Share Name Share Symbol Market Type Share ISIN Share Description
Medusa Mining LSE:MML London Ordinary Share AU000000MML0 ORD NPV (DI)
  Price Change % Change Share Price Shares Traded Last Trade
  +0.00p +0.00% 97.50p 0 06:32:19
Bid Price Offer Price High Price Low Price Open Price
0.00p 0.00p - - -
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Mining 66.2 33.0 17.5 5.2 202.60

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arja: a while since I checked the MML share price but hard to see this stock ever recovering although stranger things have happened .
cncventure: Been awhile since I've posted on here, but thought I'd throw my thoughts into the mix as some have recently speculated that MML should be many multiples above its current price. Whilst I own MML, I personally think its price about right for where it's at and I won't be surprised if it goes lower before it goes higher. The Duterte drama, the latest R&R report and FY16 guidance really leave nothing to get excited about with MML in the short term. I certainly don't think the market is going to pay 8 times future earnings when it only has about 3 years worth of reserves (and a bad track record of not delivering)... I'm not saying there isn't more mineable gold in Co-O I'm just saying that after the last 5 years people won't be paying premiums because MML's CEO says "I swear there is more reserve grade gold down there"... As for the numbers used in that forecast I'll be disappointed if they only produce 120k ounces at $950 AISC in FY17. I'm expecting at least 135k ounces at <$900 AISC in FY17. And they will definitely need to get their reserves back above 500k ounces for investors to take them seriously. If they acheive that and start paying a dividend again there is a chance it'll be enough to push the share price back over $1 at which point it'll get sucked back into the ASX300 and GDXJ funds (and all the buying that goes with that). The problem is none of these positive developments are in the near future and after the Q1 results I'm quite worried that they might miss FY16 guidance completely... Even if they do manage 25koz in Q2 that will mean they will need to do at least 30koz in Q3 and Q4 which will require high grade gold and everything to go right just to hit the LOWER end of guidance given they'll still be hoisting constrained until mid next year... So I'm expecting that without a increase in the price of gold FY16 will ultimately be a disappointment and it has not helped that they have not capitalized on highest gold price environment in quite some time. So I'm not expecting much movement from MML share price until the Q3 report when we get to see a lower AISC and hopefully healthy free cash flow followed by the Q1 report in FY17 when we will hopefully get to see what they can do when they can fully utilize the mill... The only upside I can think of is some drill result announcements, but even if they have anything half decent to announce I think they'd be better off just wait until next year's R&R report when the share price hopefully has some momentum... So for me at $1250 gold MML is a hold at 60c, accumulate at 57c and a buy at 54c (especially if they get 25k+ oz in Q2). My FY17 price target with $1250 gold and 500k reserves is 95c.
cncventure: Nice article, I agree with the premise (ie currently very low enterprise value, high FCF just around the corner) though I think he's confused a couple of things and overlooked some risks: - MML will likely produce well over 200,000oz/year IF their B1 mine gets developed (I think he meant to say that Co-O will probably never produce 200,000oz/year). - Also I think AISC wil drop much sooner than June 2017, my understanding is that capex will drop in Q1 next year because the ventilation upgrade capex will cease and shaft development capex will reduce from August onwards. - Also its my understanding that L16 shaft is a "proposal" not "in development" yet he highlighted it in pink in his presentation when the service shaft being developed is to the left of the L8 shaft in the image. - He's ignored the sovereign risk factor. - I also think he's overstated the likely future AISC (and therefore understated the likely FCF) - Though I don't think he's accounted for the fact that MML (particularly Co-O) doesn't have huge reserves, though the deposit is apparently open at depth so who knows what the final ounces produced will be. - Also MML share price didn't just fall by 90% it fell 96.3% - might not seem like much, but there is a HUGE difference, ie if you bought after it fell 90% ($0.87) by the time it bottomed ($0.32) you would have been down by 63% and you'd still be underwater today! That's how bad the beat down on MML was (and it probably deserved the majority of it at the time, but that is the past now, only the future matters).
