Results: Medusa's annual results to the end of June reflect record results as the company has continued to successfully expand mining operations, achieving a production rate of 100,000ozpa. Revenues for the year stood at US$94.6m up 121% yoy, EBITDA was up 142% yoy at US$73.7m, profits for the year came to US$65.8m up 131% yoy leading to EPS of 37.8c/share, up 102% yoy.
Underlying profits are ahead of these numbers since at the end of June the company had 6,368oz of the year's production not dispatched which were treated as inventory, factoring these ounces into profits takes the 2010 results to US$71.7m.
The company reached year end with a very robust balance sheet that reflects no debt and adjusted underlying cash and bullion of around US$63.4m.
Earnings are in line with our forecasts, or ahead if considering the underlying earnings. Our forecast cash and bullion position was in at US$62.8m.
Co-O Mine: The mine produced US$89,679oz gold at an average grade of 16.52g/t Au and cash cost of US$184/oz. Management is budgeting 100,000oz of gold production this year, although there is considerable upside potential from the mine and nearby targets. Exploration work at Co-O has demonstrated that the strike extends 1.5km with veins identified across 500m width. The mill continues to be developed and once new leach tanks are in place and the new power line completed by year end, then there will be spare capacity at the mill that could lead to incremental production growth. We have modeled 120,000oz produced this year at a cash cost of US$200/oz rising to 130,000ozpa thereafter. Work continues to explore the surrounding area that could potentially lead to the delineation of sufficient resources and reserves to support a substantially larger operation.
Exploration: In light of the continued exploration success and extensive portfolio of exploration targets within what the management regards as one of the most prospective mineralised regions in the Philippines the exploration budget has been increased from US$18.9m in the June 2010 financial year to US$21.0m this financial year. As noted above, Co-O has considerable potential for expansion, and without doubt a long mine life. A conceptual model previously outlined by the company indicated potential for 3-7moz of resource, and there could be significant upside from here as gold intercepts have been picked up 700m below surface.
Bananghilig is the company's other principal gold project which is currently being explored and currently has a resource of 650,000oz at 1.3g/t Au. Drilling is underway to establish whether there are sufficient reserves to support a mining operation. A combination of Bananghilig and Co-O have the potential to support a production base of 300,000-400,000ozpa of gold production which would add major value to the company positioning it as a solid mid tier producer. In addition to these projects there are other gold targets such as Saugon and Anoling, as well as copper porphyry targets such as Usa and Lingig.
Conclusion: Following on from the company's quarterly report, clearly Medusa is achieving its goals and generating significant amounts of cash benefiting both from near record gold prices and a particularly low operating cost. We look forward to ongoing developments that could outline a production base of 300-400kozpa of gold. The extensive exploration potential could also see further value from copper porphyry targets within the tenement package. We recommend the company to investors seeking exposure to gold and organic growth through developments and expansion with substantial exploration potential.
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