Mandalay Resources Corporation (MND) Earnings Call Transcript & Summary

Good morning. My name is Selena, and I will be your operator facilitator for today. At this time, I would like to welcome everyone to Mandalay Resources Corporation's Q3 Financial Results Conference Call. Joining us on the call is Dominic Duffy, President, Chief Executive Officer and Director of Mandalay Resources. On this call, my apologies, this call contains forward-looking statements, which reflects 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 the company's website. Please go ahead.

Thank you, Selena. Good morning, everyone, and thank you for joining us today. With me on the call is Nick Dwyer, Mandalay's Chief Financial Officer; and I also have Chris Davis, Mandalay's Vice President of Exploration, and Operational Geology. Mandalay released its third quarter 2021 financial results at market close yesterday. You can find our consolidated Financial Statements and MD&A on the Mandalay Resources website, on our profile on SEDAR. Overall, we are very pleased with the progress that the company has made over the first 9 months of the year. Mandalay is continuing to demonstrate its ability to sustain the momentum generated in 2020 and has developed a successful operational and financial track record. This quarter again showcased the quality of our yield deposit with its high gold grades and low-cost profile. Largely driven by the strong performance, Mandalay anticipates that our consolidated 2021 salable production, excluding the positive results from Cerro Bayo, will be at the higher end of our 105,000 to 117,000 ounces of gold equivalent production given in our guidance. During the third quarter, Costerfield produced its highest ever amount of 8,950 gold equivalent ounces at 13 grams per tonne gold and 4% antimony, making it 1 of the highest gold grade mines in the world and the second highest in Australia to our neighbors across the road at Fosterville. As compared to the same period last year, Costerfield's production grew [indiscernible] by approximately 30%, which helped immensely in driving down Costerfield's cash cost per gold equivalent ounce we produced at $546, which was the best result since Q1 2016. Before I discuss our operations in more detail, I'd like to pass it on the call to Nick, who will walk us through the financial highlights of the company during the third quarter. Nick?

Thanks, Dominic. So Mandalay delivered another excellent quarter, which now marks our seventh consecutive quarter of profitability. We grew our quarterly consolidated revenue by 6% to $53 million as compared to Q3 2020. We also earned a healthy quarterly adjusted EBITDA of $25 million, which is a 48% margin. The main driving force behind this was a 13% increase in gold equivalent ounces sold of 29,509 ounces in the quarter. It should be noted that due to ongoing global shipping issues, Costerfield Q3 2021 revenue declined slightly to $27 million from the $27.9 million that we made in Q3 2020. This delay caused -- or these delays caused a postponement in our September flotation concentrate shipments valued at $5.5 million, which was recognized at the start of October. We're expecting an improvement in global shipping and logistics over the coming quarters, and we anticipate we will be caught up on our concentrate exports by year-end. Mandalay's realized gold price was lower in Q3 2021 at 18,038 per ounce compared to the 19,012 during Q3 2020. However, the decline in gold price was offset by antimony strong appreciation over the same period from $5,600 per tonne on average to just over $10,000 per tonne. And currently, the antimony price is around $13,000 per tonne, which is great for the company. As a direct result of lower costs and increased production at Costerfield, we did see a decrease to our consolidated cash costs, which was $825 and all-in sustaining cost of $1,135 per ounce compared to -- and, sorry, this was compared to $826 and $1,292 per ounce, respectively, in Q3 2020. The company recorded an adjusted net income of $10.1 million or USD 0.11 per share or CAD 0.14, and a consolidated net income of $9.3 million, which is USD 0.10 or CAD 0.13 in the period. Lastly, we closed the quarter with $29.8 million in cash, which was lower than the $39 million on the books in the previous quarter. This decline was expected. However, it was larger than planned due to the previously mentioned global shipping delays out of Costerfield. The other expected significant impacts on cash over the third quarter were also at Costerfield where we paid our full 2020 annual tax and 2020 royalty was $7 million and $2.7 million, respectively. We also paid $5 million for Lupin reclamation work in Q3. However, in Q4, we expect a release of funds of approximately $3.5 million through the reduction of our security bond there, which is part compensation for the work performed in 2021. And as with every quarter, we reduced our syndicated facility to $47.7 million through a $3.8 million debt repayment. Looking toward our year-end cash balance and going forward, we expect a significant lift as our payments -- payment obligations normalize. But finally, and subsequent to year -- quarter end, Mandalay filed a short form prospectus for CAD 200 million, which will be valid for a period of 25 months. At the moment, Mandalay does not have any plans to raise capital under this prospectus. The shelf offering will just be used only for an opportunity that the company deems likely to ultimately contribute to its overall growth strategy and be accretive to shareholders. I'd like to turn the call back to Dominic. Thank you. Dom?