nielsc: MML share price has doubled since the lows at the start of the year. Other gold miners have gone up by 3 or 4 times since the start of the year. I feel MML is being held back due to confidence in the company. With the recent presentations I think MML are aware of this and they now need to put in a couple of quarters were they deliver on their stated aims. Also the CAPEX requirements going forward may also be a worry. I am hoping to see gold around the $1400-$1500 by the end of the calendar year and MML price in the A$2-3 range. Cheers, Niels
cncventure: @Chip - I agree, only a matter of time before we get above A$1 (assuming the gold price holds) and I also agree that a full year's earnings will go a LONG way to reversing sentiment. That said, a solid quarterly with the price of gold above $1250 could turn some heads if their production is north of 30,000oz and US$7M+ reaches the bank account. That in itself could potentially be the catalyst that pushes the MML price into GDXJ inclusion territory. And from memory GDXJ used to hold 15M to 30M shares - that's A LOT of shares to accumulate in a quarterly re-balancing window. I'd be surprised if traders weren't already thinking of trying to front run that built in demand for MML shares once it passes $1. So you might see them start piling into once MML gets $0.85+ assuming the gold price remains steady. That said, tightfist does make a good point about trading volumes, there is a chance that volumes might drop off to the point of not qualifying for GDXJ if the gold falls out of favour - that said at the volumes are comfortably supportive of inclusion at present (by my understanding of GDXJ's requirements). As for the ASX200, in the near term I think the prospect of being put back into GDXJ is far more likely... Ass was mentioned above, the 190th largest market cap in the ASX200 is currently A$470m... So MML will likely need to be trading north of $2.50 before that starts to look like it might happen. That said, when it does happen, and I suspect it will within the next 18 months assuming the PoG remains at these levels or higher, it will be great for the share price and the caliber of investors it will attract. @tightfist - yep same cnc. I too unfortunately held MML through the ASX200 and GDXJ dump, as heartbreaking as that was I tried to see it as an opportunity and ended up buying a lot of MML while it was sub $0.60 and got my dollar cost average back down into the 50s (which in hindsight seems like a good move but at the time it was gut churning). Also my sense is without a serious gold price fall (ie back to below $1050) gold miners (like MML) are likely to revert back to more normal valuation multiples which should make the risk of getting bumped out of GDXJ again extremely low. In MML's case, once it is back in GDXJ the share price would need to drop back below A$0.50 for it to be dumped again... EXTREMELY unlikely with the current operations, balance sheet and gold price. The reinstatement of dividends in 2016 is another potential share price catalyst. Whilst speculative, but if the gold price remains above $1250 (or goes higher) I suspect that half yearly NPAT's will be $50M+ and it will become increasingly difficult for the board to justify not distributing some of those profits... Another potential catalyst would be a mine value write up. If I'm not mistaken when they wrote down the value of the mine last year the gold price was trading around $1100 (and they revalued the mine on the basis of gold being $1200)... I don't know what the MML accounting policy is and how much higher than $1200 the gold price would need to be to prompt recalculation of the carrying value of its assets, but if gold was to go north of $1300 by the EOFY, who knows, they might be required to write up the mine value on top of what would be a record NPAT... And of course the final, and probably the biggest and most likely, catalyst for MML's share price will simply be time. At a share price of $0.74 and the current half year NPAT, MML is trading on an annualised EV/NPAT ratio of 1.15! Assuming the average gold price for Q3 is $1220, production is 32,000oz, they replace those ounces, costs are roughly the same, the AUD/USD remains at 0.74 and they don't pay a dividend... Then by my calculations to maintain an EV/NPAT ratio of 1.15 on an annualise Q3 result will require the share prices to rise to $0.97! If you assume the same situation for Q4 but with a gold price of $1255 (ie the current price), then to maintain an annualised Q4 EV/NPAT ratio of 1.15 the share price would need to increase to $1.14. Also it's worth noting that of the 14 gold miners (MML, EVN, NST, NCM, TRY, PRU, SBM, SLR, RRL, SAR, RSG, OGC, BDR, AQG) whose half yearlys I looked at MML's EV/NPAT was the lowest by quite some margin, the next lowest being 2.0 with the median EV/NPAT being 12.9. So even MML's becoming the second lowest valued gold miner of those above on an EV/NPAT basis at current gold prices would require its share price to get to about $1.60 by my calculations. So with gold at these levels "time" alone will hopefully take care of MML's share price. Would love to hear what other think of those catalysts or if they have any others they think are likely to occur in 2016.
