Medusa Share Discussion Threads

[chipperfrd] 01/12/2015 14:41

I see that the COMEX pantomime continues!

As of 27th Nov the Registered holdings (ie available for delivery) had reduced to just 4.19 tonnes gold. This compares to the Futures Open Interest (ie paper gold) of 1,237 tonnes - reaching the absurd extreme of 295:1, but of course there is very little actual delivery, so it's all pretty meaningless!

As an example of the decline, on 1st April 2013, the level of Registered gold was 91.75 tonnes.

Total COMEX vaulted gold (ie Registered + Eligible) reduced to 198.3 tonnes. The last time their total stock was this low was in 2004.

Chip

[stevea171] 01/12/2015 12:23

Tightfist. "One does wonder what is going on in the Boardroom".

As mentioned previously, GD as CEO for the past 14 months was not a member of the Board. Nor is RG as COO. Nor is Peter Alfonso, CFO. In other words the 3 most important people running the company - CEO, COO, CFO - none of them have been Board members since August 2014. This is highly unusual, if not unique to Medusa. Why? A BoD's needs to have representation of the most important of the company's execs to know what is going on and make relevant and sensible policy.

Weinberg out, Roy Daniel back after retiring 1st July 2013. So not much net change except there are now 2 accountants on the Board and one excluded.

Imo A. Teo does not have anything like the experience required to be running Medusa as Chairman. He must be tainted as a Board member and Chairman by PHB's lying about production, missing forecasts for about 12 quarters on the trot and failing to implement mine development to match the capacity of the new mill.

At least Weinberg is doing the honourable thing by resigning as he was there all the time of Medusa's fall from being a top ASX gold miner to the uninvestible non-entity, shunned by most institutions, it has become.

[tightfist] 01/12/2015 11:34

Hi Chip,

It's very quiet here this morning - I anticipated that Robert Weinberg's departure would have stirred the regular posters. One does wonder what is going on in the Boardroom; Geoff and Robert departing and Roy reappearing all in the space of two weeks; and the racing CEO certainty aka RG is sat on the benches!

Regarding operational priorities, I have gone back and found the key statement on operational flexibility going-forward – it’s in the Annual Report on page 15:

“The mine now has the flexibility to adjust cut-off grades as required according to the gold price so it can continue producing profitable ounces. Stope panels that are below cut-off grade, mainly in the upper levels of the mine, will not be extracted at present. This may result in less tonnes, but more profitable ounces as costs are reduced in line with reduced tonnes mined and milled. Should the gold price increase in the future, the cut-off grade will be decreased and the unmined stopes can be readily mined as development drives are already in place”.

That leads one to believe that from Q1 2017 we should see full utilisation of the L8 shaft for stope and development ore haulage (notwithstanding some waste rock from a small amount of infrastructure work?) which should deliver around 29,000 Oz per qtr derived from Levels 6-8.

On top that a limited contribution from Levels 5 and above, maybe 5,000 Oz per qtr, unless PoG rises significantly and the operational cut-off drops. That scenario total fits neatly into the July 2017 guidance of 135-145Oz.


Cheers, tightfist

[tightfist] 01/12/2015 07:20

I see that London-based NED Robert Weinberg has resigned. I was hoping that somehow he would lend support on an LSE re-listing. It's a shame to see him go; I wonder if that will impact on Proactive Investors interest, and share price Angel following, which will be to UK holders detriment.

Chip, I will respond later regarding the haulage stuff; I was referring to an announement some weeks ago. The stopes inventory contains about 16,000 Oz recoverable.

Cheers, tightfist

[arja] 28/11/2015 09:38

twigg confirms what seems likely to happen and the sooner it gets there the better as a meaningful recovery might then begin !

Gold broke short-term support at $1065/ounce, confirming another (primary) decline. 13-Week Twiggs Momentum peaks below zero indicate a strong primary down-trend. Target for the decline is $1000/ounce*.

[arja] 27/11/2015 19:16

chart shows that gold has good support at $1000 and should reach that level quite soon .

