Medusa Share Discussion Threads

[stevea171] 11/12/2015 18:30

Tightfist. Yes, I agree nothing to do with increasing the L8 shaft size has ever been mentioned officially. Your explanation to do with opening out the Service shaft and needing the L8 shaft dedicated to hauling waste for 3.5 weeks over Xmas rather than ore/spoil/waste would be more in keeping with the plans we know about.

With the collapse in the gold price below $1100 since early November combined with Q2 falling production and rising AISC the market has been pricing in an expected Q2 outcome that will disappoint imv.

Further, the market is preparing to make any new cash raising mighty expensive for Medusa. The market is not convinced of the company's assurances (no further cash raising) particularly as cash is falling and just one further quarter's fall in cash will likely push it below $10 million and raise this issue anew.

[tightfist] 11/12/2015 17:24

Hi steve,

Thanks for your timely reminder of the "slightly lower" Q2 production expectation. I am surprised if they are increasing the size of L8 or the ore skips over Xmas; previously we have been given lots of prior notice, progress reporting/photos etc on work of that scale - and it is not shown in the hauling capacity plan?

I wonder if there is communication confusion, and if the scheduled work is actually to open-out the size of the Service Shaft and has been pulled-forward, and the production loss arises from hauling the resulting waste rock up L8?

I see that the Peso has dropped 5% against the USD in the past 6 months, which is helpful with respect to AISC. However, a headline report of increasing Q2 AISC is not going to help our cause in the short term.


Cheers, tightfist

[stevea171] 11/12/2015 14:37

Chip. Yes, lots of variables and unknowns except for the fact this work underground is not routine mining but affected by new shaft, ventilation etc work which requires compromising production rates that will be attainable later.

Goldminer seemed to be suggesting they intend in 3.5 weeks at Xmas to increase the size of the L8 shaft and thereafter use a larger size skip for ore haulage. I would of thought this will be a further non-minor disruption to production affecting Q2 if he is right.

[chipperfrd] 11/12/2015 14:08

Maybe Steve, there are always lots of variables to consider.

The Peso is weakening to the US$ and fuel costs will have fallen YoY - if they have needed to run their backup generators. These are positives in cost terms.

According to the feedback from Goldminer, the work on L8 was to improve it's capacity rather than repairs. But one does wonder who does their reports because they do tend to be very understated these days - still, that is an improvement on PHB!!

Overall, there has been an undeniable improvement since 1Q15 and that appears to be largely down to Rob Gregory. Hopefully, he will get the MD/CEO job, although that will mean that someone equally capable will need to step into his current shoes with regard to operations.

All the work is being put in place to finally get to the c. 2,500tpd haulage rate by next September quarter and to also get the head grade up to the reserve figure. If production were to slip a bit this quarter through work on the L8 it would at least be a necessary step on the way to maximising output from Co-O. So worth the additional wait after such an interminable upgrade to the mine and mill.

Chip

[stevea171] 11/12/2015 11:16

Chip, Tightfist.
Q2 production. I think your forecasts are too optimistic. The company has warned that production for the current quarter will be down on last quarter, but we don't know by how much. "slightly" could mean anything!

The share price reflects the fact that company progress here never breaks out of the pattern of 2 steps fwd one step back! With new issues and negative surprises cropping up every time they report. In the past year there has never been any report that can be said to be unqualified by release of new issues to shareholders and set backs.

My best estimate for Q2 production would therefore be 29-30k oz following on from 31.5k oz last time. So cash generation should fall on last quarter and AISC will rise, likely back to $1000 oz. The share price is reflecting both the gold price and this drip feed disclosure pattern.

AGM statement. "Whilst production in the September 2015 quarter was at a record high, let me temper shareholders’ expectations by advising that gold production in the December 2015 quarter will be slightly lower than the previous quarter due to the repairs on the L8 shaft and also scheduled maintenance over the Christmas holiday break."

Q1 Production: "31,495 ounces at a head grade 6.8 g/t gold, cash costs of US$439 per ounce, AISC US$953 per ounce (June 2015 quarter of 26,542 ounces at a head grade of 6.01 g/t gold, cash costs of US$390 per ounce, and AISC US$1,076 per ounce)"

[deka1] 10/12/2015 21:45

Yes You got that right you worm.

[abc125] 10/12/2015 21:23

Gosh now the mighty US dollar is manipulated where trillions are traded every day. It is exactly this type of nonsense that has kept gold bugs wedded to their losing positions.

Deka, I know you will respond with a foul mouthed diatribe, but sorry, I won't be reading it. I will spare you by not posting again.

[deka1] 10/12/2015 18:45

RIGHT ON TF,

[tightfist] 10/12/2015 17:52

Hi dek, Chip;

I thought the SAG mill tale of incompetence would appeal to MML long-termers.

Of course, all may not be lost. The slow recovery from the operational debacle, combined with weak PoG (and loss of CEO, London listing etc etc) may have created a once-in-a-lifetime investing opportunity?! Wait two years and we'll see who is buying the beers/bubbly.....

