Tropical storm Sendong and continued bad weather over Christmas and New Year had caused disruptions to the operations at the Co-O mine in the Philippines. This has adversely impacted gold production, the company said.

The firm now expects to produce 75,000 ounces of gold, rather than the previously estimated 90-100,000 ounces. Consequently, cash costs per ounce are expected to be higher at US$242 rather than US$230.

The disruption was said to be a short term setback and managing director Peter Hepburn said that Medusa remains in a healthy financial position and investors should focus on the group’s long term objectives.

In that respect Hepburn told investors that the mine expansion is ‘picking up pace’ and building work starts on the mill this month.

The current expansion programme aims to increase annual gold production to the 200,000 ounce mark. Beyond that the firm is targeting 400,000 ounces per year by the end of 2015 or early 2016.

The company also confirmed that during the three months ended December, it sold 10,000 ounces of gold at an average price of US$1,761 per ounce. The company is debt free and has US$80 million in cash and cash equivalents. 

“While the short term decline in performance is frustrating we believe that the long term outlook for Medusa and the Co-O mine remains positive,” said Asa Bridle, analyst at broker Seymour Pierce.

“The investment argument for Medusa remains strong with a robust mine margin being maintained at the same time that the company is moving on with its development plan.”

Bridle’s view was echoed by fellow mining analyst John Meyer, of Fairfax Securities. 

In a note today, Meyer said that today’s news may disappoint some investors in the short term but he continues to believe that Medusa offers investors a good growth profile.

He also believes that cash costs per ounce will come down to US$230 for the full year as production increases in the second half of the year.

“The cash cost is still very low compared to industry standards,” Meyer said.

“Importantly the company continues to benefit from strong cash flows which can fund their ongoing development programme.”

Medusa Mining (LON:MML, ASX:MML) revealed more positive results from the Bananghilig gold deposit in the Philippines where drilling continues.

Medusa is currently validating the existence of a 650,000-ounce resource at Bananghilig, which it aims to extend to a reserve of around 1 million ounces. It is currently focused on upgrading the resource to the indicated category.

This reserve would form the basis for a feasibility study, which would target production of 200,000 ounces of gold per year from a new milling facility.

The Bananghilig gold deposit is contained within the Tambis Project and is operated under a deal with Philex Gold Philippines which covers 6,262 hectares.

It consists of three zones, each around 1 km in length and open in all directions, known as the Sorex, Garden and Malinao zones.

From August 31 to December 31 last year, 8,568.95 metres of diamond drilling in 21 holes were completed, said the company.

Results included 6.05 metres with 17.09 grammes of gold per tonne and 28.55 metres with 1.54 g/t of the precious metal.

Medusa's managing director Peter Hepburn-Brown said: "It is pleasing that drilling continues to provide positive results in and around the existing resource which allows us to progress to infill drilling and to upgrade the resource category to predominantly Indicated, which will then be used for reserves modelling later in the year.

"We have seven rigs in the area and it is our intention to continue drilling throughout this year."

Broker Fairfax, which rates the stock a 'buy', said in a note today: "These drill results are part of the process to upgrade the resource base at Bananghilig and the company are on course to do this."

Analyst John Meyer added: "We continue to believe that Medusa offers upside value and have a target price of 573 pence."

Elsewhere, Seymour Pierce analyst Asa Bridle, who also recommends a 'buy', commented: "It remains our top pick in the gold sector based on the very low operating cost profile at its Co-O mine, the short and medium term production expansion plan and its strong cash position.

The broker targets a price of 526 pence for the shares (current price: 367.75 pence).

Today's results follow those reported in September last year, where the highlights included one hole with a 5.3 metre section, which returned a grade of 20.14 grammes of gold per tonne and another at 8.67 grammes over an 8.25 metre section.

From July 24 to August 31 last year, the firm had drilled over 93 holes for a total of 32,000 metres.

The broker says market expectations are for Randgold to grow production by 17 per cent in the next full year and by 9 per cent in 2013.

EBITDA margins over these two years are 62.8 per cent and 62.3 per cent respectively while the South African firm is trading on earnings multiples of 16.2 and 16.5 and price to cash flow multiples of 12.5 and 12.9. 

Medusa, meanwhile, offers production growth of 27.1 per cent and 66.0 per cent in the years to end June 2013 and full year 2014, with EBITDA margins of 78.9 per cent and 77.5 per cent but trades on an earnings multiple of 8.4 and price to cash flow of 8.2 times dropping to 6.1. 