[chipperfrd] 27/11/2015 14:04

tightfist

Given the high level of waste which has resulted from the multiple improvements being carried in the mine it would appear reasonable to only haul their better-graded ore with their remaining capacity. Once the level of waste haulage reduces they can then choose when to clear lower-grade ore from the upper stopes.

Don't forget that they are having to leave ore in completed stopes as they work lower (I think it is now an inventory of some 60,000t+). So they have plenty of ore below ground waiting to be hauled.
Chip

[adyfc] 27/11/2015 13:53

The way gold keeps falling this high cost producer will be out of business in no time.
No wonder Geoff's dunna a runner again.

[tightfist] 27/11/2015 13:28

Hi Chip,

Thanks for your summary of prospects at Co-O. In today’s uncertain PoG environment, the estimation of 2017FY AISC reduction is very helpful, although I anticipate we will see a significant rise ($80/Oz?) in 2018FY when the L16 shaft works get underway.

It’s notable that the 2017 FY guidance (previously advised as 135-145kOz on 17th June) was NOT reiterated in the AGM presentation – one wonders why?

Earlier this year a significant point was made that they would NOT be using all of the 1,000 tpd capacity from the higher levels, so the 204k capacity is not planned to be utilised unless PoG rises. (Frankly I didn’t understand their logic – whilst the grade from the higher levels is considerably lower, the marginal cash cost of production is surely well above the PoG?).


Patience is the continuing name of the game with MML! Cheers, tightfist

[chipperfrd] 26/11/2015 20:22

There is certainly a lot of debt out there in the sector and, in my own costings of producers, I try and put a figure/oz for debt servicing and also try and be realistic regarding principle repayment scheduling. Some of them are very seriously challenged already in that respect.

My top 10 debtors for FY14 were according to my calc of Debt/Equity:
AVN~1068%, SBM~366%, POG~277%, POLY~245%, AU.~218%, ABX~205%, AUN~169%, CDE~164%, NORD~133%, NEM~115%
(I was a bit busy this Summer/Autumn so I have not worked through all the FRs/MDAs for the 75-odd producers as of 30th June - hence my use of FY14 figures!)

These are mainly the really big names in the sector. But, in my view, the risk is often not reflected in market multiples because of (often) their large institutional backing and deep liquidity. It is really a case of trying to sort out who can actually service and repay their debt and which ones are actually on life support!

It has been a difficult few years for financing, particularly at the smaller end of the sector, so in addition to debt, there has also been lots of placings and consequent shareholder dilution - so yet another thing to keep an eye on as it does tend to be 'death by a thousand cuts'.

All in all not a pretty picture and, in my view, definitely one that requires close analysis of all the detail.

But out of such terrible sentiment and market woes there can often be fantastic opportunities (like 2008). So I keep plugging on and rely on stock-picking and efficient use of capital to keep working down holding costs whenever possible. eg. I did manage to get holding costs for HGM down to 0 within around 6 months (although I was extremely lucky with timing). Holding costs on that stock have subsequently risen to 5.6p due to my buy-backs on recent weakness. My holding in CEY has also benefited in similar fashion thanks to plenty of share price volatility, although it has calmed somewhat in 2H15.

I wish it were the same with all my other stocks but some (like MML) have struggled to get back off the bottom and having to mess about with Forex costs for dealing on the ASX via TD have rather dampened my enthusiasm for using the same 'Zig-Zag' trading technique that I can so easily (and quickly) employ here in London through my usual broker. So MML is principally a 'buy the dips and hold' stock rather than an active trade.

I stopped using margin back in 2006/07 so I have no worries in that respect and can therefore wait and accrue for as long as it takes. If I get it wrong on any stock I will only have myself to blame.

Good luck to you Atlantic. I hope you find some good fortune in the market.
Chip

[atlantic57] 26/11/2015 18:38

Thank you chip.
With the benefit of hindsight I wish I had not lost 95% of my capital.
I remember reading many of your excellent posts 2006 onwards .
At some point gold will turn ,debt free producers who have not hedged production
Will be the big winners.
With your detailed knowledge of the sector you will be ready to pounce.