Thanks, Nick. Turning to our operations. Consolidated salable production was 33,000 ounces of gold equivalent for the company, which was the highest production amount we've seen since the fourth quarter of 2017. As I discussed earlier on the call, a large part of this strong quarter was due to the continued high grade ore from Costerfield. Looking ahead to the next quarter and into early next year at Costerfield, we will continue with the scheduled stoping of the upper levels of Youle and the development on the lower levels of Youle. And we also expect to be entering into the Shepherd zone on the southern extent before year-end, which is very exciting for us. In line with the previous quarters, Björkdal generated $20.5 million in revenue and $6.8 million in adjusted EBITDA during the third quarter of 2021. Production was slightly better at 11,250 salable gold ounces, however, it's still below the planned production rates. The major reason for this underperformance has been the ongoing dilution issues in several stopes, and most importantly, in the Aurora zone. A lot of work has been ongoing to get the dilution under control, including supporting the hanging walls with long bolts at the top of the stopes, changes in our drill pattern design, removing development drives from the hanging wall side of the deposits, among other changes. As a result, we have been seeing improvements with these changes that are very encouraging. Björkdal was able to post a very strong September with the highest gold grade feed for the underground since December 2019, producing at over 1.5 grams per tonne. So it was the highest grade we've seen year-to-date. Cash and all-in sustaining costs were slightly higher at Björkdal at $1,186 and $1,440 per ounce, respectively, versus $1,050 and $1,337 per ounce a year ago. These increases were mainly due to higher cost of production and the relative strengthening of the Swedish krona against the U.S. dollar. That says, we have improved our unit costs since the second quarter of this year. Looking forward, we expect to see a further decrease in these unit costs as we ramp up the stoping in the high-grade lower levels of Aurora, and anticipate seeing mining grades lift for the remainder of 2021 and 2022. Lastly, up to Björkdal, we are currently on track to achieve our strategic objective on 1.1 million tonnes from the underground. I feel we have reached a sustainable high production tonnage rate from Björkdal. So our focus going forward will remain on dilution control to lift underground grades. Moving on to Cerro Bayo. Our third quarter 2021 results included 2,925 salable gold equivalent ounces, which provided a healthy $5 million in revenue and $1.5 million in adjusted EBITDA. Last month, it was announced that Equus Mining decided to exercise its option to purchase Compania Minera Cerro Bayo from Mandalay, which owns the Cerro Bayo mine. The transaction is scheduled to be completed on December 1. In exchange, Mandalay will be issued Equus shares amounting to a 19% holding of Equus at the date of closure. Mandalay will also maintain a 2.25% Net Smelter Royalty on production above 50,000 ounces of gold equivalent from Cerro Bayo. In addition to our operations and financial success, we have been having a lot of exploration success over the course of 2020 and so -- 2021, sorry, so I would like to turn it over to Chris Davis, to fill you in on the exploration updates. Chris?