stevea171: Medusa Mining's Higher Production Guidance Further Widens The Discount Its Shares Are Trading To Fair Value Jun. 22, 2015 10:02 AM ET | Disclosure: I am/we are long MDSMF. Summary Medusa Mining surprised many last week with the release of significantly higher production guidance for 2016 and even higher for 2017. Since September last year, Medusa's management team has not put a foot wrong in repositioning the company and pushing to regain investor confidence. The higher than expected production guidance for next year and the year after significantly lifts the company's expected cash flow yield to one of the highest in the industry. I believe the next upside surprise over the coming months will be significant progress in reducing costs. I still find it unbelievable that the company continues to trade at the discount to its peers that it does given the improvements management has made and continues to make. Background and Recap Medusa Mining (OTCPK:MDSMF) (MML) is an ASX listed junior gold miner with mining operations based on the Philippine island of Mindanao. It has one currently producing mine (Co-O) and several development prospects nearby (Bananghilig and Guinhalinan being the most prospective with Bananghilig classified as a pre development project and Guinhalinan a high quality exploration target). Last fiscal year (to 30 June 2014) it produced 60 koz of gold at an average C1 cost of US$418/oz and head grade of 4.76 g/t. In the half year to 31 December 2015, it produced 47.9 koz at an average C1 cost of US$381/oz and head grade 5.31 g/t. For the year to 30 June 2015, management has forecast production of 95 - 100 koz at an average C1 cash cost of US$400 - US$450/oz and All In Sustaining Cost (AISC) of $900 - $1,000/oz and with grades over 5%. Given the strong performance in the first half year and the robust third quarter result (23.9 koz at US$391/oz for the third quarter) the full year 2015 guidance (year to June) looks in the bag on the production front, especially since the final quarter to June should be significantly higher than the previous ones on account of the upgraded L8 hitting its target in March. Last January, I published an article on Medusa following its December half year results; commenting that management had delivered on one of its most fundamental pledges following its installation 5 months earlier - i.e., returning the company to positive cash flow generation. You can find it here. Since then, Medusa has declined marginally by around 3%. The junior gold miner ETF (Vectors Junior Gold Miners) listed on ARCA however has fallen 11% in that time. Also, back then, gold was trading at about US$100/oz more than today, at US$1,275/oz. (click to enlarge)[​IMG] Source : Googlefinance Value destruction last year ... Medusa has had a checkered history. Before the new management team was put in place, the company had a poor history of meeting guidance and each earnings report highlighted a new failing. By August last year, investors had had enough and the stock tumbled; making it the worst performing gold stock in losing 70% of its value in the space of 3.5 months following its June 2014 results release - underperforming the junior index by a landslide. However, for the value investor this is a the ideal scenario - a stock that has fallen so out of favor that investors blindly run for the door without standing back and looking at the bigger picture. Nothing much had changed in terms of the quality of the assets but sentiment had shifted. In fact, irrational sentiment appears to be on hand again as I write this. Just yesterday the stock was down 6% at one stage whilst the rest of the industry was rallying on higher gold prices. (click to enlarge)[​IMG] Source : Googlefinance I first noticed the stock in October, just after the new management team had been announced and put in place. I was impressed with the manner in which they set about managing expectations and committing themselves to actually delivering on guidance and investor expectations. They committed themselves to reversing the slide in cash flow and undertaking a thorough review of the operations and a series of steps to improve the assets. ... has given way to a new approach to regaining investor confidence With the appointment of the new team, I suggested in an article on Medusa that the recent history of disappointing performance and missed management forecasts was coming to an end with the return of the company's founder (Geoff Davis) to the CEO position - drawing a line under the previous management of the company. You can find the article here. Back then the share price was A49c/share. Today it's A85c. One of the things I particularly liked about the new management team and approach was its commitment to meeting its stated guidance and forecasts. It rightly saw this as fundamental in rebuilding confidence with the investment community which had too often been let down by the previous team. Since taking over last year, the new CEO has delivered on a number of fronts: Kicked off a comprehensive review of the company's operations in order to optimize the Co-O mine's long-term mine planning. This culminated in the company releasing 2015 production guidance of 95 - 100koz, which was greater than many expected at the time Completed the restatement of the company's reserves to the latest JORC standard - delivering a better result than many expected (or rather a less worse result) Completed the L8 shaft upgrade on time (increasing hoisting capacity from 45kt to 60kt/month), which is key to the company's efforts to lift monthly mine production and bringing it closer to the mill's capacity Made a commitment to complete a new service shaft next to the newly completed L8 shaft (cost $10m over 17 months) which will further lift mine hoisting capacity from 60kt to 68kt/month Restored the company to positive cash flow generation in each of the quarters since the new team was installed (September, December and March) A substantial upgrade to forecast production now official Last week, however, management signed up to another pleasing commitment; providing production and cost guidance for 2016 and production guidance for 2017. You can find the announcement here. On the production side, it is expecting 120 - 130 koz for next year and 135 - 145 koz the year after (i.e. year to June 2017). Two things give me a strong sense that Medusa will meet this new guidance. First, management has been very careful