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Medusa Mining: A good gold stock and trading at an attractive price

Medusa Mining Limited is an Australia based mining firm with market cap of $840.33M and annual revenue (FY Ending on June 2011) of USD149.6M is focussed on Philippines for gold production and capacity expansion. Owing to increased gold price coupled with increased production led to 58% increase in revenue in 2011 over 2010. At current share price $4.45, its P/E is 7.61 and P/BV is 2.96, this stock is fairly attractive in comparison with other gold stocks. (Medusa is listed in Australian (ASX) and London Stock Exchange (LSE). Performance Analysis (Latest Quarter) In latest quarter ending September 2011, company sold 15.4K Ounce of gold for an average price of USD1, 587 and incurred average cash cost of about $291 per Ounce. Company has healthy profit margin of 73.77% and overall ROE stands at 48.90%. Medusa Mining does not have any debt and has about USD100.2M cash on its balance sheet (30th June 2011). The latest quarterly performance is as given below:
40.00 35.00 32.14 30.00 25.00 20.00 15.00 10.00 5.00 0.00 01-Dec-10 01-Mar-11 01-Jun-11 01-Sep-11 4.83 4.80 4.90 3.06 5000 0 24.51 20000 Revenue 15000 10000 Cost in Producing Gold Gold Produced 36.30 32.52 30000 25000

Source: Latest Filed Quarterly Earnings Report The drop in revenue in latest quarter is due to lower volume of gold sold ,about 15.4K Ounce of gold in comparison with 21.4OZ gold in prior quarter was sold, a 28% reduction. The lower production also resulted in increased cost of production of $291 per ounce in comparison with $191 per ounce in prior quarter. With current production capacity, company is confident of meeting its production guidance of 100K ounce per year.

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Growth Catalyst: New plant for increased production: In November 2010, Board has approved the construction of new plant with capacity to produce 200K ounce per year. The overall investment required is USD70M and it is totally funded by its existing operations. The overall management guidance is as given below: FY Co-O Mill Bananghiling Mill 2012 2013 2014 2015 2016 2017 1,00,000 1,20,000 2,00,000 2,00,000 2,00,000 2,00,000 2,00,000 2,00,000

Total 1,00,000 1,20,000 2,00,000 2,00,000 4,00,000 4,00,000 Source: Latest Filed Quarterly Earnings Report Increasing Demand for Gold: The loss of AAA rating by US and current ongoing EURO issue would make gold an attractive investment asset and more importantly a safe one. Medusa will keep benefitted by higher appetite for gold from investors/buyers all around the world. Key Risk: Higher Production Cost: At present quarter production cost shot up to $291 per ounce in comparison with $194, an increase of 50%, although the increased cost was mainly due to lower production but eventually will hurt its margin. Not able to meet Target production: Management is optimistic that it will deliver a production capacity of 200K Ounce by FY2014 , and thus any deviation from that will result in growth and may impact share price. In sum, Medusa Mining is an attractive mid cap gold stock and investor who are seeking exposure to gold stock may consider this one. (Only after proper and extensive due diligence) Disclaimer: This material just is for information purpose; I have no positions in any stocks mentioned in this article or plan to invest in next five days.