Medusa Mining (LON:MML, ASX:MML, TSX:MLL) could potentially increase gold production up to 400,000 ounces of gold and beyond, according to new research by Fairfax Securities.
Fairfax mining analyst Marc Elliot looked at the ever expanding Co-O gold mine in the Philippines and the potential big impact of successful exploration on the tenements that surround the mine.
This morning, Medusa told investors that recent drilling has extended the high grade gold-silver zones on the Saugon project's First Hit Vein prospect.
The best assays had widths ranging from 0.75 to 4.55 metres, with grades ranging between 9.63 - 28.07 grams per tonne (g/t) gold and 125.13 - 413.6 g/t silver. The deepest high grade assay had 3.35 metres grading 11.71 g/t gold and 154 g/t silver, from around 180 metres.
This key exploration project is around 10 kilometres from Medusa’s Co-O gold mine in the Philippines, where it is currently working to double output to 200,000 ounces of gold per year.
Elliot said the results represent an exciting development that highlights the high prospectivity within the exploration tenements surrounding Co-O.
“The company can pursue its exploration programme at and around Co-O, at Saugon and Bananghilig as well as other targets funded out of cashflows from the highly profitable Co-O mine,” Elliot said.
“We look forward to exploration developments to add value for shareholders seeking low risk exposure to gold (due to the low cash cost) with significant organic growth and exploration potential.”
Fairfax upped its forecasts due to the recent decision to double Co-O’s production capacity.
“We have upgraded our forecasts reflecting a ramp up in production from the current annualised rate of 100,000 ounces per annum to 200,000 ounces per annum by 2014.”
“We’ve assumed cash costs of US$210 per ounce for the expanded operation and capital cost of US$86 million on top of previous estimates as well as raising sustaining capital at the mine from US$6 to US$8 million per annum. “
Elliot rates Medusa as a ‘buy’ with a 451 pence target.
He adds: “We see further value to come from targets such as Saugon and Bananghilig that could evolve into stand alone (mines) contributing to management’s long term aim of producing 300,000 - 400,000 ounces per annum, or perhaps more.”