these last 8 months to promise only what it can deliver, as I mentioned above. So far it has delivered on each of the commitments it has set it self. I've no reason to believe this will be any different. Second, the uplift in production seems realistic. The mining capacity of Co-O has now increased from 45 - 60 kt/month off the back of the L8 shaft upgrade. That's a 33% increase and corresponds to the production increase from this year (guidance for this year to June is 95 - 100 koz). Further, the increase slated for the following year to June 2017 also seems realistic. Having undertaken to complete the L8 service shaft earlier this year, which will take 17 months, mining capacity will be lifted from 60 kt/month now up to 68 kt/month, a lift of 13%. Thus an increase from 2016 guidance of 125 koz up to 140 koz for 2017 - 13% - seems possible. (click to enlarge)[​IMG] Source : Author When I looked for market reaction to the guidance the thing that struck me most was how many people regarded this as a surprise. Given the recently completed L8 shaft upgrade and the resulting increase in mine capacity, it should not really have come as much of a surprise. The second thing that surprised me was the lack of any real move in stock price. The increase in production has the potential to drive significant cash generation over the next year but once more it seems the market either doesn't get it or doesn't believe it. Costs - The next dragon to slay? Whilst progress is being made on the production side, with the L8 shaft upgrade enabling a near doubling of capacity over the next 18 months, the next area of focus needs to be cost reduction. Management recognizes this I think and it features heavily as the core focus in the most recent investor presentation (click to enlarge)[​IMG] Source : Medusa Mining My sense is that there is some scope to pare costs back. AISC up over US$1,000/oz certainly isn't 'low cost miner' territory. Where I think there is source for encouragement though is the C1 cash costs which the company is guiding towards US$400 - US$450/oz. If you look though at the last 3 quarters, MML has averaged US$384/oz (despite a prolonged period of production disruption due to the L8 upgrade) so it's likely the company will better its cash cost guidance significantly for this year to June 2015. More vexing though is the company's performance on the AISC line which remains stubbornly around US$1,000/oz notwithstanding the strong performance on at the C1 cash cost line. The average over the first 9 months so far was US$1,100/oz, although that was heavily skewed by the September 2014 quarter at US$1,238/oz which was around when the new team was installed. Below I have included information from an Oceanagold presentation from September 2014. It shows the industry AISC and MML's 2015 guidance. It shows that, at US$900 - US$1,000/oz, MML's AISC is not earth shattering and really just positions the company towards the back end of the second quartile. Further, as this was complied last year, and with the increase in the USD over the last 9 months, its highly likely that many gold producer currencies have fallen relative to USD which would act to reduce this curve; making US$900 - US$1,000/oz seem relatively higher. This is a long way of saying that I think that MML could well surprise many over the coming year with lower costs than their current guidance for next year. (click to enlarge)[​IMG] Source : Oceanagold, Medusa Mining The major items of difference between AISC and cash costs are exploration, sustaining capex and corporate/G&A costs. MML has been spending around US$3m per quarter on discretionary exploration or about US$12m a year. For a company making revenue of US$84m that is impressive. It also represents quite a cost - about US$125/oz based on current 2015 expected production. That said, the exploration program is also is proving quite successful. Last quarter MML announced some very encouraging drill results for Co-O; 7.95m @6.36g/t, 2.4m@43.5g/t and even an intersection of 1.85m@70.5g/t. All this augurs well for a future for Co-O well beyond the 450koz of reserves. As it stands, the mineralisation remains open to the east. On the sustaining capital side, MML has spent quite a lot recently on the L8 shaft as mentioned. Some $10m was spent in the December quarter and another $10m will be spent over the period to June 2016 in completing the L8 service shaft - required to deliver the production increases in 2016 and 2017 just released. As a guide here, total capital expenditure for MML (excluding exploration expense) was US$32m for the half year to December 2014, compared to depreciation of US$15m. To me this suggests the company's AISC is abnormally high relative to its long run sustaining level. To be fair here, the team is already achieving progress on costs. When they arrived back in September, corporate costs were averaging about $2.8m/quarter. Now they are around $1.7m. Management provided a clear cost target during the November AGM The forecast production guidance released last week also included guidance on AISC and cash costs. On the cash cost side, management has set a target of US$380 - US$430/oz whilst for AISC it is guiding towards US$960 - US$1,060/oz. Importantly here though is the inclusion of the US$10m capex associated with the service shaft, which adds some US$80/oz to the AISC for 2016. [​IMG] Source : Medusa Mining My view here is that I believe costs will come in significantly below the 2016 guidance range. I also believe management perhaps thinks that too but for now perhaps wishes to remain conservative. In fact, during the November AGM, the CEO said as much when he forecast that after 6 months or so from the L8 shaft upgrade (completed in January), AISC should fall to around US$800 - US$900/oz off the back of higher production, better grades (he actually said he expected grades of around 6-7g/t "over the next 6 months or so") and higher mill recoveries and further efficiencies. You can listen to the presentation here. (click to enlarge)[​IMG] Source : Author So what's the impact on cash flow of the new guidance ... ? Cash is king when it comes to evaluating any investment so naturally the first thing I did when the new guidance came out was to determine the cash flow impact. Here, I looked at 2 material changes to the current 2015 performance. The first was the impact of additional production in 2016. The second was the impact of what I expect to be a