Mandalay Resources Corporation (MND) Earnings Call Transcript & Summary

Good morning. My name is Sherry, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Mandalay Resources Corporation's Second Quarter Financial 2022 Results Conference Call. Joining us on today's call is Dominic Duffy, President and Chief Executive Officer and Director of Mandalay Resources. [Operator Instructions] Please note, this conference is being recorded. 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 actual results of the company to differ materially from those discussed in 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 on March 31, 2022, available on SEDAR and the company's website. I will now turn the conference over to Dominic Duffy. Thank you. You may begin.

Thank you, Sherry. Good morning, and thank you, everybody, for joining us today. On the call with me, we've got Nick Dwyer, our Chief Financial Officer; and also Chris Davis, our VP of Exploration and Operational Geology. So we released our second quarter financial results at market close yesterday, and you can find the consolidated financial statements and MD&A on the Mandalay Resources website. It's also under our profile on SEDAR. Before discussing our second quarter of 2022 results, I just wanted to apologize for our results coming out a little later than anticipated last night. We were working on closing out the transaction or the sale of our Challacollo silver mine to Aftermath Silver, which I'm happy to say was announced early this morning, but it did result in financials coming out a little later than anticipated. Regarding the sale of Challacollo to Aftermath Silver, the total consideration for this project was CAD 8 million in noncontingent consideration plus it also involved a 3% net smelter return royalty on production at Challacollo and this is capped at $3 million. If you want any more further details regarding these considerations, you can find it in the news release that came out this morning. I'm very happy to have closed out this deal similar to Cerro Bayo late last year. These transactions have really accomplished our corporate objective of creating value from our noncore assets. I would also like to wish success to Aftermath, and I really look forward to continuing the strong mutually beneficial relationship with them going forward. Now moving on to our second quarter results. I am pleased with the progress that we achieved during the first half of this year with Q2 contributing towards several key milestones for the company. During the quarter, Mandalay again strengthened its balance sheet by improving its net cash position. And as of the end of June 2022, the company had $48 million in cash and $41 million in total interest-bearing debt. The averaging net cash position has always been the key milestone since I moved into this position and it is credit to the Mandalay team on this achievement and now it's quarter-on-quarter improvement. The continuing high-level performance at Costerfield allowed us to further improve our net cash position. We expect this trend to continue at Costerfield and expect significant improvements at Björkdal for the remainder of 2022 where we finished the quarter below our expectations with a few production issues. The improved cash flow expected for the remainder of the year will allow the company to continue with the ramp-up in growth investment opportunities to strengthen the business or investigate optimal means in which we can return capital directly to our shareholders. With consolidated salable production of approximately 53,000 ounces of gold equivalent during the first 6 months of the year and the forecast production improvement over the remainder of the year, the company remains on target of achieving our 2022 production guidance of 118,000 to 130,000 gold equivalent ounces. Before I discuss operations in more detail, I'd just like to pass the call off to Nick, who will walk through the financial highlights of the company during the second quarter. Nick?

Thanks, Dominic. Mandalay delivered another steady quarter, financial quarter during the period, which continued the momentum created into -- from last year into the first half of 2022. In the quarter, the company achieved $50 million in revenue and $20 million in adjusted EBITDA. And for the first 6 months of 2022, we generated $104 million in revenue and $52 million in adjusted EBITDA, both incremental improvements as compared to the same period last year. Of those consolidated amounts, Costerfield contributed $32 million towards revenue and $19 million toward adjusted EBITDA, with Björkdal making up the remaining $18 million and $2 million of revenue and adjusted EBITDA, respectively. The slight decrease in quarterly revenue compared to Q2 2021 was due to a drop in the gold equivalent ounces sold from 28,000 to 27,000 ounces in the current quarter. The company was supported by stronger metal prices as compared to Q2 2021, with a 6% increase in gold to $1,900 per ounce, while antimony increased by 13% to around $13,000 per tonne. During Q2 2022, we recorded a consolidated net income of $3 million or USD 0.03 per share, which is CAD 0.04. Our consolidated cash and all-in sustaining cost per ounce during Q2 2022 was $1,020 and $1,399 per ounce, respectively, which was slightly higher than Q2 last year. On a year-to-date basis, however, per ounce costs were $914 and $1,232 per ounce, which was an improvement to the same period last year. Another highlight from this quarter was a $16 million in net cash flow from operating activities and $7.5 million in free cash flow generated. These results contributed toward the company generating $36 million in free cash flow during the first 6 months of this year, which is approximately 3x the amount earned in the first 6 months of 2022. Regarding our debt, our syndicated facility stands at $36.3 million, and total debt was $41.5 million when considering our operating leases with $48 million of cash on hand at the end of the quarter leave Mandalay with $6.4 million in net cash, which was an improved position since Q1 earlier this year. It's worth repeating the significance of this transaction as 2 years ago, Mandalay had approximately $55 million of net debt. Achieving this net cash milestone not only highlights successful turnaround of our operations, but also their quality as we anticipate sustaining these developments made while looking forward to their growth over the next few years. I'd now like to turn the call back to Dominic. Thank you. Dom?