[plasybryn] 26/11/2015 16:53

Did anyone find out what is wrong with Geoff Davis?
Retire due to ill health.
Re: investing in Medusa: for me it is one to watch. The jury is still out, especially now Geoff has gone. Personally I don't see the likelihood of buying again now until well in 2016.
At some point it could be a compelling buy, as it was last time I bought in around 40p.

[chipperfrd] 26/11/2015 15:10

Atlantic,

Just to add a bit more meat to my reply to you yesterday.

What I look for in this gold price environment are producers who (amongst other things) have all-in sustaining costs providing a reasonable margin of safety relative to their forward earnings. Obviously, low/zero debt, mine life, et al, also figure strongly, but let us just focus on MML AISC.

It has been easy to calculate since they ceased the additional capex for their expansion and I have used the following simple steps to calculate it since the Sep 2014 quarter.

In basic form AISC is Cash Costs + G&A + Sustaining Capital.

So for the Sep 15 quarter with cash costs at $439/oz TCC was therefore $13.826m.

MML reported total outflows of $16.2m made up of Exploration,Capital Works, Development & Corporate G&A. So adding all these outflows to TCC provides an AISC of $13.8m + $16.2m of c. $30m.

Dividing this by 31,495 oz of production gives $953/oz, which is exactly the number reported by MML.

Looking forward, most of the investment outflows (Exploration, Development & G&A) are likely to remain relatively constant. However, I do assume that Capital Works are currently higher than the likely long-run average due to the spend on the Service shaft, additional ventilation in the mine, additional tramming loop railcars and engines, etc.

So the other important variables are related to production, because clearly, an increase in the denominator of the AISC/oz equation leads to a decrease in future All-In costs per oz.

As mentioned in my earlier post, both throughput of ore and head grade are improved by the current activities in the mine. Grade: due to the reduced dilution by setting new piece work contractual terms and Throughput: as waste tonnage haulage decreases and the service shaft frees up the L8 shaft for uninterrupted ore haulage.

Reserve diluted grade is 7.2 g/t and maximum haulage capacity is rated at 204kt/qtr once the service shaft is in operation.

Best case scenario for c. Sep 16 quarter would therefore be 204kt @ 7.2g/t and recovery of 94/95%, so c. 44koz of production.

At Cash Costs of $439/oz the total cash costs would therefore be c. $19.5m

Extrapolating outflows for Exploration, Development & G&A at Sep 15 levels but with Capital Works decreasing to $2.1m would make Total Outflows of c. $13m.

Hence AISCs would be c. $33m and AISC/oz would be $732.

However, to be more conservative, we should allow for a less than max throughput and for head grade at some margin below the reserve grade. So perhaps an AISC of $800-850/oz would appear more reasonable.

Over the intervening quarters there should be some steps along the way towards this outcome although MML have already stated that the L8 shaft will be off-line in an extension to the Xmas break in order to increase it's capacity - so we should expect a c. 20% reduction in ore throughput for the March quarter.
Chip

[tightfist] 26/11/2015 14:48

Hello Goldminer,

Many thanks for your report on your visit to see Andrew Teo, and check his pulse. The happenings of the past two years take a lot of believing and looking the Chairman in the eyes is helpful. However, how do we reconcile the ongoing CEO selection process amongst the unemployed Western Aus. mining engineers with the latest sad news that Geoff is poorly? Unless they are looking for a COO appointee to fill RG's shoes if/when he is elevated?

It's great news that Roy Daniel has reappeared as an NED. I met Roy several times alongside Geoff at London exhibitions and he was really helpful - hopefully he has some empathy with the London market.....

You will recall that I had a lengthy chat with RG at the Mayfair presentation in early October, reported in #35056. I gained the strong impression that RG would be personally very positive about an AIM listing (he’s “a fan of AIM”), but that it wouldn’t happen with the current Board. To gain traction that suggests we require a Board shake-up (now starting, some way to go) and ideally RG appointed as CEO, AND with his feet under the desk to start influencing developments.

