Medusa Share Discussion Threads

[4marlin] 08/2/2016 13:47

Chip,

This is a company I am starting to take a serious interest in.
Do you concur with G70 wrt lack of mining expertise?
Worrying if so, imo.

[speedsgh] 08/2/2016 13:37

Yes, well done G70. Let's hope you get a response but the cynic in me says that this latest email will disappear into the ether unreplied like your previous ones. Would naturally highly appreciate if you could share any response that you might get. All the best.

[chipperfrd] 08/2/2016 13:23

G70,

That is a pretty impressive email!

Hope that this time they have the good manners to provide a prompt reply. You certainly deserve it. Thank you for taking the trouble to follow up with MML.
Chip

[goldminer70] 08/2/2016 13:18

I have just sent this EMail to Andrew Teo
Dear Andrew,

Further to my EMail's of the 5th, 21st and 29th January I am surprised I have not even had an acknowledgement.
I did get an EMail from Rina saying that you would reply on your return from the Philippinnes on the 27th January, but I am still waiting.
I do not expect a fullsome reply just an acknowledgement. I certainly do not expect anything confidential which should be covered in an RNS.
I do not even mind if you ask someone less senior to reply, as long the points I raise are addressed.

But we are concerned about the lack of information and the happenings at Medusa Mining. In your Chairman's Address at the AGM we told there would be an extended shutdown "due to the repairs on the L8 shaft" we thought we were going to receive more accurate information than previously, but it turns out this shutdown was "for a mill reline".
We are now getting even less information on progress at Medusa Mining than we have ever had.

You announced at the AGM on 12th November 2015 that Geoff Davis was resigning as the CEO. There was no real explanation, there are rumours that it was because of ill health and other rumours that it was because of a big row. It was stated that he was persuaded to come out of retirement and now is going back into retirement. If that was the case why was his successor not planned. Below is an extract of another company I have an interest in ~ Quadrise Fuels. This is the announcement of the Chairman retiring and the appointment of his successor. This is how it should be done.

Quadrise Fuels International plc
("Quadrise", "QFI'' or the "Company")

Directorate Change: Retirement of Chairman and Appointment of Successor

Quadrise announces that its Executive Chairman Ian Williams will be retiring from the Company on 31 March 2016 after 10 years of service. Mr Williams will also resign from the board of directors of the Company (the "Board") and will be relocating during April 2016 to join his family in Australia.

Mr Mike Kirk, who joined the Quadrise board as a non-executive director on 1 December 2015, has been appointed by the Board to succeed Ian Williams in the position of Executive Chairman with effect from 1 April 2016.

The appointment of Mr Kirk to the Board was the result of a wide ranging executive search which took into account the particular nature of the Company. The Board is delighted to have the benefit of Mike Kirk's qualifications, experience and proven capabilities as the Company's new Executive Chairman as Quadrise progresses towards commercial operations. The Company intends to enter a consultancy contract with Mr Williams to provide ongoing strategic advice to the Company for a period of 3 months from 1 April 2016 to aid the transition.

If Geoff had to leave suddenly because of a row or ill health the above scenario would not be possible. But I came to see you in mid November and you said a new CEO would be appointed "within a month" It is nearly THREE MONTHS since that meeting.

Dr Weinberg was re-elected as a non-executive director at the AGM on 12th November 2015 and yet he resigned on the 1st December 2015. Will this go into the Guinness Book of records as the shortest term of office for a director. Again there are rumours of a row.

In the Quarterly Report June to September 2015 it stated that Rob Gregory was the COO. There is no mention of him in the Quarterly Report October to December has he left? If he has why have the shareholders not been told?

It appears that currently Medusa Mining does not have a CEO or a COO. Nor does it have any expertise in mining now that Dr Weinberg, Geoff Davis an Rob Gregory have left. Who is running the shop? It seems to be you (accountant), Peter Alphonso (company secretary) Raul Villanueva (economics and law) Ciceron Angeles (non exec geologist) Roy Daniels (non-exec accountant) are those in charge.

At least the share price is moving in the right direction.