The broker says Medusa also offers a yield above 1 per cent against 0.6 per cent at Randgold. 

It adds it has “no axe to grind against Randgold” but the disparity highlights the fact “there are well financed alternative producers further down the market cap scale that would appear to offer significant value”.

Medusa also trades below the weighted average for its London listed gold peer group on all three earnings metrics for the full year to 2013.

Seymour Pierce has a buy rating on Medusa with a price target of 526p.

Medusa recently forecast production of 90-100,000 ounces gold production this year to June, rising to 120,000 ounces in 2012/13 and 200,000 ounces the year after.

It is currently producing gold at the Co-O mine in the Philippines and developing a second deposit in the country at Bananghilig.

Medusa’s ambition is to become a mid-tier producer of 400,000 ounces of gold by late 2015 and has earmarked at least US$22million this year for gold exploration.

Recent share price weakness from Medusa Mining (LON:MML, ASX:MML) means that investors have a “fresh opportunity to gain exposure to a low cost producer which can self fund the cost of doubling production”, according to Seymour Pierce.

The broker, which published new research on the firm today, noted that yesterday Medusa lowered its 2012 production guidance from 100,000-110,000 ounces to 90-100,000 ounces following a poor first quarter and a fatality at one of its sites in the Philippines. Seymour said that a result of this has been the shares underperforming the market by more than nine per cent during the last month, but that the dip gives investors the opportunity to buy into a firm that it values at 526 pence per share (compared with the current share price of 422 pence).

Yesterday, at Medusa’s annual general meeting in Perth, Western Australia, its chairman Geoff Davis said that the firm was “steadily progressing” towards its objective of becoming a mid-tier producer of 400,000 ounces of gold per annum by late 2015. The firm is currently expanding mill capacity at its Co-O gold deposit to produced 200,000 ounces per year, and it is continuing to enjoy exploration success at its Bananghilig deposit while building a second 200,000-ounce per annum milling facility.

Seymour expects Medusa to produce revenue of around US$152 million for the year to June 2012, along with a pre-tax profit of US$110.3 million (58.6 cents earnings per share), which would be in line with the revenue and profits the firm made last year. However, for 2013 it forecasts revenue of US$180 million and profit of £126.7 million (67.3 cents EPS).

Today, Medusa announced that Davis yesterday sold one million shares at an average price of A$6.72. The proceeds from the sale will be used to pay personal income tax as well as to provide funds for charitable undertakings, said Medusa.

Following the sale, Davis’s interest in Medusa amounts to more than four million shares (2.15 per cent of its issued share capital).

Speaking at the firm’s Annual General Meeting in Perth, Western Australia, Geoff Davis said that Medusa was “steadily progressing” towards its objective, with the current expansion of mill capacity at its Co-O gold deposit to produce 200,000 ounces per year and through continued exploration success at its Bananghilig deposit along with the construction of a second 200,000-ounce milling facility.

Meanwhile, Medusa’s ambitions in the Philippines do not stop with Co-O and Bananghilig, added Davis. “We are positive that these two gold projects will not be the end of the gold story,” he said, pointing out that the firm has budgeted US$27 million for exploration, “which keeps 20 diamond drill rigs turning 365 days of the year”.

Davis said that the firm intends to fund its future capital expenditure out of cash flow, and at the same time will also continue to pay a small dividend to shareholders. Once all future capex requirements are satisfied by cash in the bank, the firm plans to review its dividend policy, he added.

During its last financial year, Medusa produced 101,474 ounces of gold at cash costs of just US$190 per ounce, generating a net pre-tax profit of US$110 million. For this year the firm expects production to be between 90,000 and 100,000 ounces.

Shares in Medusa were down 1.6 per cent at 420 pence each in early trading this morning.

In the three months to September 30, the company produced 10,510 ounces at a recovered grade of 8.33 g/t gold at cash costs of US$291 per ounce. In the comparative quarter in 2010, the firm produced 25,004 ounces at 15.77 g/t at costs of US$187 per ounce.

Medusa also said it spent US$5.36 million on capital works, associated sustaining capital at the mine, and also costs for the new mill construction and infrastructure in the three months to September 30 this year.

It also paid out US$6.74 million on general and accelerated mine development, including shaft sinking costs compared to US$4.5 mln in the June quarter this year.

