Medusa Mining delivers the goods

Mining may not be quite the star stock market sector it was in the mid-2000s, but some companies, with proven and still-promising deposits of the right minerals capable of extraction at economic cost, can still handsomely outperform the indices.    

One of these is Philippines-focused Medusa Mining, whose AIM-quoted shares have soared on the back of increasing production and resources at its Co-O gold mine, expansion prospects at another gold project at Bananghilig and hopes of a major copper deposit at Lingig in the Philippine province of Surigao del Sur.

With gold riding high and lately testing levels above $1,100 an ounce and copper touching 14-month highs of nearly $7,000 a tonne on signs of reviving Chinese growth, Medusa’s recent break into significant profitability has ensured it a keen City following.

Based in Western Australia and quoted Down Under as well, Medusa has forecast a 77 per cent increase in gold output to 86,000 oz in the year to next June and indicated that it is on target for a two-thirds increase in production from Co-O to an annual rate of 100,000 oz by the first quarter of 2010, with long-term cash costs, before financing, of little more than $200 an ounce. The company estimates total gold resources at more than two million oz – 603,000 oz indicated and 1.4 million oz inferred – and has established gold reserves of 500,000 oz at a respectable grade of 10.8 grammes of gold per tonne of ore.

Steered by formidable managing director Geoff Davis, Medusa turned a £650,000 loss into £20 million pre-tax profits in the year to June, increasing output from Co-O 152 per cent to 47,869 oz of gold at an average grade of 13.3 grammes of gold a tonne in the year to June and generating revenues up 216 per cent to £29.5 million. The company, whose cash production costs, before financing expenses, fell 14 per cent to $213 an ounce, received an average $880 an ounce for its output.

Drilling has already increased the estimated gold resource at Co-O by 60 per cent and the company says the maiden estimated resource at its new Bananghilig project is 650,000 oz. Though seen as low-grade, with an estimated 1.3 grammes a tonne of gold, if Bananghilig came on stream it would, of course, further augment Medusa’s gold-producing role, while Davis speaks of a ‘pipeline of deposits’ now being established.

Davis cites ‘excellent exploration upside’. This includes not only high-grade gold targets, but also, significantly, six porphyry (brownish-purple igneous and often mineral-rich volcanic rock) copper targets, which some analysts suggest have the potential to outshine the company’s gold projects.

At Lingig, Medusa has located copper mineralisation in two distinct geological settings, with interceptions ranging from 0.2 per cent to 0.4 per cent copper. Since March, the company has drilled some 6,400 metres and says it has identified ‘a large copper-anomalous zone’.

‘We continue to intersect extensive mineralisation in increasingly favourable settings,’ declares Davis. ‘The copper grades intersected to date are comparable to many other porphyry deposits around the world.’

Medusa is busily working to locate the source of the copper mineralisation. This should enable the company to work out the potential size of the deposit and the prospects of developing it commercially.   

Back in February, Medusa raised £12.5 million in Australia at the equivalent of 62p. The company ended its financial year with £14 million. Medusa shares are already AIM stars, having surged from 23.5p to 232p in a year. But the company’s move into profits, drilling successes and copper prospects mean that they still look good value.

In Greek mythology, Medusa was a gorgon who turned those who looked at her to stone. A more agreeable prospect should face those who contemplate Medusa Mining.