the US, UK, EU, etc to sell down their holdings. Instead, what we have seen, is Germany requesting the return of a sizeable proportion of their holdings held by the US Fed. The Dutch getting 120t back from the Fed and the Austrians also asking the BOE for the return of their gold.

It is what Central Banks 'do' that matters - not what they 'say'!
Chip

[chipperfrd] 06/8/2015 13:01

chapv,

Well it's not the US that's doing the big buying!



Chinese demand through the Shanghai physical exchange for w/e 24th July was 73.29t. The previous week it was 69.175t.

The problem for the Western exchanges would appear to be delivering into all this Asian demand.

Each time there is a 'not for profit' price slam dunk by the paper exchanges it tends to cause margin selling of the gold ETFs which in turn allows physical withdrawals by the custodial banks - presumably to meet delivery demands from the East.

Just how much longer can this go on is a moot point!
Chip

[deka1] 06/8/2015 12:53

From RUGT


Why Gordo sold the gold. An old article.

[chapv] 06/8/2015 11:59

Having been thinking a bit more about the POG and why it might be being suppressed. If you wanted to fill Fort Knox and send some back to the Jerries you would want to be getting it as cheap as possible!

[chipperfrd] 06/8/2015 10:33

CP,

Like you, I have been expecting a bid here for some time. Not what I want of course, but it would seem likely at some point.

The long-run quarterly projections are:

Haulage & ore milled ~ 204,000t
Fully diluted head grade ~ 7.2 g/t
Recovery ~ 94-95% (let's assume 94%)

If all haulage is either stope or development ore then projected production/qtr is 44.4koz/qtr.

Can they maintain cash costs at c. US$390/oz ?
If so, their long-run cash costs per qtr would be c. US$17.3m.

With the service shaft completed the average sustaining outflows per qtr are c. US$16.3m (ie Corporate ~ US$2m, Development ~ US$9.6m, Capital Works ~ US$2.1m & Exploration ~ US$2.6m).

So a total ($17.3m + $16.3m) of US$33.6m per qtr.

For AISC we therefore divide 33.6m by production of 44.4koz to get a best case long-run figure of US$757/oz.

However, MML production guidance for FY17 is 135-145koz - (say 140koz) or 35koz/qtr. So let's use that for a stab at an intermediate figure.

MML guidance for sustaining expenditure over FY16 is US$61m (without the service shaft) and would need another US$7-8m added for Corporate - say US$68.5m or US$17.1m per qtr.

They guide US$380-430/oz for cash costs over FY16 - say US$405/oz.
So total cash costs per qtr of c. US$14.2m.

Therefore, all-in costs per qtr of $14.2m + $17.1m = $31.3m.

Put that all together and a more conservative intermediate AISC would therefore be: 31.3m/35k = US$894/oz.

MML have guided for an AIC of $960-$1,060 for FY16 (incl $80/oz for the service shaft) - so after deducting that we get their guidance range at an AISC of $880-$980, or a mid-range of $950/oz.

Can they reduce operating costs and sustaining costs?
I guess we would all have differing opinions on that.
By it's nature, Co-O now needs to keep developing to maintain it's mined stopes at around 100 on breaking cycle - so I doubt they can save much on development expenditure.

I assume the same goes for capital works at c. $10m/year (replacing worn out components).

That leaves Corporate and Exploration where they may indeed be able to trim a bit. We shall have to see how they set their priorities.

With the benefit of hindsight it is a shame that they had not been able to develop Bananghilig into production. As an initial open pit operation with 'free dig' material down to 50-100m it had all the hallmarks of a really low cost operation and already has 1m oz in resources.

However, for Co-O, in the context of the wider industry, getting their AISC down towards $950 or lower would still keep them competitive IMHO. It is still too early to have received enough 1H15 financial returns to get a feeling for how everyone else is managing, but at the end of CY14 I found that the average AIC was around US$1,200/oz.

So far, the early returns have indicated that few will have got below US$900/oz so I suspect the average for the industry will probably be around US$1,100/oz. So MML are far from being alone in having to cope with gold pricing that is pushing the entire industry to the brink - and below in the case of the primary silver miners!
Chip

[cp42kx07] 06/8/2015 08:30

chip

I also checked the MML short position (prior to my last post) and concluded that we were very close to the nadir.

