Interview with MML MD posted on the UK ProActive Investors web site:
Medusa Mining’s (LON:MML, ASX:MML) appeal is rapid production growth allied to the fact its Co-O mine in the Philippines is one of the cheapest running gold mines in the world.
Last year, Medusa produced 101,474 ounces of gold and earned US$120 million.
Going forward, however, Medusa has much bigger ambitions as it aims to become an established mid-cap miner.
“We are expanding the base to 200,000 ounces (per year) in the near term, and up to 400,000 in five year’s time,” managing director Peter Hepburn-Brown told Proactive Investors.
Underground development work, which involves hauling some low grade ore that wouldn’t otherwise be mined, and a short interruption following tropical storm Sendong, means that 2012’s output is expected to be lower than last year.
However, this dip in production shouldn’t detract from what promises to be an important and valuable year for Medusa.
In the coming months, the firm is putting the finishing touches to its latest underground mining shaft, known as the Saga shaft, and it will commission the expanded ore processing plant.
“The Saga shaft will allow Medusa to shift another 1,500 tonnes of ore from the underground mine each day, making Co-O a 2,500 tonne a day operation. With grades in the realm of 10 g/t the mine will be producing at a run rate of around 200,000 ounces a year,” Hepburn-Brown said.
Hepburn-Brown expects the shaft to be operational by December this year, with the expanded mill coming online around 6 months later to allow for a smooth ramp-up.
“We’ll have a stockpile of material available (once the mill starts up). That way the mine is already up and running (at 2,500 tpd) ready for the mill.
“We don’t want both the mine and the mill coming into action at the same time, because if something goes wrong we could miss a step there.
He explains that the staggered start will allow Medusa to work through any teething problems in the shaft haulage operation.
“So once we start up the expanded mill the ore will be available and the development can keep going at the same rate.”
When operating at the 200,000 ounce a year run-rate, Co-O will be among the very cheapest mines to run in the world, with operating costs of around US$200 an ounce.
“We’ll never (see Co-O) become a high cost mine. Even in the first quarter when we produced just 10,000 ounces we still kept cost down below $300 an ounce. It is a robust mine,” Hepburn-Brown adds.
“The idea is to keep costs down to US$200-US$220 when production is up at the 200,000 ounce mark.”
Medusa will still be considered a low cost miner even after the more expensive Bananghilig open pit comes online.
“Costs will increase when we expand to 400,000 ounces because Bananghilig will operate at around $500 an ounce, so overall we’ll average around $350 an ounce for the two projects.
It is hoped that Bananghilig will be the kicker that takes Medusa’s yearly output from 200,000 to 400,000 ounces a year.
It is still fairly early days for the project but if all goes to plan in the coming months Medusa could set the ball rolling on the mine development process and things could start shaping up quite quickly.
Medusa has been drilling extensively at Bananghilig, with seven rigs at work. The drill results are currently being analysed and an upcoming resource statement could see the firm reach an important milestone.
“We are happy with what’s happening up at Bananghilig. We are trying to outline a 1 million ounce resource, which is the trigger point to start mine development,” he says.
While 1 million ounces is an important target Hepburn-Brown says it will just be a starting point for the mine.
“After that we will keep drilling up there because it is a big system,” he adds.
Indeed, exploration drilling is still ongoing at Co-O, as well as across the group’s earlier stage properties in the Philippines.
In all eleven rigs are still turning at Co-O, in both underground and surface locations, meanwhile seven rigs are at work at Bananghilig. And four other rigs are testing prospects in nearby exploration tenements.
“We’re looking to spend US$27-30 million on exploration every year for the foreseeable future. We want to keep up reserves and resources as well as finding new deposits for the future.
“At Co-O we are finding a similar success to what we had last year. Fingers crossed we’ll have the same sort of resource increase that we had last year.”
Drill results and updates from the phased Co-O expansion programme should keep investors engaged in the coming months, Hepburn-Brown said.
“By the end of this calendar year the Saga shaft will be in action, we’ll have a new reserve for Bananghilig, one for Co-O, and the mill will be three quarters finished.”
Hepburn-Brown also reiterates that Medusa aims to maintain dividend payments, which totalled A$0.10 a share last year, through this growth phase.
Once ramped up to 200,000 ounces a year Co-O will be throwing off around $200 million a year. This means investors will not have to stump up any cash, or be diluted, in relation to the Bananghilig mine development.
And after the second mine is built and gold production has doubled to 400,000 ounces a year it is expected that Medusa will re-evaluate its dividend policy to reward investors.
(20min delay)