Mandalay Resources Corporation (MND) Earnings Call Transcript & Summary

Good morning. My name is Brigitte, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Mandalay Resources Corporation First Quarter 2022 Financial Results Conference Call. Joining us on the call is Dominic Duffy, President, Chief Executive Officer and Director of Mandalay Resources. [Operator Instructions] As a reminder, please note, today's conference is being recorded, Thursday, May 12, 2022. This call contains 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, 2022, available on SEDAR and the company's website. It is now with pleasure that I turn this presentation over to Mr. Duffy. Please go ahead, sir.

Thank you, Brigitte. Good morning, everybody, and thank you for joining us today. Also on the call with me, I have Nick Dwyer, Mandalay's Chief Financial Officer; and also Chris Davis, our VP of Exploration and Operational Geology. So Mandalay released its Q1 2022 results at market close yesterday. You can find our consolidated financial statements and MD&A on the Mandalay Resources website or under our profile on SEDAR. Q1 featured several positive and significant milestones for Mandalay that we achieved. At the onset of our operational turnaround, approximately 3 years ago, I'd say, one of the key indicators in measuring the success of our strategy was improving the strength of our balance sheet. As of the end of the first quarter this year, I'm very pleased that the company is now net debt-free position. We had $50 million in cash and $46 million in total interest-bearing debt outstanding. Approximately $40 million of that debt is the syndicated loan facility [indiscernible]. So it's very exciting to finally be in a net debt-free position after 3 years of improved operations and cash flows. This was made possible mainly by maximizing our cash flows from operations through continued tight cost control measures while continuing to grow our production through the high grades at Costerfield and also ramping up the underground production rates at Björkdal. We expect this trend to continue, and we will reinvest some of the cash in growth opportunities to strengthen our business and also investigate optimal means of returning capital directly to shareholders once the net debt margin has increased to a reasonable margin. With the consolidated sale of production of 29,600 ounces of gold equivalent in the first quarter of 2022, it places the company in a high position as compared to the same period last year, which also puts us on target of achieving our 2022 production guidance of 118,000 to 130,000 gold equivalent ounces. Before I discuss our operations in more detail, I would like to pass the call off to Nick, who will walk us through the financial highlights of the company during the first quarter. Nick?

Thanks, Dominic. So Mandalay delivered another fantastic quarter, continuing the strides made in 2021. The company achieved $54 million of revenue and $31 million of adjusted EBITDA, which equates to a strong EBITDA margin of 58%, both being excellent improvements as compared to the same period last year. [ As announced ], Costerfield contributed $30 million to its revenue and Björkdal $24 million, while the EBITDA of Costerfield contributed $23 million while Björkdal added $9 million. The increased revenues compared to Q1 2021 was from the support of higher realized metal prices. The gold price for Mandalay in Q1 2022 increased by 9%, while antimony increased by 50% compared to Q1 2021, which was over $14,000 per tonne in the current quarter. We also recorded net income of $10 million in the current quarter, which equates to USD 0.11 or CAD 0.14 per share. Our consolidated cash and all-in sustaining costs per salable gold equivalent ounce during Q1 2022 was $831 and $1,110, respectively. This was a decrease of 6% and 8%, respectively, as compared to the same -- amount seen in the same period last year. Another highlight for this quarter was the $28 million of free cash flow [indiscernible]. This was substantially more than the Q1 2022 -- 2021 amount due to higher cash received from operating activities, coupled with lower capital spend and also a large receipt of Q4 shipments in the current quarter. We expect the free cash flow to go back to normalized levels in the current -- in the coming quarters as a result of the delay in Q4 shipments mentioned earlier. Regarding the debt, our syndicated facility stands at $40 million. And our total debt, which includes interest-bearing leases, was $45.7 million. With cash on hand of $50.4 million at the end of the quarter, this leaves Mandalay with $4.7 million of net cash. It's worth repeating the significance of this transition to a net cash position, as Dominic mentioned earlier on the call. For context, 2 years ago, Mandalay had approximately $55 million of net debt, and that came from $77 million of total debt and $22 million of cash on hand. So achieving this net cash milestone not only highlights the successful turnaround of our operations, but also the quality as we anticipate sustaining the developments made while looking forward to their growth over the coming years. Thank you. I'd like to turn the call back to Dominic. Dom?