The Agsao Shaft at the Co-O mine was shut down for extensive refurbishment in July and August with a consequent reduction in production for the period.

At the same time, a larger winder and skip were installed, increasing the haulage capacity of the shaft to more than 400 tonnes per day and commissioning began on 01 September 2011.

Permitting of the Co-O mill expansion - part of plans for a new Co-O plant- has been delayed due to typhoons in September and October, the firm revealed.

In today's statement, managing director Peter Hepburn-Brown said: "Now that we know the layout of approximately two million resource ounces in the mine, the mine is undergoing major renovations to modernise it."

He pointed out that, as with any renovations, there were inconveniences and altered work practices in the process.

"Despite these short term hiccups, on completion we will have a modern efficient underground mine serviced by efficient shafts and underground haulage systems," he said.

This quarter, the sinking of the Saga shaft went smoothly and is expected to be hauling ore in the June 2012 quarter after reaching Level 6 late in the December 2011 quarter, he said.

Hepburn- Brown added: "I urge all shareholders to focus on our long term objectives of developing a profitable long term asset and not to be influenced by short term production volatility".

Analyst Kate Craig, of broker Oriel Securities, described the results as "a departure" from the company’s usual production of 25,000 ounces at cash costs of less than US$200 per ounce but added:

"This does not alter our full year production estimate of 100,000 ounces at US$206 per ounce. We maintain our 'buy' recommendation and 584 pence target price."

In today's report the firm also updated investors about current drilling at the Co-O mine, where six surface and five underground rigs are in action.

The results include 1.40 metres at 28.02 grammes per tonne (g/t) gold, 1.45 metres at 56.23 g/t gold, 2.50 metres at 72.80 g/t gold and 1 metre at 21.53 g/t gold.

Based on a new resource model for the mine and on-going exploration drilling results, the conceptual exploration target for Co-O ranges 3,000,000 ounces in 9,800,000 tonnes to 7,000,000 ounces in 23,500,000 tonnes using a grade range of 9 to 11 g/t gold with a preferred average grade of 10 g/t gold.

The company stresses the potential target size and grade is conceptual in nature, and that there has been insufficient exploration to define a mineral resource. It is uncertain if further exploration will result in the target being defined as a mineral resource.

Medusa says that the combination of past production of approximately 450,000 ounces and the current global resource of 1,960,000 ounces indicates the deposit size is approaching the lower end of the conceptual exploration target size range.

Detailed mapping and data compilation of the Co-O Mine vein system has been completed. The study reveals a well preserved, intermediate sulphidation epithermal vein system with a large near surface, mushroom-shaped argillic alteration zone measuring over 1,500 by 1,500 metres in area and which grades into propylitic alteration to the east and at depth.

The alteration and mineralisation trends indicate that the source of mineralising fluids is likely to be from beyond the current eastern end of the vein system, says the company.

Geoff Davis, chairman of Medusa, says: "The Co-O Mine continues to expand, the more we drill the more we find, and we still cannot see an end to this extensive epithermal vein system. It is currently approximately 1.6 kilometres long and open to the east, and around 750 metres wide across the strike of the veins and still open both north and south, and as shown by drilling, it is also open at depth.

Davis adds that the size of the alteration envelope suggests there is the possibility of more vein systems contributing to this very large argillic alteration zone.

“Drilling will continue with the six surface rigs and five underground rigs for the foreseeable future," he says.

After gold producer Medusa Mining (LON:MML, ASX:MML, TSX:MLL) published an update for its fourth quarter at the end of July, house broker Fairfax has upgraded its target price for the shares to 680 pence each from its previous target of 573 pence.

Fairfax noted that production for the quarter ended June 30 at Medusa, which has been extending its low-cost gold mine in the Philippines, was 25,233 ounces – giving the firm a record annual production of 101,474 ounces. It also pointed out that Medusa’s production is un-hedged giving it “full exposure to high spot prices with low cash costs forecast to stay at around US$200 per ounce”.

Meanwhile, the firm has seen a “significant increase” in its gold resource to 1.96 million ounces from 1.5 million ounces and new discoveries “show potential for future growth”.

In its valuation, Fairfax has chosen to raise its estimated gold price for 2011 to US$1,525 (up 11 per cent) and for 2012 it is estimating US$1,700 (up 14 per cent). The long-term price it is using goes from US$1,100 ounces to US$1,250.