Thanks, Nick. On our operations, as I mentioned earlier, a significant part of our second quarter performance was due to Costerfield. So it produced 15,000 ounces of salable gold equivalent during the quarter and 32,000 ounces over the first 6 months of 2022. Both of those are improvements as compared to the respective periods last year. However, as compared to the first quarter of 2022, the production rate did drop as we're mining within the lower level extremities of the Youle ore body, which continued out further than expected, but at lower grades relative to the central part of what we generally find in Youle. So even though this material was at lower grade than we previously mined, it was still economical to push out us to not sterilize at all. Long term, we will see benefits from this because it is increasing our mine life. Both our main cost per ounce metrics saw decline year-over-year, cash cost per ounce or the salable equivalent gold produced in the second quarter of 2022 was $646 and $608 for the first 6 months of 2022 as compared to $652 and $646, respectively, for the same year -- same period in 2021. So our all-in sustaining cost per ounce of the salable gold equivalent in the second quarter of 2022 was $916 and $840 for the first half of this year. This was about 10% and 15% improvements on 2021 values. At Björkdal, the site produced 8,316 ounces of salable gold in the second quarter of this year. Unfortunately, this rate was below our planned levels. This is due to lower throughput and feed grades at the processing plant. Grades were also negatively impacted as we pushed development drives in several areas past the planned stope limits, ultimately, delaying production in these areas. Reconciliation work is underway to understand the underperformance of several key stopes relative to the block model also. We expect this to turnaround as we all be focusing on production areas of high confidence in the second half of the year and continuing with our ongoing dilution control. Lastly at Björkdal, cash cost per ounce of salable gold produced in the second quarter of 2022 was $1,696 compared to $1,338 in the second quarter of 2021, while all-in sustaining cost per ounce in the second quarter of 2022 was $2,120 compared to $1,766 in the second quarter of 2021. I'd now like to invite Chris to speak a little on our Exploration.

Thanks, Dominic. At Costerfield, drilling continued on the downward and strike extension of Shepherd as well as infill drilling on the inferred portions of the Shepherd resource. The Robinson drilling program commenced late in Q1 and has continued through Q2. Preliminary results have been very encouraging, with initial assays disclosed in June, including 1,780 grams per tonne gold over 17 centimeters, intercepted approximately 100 meters down and to the west of the historic Robinson mine, which is about 2 kilometers east of Costerfield. Q3 will see the continuation of the extension and infill programs around Shepherd and an augmented drill program at the Robinson prospect. The initial Margaret drilling program is expected to be completed in early Q3, while the Brunswick Deeps program is likely to be on hold until Q4. Also within Q3, the True Blue and West Costerfield drill testing programs will commence along with the resumption of the Costerfield Deeps program late in the quarter. Lastly, through Q2, interpretation and integration of the data from 3 seismic traverses is ongoing and has already greatly added to our knowledge of the geological architecture of Costerfield. At Björkdal, drilling has -- drilling was completed on the Lake Zone Link program infilling data on the eastern edge of the mine. Assays confirming the continuation of grade and veining were disclosed in June. Drilling continued through Q2 on the extension infill of the North Zone, a current resource between 100 and 500 meters north of the underground infrastructure. Significant grades were found in both programs with a highlight in the North Zone of 155 grams per tonne gold over a drill length of 0.8 meter. This intercept was one of a series of veins, approximately 400 meters north of Aurora. The North Zone drilling program will continue throughout Q3 with a focus on the Eastern Zone infill program. The regional exploration programs at Björkdal have included diamond drill testing undertaken approximately 6 kilometers east of the mine at Vidmyran and bedrock geochem testing along with geophysical surveys in prospective ground to the southwest of the mine. In Q3, drill -- diamond drill testing will follow and commence in the southwest of the tenement and follow up on those high potential targets that have been prepared over the last year. Exploration of both our operating sites has seen robust progress over the past 6 months and with some exciting programs yet to begin, I look forward to updating the market in the near future. Thank you. I'd like to hand the call back to Dominic. Dom?

Thanks, Chris. So briefly looking ahead at Costerfield, we anticipate a slight improvement to the production profile in the second half of this year as we continue to ramp up the stoping yield and with the initiation of production from high grade -- the high-grade Shepherd deposit. At Björkdal, we expect grades to lift and stabilize into planned levels as the improvements are continue to be carried out. And I think that's everything for now. So this includes this portion of the call. I would now like to open the lines up for any questions. Thanks, operator?

[Operator Instructions] Our first question is from Kevin Tracey with Oberon.