Excellent. Thanks, Nick. Now just I'd like to discuss our operations a little. The -- a significant part of this strong quarter was due to the continued high-grade performance from Costerfield. Costerfield continued to demonstrate that it is now a continual high-grade producing mine, with the grades over the last 2 years constantly in excess of 20 grams per tonne equivalent gold grade and continuing to be the second highest gold grade mine in Australia behind the neighboring Fosterville mine. Also in the first quarter, Costerfield produced 17,250 ounces of salable gold equivalent. That was a 12% growth compared to Q1 in 2021. However, metal production was slightly lower compared to Q4 2021, a slower-than-average tonnes will persist due to an issue we encountered with the commissioning of a new crusher at the processing facility. That commissioning has now been completed, and we are functioning optimally. So 32,200 tonnes were processed in the first quarter against the average of 36,400 that we were producing at the 2021 rate. So you can see how significant the crusher impact was as for the first quarter, and we do anticipate that we would have produced higher metal throughput if we didn't have those issues. Cash cost per ounce of salable gold equivalent in the first quarter of 2022 was $576 compared to $640 in the first quarter of 2021, while our all-in sustaining cost per ounce of salable gold equivalent was $775 compared to a year ago, that was $937. So you'd see across the board, the metrics both financially and operationally have been continuing to lift in Costerfield compared to a year ago. At Björkdal, the site had its best quarterly production. And I think it was since second quarter of 2019, we produced approximately 12,400 salable gold ounces. And the site, it was producing at planned levels. And we do also anticipate to see further growth from this asset and the bulk of it or all of it really coming in the second half of 2022 as we focus on the high-grade production areas. And we continue our focus on dilution control of our mine. Lastly, at Björkdal, our cash cost per ounce of salable gold in the first quarter was $1,186 compared to $1,187 a year ago, so a very slight increase, while our all-in sustaining costs in this quarter were $1,490 compared to $1,530 compared -- a year ago from now. So also at Björkdal, we are seeing both the production and financial costs -- financials improved from a year ago period. So across the board, we are seeing continued improvement from our operations, which is very exciting. I would now like to invite Chris if he's on the line to speak about our exploration results.

Thanks, Dom. At Costerfield, drilling continued during Q1 2022 on the Shepherd zone with a shift in focus from the Q4 2021 infill program to extension both at depth and towards the south. The extension drilling program around the Shepherd zone is planned to continue throughout Q2, along with our Brunswick, Margaret and Robinson's drilling programs. In order to aid our deep testing and regional programs, 3 seismic traverses were undertaken across Costerfield in Q1. The final interpretation of this data is expected in Q2. At Björkdal, drilling continued on the eastern bounds of the mine with the Lake Zone link program. Drilling also continued on the Northern Deeps program underneath Aurora, while new drilling campaigns commenced targeting the extension and conversion of the north zone resources, approximately 400 meters north of Aurora. Drilling at the eastern and northern extension projects are expected to be completed in Q2, while the Aurora extension drilling program is expected to resume. Base of till drilling is due to commence as well as surface diamond drilling, which will initially target the Vidmyran region. Apart from the excellent results of the eastern extension program released in January and previously discussed, Q1 was relatively light on exploration news but not on work completed. I look forward to updating the market on our project-specific findings as we bring a few of our programs into their initial stage gates in the near future. Thank you. I'd like to hand the call back to Dominic. Dom?

Great. Thanks, Chris. It is also worth reiterating that even though the operations are continuing to grow our cash significantly, 2022 is also the highest exploration spend that Mandalay has -- is going to incur since the company began in 2010. So we really are focusing on our future growth through Chris' leadership at both of our sites. Briefly looking ahead at the company. In cost deferred, we anticipate a slight improvement to the production profile for the remainder of this year as we ramp up a little more stoping production in Youle, and we're also beginning to develop throughout the Shepherd deposit. At Björkdal, we anticipate the grades to lift in the second half of this year and -- as our improvements are carried out at our mine. I think that's it for the call for now. So I'd like to open up the lines to the operator to see if there are any questions.

[Operator Instructions] And our first question comes from the line of Kevin Tracey of Oberon Asset Management.

