Ann: L8 Shaft Upgrade, page-3

Friday's announcement by Medusa represents the culmination of years of work upgrading the mine and building a new mill at Co-O.

This L8 shaft upgrade completion is the final piece of the jig saw puzzle to increase mine and mill capacity from c.100k oz/year with the old mill to 140-150k oz/year now. Actual performance will mainly depend on mine efficiency and output, the average grade of ore mined, the dilution effect of development ore and efficient operation of the mill.

Profit will depend very much on output, head grade and the gold price but possible profit outcome rises from $35 million this year, 2014/15 (av $1250 oz) to possibly double this, $71 million, next year. If gold really takes off as it's showing signs of doing at the moment then profit potential would be astronomic as costs are more or less fixed!

Possible production scenarios at different head grades:
60,000 ton/mth x 3 mths/qtr x 5.0 gm/ton / 31.1 gm/oz x 92% mill recovery = 26.6k oz/qtr = 106.5k oz/yr
60,000 ton/mth x 3 mths/qtr x 6.0 gm/ton / 31.1 gm/oz x 92% mill recovery = 31.9k oz/qtr = 127.8k oz/yr
60,000 ton/mth x 3 mths/qtr x 6.7 gm/ton / 31.1 gm/oz x 92% mill recovery = 35.7k oz/qtr = 142.7k oz/yr

L8 shaft Upgrade:
Larger skip (3.6t to 4.8t)
Double deck man cage (from 12 to 24 man)
........... Levels 1-5 haul .....L8 shaft ........ Total
Current ......1,015 tpd ........717 tpd ....... 1,732 tpd
L8 upgrade 1,015 tpd .....1,404 tpd ....... 2,419 tpd

New mill capacity approx 2500 tpd

2014/15
Q1 actual gold production: 21k oz (5.02 g/t gold and cash costs of US$382 per ounce)
H1 forecast gold production: 40 - 45k oz
FY forecast gold production: 95 - 100k oz
Average reserve grade: 7 g/t
Average head grade of > 5 g/t
Aim to get Av head grade up to 6-7 g/t, hopefully closer to the 7 g/t

Mill recovery > 92%

Forecasted cash costs: US$400 to US$450 per ounce
Forecasted AISC: US$900 to US$1,000 per ounce but expected to be below $900/oz

2014/15 FY estimated profit: 100k oz x ($1250 - $900) = $35 million
2015/16 FY estimated profit: 130k oz x ($1450 - $900) = $71.5 million

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The L8 Shaft upgrade has been completed and commissioned on schedule. Level 8 underground operations re-commenced on afternoon shift on 13 January 2015.

The key benefits of the upgrade are:
(i) an increase in the total haulage capacity of the mine to approximately 60,000 dry tonnes per month (from approximately 45,000 dry tonnes per month) through the replacement of the previous 3.6 tonne skips with 4.8 tonne skips. The L8 Shaft hauls material from Levels 6, 7 and 8.
(ii) improved men and materials handling through the installation of double man-cages (replacing single man-cages) which will reduce travel time to work places on Levels 6, 7 and 8.

Geoff Davis, CEO of Medusa, commented: “This is an important step in improving the efficiency and capacity of the Co-O Mine.