I attended (and it was really good to meet up with a number of people who use this BB). I am a little short of time this morning so cannot do much at the moment - perhaps others will also add their comments.
I thought the presentation was very upbeat and re-assuring on all points.
They have a relatively small residual amount of Capex left to outlay on the mill/mine expansion and do not appear concerned about working capital.
They appear to be sticking to their plan to self-fund Bananghilig from Co-O cash flow and will resume dividends once this has been achieved (c. 18 months).
Co-O will then stick at 200koz pa on an ongoing basis with exploration limited to sustaining a rolling 10-year mine life by replacing depletion and maintaining a 2m oz recoverable resource into the foreseeable future.
I will add more later. Chip
New mill expected to have an improved recovery - 94%
Expecting to move up to a process capacity of 2,500tpd from July. They are already at that rate from the mine so will be stockpiling excess tonnage this quarter. Intend to maintain a ROM stockpile in the future in order to mitigate any occurrences of weather events.
Have built a dual, mains-fed, power distribution system which has sufficient redundancy to feed both mine and mill from a single transformer in the event of any failure. Normal operation will be with the mine being fed from one transformer and the mill from a second transformer.
Now have 3 Alimak systems working within Co-O.
I asked the MD about the exceptional (749g/t) intercept reported in February. It is not due to 'nugget effect' but to 'black leader stockwork'. He says that their underground onward advance drilling tends to be in groups of 10 holes per vein in order to plan stoping. The afore-mentioned, high-grade hit was just a lucky chance as they have no way of predicting where 'black leaders' may exist.
Long-time users of this BB will remember quite a significant amount of high-grade production due to 'black leader' stockwork during 2010.
Now that they have so many more veins across the width of the Co-O mine at varying grades they plan to maintain a blended grade of c. 8g/t from an aggregate of development and stoping ore.
They will maintain a high level of development advance going forward in order to keep and maintain the 200koz pa rate.
Copper prospects are a low priority but they are keeping to their overall strategy of trying to prove up sufficient resources (when the exploration budget allows) in order to sell on. They have no intention of mining copper. They are entirely focussed on gold.
Co-O benefits from tax incentives (based on economic improvements generated by the mine in the local communities). It is currently in year 3 of the 4-year allowance and can be extended by a further 2 years. The new mine/mill expansion comes with a further 4 year plus 2 further year extensions.
Bananghilig will qualify for a 6-year (plus 2 year extensions) for similar reasons.
Government are likely to raise their royalty for Bananghilig from current 2% to 5%. So with local royalty of 1% it is best if we assume an overall NSR royalty of 6% for the Bananghilig operations.
MML are entirely focussed on their present tenements and are not planning any expansion into other countries or projects other than those which it already has.
Once Co-O is steady state at 200koz pa and once the Capex for Banaghilig is raised from Co-O cash flow, they intend to return a progressive amount of surplus cash flow to holders via dividends. Likewise any sales of copper assets.
Chip
They have already cut back on discretionary exploration (copper prospects & wide area gold, et al). And they have cut the dividend in order to hasten both the current developments. The intended reward for holders is the sustainable progressive dividend from c. 18 months time.
Must admit that I missed the opportunity to ask for more details on the lowered guidance for FY13. My impression was that it was due to the tie-in work required between the new SAG mill and CIL - which is currently in process.
The MD estimates about $10m of remaining capital spend on the Co-O expansion.
Chip
Part of a follow-up email from ProActive:
The splendid wood-panelled ballroom of stockbroker Killik & Co provided the venue for our latest One2One Forum. This was a more intimate affair than usual, with 75 guests meeting just one company – Medusa Mining. For the uninitiated, Philippines-based Medusa is a rarity in the sector – a producer that could survive in just about any gold price environment. However the company isn’t resting on its laurels and managing director Peter Hepburn-Brown provided us with a compelling vision for growth. It included bringing production at the Co-O mine up to 200,000 ounces of the precious metal, followed by the development of Bananghilig, which will see output double from there. All of this will be augmented with a healthy dose of exploration, which will undoubtedly extend Co-O’s mine life. The restoration of Medusa’s dividend is around 18 months away, Hepburn-Brown told us. So this may be one for the income hunters as the story unfolds.
I too attended MML's presentation. I concur with Chip's very thorough reporting on the event. I would like to add a few points that may have been overlooked: 1)The Co-O mine is situated outside of the typhoon belt normally but in recent years it has sustained typhoon damage to its infrastructure. The management have typhoon proofed the mine as far as is possible; 2)If the national grid electricity supply fails they have backup diesel generators; 3)The new mill is progressing and they have ordered an additional complete unit of all the critical parts which are sitting in the warehouse ready and waiting for when they may be needed; 4)The total cash costs of producing at Co-O is $400/oz. t4j
Chip - it was great to catch up last night.