I have a few questions on exploration. It sounds like we'll be getting some more updates soon, but I'm hoping you can maybe give us a bit of a preview of those. On the last call, you mentioned at Shepherd that as you were drilling at depth, you ran into some calcite band that killed the mineralization, and you weren't sure if it would come back. And then I think you're also -- you're drilling further south there, and there was that the deposit rose upwards, right, adjacent to Youle or even at Youle where there was an extension of Youle further south. So I was hoping if you could maybe give us a preview or an update on those 2 things and if you've learned anything over the past 3 months.

Yes. So obviously, I can't go into details on any results we have back yet, Kevin. But we -- both of those programs are ongoing. So we've drilled more into the southern section of Youle as we're searching for the high-elevated sections -- sorry, of Shepherd further to the south. So that program is a little further advanced. But the sub-calcite drilling, that is definitely in its infancy. It's been recently started. So I would anticipate within the next 2 months, I can't give you an exact date, but we will be releasing on the results of both of those programs.

Okay. Okay. Got it. And then I didn't see or hear in your comments in the MD&A any plans to do any drilling at your Brown's prospects or you had a discovery there last year, I thought there was some optimism that deeper there could be an attractive deposit. Is there any plan on that this year or you are still optimistic about that?

Sorry. Sorry, which deposit was it?

At Brown's, the discovery at Brown's. Yes, I thought there was a -- there was hope that there was a deposit deeper there from your discovery last year. Is there any plan or further drill there this year? Or are you still hopeful about that opportunity?

Yes. We're currently in the process of drilling the Brown's, Robinson's as well. So we will be releasing those results to the market over the coming months as well. So yes, and that is definitely ongoing.

Okay. Got it. And then just on the eastward extension program at Björkdal. Is that something that you hope to what fully be able to define this year? Or when trying to think about when reserves might be added there, I guess how long do you think that will take?

Look, I would anticipate we do have reserves in that area by year-end this year. We are limited to -- the drilling angles are quite poor at the moment. So we are not focusing our drilling on the eastern at the current time. We are putting drives out to that direction at the moment. And once we have established a better drill platform from where we can drill that area a lot more economically and obtaining better drill intercepts, that program will restart, but that won't be until later on in the year. Unfortunately, we had -- we've had the extremely good results there, but our angle is just too expensive, and the drill angles were becoming too poor [indiscernible] to continue on with that project, can't reach further east, and also the infilling will be a lot easier once we have development out there. So it's definitely slowed down significantly, but we will be ramping that up substantially towards the end of this year. So a lot of our focus at Björkdal drilling has switched further to the north recently while that development work has been done.

[Operator Instructions] Our next question comes from the line of [ Ernie Malesch ], private investor.

Congratulations on another great quarter. What I'm interested in is when -- at what point does your cash have to be in order to start paying a dividend? What kind of margin would you expect to have?

Yes. [ Ernie ], can I give a definitive answer on what cash margin we would require? At the moment, we are at $5 million net positive against our debt. We do need to have a bigger buffer that being said because it's equivalent of having $5 million in the bank previously. We did pay dividends when the margin was lower, but it is an ongoing discussion that we have with our Board regularly, but we do need a bigger buffer. But it is definitely something that we're looking heavily at reinstating dividend policy. We did previously do a dividend -- have a dividend policy and share buyback. For a company like Mandalay, which is very tightly held, a dividend is generally the better of the 2. But I can't give you an exact answer on this call as to when would -- when we would reinstate something like that.

Okay. And the second question I have is on Björkdal. What's your study between the ball mill and the [indiscernible]? Which direction are you leaning on that?

So that study is being carried out over the course of this year. So it is ongoing. At the moment, I think economically, that better of the 2 options would be upgrading our processing facility. We would be leaning towards that. However, we won't be making a decision on that until towards the end of 2022.

And Mr. Duffy, there are no further questions in the queue at this time. Sir, I'll turn the call back to you. Please continue.

Excellent. Thank you, Brigitte. Thanks, everyone, again for joining us on the call and look forward to updating the market on our future progress. Bye.

And that does conclude today's presentation. We do thank you for your participation and ask that you please disconnect your lines. Have a great rest of the day, everyone.