If one has some faith in the AISC projections (company or one's own) and a 12 month PoG above USD 850 then the business looks like a steal at anything under AUD 1. I am amazed that it hasn't been bought from under us. One of the problems here is undoubtedly the style of investing practiced by many ASX investors (short term / trading) and the loss of the secondary listing.

Of course, as many here know, in the end the outcome of this drama will come down to cost management and cash flow controls.

GLA.


CP

[deka1] 06/8/2015 07:02

Its a Barbarous relic, a pet rock-------------- YEH RIGHT


That's why the most powerful organisation in the history of the world wanted it.
lol




Executive order for your gold









In 1933, with America five-years deep into The Depression, the stage was set for an act of unprecedented proportions. History shows a wicked warlock at work.

On March 6, 1933, Executive Order (EO) 6073 was passed by Franklin Delano Roosevelt (FDR), the 32nd President of the United States in an attempt to solve the dire banking crisis. Executive orders have been around since 1789, allowing Presidents to issue legally binding orders unilaterally, without the consent of Congress. During his Presidential tenure, from 1933 to 1945, Roosevelt would issue 3,728 Executive Orders.

This was his third and it was a doozy. I could just imagine how angry and frustrated individuals would have been. I doubt this will happen again but history does have a way of repeating…



Source: Wikipedia-executive order 6102

Just two days after Roosevelt was inaugurated as President, he proclaimed a “banking holiday”. From and including Monday, March 6, 1933 to Thursday, March 9, 1933 no bank “would pay out, export, earmark, or permit the withdrawal or transfer in any manner or by any device whatsoever of any gold or silver coin or bullion or take any other action which might facilitate the hoarding thereof…”; Sold to the American people as an attempt to control speculation and regulate interest rates, he closed America’s banks, thwarting customers from withdrawing their paper money holdings or converting their holdings to gold.

With a swish of his magic wand, Roosevelt mastered “complete control over America's banking system”, expanding his Presidential powers exponentially in the process.

In his first “Fireside Speech” (which burned the backside of many Americans) on March 12, 1933 Roosevelt declared “Let me make it clear to you that the banks will take care of all needs, except, of course, the hysterical demands of hoarders, and it is my belief that hoarding during the past week has become an exceedingly unfashionable pastime in every part of our nation. It needs no prophet to tell you that when the people find that they can get their money -- that they can get it when they want it for all legitimate purposes -- the phantom of fear will soon be laid. People will again be glad to have their money where it will be safely taken care of and where they can use it conveniently at any time. I can assure you, my friends, that it is safer to keep your money in a reopened bank than it is to keep it under the mattress.”

[stevea171] 05/8/2015 23:32

Chip. We have to deal with realities. Not with rose tinted views of the world.

At the Medusa presentation in Mayfair we were told that company guidance was now conservative and that it was expected to beat or hit forecasts, unlike something like 3 years of missed guidance by previous management ie PHB.

Why should I and likely others be happy when this new management has failed in one of their top priorities to restore credibility. They met production guidance but failed their key financial guidance of AISC $900-1000/oz. Outcome was $1090/oz or 15% higher than the guidance mid point.

In certain circumstances this miss may be academic but it just so happens in this case it is not. With the fall in the gold price this miss doesn't just reduce the level of profits, it puts the company into a potential loss making situation currently and if the gold price were to fall further it could all but wipe out the investments of all on this board who are invested if a distressed capital raising is required down the road.

The long term claim that the company is a low cost producer is exploded when the cash cost reporting is now accompanied by AISC which PHB was never prepared to report for obvious reasons but fortunately for us, Geoff has agreed to.

We don't really know in detail what is going on in the mine. About 6 weeks ago Medusa published an update on the Services shaft under construction. At that time you did a calculation of the waste from the new shaft that needed to be removed via the L8 shaft. I didn't agree with your calculation but said nothing at the time because it made no provision for the additional waste from the connecting drives on all the levels, ventilation shafts etc. This turned out to be significant in the reporting of Q4 production which was well down on most of our expectations and calculations. Again if the gold price was $1200-1300 this would not matter too much, just a bit less profit than expected.

Medusa is right now, at present gold prices, a marginal producer on the cusp of loss making which could effectively put it out of business. There is the prospect of jam tomorrow with lower costs and higher output but how many years has all this been going on for?

