---ADDS BROKER COMMENT AND UPDATES SHARE PRICE---
Medusa Mining's (LON:MML. ASX:MML) new SAG mill is up and running now new batteries have been installed, the firm told investors.
Investors welcomed the news and shares were up 6% to 97p at midday.
The mill was successfully started last week and is currently undergoing commissioning and will gradually build to its throughput of 2,500 tonnes per day during the March 2014 quarter, the company said.
The commissioning of the new mine on Mindanao island in the Philippines fires the starting gun on the much anticipated production expansion of up to 200,000 ounces a year.
As reported in October, due to the battery delay, which Medusa said was down to the power cells' vendor, production in the quarter to December will be lower than expected.
Meanwhile, at the mine, improved grades and tonnages are starting to come through from the new working areas while a recent A$34mln placing gives financial support.
“The operating of the new mill is good news for the company with the ramp up now expected in the March quarter,” said John Meyer, at resources-focused broker S P Angel.
The delay in the commissioning of the mill will result in the projected throughput in the final quarter of 2013 coming down, Meyer noted. The fourth quarter of the calendar year is the second quarter of Medusa’s fiscal year (FY).
The broker now expects that with 30,000 tonnes per month running through the old mill, around 15,864 ounces (oz) will be produced, assuming a head grade of 6.2 grams per tonne and 89% recoveries.
“We have 150,000 tonnes factored in Q3 FY 2014 (March quarter) and 225,000 tonnes for Q4 FY 2014 (June quarter) – this gives around 106,000 oz for the full year. This is more than doubling of the production achieved in FY 2013,” Meyer said.
Notwithstanding the above, S P Angel has revised its target price down from 270p to 245p based on the slower than expected ramp up on the new mill.
“This is the low point in the earnings of the company with free cash flow picking up in the March quarter,” Meyer projects.
“Even against a muted gold price environment, Medusa has the potential to grow earnings and looks very cheap here. The shares should start performing once production can be demonstrated to come through,” he opined, reiterating his ‘buy’ rating.