Mandalay Resources Corporation (MND) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Mackenzie Tuff, and I will be the meeting facilitator today. At this time, I would like to welcome everyone to the Annual General Meeting of Shareholders of Mandalay Resources Corporation. Please note, the meeting will be recorded. I would like to introduce Brad Mills, Chair of the Board of Mandalay Resources Corporation. Mr. Mills, the floor is yours.

Thank you, Mackenzie. Good morning, ladies and gentlemen. It's now 9:00 a.m., and I ask the meeting to come to order. My name is Brad Mills, Chair of the Board of Mandalay Resources Corporation, and I will act as the Chair of this meeting. On behalf of the Board of Directors and management of Mandalay, welcome, and thank you for taking the time to attend our annual general meeting of shareholders. We are pleased to host the meeting through the TSX Trust Company's virtual meeting platform, accessibility to all of our shareholders -- accessible to all of our shareholders, regardless of physical location to participate, submit questions and vote. We will proceed with the formal items on the agenda and follow with a presentation by Dominic Duffy, President and CEO of Mandalay Resources. I would like to remind you that information provided at this meeting may include forward-looking statements, which reflect the current expectations or beliefs of the company based on information currently available to the company. Forward-looking statements are subject to a number of risks and uncertainties that may cause the actual results of the company to differ materially from those discussed in the forward-looking statements. Factors that could cause actual results or events to differ materially from the current expectations are disclosed under the heading, Risk Factors, and elsewhere in the company's annual information form dated March 31, 2021, available on SEDAR and on the company's website. I will now call the meeting to order and appoint Jasmine Virk as the secretary of the meeting, and [ Lisa Ann Thomas ] of the TSX Trust Company to act as the scrutineer of the meeting. Only registered shareholders who held shares in their name as of April 16, 2021, the record date of this meeting, or their validly appointing proxy holders, are entitled to vote at this meeting. Mandalay used notice and access delivery to furnish proxy materials to the shareholders via the Internet this year. A notice and access notification containing the instructions on how to access Mandalay's proxy materials for the fiscal year ended December 31, 2020, was mailed to all shareholders of Mandalay. Proof of service of these documents has been presented to me by the secretary of the meeting. And I direct that the proof of service be annexed to the minutes of the meeting. We will conduct votes on the matters before us by poll. On they poll, each registered shareholder or their duly appointed proxy holder is entitled to vote on the matter and has one vote in respect of each share entitled to be voted on the matter and held by the shareholder. The poll will be open for all resolutions at the same time. Click the voting button on the left menu on your screen when the poll is announced. This will allow you to choose to vote on each resolution immediately or wait until the conclusion of discussion on each resolution prior to casting your vote. In conducting the business of the meeting, I would appreciate your cooperation in allowing us to move efficiently through the agenda. If you have a question on any matter under consideration, you are welcome to ask it at any time. However, if you wish to make a general comment or ask a question not directly related to the matter under discussion, I ask that you raise it during the general question period, which will occur later this morning. To submit a question, click the ask a question button on the left menu on your screen and type your question in the text box. We will run through each of the items of the agenda in turn, responding to questions on that item of business while it is before the meeting. Once discussion on all items of business has been concluded, I will give you a minute to enter your votes and then declare the voting closed on all resolutions. The results of the meeting will be press released today and available on our website. I now declare the polls open on all resolutions. Registered shareholders and duly appointed proxy holders, please click on voting in order to cast your votes. If you have already submitted your votes in advance and do not wish to change your vote, you do not need to take any further action. The scrutineer has provided me with a report on attendance, and I confirm that the required quorum of shareholders is present, and that the meeting is properly constituted for the transaction of business. I direct that the scrutineer's report on the attendance be annexed to the minutes of the meeting. The first order of business is the presentation of the financial statements and the auditor's report for the year ended December 31, 2020, together with the report of auditors on these financial statements, both of which have been filed on SEDAR. I now place before the meeting the audited financial statements of Mandalay for the year ended December 31, 2020, and the auditor's report thereon. I direct that the financial statements and auditor's report be annexed to the minutes of the meeting. The second item of business is the fixing of the Board of Directors and the election of directors. I now propose to proceed to fix the Board of Directors of Mandalay at 7 members and to elect the directors of Mandalay. I now declare the meeting open for nominations.

I nominate Abraham Jonker, Amy Freedman, Bradford Mills; Dominic Duffy, Julie Galloway, Rob Doyle and Terrell Ackerman for election as directors of Mandalay to serve as directors until the close of Mandalay's next annual meeting of shareholders or until their successors are elected or appointed.