Goldminer70

[chipperfrd] 08/2/2016 01:31

Cyb,

Just to be clear, the inference from my earlier post was that MML is significantly under-valued NOW based on, amongst other indicators, a trailing EPS of A$29c over a period when gold averaged US$1,150/oz and the company was improving head grade, plant recovery and putting into place a number of measures to build ore throughput from the mine.

So, in my opinion, the stock could rise 5-10x from current just to reach a conservative level of fair value based on their current fundamentals, let alone the forward growth that will be the outcome when all the improvement measures are completed.

Rising productivity also means declining AISC when sustaining costs remain static, although a small drop in Capital Works can be expected as all mine improvement activities cease. Also, there is a saving in local costs due to the declining Peso against the US$ (labour being the main one).

Even if PoG were to hit new lows (which I doubt) MML should have an increasing margin of safety with every quarter that passes.

But that can not so easily be said for the average gold producer. Based on the 51 gold stocks whose figures I worked through for CY14, the average All-In Costs were US$1,181/oz. I fully expect that when all the financial results are in for CY15, Free Cash Flows and Net Profit Margins will be seriously impacted downwards Y-o-Y.

As long as gold stays subdued, it is extremely important to only put cash into those gold stocks that are in the lower decile of global AISC and I believe that MML fits that requirement.
Chip

[tightfist] 07/2/2016 20:59

Hi Cyberhub,

Justin and Chip have given a great summary of where MML is fundamentally. Incidentally, I am expecting the Capex spend RATE on the Service Shaft to reduce whilst the completion time and extent of the works increases.

At October's London meeting the then COO was confident of reaching an AISC of $800 which lends credence to Chip's $750 figure. He was also confident that they could "very soon" be putting US$5m FCF on the balance sheet every quarter. At that time PoG was $1,150; obvious a fall in PoG would erode that figure but it would not jeopardise business viability. IMHO MML is not as highly leveraged to PoG as other higher cost producers.

There is currently a question mark over management continuity, and I would suggest that issue is mainly responsible for the 3-month lurch below 46c, aided and abetted by weakness in PoG. I have certainly taken that as an opportunity.

Cheers, tightfist

[cyberbub] 07/2/2016 20:03

Yes that is the only thing that matters, the POG. If it stays at 1173 or moves higher then MML is very undervalued. But if it drops consistently below 1050 say, then the company is struggling. It's highly leveraged in the current POG zone, so is a bit of a gamble. But it seems like a solid company in terms of management and technical skills. So POG is all!

[justinjjbuk] 07/2/2016 16:01

Cyber

I second Chip's analysis.

You can also come at this in a slightly different way: what I would call naive AISC cash flow analysis. Their all-in sustaining cost (AISC) is, in their words, going to run at around $950 for 'the medium term'. They define 'medium term' to be until the service shaft if finished, which is now slated for the end of FY16.

So, as a starting point, let's take the average gold price they secured in Q2: $1,096. So their AISC average gold price spread is $1,096 - $950 = $146. Let's say a round number of $150 per ounce. They produced roughly 30k ounces of gold in Q2. So they should have roughly produced what I shall call an AISC cash flow of 30k times $150, or roughly $4.5 million. As a reality check, their cash build on the balance sheet was $4.4 million, so we are kind of in the same ballpark.

However, an AISC cash flow will be different from real cash flow due to 1) extraordinary costs (which MML has been prone to producing at regular intervals), 2) non-AISC costs (costs on developing new areas for future growth) and 3) tax.

Up until Q2, there has been a continued large gap between theoretical AISC cash flow and real cash flow, which is why, up to Q2, cash was not rising on the balance sheet. This has been a source of continued frustration for me.

But Q2 represents a seachange, since for the first time in a long while a positive AISC margin has translated into cold, hard cash on the balance sheet.

A note of caution: the $4.4 million jump in cash looks almost too good to me. It is possible that is has been flattered by, for example, receivables falling and payables rising. We just won't know until the end of this month, at which point we get to see the official balance sheet and income statement movements for H1. Nonetheless, things are starting to look so much better based on that cash movement (I don't think the gain will completely disappear once we do the accounting adjustments).