beat in management's AISC guidance for the year to June 2016, i.e. US$960/oz - US$1,060/oz. In this instance I assumed that MML's AISC for the year to June 2016 falls to US$800 - US$900/oz, as mentioned by the CEO during the November AGM. My analysis below assumes the gold price averages US$1,300/oz over the year to June 2016, which is in line with many broker forecasts. I have assumed 2016 production for MML is 125 koz - the mid point of management's latest guidance. I have also assumed the mid point of guidance for 2016 AISC - US$1,010/oz. Further, I have used UBS data in preparing the table of comparable company yields, also based on US$1,300/oz gold. From the below, even based on the what I believe to be conservative AISC guidance, MML's cash flow yield is above all its peers at 26%. If I repeat my analysis at the current the current spot price of US$1,200/oz, MML's cash flow yield falls to 18% - still well over its peer group. (click to enlarge)[​IMG] Source : Author, UBS If we assume that the CEO's comments on AISC during the November AGM come to pass, and it averages US$800 - US$900/oz, the cash flow yield is significantly higher again - at 41%. This represents a free cash flow margin rising from US$290/oz under management's official 2016 AISC guidance up to US$450/oz if AISC falls to where the CEO said he believed it would during the AGM. For me, this suggests substantial upside to current returns implied in the share price and much higher than anything else in the gold space. (click to enlarge)[​IMG] Source : Author, UBS ... and what's the valuation impact? With free cash flow yield so high, you would expect MML to trade at a material discount to its peer group. And you would be right. Below I have again pulled MML's comparable company EV/EBITDA multiples for 2016. As you can see from the below, MML still trades at a huge discount to the peer group, notwithstanding the continued de-risking of the company that has occurred over the last 9 months with the initiatives and measures the new management team has been making. Given this, its pretty easy to foresee a material shift upwards in MML's share price over the coming year. (click to enlarge)[​IMG] Source : Author, UBS So what gives? So why is the cash flow yield and the valuation discount to its peers so high for MML? If I had to suggest a reason it might be perhaps because of the perceived short reserve life the MML has; frequently cited by some investors as a key concern. Technically MML has only 450koz of reserves booked which is enough for about 4 years production at the current rate. But what investors need to focus on here is the reserve replacement record. Each year, as you can see below MML as actually increased its reserves as further drilling has enabled it to recognize more gold reserves than it removed through production. The only exception was last year, when the company moved to the most recent JORC code which resulted in 150koz of reserves being inadmissible as reserves. Importantly though these reserves are still there, its just that for the purposes of the JORC code they cannot be included in the new code's stricter definition of reserves. (click to enlarge)[​IMG] Source : Medusa Mining Thus, I would suggest, the low reserves are really a non issue and I think investors that punish the company for them arguably don't fully understand. Further, as I mentioned above, since the new management team stepped in, they have funneling even more resources and cash into exploration and re-interpreting previous geological data. As a result there is every reason to be confident that new reserves will be recognised in the near future. Given the ore body remains open in all directions right now, there is no reason to believe that MML will continue well beyond the current reserve life of 4-5 years. Conclusion Readers of my articles will note that I have been a believer in MML's story since the new management team and CEO took the helm last September. I have been impressed with the measured way they have taken a step back and addressed one by one the issues that dogged the company over the years to their appointment and lead to a 70% loss of value over the space of 3.5 months. Last week, the results of their overhaul of the company showed through with the substantial increase in 2016 and 2017 production guidance over what is expected this year. Notwithstanding this and the number of earlier positives the management team have made in de-risking the business these last 9 months, the stock continues to trade at a very material discount to its peers and what I would argue is fair value; actually falling on the day following the announced new production guidance, despite gold rallying over 1% on that day. I believe last week's decline in the share price represents a great opportunity for investors to build a position in MML ahead of the rest of the market finally waking up to what is, in my opinion, one of the best value stocks in the gold space.
nielsc: "Based on the last financial year’s earnings per share of 27 cents" EPS for 2013-2014 was US$0.266 Earnings for last year (2014-2015) was US$0.154 Regardless H1 earnings for 2015-2016 was US$0.128 So full year earnings would hopefully be around US$0.25 = A$0.322, which would put MML on a PE of 2.67. A more reasonable PE of 12 would value MML at A$3.86. All goes to show that sentiment in the gold sector is at an all time low. Need a rise in gold and a little more interest in gold miners and the MML share price should see a nice little lift. Cheers, Niels
justinjjbuk: MML share price has been acting bad over the last couple of weeks. This is pure speculation but this could be due to redemption selling. A significant number of funds have quarterly redemption restrictions (investors are only permitted to come out at certain fixed dates). And many funds require around five weeks' notice of redemptions to allow time for a fund to raise money by selling down a part of the portfolio. Given MML's low liquidity, even if one institutional investor was having to sell down 100,000 shares a day, that would be enough to whack the stock price. Usually such selling eases off a few days before quarter end, since dealers want to leave a margin of safety in raising the required funds. Of course, there could be some bad news out there, but if MML's stock price starts to firm again at the end of the month with no news, then this would indicate that redemption selling was behind the weakness.
