Annual Financial Report

Medusa Mining Limited

Publication of Annual Report and Financial Statements

29 August 2011

Medusa Mining Limited ("Medusa" or the "Company") advises that its annual report and financial statements for the year ended 30 June 2011 has been published. The document can be accessed through the link at the end of this announcement and the Company's website (www.medusamining.com.au).

A copy of this report has been filed with the National Storage Mechanism and will be available for inspection shortly at www.hemscott.com/nsm.do.

HIGHLIGHTS OF THE FINANCIAL YEAR

Financials

- Earnings before interest, tax, depreciation and amortisation ("EBITDA") of US$120.7M, up US$47.0M or 64%

- Earnings per share ("EPS") of US$0.587 on a weighted average basis, based on net profit after tax ("NPAT") of US$110.4M (2010: EPS of US$0.378 based on NPAT of US$65.8M)

- Revenues increased 58% to a record US$149.6 million, due to increased gold production and a higher price received on sale of gold. Medusa is an un-hedged gold producer and received an average gold price of US$1,371 per ounce from the sale of 96,217 ounces of gold for the year.

- The Company paid un-franked dividends totalling A$0.10 per share in two equal instalments during the year.

The Company remains debt free and had total cash and cash equivalent in gold on metal account of US$102.1M at year end (2010: US$55.8M).

Figure 1 (please see the link at the end of this announcement) shows the revenue from 2007 to 2011

Operations

(1) Net of development costs and includes royalties and local business taxes but no by-product credits

- The Company produced a record 101,474 ounces of gold for the year, an increase of 11,795 ounces or 13% from the previous year's production of 89,679 ounces, at an average recovered grade of 12.63 g/t gold (2010: 16.52 g/t gold);

- The average cash cost for the year of US$189 per ounce, was marginally higher than the previous year's average cash costs of US$184 per ounce.

- The production guidance for the forthcoming fiscal year is between 100,000 to 110,000 ounces at cash costs of around US$200 per ounce. There is currently a heavy emphasis on mine development to prepare the Co-O Mine for future production increase.

Figure 2 (please see link at the end of this announcement) shows production from 2008 to 2011 and also budgeted production for 2012

Reserves and Resources

- Gold reserves at Co-O maintained at the 500,000 ounces level

- Co-O's gold resource at year end comprised of 616,000 indicated resource ounces and 1,344,000 inferred resource ounces, representing increases of 15,000 ounces and 446,000 ounces within the indicated and inferred categories respectively

Figure 3 (please see link at the end of this announcement) shows resource from June 2007 to June 2011

Exploration

- Contiguous tenement package maintained at >800km2;

- Budgeted exploration for 2012 fiscal year of US$27.0 million (2011 actual: US$26.7 million);

- Exploration highlights at Co-O include:

- discovery of new veins and extensions to known veins to the north and east;

- extension along strike to approximately 1,600 metres;

- extension across strike to approximately 750 metres; 

- demonstrating that mineralisation extends to at least 750 metres below the mine's adit entrance; and

- estimation of a Conceptual Exploration Target ** for the Co-O Mine of between 3 and 7 million ounces of gold.

** The potential target size and grade of the Co-O Mine is conceptual in nature and there has been insufficient exploration to define a mineral resource. It is also uncertain if further exploration will result in the target being defined as a mineral resource.

- At the Bananghilig disseminated gold deposit, drilling commenced in July 2010 to validate and extend resources and establish reserves as a basis for a feasibility study;

- At Saugon, re-drilling of the First Hit Vein has produced encouraging results; and

- A large geophysical Induced Polarisation and ground magnetics programme is ongoing over the Tambis intrusive-breccia complex, Kamarangan, Usa, Saugon and Lingig.

Figure 4 (please see the link at the end of this announcement) shows exploration from 2008 to 2011 and also budgeted exploration for 2012.

New Co-O Mill

The Board on 17 November 2010 approved the construction of a new Co-O mill with capacity to produce 200,000 ounces per year.

Subsequently, after evaluation of three sites, the preferred option is the complete remodelling of the current mill site. The initial Capex was estimated at US$80 million, inclusive of mine development and the Saga Shaft, which has now been reduced to approximately US$70 million.

Permitting requires the upgrading of the current Environmental Clearance Certificate which is anticipated to be completed by late September 2011.

The SAG mill has been ordered and the winder for the Saga Shaft has been secured.

Replacement and transferral of buildings and facilities in and around the current mill commenced in July 2011 to make room for the expansion.

The preliminary construction schedule after regulatory permitting is estimated to be 21 months.

Preliminary Development Timetable

Figure 5 (please see link at the end of this announcement) sets out the preliminary development timetable.

