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Fairfax expects Medusa Mining’s Co-O gold production base to top estimates after resource upgrade

Published: 16:24 22 Jul 2010 BST

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Broker Fairfax responded to the recent resource upgrade from Medusa Mining (ASX: MML, LON: MML, TSX: MLL) by stating there was further upside to its flagship Co-O gold project in the Philippines and that the production base could surpass its own model.

Medusa extended its option over the shares of Falcon Petroleum (Falcon). Falcon has a 50% interest in the PSA for Block 17 in Mali and 90% of the PSA over Blocks Ab1, Ab4 and Ab7 in the Blue Nile Basin in Ethiopia, reflecting an increase of 4% for the indicated category and 36% increase in the inferred portion since the last update in January.

The resource now stands at 1.5 Moz (million ounces) of gold at an average grade of 10.8 g/t (grammes per tonne).

Medusa has completed 20 holes since the most recent resource upgrade in January, focusing on infill drilling to extend the Co-O vein system along with northern side of the mine.

Fairfax commented that further exploration could continue to expand the resource, which could lead to an expanded production base beyond its currently modelled 130,000 ozpa (ounces per annum) by 2012 and potentially to 200,000 ozpa. Exploration has now identified a total of 45 veins that have been modelled, many of which could become larger as they remain open along strike and at depth, said Fairfax.

The estimate put Co-O’s NPV (net present value) at US$513 million and forecasted the company’s cash position to reach US$62.8m at the end of June, which includes 25,000oz of gold on account worth US$31 million.

 “We see upside to come through further potential expansions at Co-O and the results of feasibility studies at Bananghilig (deposit) demonstrating an economic mine of up to 200,000ozpa production and other exploration targets. In addition, higher gold prices are likely to add value,” commented Fairfax.

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