Based on this I was going to advocate deferral of a UK Shareholder push for re-listing until the Board has stabalised in the right direction, the Service Shaft commissioned and production and the cash-pile continuing to grow. I see that Chip and Justin have now also commented on timing of the proposed presentation seeking re-listing on the LSE.

The over-arching question will remain "What’s in it, and for Who?”.
Robert Weinberg was positive in stating that MML do not intend raising any fresh money.
With lamentably low shareholdings (I guess most posters on this BB have more MML shares than any Director!) the Director’s do not seem to have an awful lot of immediate “skin in the game” for elevating the sp
There doesn’t seem to be a need to dissuade potential low-ball bidders?
Just sitting on ones hands and collecting low exercise-price option awards is attractive?
(All other ideas welcome)

When the moment comes for a push, we need a compelling rationale for re-listing, possibly with an interested party?

Cheers, tightfist

[justinjjbuk] 26/11/2015 08:57

I agree with Chip on this one.

Short term, the only thing the market will respond to is a build-up of cash on the balance sheet. The last thing the company needs is to be finding a new opportunity to spend cash (i.e. on a new listing in London).

Separately, and through my experience as a former fund manager, MML is currently uninvestable for institutional investors because MML's market cap and daily trading volume are too low. At the current share price, it is impossible for an institutional investor to build a meaningful position that would have an impact on a fund's performance; in short, MML is now so small that it will have fallen off the institutional investor radar. So a listing in London will have no impact on institutional investor interest in MML whatsoever.

All the heavy lifting to get MML back up to a reasonable market cap will have to come from individual investors, and the way to get their interest is to show rising cash on the balance sheet and, ultimately, that the firm is in a healthy enough position to reinstate the dividend. I don't think there are any short cuts here.

[atlantic57] 25/11/2015 20:01

Goldminer borrowings are modest!
Therefore a small increase in the gold price will have a big impact.

if the board want to hedge production i assume they must tell shareholders in advance.

[chipperfrd] 25/11/2015 17:03

GM,
I have not yet responded to your request for assistance, largely because I believe the company need to get through (a) the current excess waste issue, (b) the planned improvement to L8, (c) the completion of the service shaft.

This will take around 9-12 months for (c), the others providing more benefit in the shorter term.

Cash is undeniably tight so they must accomplish all of the above and maintain positive cash flow throughout whilst gold itself is being relentlessly capped and pummeled lower. Their priority has to be the company and not the share price as that should come good in the fullness of time as a simple earnings multiple.

Hence, I do not believe this is the right time to be pressing for a re-listing. Better, IMHO, to wait for their cash holdings to rise when they might then consider that they are better placed to spend on less essential areas.

I will, of course, help out if you wish me to. But I would rather be part of this initiative in 12 months time.
Regards
Chip

[goldminer70] 25/11/2015 16:46

Before chip posted his masterpiece Atlantic posted

Can I pose a rhetoric question.
If you were investing in a gold miner today which companies would be top of your list.
Reading the posts on here there seem to be some arguing that medusa have turned the corner.
On the other hand there do also seem to be some doubters of the companies credibility.

My answer is that I firmly believe that over the next twelve months MML will be a multibagger, simply because of its current ridiculously low share price I don't know of many other shares in this position. It is currently capitalised at about £40m and when the present problems are sorted it will be exceeding that each year in profit.

When MML first delisted from the LSE I was fairly neutral thinking it was just a slight irritant, but after a lot of thought I now believe it will improve the share price if MML is relisted.

Hopefully the presence of Roy Daniel on the board will help. Presumably he was in favour a few years ago. If you want to see presentation so far go to "[e-mail]" and use the password mml1mml2. Any suggestions on how to improve are welcome

[chipperfrd] 25/11/2015 16:36

Further to my post on US physical gold flows:

The US Treasury reported 8,584 tonnes of monetary gold in 1972.