Now let's look at FY16. At the current gold price of $1,175, we get an AISC cash flow margin of $1,175 minus $950, or $225. They also will likely do 130k of annual production. This gives us an AISC cash flow of $29.25 million. For FY17, AISC falls to $750 on Chip's number and production will likely rise to 140k as the new service shaft comes into operation. This gives an AISC cash flow of $59.5 million, which compares with the current market cap of $70 million. Now let's adjust the AISC cash flow to a real cash flow (accounting for extraordinaries, CapX for future growth and tax) by reducing it by 33% (a pretty aggressive adjustment). That gives a real cash flow of roughly $40 million, or 1.75 times the current market cap.

What is a reasonable cash flow multiple for FY17? I would say at least 10 times, which implies the stock should rise six-fold. But wait, what value is the market currently giving to future growth? That is, the value ascribed by the market to Bananghilig and Guinhalinan. That's easy. The value the market is currently giving to these deposits is: ZERO.

But in a world where gold stays at $1,175, MML will be able to develop these sites and hardly dent its cash accumulation. So by next year I think the market will start to add back value to these deposits. That's how I believe MML could easily be a 10-bagger on a one to two year view.

And should gold continue to rally and move into the $1,200s and $1,300s. At those levels, cash flow continues to rocket higher and the return on MML will get almost silly.

If you think I am a nutcase for thinking such returns are possible, I say just pull up a chart of St Barbara Limited (SBM on ASX). Its low was 16 cents on March 11, 2015 and is currently trading at $1.58. And I think Chip would agree with me that MML has a far superior business than SBM.

So I think MML represents a once in a life time buying opportunity (IMHO) unless you think the current gold rally is a fake and gold will move all the way down to Goldman's famous target of $850 in 2016.

[staffy dog] 07/2/2016 15:43

Caught the POG rise nicely which will continue in my opinion

[cyberbub] 07/2/2016 15:02

Thanks Chip, very helpful.

Yes I assumed that the losses recorded in previous years would mean at least a few years more tax-free, irrespective of the tax holiday?

As usual MML is a geared play on the gold price. But the very low p/e seems to minimise downside risk IMO.

I am just being cautious because it looks too good to be true??

[chipperfrd] 07/2/2016 13:56

Cyber,

Current (half year) EPS looks likely to come in at c. 14.5c and it's trailing 12-month figure would therefore be around 29c. So current P/E is c. 1.6x.

I estimate full year (to 30th June) EPS will be c. 33c putting the 5-month forward P/E at c. 1.4x.

They have certainly paid down liabilities over the last 2 quarters based on the difference between calculated Free Cash Flow of c. US$9.6m and the much smaller increase of cash to US$16m from the US$14.6m declared last June. So it would appear likely that their small debt will have become even smaller when 1H numbers are published later this month.

I make the current MktCap US$69.1m at the closing ASX price of 47c.

They don't really have what one could call 'major capex'. The new service shaft and various other internal improvements that are currently being carried out at the mine have only added about US$2m per quarter to Capital Works and, incidentally, their reported AISC figure reflects their TOTAL Capex spend as well as their Exploration, Development & G&A expenditures.

Re AISC: extrapolating forward to FY17/18, I estimate AISC is likely to fall towards the US$750/oz region.

Re Tax: they have completed their 6-year tax holiday, so best to allow for 30% corporation tax for FY16 (although they may well have offsets to apply - best to wait for the 1H16 financials to get a good idea of tax going forward).

Worth noting that they recorded a significant impairment of prior expenditures on their asset base in the FY15 accounts. This must lead to a much lower D&A figure in their P&L at the half year (I estimate a 50% reduction). Although this D&A is 'non-cash' it nevertheless does impact the EPS reported and I have allowed for that in my EPS figures above.
Chip

[cyberbub] 07/2/2016 13:10

Not sure why someone has voted me 'down'. Genuine questions I was posing. MML looks very undervalued and I am thinking of buying some tonight when the ASX opens, but am just trying to find out whether I am missing something, from people who have been invested a lot longer than me?

[cyberbub] 07/2/2016 10:44

Gentlemen,

If MML is expecting to produce min 120koz at an AISC of about $950, then (assuming gold prices stay where they are) that would be about $25M clear profit, as the AISC includes all exploration, development, and G&A overheads, and there is no tax to pay for years?

