Ann: Establishment of decline at Co-O Mine, page-2

I sold out recently out of concerns about the ability of MML to continue production once the ore accessible from the Agsao and Baguio shafts had been mined. My main concern was the ore haulage capacity and ore availability from the shafts was placing a significant future production constraint.

The L8 waste and ore haulage shaft only transported around 114,500 tonnes of which 94,000 was ore and the rest mined waste, during the last quarter. If we assume that the future mined ore grade was around 5.8 g/t and the gold recovery rate was 95%, then MML would be producing 16,652 ounces/quarter, or 66,600 per year. At the current costs its clear that MML would go backwards financially if they were only able to access ore via this shaft.

Today's announcement to build a decline that could access far more ore than currently possible and thereby increase ore availability for the mill (now just 60% utilisation rate) potentially increases production to around 140-150k+ ounces per annum, and should make the mine highly profitable if the plan can be successfully carried out to meet the milling capacity. The cost of this plan over 3 years of around $USD60m is likely to consume most of MMLs surplus cash from operations (depending on the gold price) and may require some borrowings and hedging with the loan. Its a good plan but there are risks that while the plan was being implemented the gold price fell back to around USD1200/ounce resulting in operating losses.

There is some chance that the gold price may head up to USD1800 in the near term, but I do not expect this level to be sustained, and there could be a considerable pullback.

Given the risks I would consider selling out, perhaps now or at least when the gold price spikes, and waiting to buy back in much closer to when the decline plan has been implemented, given the past stuff ups with the E15 shaft, eg the shaft was originally intended to provide additional ore hoisting capability but we are now told its not designed for that purpose.

There is a single buyer with a bid for 647,000 shares at 74 cents. I wonder what that is supposed to signify - Ruffer or Paradice showing confidence in MML's management?

GLA.

loki