Broker SP Angel view: Medusa Mining (MML AU) A$0.805, Mkt Cap...

Broker SP Angel view:

Medusa Mining (MML AU) A$0.805, Mkt Cap A$167m – Progress on New Service Shaft at the Co-O Mine

• The company have updated on the service shaft being constructed to Level 8 which will free up the L8 shaft for ore capacity.

• The men and materials service shaft is expected to be installed by Q2 2016.

• The announcement shows a schematic work completed to date and work that is due to be completed.

• The 2m x 2m Alimak raise (the vertical excavation that leads to a raise) is 70% complete (250m out of 350m) from Level 8 to Level 3.

• The shaft headframe, main winder and sinking equipment are scheduled to arrive in Q4 2015 and once installed will be used to widen the shaft to its final size of 3.2m by 3.65m.

• Once this shaft is completed, all men and material will be moved to the service shaft leaving the L8 shaft to achieve planned capacity of 1,700 tpd.

Conclusion: Having the new services shaft in place frees up capacity in the L8 shaft and will enable the company to achieve the mining rate to be more in tandem with the mill expansion to 2500 tpd. Guidance for FY 2015 is 95-100 oz (June year end) with 71,817 oz achieved in three quarters already. For next year guidance steps to 120-130,000 with AISC of US$960-US$1060/oz – the latter should come down as mining and milling run more efficiently.

At the lower end of production targets for next year (120,000 oz) and the upper end of AISC, the company should be generating cash of around US$17m pre capex and post discretionary exploration at a US$1,200/oz giving strong valuation support. We remain buyers.