Cheers, tightfist (the eternal optimist)

[chipperfrd] 10/12/2015 14:10

Hi again Tightfist,

I had not heard that about the SAG mill controllers - how incompetent was that! And look at the resulting cost in terms of the 6-month delay, and required placing! No wonder they needed a shakeout of mine management back in 2013/14.

I will wait for the Interim's before estimating my own full-year EPS, but the Yahoo estimate places PER at 1x at the current share price - so plenty of upside in prospect given a 'sensible' market!
Chip

[chipperfrd] 10/12/2015 12:10

Hi Tightfist,

I agree about ore tonnage and grade and made similar comments to your's in my earlier post - but decided to stick with a conservative estimate.

Your point about the US$16.282m payable is a good one (but note that it is not in A$ as shown in your post!).

It may well explain the 1Q financials which, according to my tracker, resulted in FCF of c. US$5.3m although cash held fell from US$14.6m to US$11.6m. Those numbers would appear to indicate that some US$8.3m may well have been applied to reduce that outstanding payable.

If so, then c. US$8m remains to be cleared this quarter. If 2Q does result in c. US$5m of FCF then we may well see cash falling to c. US$8.6m as that payable gets closed out - as predicted in the FY15 notes to the accounts. Although there were also receivables of US$5.42m due over 1H as well, which (all being well) should have improved the overall net cash position back up to c. $14m before any debt repayments.

Which would just leave the outstanding debt (c. US$6m) to be cleared out over Q3 and a nice clear financial deck by Financial year end as the increased haulage capacity and higher head grade boost production and lower the AISC.

So, a bit more patience required to see it through to completion but eventually the figures should speak for themselves.

Worth noting that at the headline level, the 1H Profit & Loss will benefit from significantly reduced D&A after the FY15 impairment - so EPS should provide a stark reminder of the trivial PER that MML labours under!
Chip

[tightfist] 10/12/2015 10:55

Hi Chip,

Thanks for your latest thoughts on Q2 and FCF. I was hoping for a small rise in production in Q2, in that the waste rock from the Service Shaft and Ventilation projects will have diminished enabling more hauling of ore up the L8 shaft, and a gently rising grade as the new contracts become fully effective (reflected in the stope inventories chart). I was expecting the Xmas break to mainly impact in Q3 production, because of the process time lapse from mine shaft hauling through to the end of the surface-level processing circuit.

Talking with RG there was a clear drive to clear-the-decks financially, especially referring to the Q1 settlement of disputed payables arising from the SAG mill project. The Payables stood at A$16.3m at 2015 YE, with no explanatory notes in the accounts.

That deck-clearing mentality may well encompass the debt/borrowings – why pay 3.75/4%pa if they can be repaid now without penalty?

RG was clear about the US$5m per qtr cash accumulation aspiration, but on reflection maybe I need to be a little more patient! At today’s share price US$4.8m would represent an astonishing fully-diluted cash-yield of 35%pa. As a baseline we need to see AISC tracking down during 2016 calendar year at least as fast as PoG descends…̷0; Hopefully we will see flat-lining of PoG (it’s in Santa’s sack for Justin….) and today’s share price will in hindsight look even more bizarre, IMHO.


Cheers, tightfist

[deka1] 09/12/2015 21:44

Thanks Steve very interesting situation .

[stevea171] 09/12/2015 21:28

I know we have seen this set up many times before ... but is this time different?
(Crimex December gold contract first notice day (FND) was 30/11.)

COMEX truly has a problem this month…

Let’s take a look at what just happened yesterday in COMEX gold since we are talking “crunch time”. The December contract added 881 net contracts standing for delivery. This is another 88,100 ounces of gold that someone just stepped up for and is asking delivery.

Some ground work first …we have watched for over two years as COMEX gold contracts outstanding would dwarf deliverable inventory coming into first notice day and decline in a huge way just prior. Then, many of those standing for delivery would just “evaporate”. I have said many times that this did not make any sense. Why would anyone FULLY FUND their account by FND to pay cash for their contracted gold …only to vanish? It is obvious in my opinion these contracts were cash settled at a premium or bribe to entice these buyers not to take physical delivery because of strained inventory.

I can only remember one month in the past where contracts “standing” actually increased after the first notice day. As I recall there were two days in a row where the open interest increased (after the OI had already declined as it has this month). First, anyone who opens a contract after FND truly wants the gold. Better said, they probably “need” the gold for whatever reason. These buyers will not be bribed into FRN settlement, only “weight” will do.

COMEX truly has a problem this month. As it stands, there are roughly 11.5 tons standing for delivery while COMEX holds just over 4 tons for delivery. In ounces we are looking at 370,000 versus 130,000. Yesterday’s increase was 88,100 ounces or roughly 2/3rds of deliverable inventory. For well over two months, COMEX has had almost ZERO gold enter the “registered” category. In fact, even the eligible (customer) inventory has been bleeding down and hemorrhaged yesterday with over four tons being withdrawn. The obvious question is “where will the gold come from for delivery”? Yes I know, “don’t worry because they always deliver” …

The additional 88,100 ounces yesterday should really OPEN SOME EYES for several reasons! First, someone obviously NEEDS nearly three tons of gold. Secondly and most importantly, this should display just how tenuous the inventory really is. In just one day, someone stepped up and is demanding TWO THIRD’s of deliverable gold. As I have said all along, with any type of black swan event (not one that is “created” and of the false flag variety) has the ability to clean out what COMEX can supply! What then?

