Seeking Alpha - MML Compelling Valuation, page-2

This is a second article from Seeking Alpha on Medusa in the space of 10 days.

Gold Shows Strength Amid Pessimism: Medusa Mining Might Turn The Corner
Nov. 24, 2014 4:04 AM

Summary

• Gold has broken 1200, and should be fairly safe at this support level.
• Medusa Mining was one of the worst performing gold miners in terms of stock price.
• However, bearish sentiment seems to be vaporizing, and its fall has been overdone.

When gold passed below the cost of production, I had a firm belief that it was only a matter of time before it would return to 1200 (NYSEARCA:GLD); in the interim we have only seen record demand for physical gold and shortages abound at the US mint in gold and silver.

So close to the support level of 1200, gold still stands the risk of falling over. Indeed, in the time it took to write this article, it has fallen just shy of that support level. However, I do not believe it is as likely to fall as far; having already cut through every stop-loss order on the way down, heavy selling within short bursts would have a lesser impact than they did in crashing the market previously. At least until the longs have had the time to forget what they had done previously and put down stop losses again. This brings me to the meat of the article, my recommendation of a MOST unloved miner.

Medusa (OTCPK:MDSMF) mining has fallen 73% YTD, and more than 93% from its 2011 peak (ouch). In recent days however it seems to be picking up steam against its bears, clawing back six consecutive days of gains, up 30% from its very lowest (though still cheap, considering the first two figures).
Now, much of this I suspect is due to the unwinding of over-bearish positions betting on sub-1100 gold; fundamentally, I see little reason for the most recent fall which had been particularly concentrated in the last three months, starting off just as gold began to "crash".

There are plenty of good reasons to be weary of this miner: it took longer than expected to commission a mill, it had two fatalities at its mines this year, a crusher problem had led to higher than expected costs and NPAT this year is down 38% YTD.

However, there are plenty of good reasons to take a risk with it if you believe that the negativity is overdone. Net tangible assets per share has risen from 1.893 to 2.055. At 30.871 million USD of profit, it still earns a good 14.86 cents of profit per share (at a price of 64 cents a share) compared to zero or even negative earnings of certain miners. Finally, the old management that had overseen Medusa's meteoric rise has returned to sort things out.

Again, 1200 gold is already below the All In Total Cost of production for many miners (GDX, GDXJ) and so should not be a sustainable price. Three scenarios present themselves:

1) Prices stay at 1200. Competitors shutter, leaving survivors like Medusa. Medusa is in prime position to benefit.
2) Gold goes even lower for unknown reasons. Maybe people embrace the FED as having miraculously revived the US economy, Japan stops being in recession, the Eurozone suddenly recovers after five years of doing the same things that do not work over and over again. Nearly ALL gold miners close up.
3) Prices return to a sustainable level, and perhaps above that, allowing Medusa better margins.
I have explored the reasons behind stronger gold in previous articles, do take a gander.

In conclusion, I believe that Medusa is turning the corner; if you believe that gold is a good bet in general, Medusa will be a fairly safe bet at these prices.

http://seekingalpha.com/article/270...pessimism-medusa-mining-might-turn-the-corner