goldminer70: I normally post on the III board but swallows has recommended I post here. These are some notes I have made about MML which you might find interesting. You know most of it. I am much more optimistic re Q3 and Q4 I think MML's growth will be much faster than Steve and Chip. I think 30,000 and 35,000 Medusa Mining is an Australian mining company, I am not sure the origin of its name but Medusa was a monster from Greek Mythology. The story of the last 10 years may seem more like fiction than fact. But I have tried to assemble only a factual account of this time. Medusa Mining Limited was incorporated on 5th February 2002 and officially admitted to the Australian Stock Exchange on 23rd December 2003. On 22nd December 2004 the Company announced it had completed a Heads of Agreement to merge with Philsaga Mining Corporation which owned the high grade, underground, narrow vein Co-O Gold Mine. Philsaga was a privately owned Philippino corporation. So Medusa Mining is an Australian mining company operating in the Philippines. In 2006 Medusa was admitted to the London Stock Exchange with an AIM listing. It started operating as a mining company in 2006 and after slow start, by 2008 it was mining 5,000 ounces of gold each quarter and it had a share price of 40p. Then it really took off and the next three years its growth was dramatic. By 2011 it was producing 25,000 ounces of gold per quarter and the share price rose to 560p ~ in increase in gold production of a factor of 5 and an increase in the share price of a factor of 14. A truly remarkable achievement. It was highly profitable because its cost of production is the lowest in the world, then at $200 per ounce, luckily this rapid rise coincided with the record price of gold which briefly peaked at $1,900 per ounce. So in 2011 the accounts showed a turnover of $149.6m and a profit of $110.4m. But the production level of 25,ooo ounces per quarter was at a standstill because the mine was bursting at the seams and was in need of a major refurbishment, in particular hoisting of the mined ore from the mine face to the surface and the milling and crushing of the ore on the surface. In November 2010 the board agreed a major refurbishment. It was estimated that this refurbishment would cost $70m and take 2 years to complete and the existing production would not be interrupted, and it was to be completely funded from the current cash reserves. It was estimated that gold production in FY2013 would increase to 120,000 ounces and in FY2014 production would increase to 200,000. In addition there had been another discovery of gold 75 kilometres north of the Co-O mine at Bananghilig. This was a mine more suitable to open cast mining than the narrow vein mining being carried out at Co-O. It was planned to start construction of the Bananghilig mine in mid 2013 and be complete and start producing gold in mid 2015 and by 2016 to be producing gold at the same level as the Co-O of 200,000 ounces per annum. All this expansion was planned to take place seamlessly and whilst maintaining the current gold production at 100,000 ounces per annum. It all seemed too good to be true but the progress over the previous three years had been like a fairy tale, so we believed the management of Medusa Mining. This plan was announced in 2011 and was probably one of the factors of the share price reaching 560p. However these 3 years from 2011 to 2014 were like a Greek Tragedy with the gods coming to take their revenge on Medusa. The planned production for FY2012 was 100,000 ounces the actual production was 60,595 ounces. The planned production for FY2013 was 120,000 ounces the actual production was 62,243 ounces. The planned start, in FY2013 of construction of the open cast mine at Bananghilig did not take place. The estimate of $70m expansion costs were well exceeded and the plan to finance all this expansion from cash flow did not materialise and in September 2013 Medusa Mining had to raise A$34m by way of a placement of 18,890,390 shares at A$1.80 each. So the comparison between the old shares and the current shares is not completely accurate. The planned production for FY2014 was 200,000 ounces the actual production was 59,904 ounces. The planned start of construction of the open cast mine at Bananghilig still did not take place. In April 2014 the shares of Medusa Mining were delisted from the London Stock exchange and since May 2014 the shares are only available on the Australian Stock Exchange. The stock market took their revenge by reducing the share price of Medusa Mining from 560p in 2011 to 22p in 2014. This transformed Medusa Mining from a company at its peak worth 1,600A$ or £900m in 2011 to a company at its nadir in 2014 worth 63A$ or £35m. Today it has recovered to be worth 200A$ or £100m. Geoff Davis who had masterminded the growth of Medusa from a fledging company in 2002, to a highly successful company in 2011, relinquished his role as CEO in 2011 and became non-executive chairman and in 2013 he retired from Medusa Mining. The CEO during this time was Peter Hepburn-Brown, (who always seemed more like an ex-public school type rather than a hard-nosed gold miner) resigned in September 2014. Whether he was fired is not known and it doesn’t matter. At the same time Geoff Davis came out of retirement and brought with him Bob Gregory who worked with Medusa in the early stages as the new CEO. But all is not lost. All the major expansion has been completed and the Medusa’s Co-O is now a modern mine which was designed to be capable of producing 200,000 ounces of gold annually. Over the next twelve months it will be proved or disproved if this design is a reality. In the Quarter October to December 2014 the production was the highest ever achieved at 26,859 ounces. The cash cost is 300$ per ounce (as opposed to 200$ per ounce in 2011 but 400$ per ounce in 2013) this is the lowest production cost of any gold mine in the world. (NB some gold mines have cash costs of 800$ to 1,000$ per ounce and in reality at today’s gold price are not profitable). During this period the resources of gold have considerably increased. Over the last two years the gold price has been fluctuating between 1,200$ and $1,300 per ounce which is below the heady days $1,600 to $1,900 between 2011 and 2013 but higher than 5 to 10 years ago. Even in the troublesome last three years Medusa Mining has still made the kind of profits most companies would die for Revenue/Turnover Net Profit FY 2011-12 $81.2m $49.2m FY 2012-13 $100.7m $50.2m FY 2013-14 $84.2m $30.9m I believe the next two years will see the following returns Est 2014-15 $130.0m $70.0m Est 2015-16 $220.0m $130.0m I believe the drop to 22p six months ago with a recovery to 50p today considerably undervalues the company. But the old adage that a reputation is hard won and easily lost is very true. Personally I have faith in the new management of Medusa Mining but the stock exchange still has to be convinced. The capital value today is only A$200m, but I expect it to make US$70m profit this FY, if this is achieved the capital value and share price will rise significantly. If the excellent start that has been made continues I firmly believe this recovery over the next two years will lead a share price increasing from the current 50p to £5. Remember the share price was £5.60 in 2011 when the gold production was 100,000 ounces per annum, in 2 years time it will be 200,000 ounces per annum. This dramatic increase in share price will be in stages as progress is made. These are the signposts to look for to confirm that the Company is progressing. April 16th 2015 presentation by Geoff Davis in London, to report on the progress and future. End of April 2015 Gold production figures Jan to Mar 2015 (30,000 ounces?) End of July 2015 Gold production figures Apr to Jun 2015 (35,000 ounces?) Sept 2015 Financial Accounts year end Jun 2015 (Turnover $130.0m, Profit $70.0m???) End of Oct 2015 Gold production figures July to Sept 2015 (40,000 ounces?) End of Jan 2016 Gold production figures Oct to Dec 2015 (45,000 ounces?) March 2016 Interim Financial Accounts 6 months Jun to Dec 2015 (Turnover $100.0m, Profit $60.0m???)
