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Medusa Mining (LON:MML, ASX:MML) expects to produce 75,000 ounces of gold in the current year to end-June 2012 at cash costs of approximately US$230 per ounce.
The group reported on its first half to December 31 2011, in which it produced 26,780 ounces. The figure was below the 51,127 ounces it produced in the previous first half, which is due to the planned expansion and development of its flagship Co-O mine in the Philippines. The work at the mine is progressing well.
Medusa booked revenues of US$40.9 million in the first half, compared to US$78.3 million a year earlier, and the lower production was partially offset by a higher average price received on sale of gold.
Medusa is an un-hedged gold producer and received an average gold price of US$1,655 per ounce from the sale of 25,446 ounces of gold for the half-year to December. It previously realised US$1,291 per ounce selling 48,883 ounces.
The company remains debt free and had total cash and cash equivalent on hand of US$80.2 million at December 31 2011, compared with US$87.2 million a year earlier.
It is paying an interim dividend payment of A$0.05 per share.
Medusa started new, large scale haulage in the form of the Saga Shaft in January 2011. It has made good progress and expects the shaft to be fully operational from 350 metres below surface in the last quarter of the calendar year 2012.
This will allow development of more levels ahead of increased production and the stockpiling of ore ahead of the new mill commencing operation in mid calendar year 2013.
Due to continuing exploration success to the east of the Agsao Shaft, Medusa has begun preparations for another deep shaft in this area, initially to approximately 750 metres, but possibly to a final depth of approximately 1,000 metres.
Construction work has begun at the mill and it anticipates that all long lead time items will be delivered on schedule.
The construction of a number of buildings is also in progress. Medusa is confident it will achieve its timelines for the Co-O expansion, barring interference from the weather.
At the Bananghilig deposit, drilling is continuing with emphasis on converting the historic 650,000 inferred resource ounces and additional inferred resource ounces to the indicated category. The aim is to achieve an initial reserve of approximately 1 million ounces for a 200,000 ounces per year operation.
Managing director Peter Hepburn-Brown said: “This financial year is a year of transition at the Co-O Mine while expansions to the haulage capacity from underground are completed, and accelerated development is prioritised.
“Our growth plans remain intact and are progressing steadily forward. This year promises to be an exciting year as we move the Co-O Mine construction forward to completion, and we look forward to providing updates as milestones are reached,” he added.
Broker Seymour Pierce has reiterated its ‘buy’ recommendation for the stock and its price target of 526 pence. Medusa was last trading at 405 pence.
Metals and mining analyst Asa Bridle said in a note that Medusa retains a very attractive operating margin and that, with no debt as well as with cash and bullion of US$80.2 million at the end of December, it can continue with its expansion plans while also paying a dividend.
“Although further challenges remain for Medusa in its efforts to fulfil the expansion, we continue to take comfort in the preservation of a very profitable operation, which continues to generate significant cashflow during this transition period,” Bridle added.