Fairfax has also used company guidance of 100,000 to 110,000 ounces production for year-end to June 2012 in its calculations. It forecasts this production to move up to 125,000 ounces for 2013, then 180,000 ounces for 2014 before reaching a plateau of 200,000 ounces per annum in line with planned mine expansions.

At 3:54pm today, Medusa’s shares were down 4.4 per cent at 421 pence each.

Medusa Mining (LON:MML, ASX:MML) has upped the Co-O mine’s gold resource by 30 percent from 1.5 million to 1.96 million ounces.

The upgrade follows the group’s ongoing drilling over the past year.

The new resource comprises a total of 6.34 million tonnes of ore grading 9.6 grams per tonne gold. It has 616,000 ounces of contained gold in the indicated resource category and 1.34 million contained ounces in the inferred.

"This extremely pleasing result highlights the exceptional potential of the Co-O Mine vein system,” said managing director Peter Hepburn-Brown.

“It means we have added approximately 560,000 ounces (including replacing the ounces produced during the year) by drilling in the last 12 months at a drilling discovery cost of approximately US$24 per ounce.

“At this point there is no geological reason why a similar result can't be achieved in this current financial year as we continue work with five underground rigs and six surface rigs.”

Hepburn Brown added: “We anticipate being able to expand the Co-O vein system for quite some time yet."

The rapidly growing Co-O mine, which is located in the Philippines, is one of the world’s cheapest producing gold mines and against a backdrop of record prices above US$1,600 an ounce it is a very profitable operation.

Last month Medusa told investors that it expects Co-O to produce between 100,000 and 110,000 ounces this year, at a US$200 cash-cost per ounce.

Analyst John Meyer at house broker Fairfax, which rates the stock a "buy" targeting a price of 573 pence (current price: 520 pence) welcomed the resource upgrade and said it was "great news" for investors and the firm.

"Medusa is more than replacing its mined gold and looks like it could support further expansion of the mine and plant," he said.

The upgrade follows the group’s ongoing drilling over the past year.

The new resource comprises a total of 6.34 million tonnes of ore grading 9.6 grams per tonne gold. It has 616,000 ounces of contained gold in the indicated resource category and 1.34 million contained ounces in the inferred.

"This extremely pleasing result highlights the exceptional potential of the Co-O Mine vein system,” said managing director Peter Hepburn-Brown.

“It means we have added approximately 560,000 ounces (including replacing the ounces produced during the year) by drilling in the last 12 months at a drilling discovery cost of approximately US$24 per ounce.

“At this point there is no geological reason why a similar result can't be achieved in this current financial year as we continue work with five underground rigs and six surface rigs.”

Hepburn Brown added: “We anticipate being able to expand the Co-O vein system for quite some time yet."

The rapidly growing Co-O mine, which is located in the Philippines, is one of the world’s cheapest producing gold mines and against a backdrop of record prices above US$1,600 an ounce it is a very profitable operation. 

Last month Medusa told investors that it expects Co-O to produce between 100,000 and 110,000 ounces this year, at a US$200 cash-cost per ounce.

A “bumper crop” of new results at gold miner Medusa Mining (LON:MML, ASX:MML, TSX:MLL) helped its shares to bounce some five percent to 444.5 pence each by 10:39am this morning.

Highlights of the surface and underground drilling at the company’s Co-O mine in the Philippines included seven holes that had grades of between 7.15 and 208.7 grams per ton of gold, with median results including: 2.95 metres at 14.09 grams per ton, 1.4 metres at 21.4 grams per ton and two metres at 32.64 grams per ton.

Results from one hole showed 8.65 metres at 41.43 grams per ton.

Medusa said that recent surface drilling was concentrated mainly to the east of the Oriental Fault in the vicinity and to the east of the Saga Shaft to provide mine planning information. It added that the multiple East Agsao veins are developing as “a robust vein set strongly open to the east and already extending to at least 100 metres beyond the current 1,500 metre strike length of the Co-O vein system”.

Underground drilling has continued to confirm vein continuity and discover new veins. A new resource estimate is expected shortly.

"This is a bumper crop of new results from the Co-O Mine totalling over 200 individual vein intersections, and the most ever reported for a quarter's drilling to date,” said Geoff Davis, Medusa’s chairman. “There appears little doubt from the deep intersections reported that this vein system is still open at depth with high grade results being returned from over 800 metres down hole.”