Medusa to use cash flow for new plant at Co-O mine

Debt-free and un-hedged gold producer Medusa Mining (mll-t, mml-l, mml-a) will use US$80 million from its cash flow and build a new treatment plant and expand its Co-O mine in southeastern Mindanao, the second-largest island in the Philippines.

The new plant will have an initial design capacity to treat 750,000 tonnes per year and once it is up and running will have the capacity to produce 200,000 ounces of gold per year based on the current grade of the mine’s reserves.

For the fiscal year ended June 30, the Co-O mine and mill produced 89,679 ounces of gold. This year the company is targeting 100,000 ounces of gold production.  

The new plant will take Medusa about 18-24 months to complete, once it receives all the  approvals it needs.

The Co-O narrow-vein underground gold mine is a very low-cost producer. Cash costs of gold mined net of development costs and including royalties and local business taxes were just US$187 per oz. in the September 2010 quarter.

As of July 23, the Co-O mine had indicated resources of 1.42 million tonnes grading 13.2 grams gold for 603,000 oz. contained gold and inferred resources of 2.91 million tonnes grading 9.6 grams gold.

Reserves stand at 1.47 million tonnes grading 10.7 grams gold for contained gold of 505,000 ounces. Reserves were based on US$900 per oz. gold, a minimum stope width of 1.2 metres and a stope cut-off grade of 2.62 grams gold.

Cash flow generated from the new plant at the Co-O mine will in turn fund Bananghilig, the company’s next project. That deposit lies in the northern portion of the company’s claims along the Barobo Fault Corridor in the Tambis district..

Bananghilig has an inferred resource of 15 million tonnes grading 1.3 grams gold per tonne for 650,000 oz. gold. Previous drill holes have returned assays of 205.9 metres grading 2.42 grams gold; 182 metres cutting 2.13 grams gold; and 116.5 metres of 3.96 grams gold.

Overall things are looking very good for Medusa. Revenues in the fiscal year ended June 30 2010 reached US$94.6 million, up 121% from the US$42.8 million in the fiscal year ended June 30, 2009.

The Co-O gold mine (pronounced Koh-oh) is situated along the Diwata Ranges, which form part of the East Mindanao Ridge, a mineralized region with a mining history dating to before the Second World War. The Diwata Ranges are to the east of the region’s main structural feature — the Philippine Rift Fault — which stretches about 1,200 km in a northwesterly direction from southern Mindanao to northern Luzon and provides the region’s main source of volcanism and mineralization.

The mine lies on the west bank of the Agsao River, about 20 km east of the Philippine Fault and 140 km north of Davao. The mine is believed to lie within a 15-km-diameter truncated caldera, identifiable from volcanic and geographical features. (Calderas are known to be favourable for gold and base metal mineralization.)

At presstime in Toronto, Medusa was trading at $6.61 per share. Over the last year it has traded in a range of $2.75-6.85 and has about 187.6 million shares outstanding.