[deka1] 08/12/2015 13:39

Cheers chip

[chipperfrd] 08/12/2015 12:58

Following the above posts by Justin & Tightfist, here is my rough estimate for the December quarter assuming no significant changes to the underlying fundamentals of the mine and processing.

The average PoG for this quarter so far has been US$1,115/oz. Give or take a few US$/oz it is likely to be in that ballpark with only 3 weeks of the quarter to go.

If ore milled and head grade are similar to the September quarter then c. 151kt of ore at c. 6.8g/t will have been processed resulting in production of c. 31koz of gold. Given the Xmas break, I doubt that ore throughput is likely to rise over the quarter (it may even drop somewhat) but it could well be enhanced by the need to haul less waste - hence I am plumping for a similar level to last quarter. It must also be possible for the head grade to show improvement given the steady commencement of new stopes being worked at the new contractual terms.

If all of the production is sold then revenues will be c. US$34.7m.

Assuming cash costs at similar level to September (ie US$439/oz) the operational costs will be c. US$13.7m. So gross margin of 61% and cash generated from operations of c. US$21m.

Maintaining cash outflows as follows: Exploration ~ US$2m, Capital Works ~ US$5.3m, Development ~ US$7.4m, G&A ~ 1.5m, would infer total outflows of US$16.2m. Implying an estimated free cash flow of US$4.8m.

If the above is close to actuals then AISC would have been US$959/oz for the quarter.

We need the interim financials to clarify the current debt (perhaps US$6m) so it is not clear how much of FCF might be used to reduce that a bit.

Given the above I would estimate cash should rise, but the limit would appear to be c. US$4.8m less an undefined proportion to be used to clear/reduce debt.

Just my opinion of course.
Chip

edit: I have corrected this post for an average PoG of US$1,115 rather than the $1,120 I had used in error.

[tightfist] 08/12/2015 11:15

hi Justin,

Many thanks for your level-headed view of Medusa. I can see that you were a very reasonable child, your Santa Xmas list seems quite modest. I wasn't a greedy child either, but I am writing and asking for (a) Cash rising by $5m per quarter (I believe that figure was cited by RG in London) (b) RG to jump out of the sack and be revealed as the new CEO.

I am not confident that Santa (or his Elves) can halt the inexorable (c) slide of PoG, but the further reductions in AISC in mid 2017 should give significant underpinning to cash accumulation, even if Gold investing sentiment may remain dire.

Cheers, tightfist

[deka1] 07/12/2015 06:43

UP4% on 600k trades.38c close

[justinjjbuk] 07/12/2015 01:42

I think this is just a waiting game until the new service shaft comes into operation and the AISC then comes down. Since Rob Gregory started sorting the mining mess out, every improvement he has made to bring the AISC under control has been wiped out by the decline in POG. Very frustrating!

As for the Fed rate hike, I think this is all in the price now. Indeed, I think the jump in gold was caused by shorts squaring out positions after the nonfarm payroll number confirmed we will get the Fed rate hike this month. The shorts had become a crowded trade after the gangbuster payroll number in November so getting a bit of a short squeeze was not unexpected. Question is whether gold can form a floor here and retake $1,100. Little worried that if the market has nailed one rate hike it will start speculating over the next.

I second the fact that the succession planning has been poorly handled. We should have had a single press release with Geoff's resignation and the successor announced at the same time. There may be some legal stuff around this though that we are not aware of. I hope this clears up soon.

As for catalysts, I hope that the increase in cash on the balance sheet that Rob Gregory suggested in the last London meeting hasn't been overtaken by the recent announcements that there will be some shaft stoppages and the soft gold price. For my Christmas, all I want is a) a rise in cash on the balance sheet at the interim (even by $1 million would do), b) the CEO sorted out and c) gold to just stop going down. Then we would be well-placed for a very profitable fiscal 2016/17.

[edjge2] 06/12/2015 18:44

Some are sayings shorters bounce but I suppose RNS to confirm is not

[atlantic57] 06/12/2015 18:33

Plasbryn as a matter of interest what metrics do you now use when assessing which gold miners to back.

Cey is fantastic story of promises being delivered i was in at 8p in around 2004
but no longer.

i have heard good things about Shg but nothing about hgm.

This medusa board is very helpful but opinions are very divided.

Good luck to you to.
Last weeks price action just may indicate a possible turn in the market, time will tell.

[plasybryn] 06/12/2015 18:12

Yes Atlantic. I remember you and Niels etc. from the days when Medusa was a 10 Bagger under the great leadership of Geoff & Roy.
These days the only gold stocks I hold are CEY ( solid performer & good mgmt plus small dividend) HGM (great dividend) & AAU ( good prospects - production H2 - 2016- apart from worry now over Turkey).
I would love to get back into Medusa, but too many questions for me.
All the best when the turn comes - hopefully not long now.