Thank you, Jasmine. All companies listed on Toronto Stock Exchange are required to elect directors individually. Consistent with this requirement, shareholders have been provided with the opportunity to vote for each nominee or withhold their vote on an individual basis. In addition, the Board of Directors has adopted what is commonly referred to as a majority voting policy. Under that policy, a director is required to tender his or her resignation if he or she receives more withhold votes than votes cast for his or her election. Based on the proxies received for the election of directors, each of the nominees has received proxies for his or her election representing more than the requisite majority of the votes cast. In light of this, I propose that we proceed with a single motion to elect the nominees and vote on the matter. I now ask Dominic Duffy to move and Jasmine Virk to second a resolution fixing the Board of Directors of Mandalay at 7 members and electing Abraham Jonker, Amy Freedman, Bradford Mills, Dominic Duffy, Julie Galloway, Robert Doyle and Terrell Ackerman as directors of Mandalay to serve as directors until the close of Mandalay's next annual meeting of shareholders or until their successors have been elected or appointed.

I so move.

I second the motion.

Thank you. Jasmine, can you please advise if any questions specific to this motion were submitted?

One moment, Brad, while I just check. No questions have been submitted with respect to this item so far.

As we have not received any questions, please cast your vote before we move on to the next item of business. [Voting]

Okay. Thank you. I declare the Board of Directors of Mandalay to have been fixed at 7 members and Abraham Jonker, Amy Freedman, Bradford Mills, Dominic Duffy, Julie Galloway, Robert Doyle and Terrell Ackerman to have been elected as directors of Mandalay to hold office until the close of the next annual meeting of the shareholders or until their successors are elected or appointed. The next item of business is the appointment and remuneration of auditors for the current year. It is proposed that Mandalay's current auditors, Ernst & Young, LLP, be reappointed as the directors (sic) [ auditors ]. I will now ask to Dominic Duffy to move and Jasmine Virk to second a resolution appointing Ernst & Young as the auditors of Mandalay, to hold office until the next annual meeting of shareholders or until their successors are appointed, and approving the auditor's remuneration to be fixed by the directors of Mandalay.

I so move.

I second the motion.

Thank you. Jasmine, can you please advise if there are any questions specific to this motion?

No questions have been submitted, Brad, for this item.

Okay. As we have not received any questions, please cast your vote before we move on to the next item of business. [Voting]

All right. Thank you. I declare Ernst & Young LLP to have been appointed as directors of Mandalay to hold office until the next annual meeting of shareholders or until their successors are appointed, and that the auditor's remuneration be fixed by the directors of Mandalay. For those of you who have not voted on all of the resolutions, please do so now as I will shortly close the poll. It is now 9:11, and I will close the polls on all resolutions at 9:12 to allow online views to catch up. We're using Apple time in case anybody wondered. Okay. The polls are now closed. Ladies and gentlemen, that concludes the formal business of this meeting. Just as a reminder, the voting results of the meeting will be press released later today and made available on our website. I will now ask Dominic Duffy to move and Jasmine Virk to second a motion to end this meeting.

I so move.

I second the motion.

Thank you. I declare the motion carried, and the meeting is hereby terminated. I would now like to -- I would now like the operator to play the prerecorded video of Dominic Duffy, Mandalay's President and Chief Executive Officer, about the company.