This was reported to have dropped to 8,140 tonnes by 1993 with relatively minor perturbations along the way. Since then there have been no further reported changes because the US officially ceased reporting it's monetary gold (and also levels of foreign gold held in the FED) from that 1992/93 period.

I obviously find an inconsistency between the negative balance of physical flows (ie -5,920 tonnes) and the static level allegedly held by the Treasury.

In addition one has to consider the following reported stock levels in 2014:

COMEX = 243t, ETFs = 1,810t, Industrial = 4.94t, ie total of 2,053t.

(for info: the latest COMEX vault total was 200.2t (18/11/2015)

Clearly, if one adds my estimation of negative stock flows to the reported stock levels we end up pretty close to 8,000 tonnes. So where has all this come from in order for the Treasury to still have it's 8,140t?

I accept that it is possible for me to have made some mistakes but 8,000t is a lot, around 3 years worth of recent total global production!

If one fully believe the USGS figures then the shortfall would have to be monetary gold (ie from Central Banks, IMF or BIS vaults) as the USGS makes clear that their import/export numbers do not include monetary gold transfers. Although it should also be noted that foreign gold, held by the FED, if sold is considered an import (and presumably vice versa although I only came upon one year when that happened!).

I would dearly like to know the answer - but that would appear vanishingly unlikely!
Chip

[chipperfrd] 25/11/2015 15:34

It actually took a couple of weeks!

I have also calculated all the gold and silver coin sales in the USA since 1986 - which is not inconsiderable, in spite of capped supply in many of those years.

One interesting example was 1999 when 63.9 tonnes of Gold Eagles were sold by the US Mint - clearly in response to the low price prevailing.

However, in 2000 the Mint sales dropped to 5.1 tonnes under very tight restrictions which then continued for many years.

Silver coin sales have increased dramatically over the last decade from 261.4 tonnes in 2005 to 1,361.2 tonnes (so far) in 2015.

The US has to import silver in order to meet demands on the Mint as it's own production is insufficient. I had thought to go through the entire process of calculating US silver metal flows since the 1970's but I really don't think it would be worth the considerable effort.
Chip

[deka1] 25/11/2015 15:21

Chip that is some piece of work, it must have taken many many hours of reading and calcs, thank you for sharing it.

[atlantic57] 25/11/2015 12:42

Thanks chip my post was unclear the information is helpful.

[chipperfrd] 25/11/2015 11:54

... I will do it anyway!

YoY Comparisons
Quarter .......... Sep-14 .. Sep-15 . +/- (%)
Ore Milled (t) .. 140,234 . 151,463 ..... 8%
Grade (g/t) ......... 5.0 ..... 6.8 .... 35%
Recovery ............ 92% ..... 94% ..... 2%
Au Produced (oz) . 21,018 .. 31,495 .... 50%
AISC ($/oz) ....... 1,238 ..... 953 ... -23%
OPCF ($m) .......... 20.6 .... 21.5 ..... 4%
Inv Outflows ($m) .. 18.0 .... 16.2 ... -10%
FCF ($m) ............ 2.6 ..... 5.3 ... 105%
Cash ($m) .......... 15.5 .... 11.6 ... -25%

PoG ($/oz) ........ 1,272 ... 1,121 ... -12%

They are still working through improvements to the mine which have increased the waste/ore haulage ratio. When this is complete the logical conclusion is that more capacity will be available for ore and the current ore inventory held within completed stopes will be hauled to the mill. Conclusion: higher throughput to come, ie more production!

They are halfway through sinking the new service shaft which will relieve the necessity to switch from ore-handling to personnel-handling on the L8 shaft every shift change. Conclusion: higher throughput - more production!

All new stopes are contracted under improved piece-work payment terms. Conclusion: less ore dilution and therefore higher head grade at the mill!

From my point of view they are therefore well on their way to higher throughput and higher head grade with consequently lower AISC. Their debt is minimal and they should be well within the lower quartile of costs for global gold producers.

There are a number of other points that I could mention - but, in a nutshell, I see them as very good value at their current share price.
Chip