Am I right also that there is negligible debt? The last accounts in Sept 2015 showed just $5M or so debt, although there was an odd little note that said that there was a further $15M debt taken out by 'Philsaga' - are they the operating subsidiary of Medusa?

Hence the current market cap of US$72M (including the $5M official debt.. but excluding the Philsaga debt) is a P/E of less than 3?

Does anyone know when the AISC is projected to decrease, as major capex comes to an end? Next year? And in that case, MML's AISC might start dropping towards say $600?

Thanks for any info/tips - on with the research!

Cyber

[bluelynx] 07/2/2016 10:43

"Coming up we'll hear from Keith Neumeyer, CEO of First Majestic Silver Corp. Keith updates us on the state of the mining industry, how ridiculous and ultimately damaging the futures market has become, and why he believes the possibility of triple digit silver is NOT ridiculous. Don't miss a fantastic interview with Keith Neumeyer, perhaps the most outspoken leader in the entire precious metals mining industry."

[justinjjbuk] 07/2/2016 10:12

Well, what I said is just a fact. Bullionvault operates under UK property law and you have a direct claim on the gold in your account. The legal set up is different from, say, the futures and options market.



If you don't trust UK property law, then that is your opinion. Although logically this would lead to the conclusion that you wouldn't want to own real estate in the UK either. And if you don't trust UK property law, I guess you wouldn't trust US property law or property law anywhere for that matter, which takes us to the world of survivalists living in bunkers full of canned food and semi-automatic weapons in Wyoming

As I said, having some emergency physical gold in your possession seems wise (the equivalent of buying fire insurance or life insurance), but to put hundreds of thousands of pounds into physical gold delivered to your house is a bet on the collapse of property rights under the UK legal system. Good luck with that bet.

[alquid1] 07/2/2016 10:09

Justin

A great insight, thanks very much. Much to ponder.

Regards
Al

[adyfc] 07/2/2016 09:52

Bullionvault operates under UK law and you have a legal claim on the gold in your account.
Ha Ha rotfl.

[justinjjbuk] 07/2/2016 01:06

Looking at Bullionbypost, their buy-sell spread on Gold Sovereigns is £200-£186, which is 7% and for one ounce bars is £831-£792, or 4.69%. They use the words "up to" for the bars, so I would guess that would be for bars they have a record of selling to you.

I just went into my bullionvault.com account and the spread in London is now £808.53-£;807.14, or 0.2%. Their maximum dealing fee is 0.5%. So the total is 0.7%, way below taking possession of physical. Storage fee is 0.12% per year.

Bullionvault operates under UK law and you have a legal claim on the gold in your account. So to want to take delivery of physical gold you have to believe that the UK legal system will go down or the government will nationalise gold in the bullionvault accounts or some such scenario. I'm pretty bearish about the global financial system, but I am not quite yet that bearish :)

[alquid1] 06/2/2016 23:28

Good point ned, Will have to look into that,

Thanks
Al

[ned] 06/2/2016 22:31

alquid1

No expert alquid1, but when you come to sell bars you may have to have them re-assayed (to prove you haven't hollowed them out and filled them with lead etc), that's what I understood anyway. Worth checking out how to ensure you can prove provenance without it being prohibitively costly.

[alquid1] 06/2/2016 19:41

Chip, jim, deka

Many thanks for your responses. Capital gains are not likely to be a problem for me as most of what i have is in ISA or pension. However, I fancy holding both bars and sovereigns.

Once again, thanks for your help.

Also, thanks to everyone that makes this thread what it is. Its been tough over the last couple of years but I learn from you guys without being able to offer much from myself.

Regards
Al

[deka1] 06/2/2016 17:57

AI, I have gold sovs and half sovs only,as said above no CGT on it

[jimbowen30] 06/2/2016 14:25

Al,

Have you looked at buying gold sovereigns or Britannias? These are both legal tender, so no capital gains tax on them unlike with bars.

[chipperfrd] 06/2/2016 12:50

Al,

You could take a look at

They usually deliver next day in unmarked registered package.