Medusa Mining Limited

Company Overview: Medusa Mining Limited (ASX: MML) is a gold production company with operations in the Philippines and the Asia Pacific Region. The company’s Co-O Gold Mine is located in Central Eastern Mindanao in the Republic of the Philippines. Notably, the Co-O Gold Mine has been continuously producing gold for over a decade, and in 2020, it achieved the milestone production of about 1 million ounces. MML was listed on ASX on 23 December 2003.

MML Details

2021 AGM Highlights: On 28 October 2021, MML held its 2021 Annual General Meeting (AGM), wherein, the company highlighted that during FY21 the company’s Co-O Gold Mine delivered 95,193 ounces which was above the guidance of between 90,000 to 95,000 notwithstanding the disruptive COVID-19 pandemic restrictions. Some of the key points highlighted in 2021 AGM are as follows:

• Improved Profitability in FY21: As a result of decent operating performance, the company’s net profit after tax (NPAT) grew by 59% YoY to US$47.3 million in FY21.
• Maintained Cost: Over the year, the company continued to keep its costs under control despite the COVID-19 restrictions at a site level for most of the year, with All-In Sustaining Costs (AISC) for the year being in line with guidance at US$1,231 per ounce.
• Rise in Cash and Cash Equivalent Balance: Even after paying an interim dividend of A$0.05 per share in March 2021, the company had total cash and cash equivalent in gold on metal account of US$72.2 million as at 30 June 2021, which is ~53% higher than the balance as at 30 June 2020.
• Dividend Update: For H2FY21, the company has paid an unfranked dividend of A$0.02 per ordinary share on 19 November 2021.

NPAT Trend (Source: Analysis by Kalkine Group)

Key Metrics: Gross margin for FY21 stood at 41.3%, up from 38.3% in FY20. Net margin for FY21 stood at 26.4%, up from 20.1% in FY20. ROE for FY21 stood at 27.3%, up from 21.5% in FY20. Current ratio for FY21 stood at 5.67x in FY21, up from 2.88x in FY20, demonstrating that the company has improved its ability to pay short-term obligations. Debt to equity ratio for FY21 stood at 0.02x, down from 0.05x in FY20.

Liquidity Profile and Profitability Metrics (Source: Analysis by kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 43.75% of the total shareholding, while the top four constitute the maximum holding. Ruffer LLP and Arbiter Partners Capital Management, LLC are holding a maximum stake in the company at 16.10% and 13.33%, respectively, as also highlighted in the chart below:

(Source: Analysis by kalkine Group)

Q1FY22 Operational Highlights: During the September 2021 quarter, the company progressed the exploration activities around Co-O mine and within the company's tenements. Some of the key highlights of the quarter are as follows:

• Improved Production Performance: The company’s total unhedged production for Q1FY22 stood at 23,223 ounces at an average head grade of 5.38 g/t gold. Notably, the production is 4% higher than the previous quarter. AISC for the quarter stood at US$1,242 per ounce, lower than US$1,594 per ounce in June 2021 quarter.
• Drilling Update: During the quarter, the company drilled 11,868 metres at Co-O mine, down by 8% on the previous quarter due to access issues to drill cuddies in deeper levels of the mine.
• Improved Cash and Cash Equivalent Balance: As at 30 September 2021, the company had cash and cash equivalent on metal account of US$75.5 million, up from US$72.2 million as at 30 June 2021.

Latest Updates:

• On 30 November 2021, MML announced that it has applied for quotation of 83,000 ordinary fully paid shares related to exercise of options.
• On 28 October 2021, MML announced the retirement of Mr. Roy Daniel as a Non-Executive Director of the Company, effective 28 February 2022.

Key Risks:

• Gold Price Fluctuations: The company is exposed to the risks related to the fluctuations in the prices of gold, as it could impact its financials.
• COVID-19 Uncertainties: MML is exposed to the uncertainties surrounding the COVID-19 pandemic, as it could impact its operations.

Outlook: Looking ahead, the company’s exploration focus is on maintaining a comfortable forward mine life at Co-O Gold Mine while managing costs. In terms of organic growth opportunities, the company is focused on advancing near-mine and regional targets like Royal Crowne Vein. In FY22, the company expects its production to be in the range of 90,000 to 95,000 ounces with an AISC of between US$1,250 to US$1,300 per ounce. During FY22, MML expects to incur an expenditure of approximately US$15 million on the construction of the Tigerway Decline Project.

Technical Note: MML prices are trading in a zig-zag pattern and have recently completed ABC harmonic pattern on a monthly chart. Prices are currently trading in a range between 21-period and 50-period SMA. Prices are now sustaining above the downward sloping trend line that further supports bullish stance in the stock. RSI (14-period) is hovering at ~51 on a monthly chart that indicates indecision in the stock prices. Immediate support levels are AUD 0.70 and AUD 0.62, while immediate resistance levels are AUD 0.85 and AUD 0.96.

Stock Recommendation: Over the last three months, the stock has corrected by ~8.63% and is trading lower than the average 52-week price level band of $0.655 - $0.990. On a TTM basis, the stock is trading at a price-to-book value multiple of 0.6x, lower than the industry (metals & mining) median of 2.4x. Considering the company’s decent financial performance in FY21, improved production performance in Q1FY22, modest production outlook, improved cash and cash equivalent balance, valuation on TTM basis, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the closing price of $0.760, down by ~5.001% as on 30 November 2021.

MML Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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