Thank you. Before getting into a review of our turnaround story of 2020, and an update on the current state of operations, I would like to thank our Board of Directors and shareholders for the support they have given us over the last 2 years. Without that support, I do not feel that Mandalay could have been turned around to be the significant cash-generating company that we are today. Before getting into the presentation, I would like to note that there may be some forward-looking statements over the course of this presentation. For those of you who do not know, Mandalay is a 2-mine company. We have the significantly high-grade gold, antimony mine in Victoria, Australia, and the underground pure gold mine in northern Sweden. So what did occur in 2020? The most significant factor was that we began production in the Youle lode at Costerfield. And the impact of this can be demonstrated in the graph on the right-hand side. The yellow bars at the bottom represent the production at Costerfield. And you can clearly see between 2019 and 2020, we doubled the production output from this operation. What that allowed us to do was drop the cash cost to approximately $600 for the course of that year, making that operation in the company, as a whole, extremely profitable. Our production figures for Björkdal in 2020 was similar to the 2019 year, with slightly higher cash costs in the $1,100 range. However, the combined combination of both of those productions together allowed us to produce at $840 per ounce cash cost and $1,250 cash -- all-in sustaining costs for 2020. And what those production improvements for the company has allowed us to do is supply 5 consecutive quarters of profitability for the company. And with the start of 2021, we have also continued to see even further growth with a 26% growth in revenue quarter-over-quarter, 25% growth in adjusted EBITDA and an adjusted income per share in Q1 of $0.08 for the company. All of the strong financial performance has put us in an extremely exciting cash position as of the end of the first quarter. As of Q1 2021, the company had approximately $30 million in cash. That was a slight drop off over the course of the quarter because we have -- did have a few one-off payments with the restart of Cerro Bayo and an upfront deposit for the tailings dam work at Björkdal. However, the biggest impact on the cash was a change in our payable terms Costerfield, whereby our primary customer now -- we receive payment from our primary customer approximately 1 month after shipment. Whereas in the prior contract, we received payment within the month of the shipments. So that has delayed approximately $5 million of payment in the first quarter. So because of those one-offs, we did drop our cash position slightly. However, over the last 12 months, we have also been paying down our debt. 12 months ago, we had $65 million of the syndicated facility with HSBC and Macquarie Bank. And currently, that sits at $55.2 million. And we do expect to see significant growth in our cash position for the remainder of the year. And we do expect also to be net debt free by the end of 2021. So we have talked about the past. And now I'd like to look at the future and what we can expect from Mandalay. So there's 4 primary objectives that we want to obtain. Number one, of course, is maximizing the cash flow from the operations. We do expect that cash position to continue to grow further in 2021 and even more incremental growth in 2022. Number two, unlock further value in mine life through exploration. You see further in this presentation that the ramp-up in our exploration spend is beginning to reap some significant benefits for the company. Number three, continue to significantly improve the balance sheet. And number four, reimburse cash in growth opportunities. In 2020, we produced approximately 103,000 ounces of saleable equivalent gold. This year, we expect to see a large increase in net production, producing between 105,000 and 117,000 ounces. The bulk of that uplift is going to be coming from Björkdal as we ramp up the Aurora zone and begin producing from high-grade stoping areas. So this year, we expect cash costs to sit between $800 and $1,000 per ounce, and all-in sustaining costs from $1,100 to $1,350. 2021 will be a high capital year between $48 million and $56 million. The reason for the uplift is a ramp-up in the construction work of the tailings dam at Björkdal. The largest spend will occur in 2021, approximately $10 million. However, when completed, that will give us 10 years capacity with the tailings set up. Now our Costerfield mine. Costerfield is one of the highest-grade gold mines in the world. As of Q1 2020, it was rated as the sixth-highest-grade gold mine in the world. You add on top to our gold grade the antimony, which over the course of 2020, we were producing at over 4%, you're looking at a production rate of approximately 20 grams per tonne equivalent gold grade that we were producing over 2020. We have been seeing this trend continue in 2021, and we expect that to continue. So in 2021, we expect $670 to $820 per ounce cash cost and an all-in sustaining cost of $950 to $1,100 per ounce. We have also seen significant reserve growth over the course of 2020. Year-end, we finished with 616,000 tonnes at 13 grams per tonne gold and 3.5% antimony. This alone gives us approximately 4 years production of mine life currently at Costerfield. However, moving on to that mine life, we can see quite clearly on the graph on the right that Costerfield has always had a relatively short mine life in resources and reserves. However, the current resources and reserves are the largest we ever had in the company history. And in 2021, we are going to be spending the most we ever have on exploration at this property as we look to grow the mine life significantly more at this asset. On our exploration, we're starting to see some fantastic results from the drilling at Costerfield. But before getting into that, I'd just like to explain the regional area that we hold. So Costerfield is split into north-south corridors across the region. And since 2009, the majority of the exploration work has carried out in the central corridor from the Augusta portal all the way up to the Youle workings where we're currently mining. Outside of that, very little exploration has been carried out. However, in 2020, we did start beginning 2 other corridors: so the True Blue workings to the west, where we did see some very interesting structural discoveries and anomalous gold; and to the east, the Brown's Target, where we did see some early exciting results coming out of the drilling along there. And we will be following up more with that over the course of 2021. However, the most exciting story is drilling along the central corridor still, and more specifically, under the Youle workings. During 2020, quite a lot of exploration work was carried out, extending the Youle deposit to depth. And we have a lot of success adding mine life at extremely high grade. However, what we did find over 700 elevation