Medusa Mining (ASX:MML) A$0.42, A$87.3m – Building production towards target levels
• Medusa Mining suffered a run of around 14 missed targets / profit warnings in a row.
• They can not blame lower gold prices but they can blame a former management for a lack of investment and lack of forward mine planning.
• Medusa’s move to raise gold production from 65,000ozpa towards a target of 200,000ozpa was never going to be easy but the team are at last closing in on a new target of 150-170,000ozpa.
• In all the chaos, the company committed the greatest of offences and delisted from the London Stock Exchange.
• Raising production required the instillation of a new larger mill and associated plant along with a massive expansion of the mine including new shafts and development of around 100 working underground stopes
• One of the main problems they had once the mill was up and running was getting enough ore in to fill it.
• The solution was a new shaft which is currently being built at a cost of $10m or an extra $80/oz to the AISC.
• Once this is up and running it means the total hoisting capacity will increase from 2.4kktpd to 2.7ktpd.
• In the meantime mill utilisation (design capacity 2,500 tpd) has improved and is now at 75% while the recovery for Q2 remains at 94% (this has been fairly steady).
• Another big issue was dilution however by changing the way they pay their contractors from a per tonne mined basis to a m3 blasted basis this has improved stope grades by 50%.
• The installation of tramming loops allowing continuous one way traffic to the Level 8 shaft hoppers, new fans to increase ventilation, dewatering and new internal shafts are all helping to lower costs and improve efficiencies.
• Looking forward Medusa plan to do further resource drilling from Level 8 and have recently bought 2 underground rigs allowing them to retire their underground drilling contractor – further cost savings.
• The results of the resource drilling will allow the board to make a decision as to whether or not to push ahead with the L16 shaft, a 4 year project which will be funded through cash flow.
• Production guidance for 2015-2016 remains 120k – 130koz at an AISC of $900-1,000/oz. Expect the AISC to remain high in the medium term while they complete key infrastructure projects.
• While fixing the problems at Co-O remain key they are not ignoring their other projects. Though there is no word on the copper porphyry exploration expect an updated resource estimate on the Bananghilig Deposit by December and a scoping study will follow. At the Giunhalinan Prospect they will start scout drilling shortly.
• Without wanting to tempt fate it appears that the problems at Co-O are at the very least under control if not almost behind them. They remain unhedged and have no debt so as the cost savings come through we should see them drop to the bottom line allowing the company to rebuild their cash position (currently c. $14m).
68,000 ton/mth x 3 mths/qtr x 7 gm/ton / 31.1 gm/oz x 95% recovery = 43.6k oz/qtr = 174k oz/yr
So 174k oz/year will be the theoretical maximum for the mine at Co-O when running at peak efficiency and new mill. See Proactive article above where is stated the new target of 150-170,000 oz pa.
According to Rog Gregory, Operations manager, the mine should be operating at 7.2 gm/t. Progress towards this 7 - 7.2 figure is advancing quarter by quarter as a result of a new payment system for the miners that has been progressively applied to all new stopes being mined over the past 6 months or so, and other mine efficiencies (6 gm/t last quarter).
94% or 95% recovery is seen as the likely upper limit for recovery (94% now).
MML Price at posting:
53.0¢ Sentiment: Buy Disclosure: Held