Thanks, Dom. Subsequent to quarter end, we reported on 3 excellent developments at Costerfield, which I would like to discuss here. Since our last update in June on the recently discovered Shepherd Zone, drilling has continued with a focus on extending mineralization along strike as well as targeted infill drilling in order to delineate and refine the structural model of Shepherd. Announced in early October, structural continuity of Shepherd has now been established through 5 separate veins, which was previously thought of as 2 veining horizons. The 5 veins roughly conform to these horizons, with the East horizon comprising the Shepherd and Merino veins, while the Western horizon contains the Suffolk, Dorper and Southdown veins. The combined veining has now been extended over a strike length of 500 meters and approximately 100 meters vertical extent. The Shepherd system still remains open to the north, south and at-depth, with the southernmost drillholes showing persistent veining with significant gold and antimony grades. Veining to the south of Shepherd looks similar in nature to the veining of the Youle deposit above with stibnite accompanying the gold-rich quartz veining. Some highlights of the Southern extension include 14.8 grams per tonne gold and 11.6% antimony over a true width of 1.8 meters, 24.6 grams per tonne gold and 2.3% antimony over 1.2 meters, and 10 grams per tonne gold and 2.3% antimony composited over a true width of 8.2 meters. This composite of 8.2 meters is the widest yet discovered at Shepherd, which is -- which consists of several veins, including a 30-centimeter vein, grading at 98.6 grams per tonne gold and 18.5% antimony, and the 17 [ centimeter ] vein grading at 156 grams per tonne gold and 19.1% antimony. To the north, within the Merino vein, we see significant gold grades with the drop-off of antimony. Some highlights include 390 grams per tonne gold over a true-width of 11 centimeters and 114 grams per tonne gold over a true width of 23 centimeters. Moving into the Western set of veins, some of the standout intercepts were 155 grams per tonne gold and 10.5% antimony over a true width of 11 centimeters, and 67 grams per tonne gold over a true width of 25 centimeters. Looking near term at Shepherd, in Q4 2021, we will be developing a new deep drill platform at the base of Youle. From this platform, we'll be able to better access and test the depth continuation of the system. Within the same exploration release, we provided an update on the Costerfield's deep drilling program. Drilled within a favorable environment of depth along the central Costerfield line, this program looked to build upon a previous campaign that resulted in the discovery of [ restyle ] gold intercepted in 2016 at depths of approximately 800 meters. Hole CD002 was drilled underneath the Cuffley and Augusta deposits in search of the favorable geological conditions that are akin to those defining our neighboring Fosterville deposit. CD002 intercepted 2 areas containing subvertical quartz veining with visible gold within fold closures at depths of 800 and 900 meters. Although very exciting, the result -- although very exciting results, the highest grade assay was 8 grams per tonne over 7 centimeters. These new gold-bearing horizons were actually to the west of the 2016 discovery and indicate that the breadth of the mineralization at depth was approximately -- or is approximately 500 meters wide. We have also reported on our drilling progress at the Brown's prospect, which is located approximately 2 kilometers to the east of the Shepherd deposit and Youle mine. A 17-hole drill program confirmed the presence of a promising gold system comprising 2 main mineralized trends exhibiting high-grade gold intercepts. The Felix Trend is associated with the historic shallow Felix Brown mine and also associated with alluvial workings that plays an important role in gold production during the 1890s. Approximately 120 meters below the historic workings, the new drilling recovered 20 grams per tonne gold over a true width of 1.7 meters, which also included 158 grams per tonne gold and 9 -- over 9 centimeters and 111 grams per tonne gold over 16 centimeters. The newly discovered Western trend is approximately 100 meters to the west and is interpreted to be blind to surface and, hence, not previously discovered. A highlight of this trend is 19 grams per tonne gold and 2.4% antimony over a true width of 1.01 meters. Visible gold was present in several intercepts through both trends and mineralization can be traced over 200 meters strike length and 300-meter vertical extent. Encouragingly, the significant grades found in the Brown's drilling program may only represent the most official expression of a more extensive mineral system at depth. The depth continuation of the Brown's mineral system may extend into and be hosted within the same favorable environment that hosts the Costerfield [indiscernible] mineralization of the Youle and Cuffley orebodies. Thank you. That concludes the exploration update. And I'd like to hand the call back to Dom. Dom?

Thanks, Chris. With the Costerfield corridor hosting over 2 million ounces of equivalent gold, it's currently being 1 of -- currently 1 of the highest gram gold grade producing mines. This untouched environment at depth will definitely be a focus of our explorations in 2022. So I'd just like to thank everybody. This concludes this portion of the call. I would now like to open the lines up for questions.

[Operator Instructions] And we do have a question. It comes from the line of [ Lawrence Retail ], a private investor.

Dominic, I'd like to thank the team upfront for turning around Mandalay Resources. I think you've guys done a really great job. Hello?

Yes. Yes. Thanks, Lawrence.

Okay. So I guess going forward, I wanted to know what your -- if you had to select between 2 operating mines, which 1 would you pick? The Björkdal operation versus the Cerro Bayo operation as they stand today? And what their future prospects look like from an operating cost and bottom line revenue?