was a significant drop off in both gold and antimony grades, with the grades virtually being 0 following on from this point. So the hypothesis was that the -- possibly the mineralization into Youle have been fed from another structure. So we started exploring for those structures underneath Youle in early 2021, and the results were excellent. The first hole under Youle intercepted an extremely high-grade structure, a 460 gram per tonne in gold over 11 centimeters. We immediately began follow-up drilling. And what we found was actually 2 parallel structures, deepening in opposite direction to the Youle lode. We named these structures the Shepherd east and Shepherd west veins. Some of the highlights from the first drilling that we have put into these zones on the eastern vein are 23.6 grams per tonne over 6.3 meters, 426 grams over 77 centimeters, and 231 grams over 18 centimeters. And in the western vein, we had the 460 gram and also 165 grams per tonne over 20 centimeters. So the drilling has ramped up significantly with -- into these 2 vein structures. We currently have 4 drill rigs in deeper Youle, drilling into these 2 structures. And we will be giving updates over the coming months as these develop. Looking at the central corridor as a whole, we have learned quite a bit from the Youle vein. And as a result of that, we have established multiple targets under the Brunswick vein, the Cuffley vein and the Margaret Prospect. And over the course of 2021, we will be drilling infrastructures under these areas with the hope of adding additional resources before year-end. Now I'd like to talk about our Björkdal operations. Björkdal is very different to Costerfield. It is a low-grade, bulk tonnage underground mine. As of year-end 2020, the operation had 11.5 million tonnes, grading 1.47 grams per tonne in reserves. We do expect to see an uplift in our production this year and in the coming 3 years as we ramp up our underground production rate. When Mandalay purchased this mine in 2015, it was producing approximately 400,000 tonnes per annum from underground. Last year, we reached a milestone of 1 million tonnes per annum, and we expect that to be 1.1 million tonnes this year. As we lift our underground production rate, we are able to displace low-grade stockpile material in the plant for the higher grade underground feed. This year, we expect to producing at a cash cost in the $1,100 range and all-in sustaining in $1,400 range. Here, you can see the continual ramp-up in our underground production rate from 2019 through 2020. We did have a slight drop in production in Q1 of this year, but that was related to extreme winter conditions in January, impacting both our underground production and our processing. Now the most important thing about Björkdal over recent years has been the growth in the dimensions of the deposit above the marble contact at depth. So we found this several years ago with the marble contact narrowing and eventually dropping down sharply. The exploration above discovered that due to the unconstrained nature of the deposit, the continuation of the veins down deep has grown to at least 400 meters. We seem to have been finding the upper limits. However, the whole deposit is still open at depth along these structures. And within that, obviously, is Aurora zone, a significantly wider, more continuous and higher-grade deposit. The Aurora zone is where we will be seeing probably the larger part of our production uplift over the next 2 to 3 years. However, we do expect to see a continuation of that largest tonnage from the surrounding veins around Aurora, also. Here, you can see a long section of Aurora, which really did demonstrates the strike and depth extensions of it. Currently, we know that there's at least 400 meters strike and 400 meters down depth extensions. And we're very excited about the [ capital ] development advancing to depth, where we have had a lot of high-grade intercepts that we will begin to see impacting our feed grade over the coming months and years. We have also been exploring 2 other areas. This program began in late 2020. As a result of what we found in the -- and around the Aurora deposit, we've taken a step back further up into the mine and began drilling the Lake zone at depth. There, we started to see some very exciting high-grade intercepts, including 40 centimeters at 92 grams, 1.1 meters at 32 grams and 1.1 meter at 16 grams. We are continuing with follow-up program of this area. However, we are also drilling the Main Zone in a similar area to the east at depth, and we will be releasing on that over the coming months. The company as a whole is in an extremely good position now. We have $30 million in cash. We're paying down the debt facility. We expect to be net debt free before the end of 2021. And we are ramping up significantly our exploration and starting to see the benefits of that exploration. It's good to see also that as a result of this. We are getting some traction in the market. And people are beginning to realize the intrinsic value of the company. However, that being said, we still feel that there is significant undervaluation of Mandalay. When comparing to our peer group, we had double the average cash flow over 2020 and yet half the enterprise value. So I do hope to see a continued share price increase over the course of this year so that all of our shareholders can benefit. And the summary of why Mandalay is a great investment. We have our strengthened operation. So we have Costerfield producing and continuing to produce from the high-grade Youle vein. We have Björkdal ramping up production from underground, focused on the high-margin ore. We have our strengthened financial performance and return to profitability. So that was -- we're at record levels of EBITDA revenue and adjusted net income, and we generated $25.3 million of free cash flow in 2020. We have the amazing upside exploration potential, which we're really beginning to see with the Shepherd discovery at Costerfield and the early results from the Lake zone drilling down deep at Björkdal. And finally, high potential and fully funded for future growth. Cash position of $30 million as of the end of Q1. We expect to be net debt free as of the end of this year. We are fully funded for our exploration program, spending at record rate for -- in drilling, and we have high potential for future profitability and growth. And once again, I would just like to thank our shareholders for the support they've given us over the last 2 years, allowing us to turn Mandalay around to be the fantastic, profitable company that it is today. Thank you very much. Thank you, gentlemen. Can you please advise if any questions specific to the presentation were submitted?

One minute, Dom, while I refresh the questions list. No questions have been submitted at this time.

Thanks, again, everyone, for joining us. I look forward to further updating the market on our progress. So have a great day, and stay safe.

Ladies and gentlemen, thank you for attending today's meeting. You may now disconnect.