The company initially envisaged capital costs of $80 million, inclusive of mine development and the Saga shaft.
After evaluating three sites, the decision was made to remodel the existing mill site to maximise the use of the current facilities.
The transfer and replacement of existing buildings will start next month, while the SAG mill will be ordered shortly.
The new mill will have the capacity to produce 200,000 ounces of gold per annum.
Medusa will refurbish the Agsao shaft next month to prepare for the winder replacement.
The new winder will be larger and faster with the capacity to haul around 400 tonnes of ore per day.
Ore is currently only hauled from Level 3 of the mine, but a connection to a new internal shaft at the bottom of the Baguio shaft will enable ore to be hauled from Level 4.
Medusa will carry out mill maintenance while the refurbishment work is underway and September quarter production is expected to be lower.
The Co-O mine produced 76,241oz for the nine months to March 31, 2011, and is on track to deliver 102,000oz gold for the 2011 financial year.
Medusa said today that production for the 2012 financial year is expected to be 100,000-110,000oz gold at cash costs of $200 per ounce.
For calendar year 2011, the Philippines operation is expected to produce 100,000oz at $190/oz, before increasing to 120,000oz at $200/oz in calendar year 2012.
The new mill will be commissioned in 2013, when production is expected to rise to 160,000oz gold at cash costs of $210/oz.
Medusa is aiming to produce 400,000oz per annum from 2016, comprising 200,000oz from Co-O and 200,000oz from the Bananghilig project.
The Bananghilig project has preliminary capital costs of $200 million and is expected to start production in 2015.
Shares in Medusa, which recently delisted from the Toronto Stock Exchange, remained at $A7.21 in Australia this morning.