Going forward, then definitely, there's no question, we'll choose Björkdal over Cerro Bayo. Björkdal currently has 10 years of reserves in front of it, which will grow significantly. Cerro Bayo does not have that many mineable reserves that has the stockpiles. The reason they have been so profitable over the course of this year is we have had a very high silver price as well when silver was at $28, $29. It was making a healthy profit, nothing world-breaking, but actual mineable reserves at Cerro Bayo, there is very little. And going forward, we do anticipate seeing significant uplifts in our grades at Björkdal for two fold reasons, one being mining improvements and getting the dilution down, which is the main focus, as I mentioned earlier. Previously, our main focus had been lifting tonnage rates, getting a sustainable higher tonnage rate. Now we've reached a rate that can be very profitable, and we just have to focus on reducing our dilution, which we're doing. But we also get grade lifts from the exploration results. Chris has been getting especially down south to the northeast of the property, the continuation of the mine down deep. We're starting to see a lot higher grades on that South -- Northeastern depth expansion. So that -- those grade increases from high-grade areas won't be immediate. We're mining out towards them. So we'll see that ramp up over the coming years. But we are starting to see the effects of the changes we're putting in [indiscernible] from -- with the dilution control. So definitely, Björkdal over Cerro Bayo.

So with Björkdal, what other areas can you improve the operating cost? Because it always seems to be higher than Costerfield? And what about the recovery grades? Is there any improvement to the mill beyond what we've discussed in a prior call, which is the ore sorter?

Yes. Not really. We -- over the 5 years, we've owned Björkdal, we haven't really been able to get significant recovery improvements from that operation due to the variable nature of where you're mining. The different geology does prove to be -- have its complications. And when we seem to overcome one type of geology then we move into another. So we're being pretty constant about 89% to 90% recovery, which we're always trying to improve on, but it's a pretty stable recovery right there. The only real improvement, significant improvements we can see in the plant would be the optical ore sorting going forward. For costs, it's mainly related to our grades. If we can get our grades up, higher ounces passing through the plant, our unit costs will drop -- unit cost per gold ounce will drop. But the actual mining cost is pretty flat, right?

Yes, I realize that seems to be the same from year-to-year, the cost of operating the plant. It's all based on grade. What about -- there's some mentions that as you mine deeper, you're getting farther away from the plant. Is there a possibility of putting in a conveyor system or that's just too expensive? Or what about automation? I know some of the mines in Ontario are using a lot more automation. [indiscernible] the hauling trucks.

Yes. Yes. So that would be a significant capital investment, both haulage truck automation and conveyor belts. So conveyor belts because of the layout of the mine, there's too many bends, et cetera, for our primary ramps going down, that we wouldn't feasibly be able to put in conveyors. Also it's quite a lot of capital investment to automate. The haulage isn't -- it is a large part of it, but, again, our focus, it is a low-cost operation per tonne. Our focus is more so than trying to reduce our costs is trying to reduce our dilution and get the grades up.

[Operator Instructions] And we do have a question that comes from the line of Stuart McDougall of Research Capital.

Dominic, I just have a couple of quick questions, please. First, on Costerfield. I noticed that the gold recovery popped up in the quarter as well as the processing costs. So 1, I'm just -- can you confirm that the 2 are related? And 2, what you expect going forward, if you expect it to remain at 96% on the gold side? And then secondly, could you just address the CapEx guidance for the year relative to the year-to-date spend, and what we might expect in Q4 for the 2 mines?

Yes. Okay. Thanks, Stuart. Firstly, on the recoveries at Costerfield. So we did put in the [ cavitation ] tube flotation cell earlier in the year, focusing on grabbing those fine particles of gold, and the results have been positive. And that's the main contributor for -- it was anticipated we'll get those higher recoveries, which we are getting. However, there is a slight increase in costs related to that as well, which is the reason for our costs rising slightly in the processing. Also, the FX, Aussie dollar has been strengthening as well, which does push our costs up slightly. The second part of the question, capital. I'll actually hand that 1 over to Nick if you want to answer that?

Yes. No, problem. Stuart, I think the way to look at our CapEx for the full year, we're going to be basically in -- broadly in guidance and near the midpoint at this stage. And that's a slight overspend at Costerfield and a slight underspend at Björkdal, mainly just from additional capital development at Costerfield from finding their Shepherd zone essentially and sort of continue on the development drives down deep there. And on the Björkdal side, we're going to delay a bit of spend on the tailings from this year into next year. So yes, in short, just attribute on guidance.

[Operator Instructions] And at this present time, no one else has registered for any questions. Please continue with your presentation or closing remarks.

Thank you, operator, and thanks again, everybody, for joining us on the call today. I look forward to updating the market on our progress and have a great day and stay safe, everybody. Thanks.

Thank you. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.