stevea171: Medusa Mining's December Quarterly Result Is (Yet) Another Step On The Road To Recovery Jan. 30, 2015 12:23 PM ET Summary Since taking over mid last year, Medusa Mining's new senior management has continued to deliver and rebuild investor confidence. This month, Medusa has released a flurry of positive news, culminating in yesterday's release of its December quarterly result which exceeded production expectations due to higher grades and recoveries. This follows the successful completion of the L8 Shaft upgrade and the announcement of a new, potentially large exploration target at Guinhalinan. Although still at an early stage, the new Guinhalinan prospect is potentially comparable to the 1.14 moz Bananghilig Project to the north. The continuing trend of positive news and outperformance since the new management team took over last year continues to push the company along the road to recovery. Background and Recap Medusa Mining (OTCPK:MDSMF) is an ASX listed junior gold miner with mining operations based on the Philippine island of Mindanao. Last fiscal year (to 30 June 2014) it produced 60 koz of gold at an average C1 cost of US$418/oz and head grade of 4.76 g/t. For the year to 30 June 2015, management has forecast production of 95 - 100 koz at an average C1 cash cost of US$400 - US$450/oz and All In Sustaining Cost (AISC) of $900 - $1,000/oz and with grades over 5%. Results for the second quarter (to 31 December 2014) continue to be encouraging - 27 koz at C1 cash costs of US$380/oz, AISC of US$989/oz and head grade 5.6g/t and take first half year production to 48koz. At 48koz, first half production exceeded earlier guidance of 40 - 45koz for the half. Last November, I published a note on Medusa which argued the company was, following a long period of profound disappointment, back on the road to recovery and was poised to rerate. I suggested that the recent history of disappointing performance and missed management forecasts was coming to an end with the return of the company's founder (Geoff Davis) to the CEO position - drawing a line under the previous management of the company. You can find the article here. Back then the share price was A49c/share. One of the things I particularly liked about the new management team and approach was its commitment to meeting its stated guidance and forecasts. It rightly saw this as fundamental in rebuilding confidence with the investment community which had too often been let down by the previous team. Since taking over last year, the new CEO has delivered on a number of fronts: Kicked off a comprehensive review of the company's operations in order to optimize the Co-O mine's long-term mine planning. This culminated in the company releasing 2015 production guidance of 95 - 100koz, which was greater than many expected Completed the restatement of the company's reserves to the latest JORC standard - delivering a better result than many expected (or rather a less worse result) Completed the L8 shaft upgrade on time, which is key to the company's efforts to lift monthly mine production from 45kt to 60kt; bringing it closer to the mill's capacity Restored the company to positive cash flow generation in both the September and December quarters Further, the company looks set to continue to improve over the next six months with comments by the CEO at the November AGM meeting suggesting that the company's AISC for the full year to June 2015 could come in below its current guidance of US$900-US$1,000/oz; getting down to US$800-US$900/oz over the next 6 months as its efficiency program begins to bear fruit. As you'd expect, with the continued progress towards rebuilding the company has gradually restored confidence in the company and, as a result, since my last note in November, MML's share price has outperformed many of its peers and the wider junior gold index, having risen 50%. (click to enlarge)[​IMG] Source : Googlefinance Two Positive quarters in a row ... both cash flow positive. MML's December quarter was the second successive quarter of cash flow profitability; delivering again on one of the key pledges of the new management team - to restore MML to cash flow profitability. MML improved on its September results, which was itself a big improvement on early quarters. Importantly, the improvement was across nearly all metrics. Production for the first half of 2015 was 48koz, which was significantly above management's guidance back in November of 40 - 45koz. Given this, I would expect MML to exceed its full year production guidance of 95 - 100koz for the year to June 2015 as the mine capacity has now been increased from around 45kt/month to 60kt/month, with the successful upgrade of the L8 Shaft. Further, its likely MML will also beat its full year ASIC guidance of $900/oz - $1,000/oz. During the AGM in November, the CEO mentioned that he believed ASIC from that time onwards would be closer to $800/oz - $900/oz on account of efficiency programs that the company had put in place. If that is the case, it will bring ASIC comfortably below guidance for the whole year. (click to enlarge)[​IMG] Source : Author Guinhalinan ... Potentially another Bananghilig In the September quarterly result, MML mentioned that it was undertaking an extensive soil geochemical survey and mapping exercise on the Guinhalinan prospect, to the south of 1.14moz Bananghilig Deposit. [​IMG] Source : Medusa Mining This week, MML provided an update of its analysis of