August 20, 2009 Medusa Mining Has Delivered A Fabulous Return For Investors This Year, And There Could Be More To Come
By Our Man in Oz
If they were asked to name Australia’s most successful gold miner of the past 12 months it’s a fair bet that few of even the most seasoned professionals would nominate Medusa Mining. But those that did would be on the money, because since those dreadful November days last year, when the sky fell in courtesy of Lehmann Brothers, Medusa has stormed ahead, delivering a 500 per cent increase in its share price. From a low of just A41 cents the stock hit a high in late July of A$2.89, and then eased back to the current level at around A$2.50, a gain of 519.5 per cent in just nine months for the lucky punter who picked the low point. There are many reasons for the rise. The gold price has certainly helped. But the real reason is that Medusa is delivering on its promise of being a low-cost gold producer with oodles of upside – as was highlighted last week when the company issued a report which all but said “we’ve got a second mine”.
The latest technical filing from Medusa covers the Bananghilig project which lies at the northern end of a large tenement package controlled by Medusa on the Philippine island of Mindanao. Until recently, little had been heard about Bananghilig. It was just another target among many in a richly-mineralised part of the world. Then out of the blue came a statement from Medusa’s managing director, Geoff Davis, that a maiden resource of 650,000 ounces of gold had been outlined at Bananghilig. He added that the resource “has the potential to grow and propel the company to upper mid-tier gold producer status through the development of a second mine”.
When - rather than if - Bananghilig is developed, it will be a completely different offering to Medusa’s current flagship, the rich Co-O mine, which lies further south in the same tenement package. Whereas, taking the average for the June quarter, Co-O is currently yielding ore with an eye-catching grade of 14.28 grams a tonne, Bananghilig is a bulk-tonnage prospect. Its’ maiden 650,000 ounces are contained in an estimated 15 million tonnes of disseminated material assaying 1.3 grams a tonne. Much more gold can reasonably be expected because the main zone of mineralisation is open in all directions, and has yielded whopping drill core intercepts such as 205.9 metres at 2.42 grams a tonne and 182 metres at 2.13 grams a tonne.
“Management believes that Bananghilig is the first of a number of potential disseminated deposits that may be found in the northern section of the company’s tenements and/or to the south”, Geoff said in a statement dated 12th August. He added that nearby a lot of promise is offered from an 18 kilometre long corridor of carbonate-rich host rocks along a geological structure known as the Barobo Fault. “Strong indications of disseminated mineralisation have already been discovered at a number of locations.”
While the news flow from exploration work can be expected to increase in the months ahead, the most important current event is that Co-O is proving to be the gold mine that Medusa had hoped it would be when it started development there. The June quarter result underlined the value of this high-grade mine, as 16,009 ounces were yielded at a fabulously low cash cost of US$198 an ounce. That took overall production for the year to June 30th to 47,869 ounces at US$213 an ounce. It is this complete package of gold output, cash flow, discovery news, and a rising resource/reserve base which best explains why Medusa has delivered a 500 per cent return for investors who took an interest in the stock at the end of last year.
For the record, and as an entry in our “brag book”, Minesite’s Rob Davies first got a little excited about Medusa in a report that was carried here on September 2nd last year, just as the scramble by investors for the exit became a stampede. He courageously dubbed Medusa a company which might fit the description: “perfect junior resource stock”. His story may have helped that serial launcher of failed bids, Hong Kong’s Crosby Capital, drop an offer of A$1.15 per Medusa share onto the table.
By November, Crosby had exited (stage right). Minesite’s Man in Oz then chimed in with a report which said “have faith”, and which opined that even if the share price had fallen, and Crosby had fled the scene, Co-O remained, as did a swag of exploration targets and future gold and copper development targets. In February this year, the professionals moved in, snapping up a A$24.5 million placement by Medusa at A$1.21, and it’s been “game on” ever since.
For this latest update on Medusa, Minesite’s Man in Oz tried to track down Geoff for a chat, but missed him by a few hours as he jetted across the Pacific to deliver the Medusa story to a hungry Canadian audience. Somewhat perversely, this is what happened in April, only on that occasion he was jetting across the Indian Ocean to tell London about Medusa. Both times, the story has been much the same, and while there is an awful lot of new detail to be absorbed, the essential message is that Medusa has a “mineralised tiger” by the tail.
More importantly, it has a plan to tame the tiger, and that starts with cash from Co-O. Co-O is on track to hit its phase one target of 60,000 ounces of a gold year. That output will then rise to 100,000 ounces a year in phase two, which is on schedule to start early next year. There will then be a wealth of opportunities to consider, including the possibility of Bananghilig as the company’s second mine, or the extremely promising Lingig copper project, or a large porphyry structure at Kamarangan.
The essence of Geoff’s investor presentation, which he has been delivering in Canada over the past few days, and available here, is that Medusa is a debt free and un-hedged gold producer, with a long-term cash cost outlook in the US$200 per ounce range, with a resource base standing at two million ounces (but certain to grow), and with exploration upside that includes high-grade vein structures, disseminated bulk gold targets, and six porphyry copper targets. Is that the perfect junior resource stock as Rob Davies said almost exactly a year ago? Perhaps, though the “junior” tag is starting to look outdated. http://www.minesite.com/nc/minews/singlenews/article/medusa-mining-has-delivered-a-fabulous-return-for-investors-this-year-and-there-could-be-more-to-co/1.html
MML Price at posting:
$2.29 Sentiment: LT Buy Disclosure: Held
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