Undervaluation, page-27

From proactive investors:

Medusa Mining (ASX:MML) A$0.46, Mkt Cap A$94.5m – Medusa mine development

Medusa Mining upgraded guidance for 2016 gold production last week reducing expected gold production to to 85,000-95,000oz from 105,000-115,000oz

Unit costs naturally rise as production falls with the AISC rising to $1,200 -1,350/oz from $1,00-1,100/oz.

The September quarter results were as expected but December suffered from a slow recovery in ore grades.

This combined with higher mine-shaft maintenance lowering ore tonnages served to reduce the ore and grade available to the mill.

The team at the CoO mine are mid way through their capital program which involves higher level of maintenance to ensure the mine can meet its capacity targets.

Underground development continues apace maintaining a rate of 4,500m per quarter for new development.

Maintenance to the L8 shaft will continue into the March quarter slowing up hoisting capacity

The final electronic components for the E15 shaft arrived two months late due to shipping issues as the Hanjin shipping company went bust.  Medusa’s freight managers managed divert the container of components through air freighting the kit into the Philippines.

Medusa’s recently updated new ore resources and reserve statement shows 2.77mt of ore grading 10.8 g/t for 0.96moz of contained gold vs 3.5mt grading 10.2 g/t gold (1.15m oz) at June 2015.  The good bit is the grade of the resource is rising while more drilling will need to be done to expand the resource again. Approximately 57% of the gold ounces in the resource are classified as “indicated” with the balance “inferred” see our last comment for further explanation.

Conclusion: We estimate that Medusa are running around one quarter behind as a result of the shaft maintenance and the delay to the electronic components with the capital programme now due to complete in September.  The cash balance is likely to fall below the A$19.6m seen at end September.