Dividends

The Board has approved a final un-franked dividend payment of A$0.05 per share payable to shareholders on 30 September 2011.

The relevant dates for the interim dividend are as follows:

There is no foreign conduit income attributed to the dividend.

The Managing Director, Peter Hepburn-Brown, commented:

"It is both a privilege and a challenge to be invited to become Medusa's Managing Director as it enters the next growth phase in its quest to become a 400,000 ounce producer by 2015. We are confident we have the mineralisation to support these aspirations within achievable time frames.

This last financial year has been the first full year of production at the rate of 100,000 ounces from the Co-O Mine and we have forecasted production of between 100,000 to 110,000 ounces for the current financial year. Over the next few quarters there will be heavy emphasis on development at the Co-O Mine to prepare for the future production increase, similar in principle to a pre-strip at an open pit mine. We are developing new levels, sinking new and deeper shafts, and planning infrastructure that will support mining to a depth of approximately one kilometre with drilling to date pointing to good grades up to 750 metres below surface. Exploration at the mine effectively discovered in excess of 560,000 ounces during the year which includes the replacement of approximately 101,000 ounces mined during the year. This is in line with the stated Company policy of replenishing, at a minimum, whatever ounces which have been mined on an annual basis. The total resources at the Co-O Mine as at 30 June 2011, now stands at 1,960,000 ounces, an increase of 30% from the previous figure of 1,501,000 ounces at 21 June 2010.

The Co-O Mine has produced to date around 450,000 ounces and has a current resource of 1,960,000 ounces. Drilling during the year and the new resource estimate have strongly reinforced the Conceptual Exploration Target size of 3,000,000 to 7,000,000 ounces. Currently the quantified amount of gold in the deposit of 2,410,000 ounces is approaching the lower limit of this range, indicating the Co-O Deposit is potentially a world class deposit in terms of size and thus promising to be a long life mine.

Medusa has continued its aggressive exploration programme having spent just under US$27 million to 30 June 2011 (US$19 million to 30 June 2009) which achieved 131,500 metres of core drilling and we have budgeted US$27 million in the current financial year. Six surface rigs and five underground rigs will continue drilling at the Co-O Mine with seven surface rigs at the Bananghilig Deposit and up to 3 rigs at the Anoling, Saugon and other projects during the year.

Copper exploration was limited during the year except for Induced Polarisation and ground magnetics surveys which commenced in May 2011 (and are on-going) over the Tambis intrusive-breccia complex, Kamarangan, Saugon, Usa and Lingig. Subject to encouraging results, we expect to initiate drilling on prioritised copper targets in the current financial year.

Financially the Company is in a sound position with approximately US$102 million in cash and cash equivalent in bullion as at 30 June 2011. The Company has continued to produce gold at cash costs of just under US$200 per ounce in an economic climate where the gold price has continued to climb.

The margins generated from gold sales, as evidenced by the record profit in excess of US$110 million (US$65.8 million in 2010), enables Medusa to self-fund the Co-O Mill expansion to 200,000 ounce capacity, continue its extensive exploration programme and pay a dividend twice a year. The Capex for the Co-O Mill expansion is estimated at US$70 million inclusive of concurrent mine development and shaft sinking.

The Company's involvement in a diverse range of community activities continued during the year, including establishing partnerships with government bodies and attracting corporate sponsors for some of its activities. Education continued to be a major focus, but with its rice growing programmes, establishment of long term income rubber tree reforestation plantations and many other projects, we are proud of our contribution to others within our operating environment.

The Company has increased the availability of training programmes for employees and reinforced its focus on health and safety issues. It continuously reviews and updates work practices and procedures and is using external consultants to assist in this process.

In closing, I would like to welcome Mr Jun Angeles who joined our Board in July this year, and to thank my fellow Directors and our Perth office staff. Particular appreciation is due to our over 2,600 strong Filipino team under the guidance of Mr Sam Afdal, our managers and all employees and contractors. It has been a great team effort as we again achieved record results for the year. We also very much appreciate the continued support of the local communities and the relevant government agencies which enable us to expand our activities and thereby provide benefits to an increasing number of people."

http://www.rns-pdf.londonstockexchange.com/rns/1638N_-2011-8-29.pdf 

Contacts:

Australia

Medusa Mining Limited

Peter Hepburn-Brown

Managing Director

+61 8 9367 0601

Medusa Mining Limited

Geoff Davis

Chairman

+61 8 9367 0601

[email protected]

http://www.medusamining.com.au

United Kingdom

Fairfax I.S. PLC

Financial Adviser and Broker

Ewan Leggat/Laura Littley

+44 (0)20 7598 5368