So just a question on Björkdal. I think it's fair to say that production there has been disappointing for a good while now. So I just wanted to get your feeling, Dom, on, I guess, how confident you are that the improvement will come? And maybe you could just clarify your guidance. So you said you reiterated your consolidated production guidance of 118,000 to 130,000. It looks like you also left Björkdal unchanged at 51,000 to 56,000. That would imply an awfully big increase, I think, like 15,000 ounces a quarter average in the back half of the year. Is that something do you think is achievable? Or will the 118,000 to 130,000 will part of that be because Costerfield you expect to do even better?

Kevin, we may be seeing some above guidance production coming out of Costerfield. It is a little too early to tell. However, we do expect the bulk of the improvement in the second half of the year to come from Björkdal. I must agree, it was disappointing. We saw -- the Q2 results, we saw some very good results coming in Q1, but then in Q2, we did have quite a big drop off. So in our production results, I didn't discuss it in this call, but we did -- we were impacted by COVID in our second quarter as well. So we did have a lot of people off site, both of our sites due to being sick. But it was just partly due to us similar to what we did in Costerfield. We were pushing our development in some areas. We possibly could have stopped earlier. So the grades were still paying, but it was not high grade. So the concern why Björkdal was sterilizing areas. However, with Björkdal with the amount of reserve and resource, it does have in front of us. We have taken a decision that we will be focusing on high-grade areas going forward of higher confidence. And if drives are pushing out into margin, we will be stopping them earlier and switching over to production. In regards to 15,000 ounces per month from that -- per quarter, sorry, from that operation, it has been achieved in the past. We are still mining similar material to what we have always mined. In the past, we do see variances in several areas between grades, but the general deposit does not change. So we are able to time that, right? It's just getting everything working production-wise and dilution wise to be able to do that. And I am confident that we will do that, but we may be getting more of the material from Costerfield to meet our guidance and actually Björkdal even though the bulk of the improvements I expected from there.

Okay. And then at Costerfield, you've been doing a lot of drilling at Shepherd. Can you give me any sense on, I guess, how that's been going? Or how has the resource been expanded? We saw a good growth in the reserves of Costerfield at the last reserve report. Is that something you hope to continue this year? Or do you think you can grow more than replace production there based on what you're seeing at Shepherd?

It's a bit early to say whether we will be replacing production, but I am pretty confident that we will be able to do it. Shepherd does continue to grow. I can't really give details on any results that we haven't published yet. But we do continue to drill this both to the north and south, all 3 directions, north, south and deeper. However, because we have got a longer mine life in front of us, at the current time, we do have more -- historically, Costerfield has just been drilling the reserve out in front of us, but we have been able to increase our mine life. So our focus isn't completely on just growing Shepherd. So we don't have as many drill rigs in Shepherd as historically Costerfield would have just trying to add reserves, a much larger focus of ours at Costerfield at the current time is finding the next deposit, which Chris talked about a little. So we are drilling the Robinson's deposit and stepping out into quite a few other new areas, True Blue, West Costerfield drilling, Costerfield Deep, Margaret, all of that is ongoing at the current time or will be ongoing over the second half of the year. So it's a lot more balanced exploration program at the current time, trying to find a shorter term -- add to the shorter-term reserves of non-deposits. But probably more of the drilling is happening in real exploration, which is very exciting for us. We haven't been in this position before at Costerfield.

Okay. And just on that, can you talk a bit more about the Robinson's discovery to early June, you called out that extraordinary 1,700 grams per tonne intercept. At that time, I think you had noted you haven't completed all the assays on the holes, but you have seen visible gold suggesting some other intercepts. I think at the time you were inferring veining could go over 250 meters or something like that. I guess can you just talk about how the other drilling has gone? It seems potentially extremely exciting. I guess it's based on your -- the comments in your script, it's hard to tell how exciting. So can you just talk a bit more about that?

Yes. I can't say too much because we've only really released on that original hole until we put out a release over the coming months, I can't go into too much detail. All I can say is that drilling there has been a little slower than anticipated. We are limited in that area due to proximity to housing, we are sound limited in that we can't drill at night. So we're only drilling in the day. We now have a second machine drilling on it, but obviously, it's only at half pace, both of those machines. And all I can say we will be releasing on further intercepts over the coming months on that. It was a very exciting first intercept. So we will just -- that's pretty much all I can say on that, sorry, Kevin.

[Operator Instructions] There are no more questions at this time. I would like to turn the conference back over to Dominic for closing comments.

Thank you, everybody, for joining us. And again, the key takeaway for this quarter is that Mandalay, we further strengthened our balance sheet with an improved net cash position as compared to the first quarter of 2022. Reaching a net debt free position was one of the major goals of the company at onset of our turnaround over 3 years ago. And I am pleased that we have achieved and exceeded that this year. So thank you very much, everybody. And I hope you have a great rest of day and summer. Bye.

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.