You (and t4j) have covered most of the substantive points, but I thought I might add a bit on the atmospherics and some interesting asides.
- Peter Hepburn-brown was very upbeat about the future, but came across as a safe pair of hands who was determined to build a robust company on solid foundations and would not take unnecessary risks. He implied some directors, including him, would be adding to their holdings if the price stayed at this level once they were able to buy again, though he also noted that given the age profile of the board some others may reduce their holdings when the price recovered. Overall the thought the total directors shareholdings would remain around current levels;
- both M&G and Fidelity had sold shares recently, but M&G at least had assured him his was due to company policy that triggered sells through pre-programmed algorithms if the price of gold dipped below a certain level though the company was committed to mml in the long term and he expected them to buy back in due course.
- on funding, they had reduced exploration budget over the past year to manage cash flow and had now spent all bar $10m of the capex which would be spent over the next 3mths and had ample cash to cover this. There would be no need to raise money through debt or equity (though he noted they could easily have done the latter if they needed to). He thought it would take some 18mths-2yrs to rebuild their cash stocks to cover the Bananghilig costs, thereafter once in production the mine would be hugely profitable. On current plans it would be c2024 before the company was paying corporation tax given the current tax regime in the Philippines;
- as has been mentioned, all in cash costs for co-o were c$400oz. The equivalent for Bannghilig would be c$700oz which would give an average over the two mines of some $600oz! That would generate huge cash flow from 400,000oz pa in due course.
- they had learnt from recent, unexpected problems with the typhoons and built a lot of redundancy into the mills with separate transformers, back up generators, key spares on site, stockpiles of ore above ground etc to give maximum resilience;
- they would aim going forward to keep at a pretty constant 8g/t grade going through the mill as this maximised mining efficiency and would help maximise recoveries - even a 1% increase would make big difference (he though it possible to get to 94% in due course);
- the mine itself would keep going for years. They were only down to 350m but drilling showed gold down to at least 1000m and the geology meant they could go deeper than this without refrigeration etc. he seemed confident the mine would stil be going strong in 30yrs+ and would eventually exceed 10m ozs.
- in is view it was unlikely anyone would bid for the company until at least Bananghilig had been completed as few companies were to take on the risk of a labour intensive, narrow vein mine (they currently employ c3,500 people) in an unfamiliar territory. That might change in due course, but had no approaches so far and were not looking for them;
- both the co-o and Bananghilig Mills would be built to a modular construction so they could be easily expanded and were strategically located to the north and south of the licence area so as they identified extra deposits, they could be moved to the right mill for processing (co-o high grade low volume, Bananghilig low grade, high throughput). Strong hint therefore that longer term production could be ealy increased beyond 400k. The resources were there as they kept on finding new veins/deposits!
I came away confident in the company's long term future and that the management were moving cautiously forward taking great care to take the local population with them.
I also attended the MML presentation on Wednesday evening; most worthwhile to build confidence and also chat with Chip!
Myself and a friend had a long conversation with GD who was very generous with his time for PI's and open with his views. I will add a few additional aspects that arose and build upon Chips, t4j’s and Hertsbirder’s reports:
We talked about exploration costs going forward. To sustain the 10 year 200,000 Oz pa Co-O ROLLING mine life (2,500m Ozs resources with 80% realization)is expected to cost ~$11 pa with 6 underground rigs. With a conceptual 3m-7m resources and frequent reference to being open at depth (Diwalwal deposit is already 1000m deep, etc) they seem very confident on the aspect.
The Bananghilig ROLLING open-pit mine life is planned to be 5 years, and they are confident it will eventually be substantially expandable, possibly also in terms of production rate.
GD was clearly excited by other Au prospects within their tenements. Whilst they are focussed on Co-O and Ban. it one surface rig is still on a roving commission to look elsewhere. GD saw this high-level of prospectivity as a unique aspect of the MML proposition.
The 10,000 Oz 2013 shortfall will be explained in the quarterly results Tuesday/Wednesday next week; my reading between the lines is that they have suffered unreliability on sections of the increasingly defunct old process plant – watch this space! The emphasis on new critical spare parts on the shelf is the comforting countermeasure……
A decision on dividends policy will be made mid 2014 when expanded Co-O is proven and the total costs of Ban. are confidently predicted. They are not in favour of buy-backs, more references to special dividends in order to return shareholder value, as appropriate.
(20min delay)