Guinhalinan, which suggests the presence of a regionally significant, consistent and extensive corridor of "gold in soil" anomalies approximately 5 km long (open to the south) and up to 2 km wide. Within this corridor there appears to be two distinct sub-parallel sub-corridors of gold in soil anomalism representing at least two separate zones of gold mineralisation. Although things are still at an early stage for Guinhalinan, MML's CEO has described it as : " a major regionally significant exploration target with potential to rival the 'open in all directions' 1.14 million ounce Bananghilig mineralised system immediately to the north." If this does indeed turn out to be another Bananghilig, adding another 1.14moz to MML's resources, it would have the potential to significantly add to MML's mine life, which, currently at around 5 years on a reserve basis, continues to be one of the chief concerns amongst some investors. On the topic of mine life, however, I think it is important to note that whilst MML's reserve life is about 4-5 years, the company has been successful over the past 7 years in replacing the resources at its Coo that is mines every year. Further, as the existing resource at Coo remains open in ALL directions, there is no reason to believe it will come to an end any time soon. Remember, the mine has been operating since the late 1980s. Importantly, giving some further comfort regarding the bona fide of Guinhalinan, is the fact that, although still described as "gold in soil anomolies" uncovered as part of an extensive geochemical survey covering some 1200 samples, the company has done some drilling back in 2011, so there is high confidence that there is mineralisation there. The next step in defining the size of the new discovery will be a full exploration program of further drilling, which the company is saying they will likely kick off in April this year. L8 Shaft upgrade complete ... Which should drive a significant production expansion and cost decline over the next few months MML successfully completed its long planned upgrade of its L8 Shaft on time earlier this month. This involved both an increase in the haulage tonnage by replacing the existing 3.6t skip with a 4.8t skip as well as replacement of the single cage configuration with a double cage one. The net effect of the change is an increase in the mine production from the previous 45kt/month to 60kt/month and thus much closer to the new mill's capacity. Changing to a double cage configuration means that the change over time between shifts is much lower, further increasing the mine's efficiency. A compelling valuation ... notwithstanding the 50% re rating since November So what does all this translate to in terms of valuation? Well, on a range of valuation metrics, MML looks cheap relative to its peers - no doubt. It trades below the average on an EV/resources at about US$50/oz, compared to the current gold sector average of circa $90/oz - $100/oz. On an EV/EBITDA basis, which is closer to a simple cash flow valuation than EV/resources multiple, it is well below average. In fact, compared to where it was trading last November at the time of my last article on MML, it still trades at much the some discount to the peer group now as it did back then. I find this surprising because comparing the business now to back then, I see a business that has a substantially lower risk profile and a lot of positive momentum behind it. If I had to suggest a reason for MML's discount to its peers, it might be perhaps because of the perceived short reserve life the MML has; frequently cited by some investors as a key concern. However, I would suggest that this is really a non issue as for the last 7 years, MML has successfully replaced the resources it has depleted through mining via exploration success and further drilling of the ore body. Given the ore body remains open in all directions right now, there is reason to believe that MML will continue well beyond the current reserve life of 4-5 years. (click to enlarge)[​IMG] Source : Author, UBS Anyone who reads my articles will know that I'm always hammering on about cash flow and what price an investor is paying for it. When it comes to investing, this is really the only thing that matters. Cash is king, especially in this environment of enhanced commodity price risk and volatility. Thus, One of the purest measures of value as far as I'm concerned is cash flow yield. Again, MML is a leader here. (click to enlarge)[​IMG] Source : Author, UBS Conclusion MML's release of its December quarterly result yesterday was demonstration of a company well on the path to recovery. MML's production was significantly above guidance and, together with the September quarterly result, becomes the second quarter in row that the company has remained cash flow positive. Further, the December result comes after a number of other positive developments this month; the successful completion of the L8 Shaft upgrade and the discovery of a potentially major new exploration target with the Guinhalinan Project. Notwithstanding the recent positive developments and the substantially lower risk profile investors in MML face today vis a vis 3 months ago, MML still trades at a substantial discount to its peers. Not as great as it was 3 months ago (owing to MML's 50% share price increase since November)
Medusa share price data is direct from the London Stock Exchange
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