Your comparison with 1 year ago post above which to you appears completely irrational is not irrational at all. It is what the market is prepared to pay given the risks, both company specific at an important time compounded by the global market risks that have never been higher. Costs here are out of control just at the time when we risk a global Armagedon event probably in September that we have no idea how it will play out.

[deka1] 05/8/2015 14:58

Cheers chip,steve, good to talk it out under the circumstances re the prod coasts,

[chipperfrd] 05/8/2015 14:37

Niels,

Yes, ABN cash settled, some 2 years ago I think it was.

[chipperfrd] 05/8/2015 14:31

Steve,

I think you are rather missing the point here.

They were only hauling ore at 80% of available capacity in the last quarter because of the need to remove waste from the various essential improvements within the mine. This level of waste will rapidly decrease and will free up haulage capacity for ore. Hence production will rise and the unit costs in AISC/per oz will therefore fall.

Their current sustaining development and capital costs are running at the new expansion rate but due to the bottleneck in haulage capacity some 20% of their broken ore has had to be held back within completed stopes until the full current capacity is available. To be then followed by the additional capacity available from L8 once the service shaft is completed - in all around a 40% improvement on ore haulage over the June quarter.

I am not as pessimistic as yourself regarding their current cash flows (although we need the FY15 financial report to confirm). Revenue in the June qtr would have been US$31.77m (although actual cash received would have been higher because of the increase in sold oz over actual production).

MML cash costs are amongst the lowest in the industry and at US$390/oz would indicate operational costs of US$10.351m for the June qtr.

Hence OPCF was c. US$21.4m.

To set against that we have total outflows of US$16.4m for sustaining costs including the additional non-recurring expansion capex for the various mine improvements (service shaft, ventilation shafts, ore passes, et al) and for some discretionary exploration.

Resulting free cash flow would therefore appear to be c. US$5m. The level of cash dropped by US$0.9m so my assumption is that they paid down their relatively small debt - but we cannot have this confirmed until the EOY financials.

The US$100 drop in PoG since the beginning of FY16 is obviously unwelcome and will hit revenue but should be mitigated to some degree by increased ore haulage and production during this and coming quarters. But extrapolating forward at possible realised PoG of US$1,095/oz and conservative forward haulage rates does not seriously impact future positive FCFs.

Perhaps they will reduce exploration spend on non-Co-O projects - especially the copper ones, as I agree with you regarding the current outlook for World copper prices. But I am not sure it would make much difference cancelling the odd drill crew in terms of overall spend.
Chip

[nielsc] 05/8/2015 13:58

chipperfrd,

Did ABN AMRO not default a while back?

hxxps://www.bullionstar.com/blogs/koos-jansen/did-abn-amro-default-on-its-gold-obligations/

I'm sure there will be bigger ones to follow.

Cheers,
Niels

[stevea171] 05/8/2015 13:36

Dek. I don't know the answer as they will be committed to quite a bit of explor expenditure already. They cannot walk away from contracts.

But imo they have to do something on both explor and extend out the time scales for some of the capex expenditure at the mine.

For the current Q1 at the current gold price they are probably loss making.

Look again at the situation in January.

[deka1] 05/8/2015 13:27

Steve if most if not all non essential explo was stopped how low could they get the cost down to .

[stevea171] 05/8/2015 12:04

Dek. Geoff is a geologist so all the exploration is his pigeon and very close to his heart.

Lingig. This exploration Medusa started on years ago and so far is non commercial and imo likely to remain so. ie throwing good money after bad in current circumstances. Cu price has fallen off a cliff and is unlikely to head up again whilst a global recession deepens and extends.
Bananghilig/B2. Suspend till 2016.
Guinhalinan. Suspend till 2016.
Near mine exploration. OK.
Coal. Suspend till 2016.

[deka1] 05/8/2015 11:21

Totally agree Steve , and I think we will see an RNS to reduce costs ,by cutting back on explo on the other tenements B1/B2 the coal thing etc till the POG improves,they simply have to do this,they don't have a choice in the matter imo

[stevea171] 05/8/2015 11:00

12 months ago the share price here was $1.40. 3 months later in November it was 50c.
3 months ago the share price was 100c. Now it is back to 50c again.

Reason: Although MML met FY production guidance of 95-100k oz, GD failed to meet AISC guidance of $900-$1000 at a time when the gold price has been falling and operations are near break even or loss making if the gold price remains in the $1080-$1099 range.

