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Millennium Minerals Earns Maiden After Tax Half Year Profit Of $34.15m

Gold producer Millennium Minerals (ASX: MOY) has delivered a bumper set of financials including an unaudited after tax profit of A$34.2 million for the 6 months ended 30th June 2013.

Production was from the company's Nullagine Gold Project, which is located in the Pilbara Region in Western Australia.

For the period Millennium poured 33,530 ounces of gold, for revenue of A$53.96 million.

The headline after tax profit figure includes an unrealised derivative gain of A$21.2 million related to the company's hedge book.

It follows that the underlying profit for the 6 month period before treasury and tax was A$12.9 million. At the mine operating level the gross profit for the period was A$16.3 million derived from sales of A$54.0 million and cost of sales of $37.7 million.

The gross operating margin (AUD/ounce poured) was A$804 for the 6 months to 30th June 2013.

Brian Rear, managing director, commented: "Delivering a maiden profit result represents a significant milestone for Millennium that reflects the company's strong focus on operating margins and sensible risk management - at a time when the gold industry is experiencing very difficult operating conditions.

"The half year results are a credit to the site operating team just nine months from the start of mining activity."

Millennium said that no impairment charges are expected by the company arising from the half year audit review.

Gold Operations

The mine operation continued to consolidate its long run operational capacity and reliability during the first two quarters of commercial production.

Millennium said that a strong focus on cost containment combined with the company's gold price hedging structure ensured operating margins remained robust for the period.

Golden Gate Development

Physical activity has commenced at the Golden Gate deposits in preparation for ore extraction and stockpiling for treatment in the fourth quarter (CY2013).

It is planned to campaign process this higher grade material that has a grade range of 3.5g/t to 4g/t to ensure the metallurgical response of the ore is well understood and managed, and to provide benchmark data for forward planning purposes.

The company said that opening up this second ore source will provide greater mine planning flexibility and is a further step in developing a multi ore source, centralised processing facility structure for the Nullagine operation.

Productivity

Millennium continues to focus on operating cost reductions; limiting capital expenditure to critical activities only and minimising exploration activity whilst building cash reserves and reducing debt.

The sustaining cash cost for the six month period was $955 per ounce, which includes C1 costs, royalties, site capital and corporate expenses.

For the time being, the company has instituted a freeze on salaries and wages across all departments. Whilst these cost activities will accrue short term one‐off benefits, the primary objective remains on maintaining and improving on the robust operating margins being achieved by the operation.

The company operates a low overhead, lean workforce business and considers maximising returns from existing assets as the most effective way to achieve long run improvement in margin and profit.

Analysis

With a strong focus on cost containment combined with a gold price hedging structure, Millennium delivered the profit on a very reasonale sustaining cash cost for the six month period of $955 per ounce, which includes C1 costs, royalties, site capital and corporate expenses.

With higher gold out-put forecast to increase due to higher grade in the September quarter, forward forecasts are for Nullagine to yield 78,000 ounces FY2013 (December 2013).

The unaudited after tax profit of A$34.2 million for the 6 month period ended 30 June 2013 is a significant achievement for Millennium at a time when the gold industry is experiencing very difficult operating conditions.

Although the gold price is volatile, Millennium has demonstrated it can earn substantial profits in a challenging period with a very healthy profit margin. That the stock is undervalued is axiomatic.