Q1/2015 AISC: $1238
Q2/2015 AISC: $989
Q3/2015 AISC: $1073
Q4/2015 AISC: $1076

FY av AISC: $1094. The weighted average approx $1090.

Production in the latest H2 was approx 50k oz but AISC was an average $1075. This is way above guidance for the year ($900-1000) and moving higher despite production rising in Q4 cf to Q3. Although these higher costs are likely to be only temporary and start to fall next year this company has to REDUCE EXPENDITURE NOW and if necessary complete plans over a longer timescale so that Q1 and Q2 expenditure falls to AISC $1000 or less.

2015/16 guidance is $960-1060 which is already being exceeded.

Production Guidance 2014/15.
"The revised forecast gold production for the fiscal year to 30 June 2015 after taking into account current year to date production of 47,877 is between 95,000 to 100,000 ounces.
Cash costs are expected to be between US$400 to US$450 per ounce and All in Sustaining Costs between US$900 to US$1,000 per ounce."

[atlantic57] 04/8/2015 21:26

Forwood I have lost 90% of my investments.i was looking forward to a comfortable retirement.
The only positive thing I guess is that it was not my money that was lost but rather so called profits in the bull Phase.

I guess with the benefit of hindsight I was to greedy !

[forwood] 04/8/2015 17:55

Atlantic if you've only been decimated (lost 1 in 10 - ie 10%) - you're doing well! Or do you mean 90%, as many of us have done?

If you'll excuse an off topic tip, Poly is currently trading at all-time lows and after major sell-offs can rerate dramatically. What particularly intrigued me given its metrics was why it was being sold off.

On the N&P website I discovered a broker note for Poly allegedly from Deutsche bank quoting a BUY but with a price target of 315p, which at the time was over 30% LOWER than its then share price

I thought it must be a mistake, and looked at another two websites including Directors talk, both of them reporting the same 'target'.

Intrigued, I tracked down the analyst responsible, Anna Mulholland and asked her if that was correct. She said it wasn't, her rec is Hold and her target is £5.10 but she wasn't aware that this erroneous report is being reported all over the internet!

The interesting question is how this mistake came into the public domain. I am not a conspiracy theorist so let's just say it was a mistake. However it is highly probable that it has helped to wipe nearly £1 off the Poly share price

Expect a sudden re-rating from Deutsche soon!

[chipperfrd] 04/8/2015 17:12

CP,

Even the comparison with 1 year ago appears completely irrational.

PoG on 4/8/14 was US$1,295/oz
PoG on 4/8/15 was US$1,092/oz (-16%)

MML share price on 4/8/14 was A$ 155c
MML share price on 4/8/15 was A$ 50c (-68%)

Production FY14 59,904oz
Production FY15 98,359oz (+64%)

Average AIC (all-in costs inc expansion capital)
FY14 US$1,826/oz
FY15 US$1,068/oz (-42%)

Cash Costs
FY14 US$418/oz
FY15 US$386/oz (-8%)

EPS
FY14 A$ 19c
FY15 A$ 32c (+68%) estimated. It was already 12c/share after the first half.

It does look like a capitulation on the ASX to me.

But I notice that the short positions on the ASX have reduced significantly.
On 4/8/14 they were 6.412m
Peaked at 22.855m on 19/12/14
Now at 3.31m on 4/8/15
Chip

[horndean eagle] 04/8/2015 11:36

Been far too slow to react here. Gold is in a death spiral and MML with its high cost of production in trouble. Best you can hope for is they manage to tough it out for a couple of years. Problem with gold demand is there is still plenty of it out there even if production was drastically cut. Only a sharp fall in price would really encourage buyers to come back. Far too many stale bulls otherwise.

[arja] 04/8/2015 11:06

just looked at chart augustus and 1000 is a quite strong support level . a little bounce in gold today but usually it is only that unfortunately.

[augustusgloop] 04/8/2015 09:10

arja,

yes - I am sure that many people (me included) will load up if the POG hits $350

[arja] 04/8/2015 08:56

hi Deka - I have avoi ded mining stocks for some time but occasionally do a little short in stocks like GLEN but RIO was really the one to short and BLT . is it not a good idea for holders of MMl to at least offload a few IF price cab not hold 50p level or at least short it through a CFD as a hedge ? I can understand it is hard to do at this point after it has fallen so far - tricky situation . Good luck anyway and I hope it will turn around ,
Augustloop- it will stop eventually and when we least expect it as markets are like that .