Mandalay Resources Corporation (MND) Earnings Call Transcript & Summary

Good morning. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to Mandalay Resources Q2 2023 Financial Conference Call. [Operator Instructions] 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 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, 2023, available on SEDAR and the company's website. Mr. Bourchier, you may begin your conference.

Thank you, operator, and welcome, everyone around the world. On this second quarter 2023 financial results conference call today, available either by audio only or by webcast as per the call and link instructions on our August 3 release, is Ryan Austerberry, Mandalay's Chief Operating Officer; and Nick Dwyer, Mandalay's Chief Financial Officer. Unfortunately, Chris Davis, Mandalay's VP of Operational Geology and Exploration, is in transit to our operations in Sweden. Mandalay Resources released its Q2 2023 financial 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. Next. As in the next slide, as for the key deliverables and outcomes this past quarter, we produced 20,850 consolidated salable gold equivalent ounces. Our cash cost per ounce of gold equivalent produced was $1,159. Our all-in sustaining cost per ounce of gold equivalent produced was $1,644. The consolidated quarterly revenue was $39.7 million. The consolidated quarterly adjusted EBITDA was $8.9 million and cash on hand at the end of the quarter was $32.8 million. As of July 2023, all gold hedges are extinguished. And the mine extension permit at Björkdal Eastern Extension was received during the quarter. Next slide. As you may have noted from our Q2 production and sales results release 4 weeks back, the first half of 2023 has been challenging at both our operations. This has impacted our ability to meet the previously stated annual production and cost guidance for this year, mostly due to a combination of the nonrecurring mainly and some systemic issues related to underground ore mined tonnes and grade shortfalls. Initially, we expected higher production levels in the second half compensate for the shortfall experienced year-to-date. However, after careful analysis, we now understand that despite the remaining anticipated back-end weighted H2 2023 production expectations, this will not be sufficient to overcome the H1 2023 deficit to plan. And we revised our production guidance downwards to a consolidated 88,000 to 100,000 salable gold equivalent ounces. As a large portion of our cost base at both operations are fixed rather than variable, this will have a direct impact on our forecast full year cash costs and all-in sustaining costs, with cash costs expected now to range from $1,010 to $1,170 per equivalent ounce and all-in sustaining costs from $1,370 to $1,580 per equivalent ounce. We have investigated the root causes of the grade discrepancies and have recalibrated our geological modeling and scheduling, and our tonnes discrepancies and have adjusted our mobile fleet accordingly. This now instills greater confidence in our revised guidance. While we acknowledge that the revision is unfortunate, it has given us valuable insights into the factors that caused the recent production shortfalls. We are proactively implementing mitigating solutions and my team has high confidence that these actions will prove effective in improving our performance moving forward. In spite of these challenges, our exploration budget remains unchanged, and we consider it a key focus area for the future. Our vision is to rely on mainly organic exploration success at USD 10 million to USD 14 million this year at both operations, including near mine and regional drilling on our tenement packages. This exploration work is planned to underpin the growth of our valuable assets. Despite these challenges, Mandalay did turn a profit during the quarter, an adjusted EBITDA of $8.9 million as I stated, and making it our 12th consecutive quarter of profitability. I would now like to pass the call off to our Chief Operating Officer, Ryan Austerberry. Ryan?

Thanks, Frazer. Just next slide, please. Now to expand on the operational performance. We encountered several temporary but significant factors affecting our production during the first half of this year. On a consolidated basis, the company produced 20,850 salable gold equivalent ounces during quarter 2, up slightly by 5% as compared to quarter 1, 2023, but down 11% as compared to quarter 2, 2022. During quarter 2, 2023, Björkdal produced 10,397 salable gold ounces. The challenges faced during quarter 2 as with quarter 1 were related to personnel vacancies, mine tonne volumes and stope dilution. As may be noted on the graph on the bottom left, we are encouraged by the positive signs of steady increases to mined ore volume and grade from Q2 from Björkdal underground and expect ongoing productivity enhancement from a consistency in old underground tonnes as new contractor trucks were commissioned and staffed; increased underground tonnes mined from the higher grade central Eastern Extension area; a focus on mining practices to reduce stope dilution, of which we are starting to see some positive returns. In addition, as referenced by our CEO earlier, we are excited to have successfully obtained the mining concession for the newly-designed anticipated higher-grade Eastern extension of our Björkdal mine. This significant development grants us the extension of the mining envelope by an additional 350 meters, effectively encompassing entire mineral resource base that has been drilled and defined over the past 2 years. When noting the graph on this slide, second from bottom right, you'll see at Costerfield, there was a shortfall in underground mine grade. The drop in grades can be attributed primarily to a delay in stope progression into the higher-grade core of the Youle orebody. For the latter half of this year, we plan to retreat production fronts into the higher-grade core of Youle while continuing to develop along the multiple veins of the Shepherd orebody. The Shepherd orebody encountered some longer-than-expected waste areas along strike, which hampered ore tonne delivery to the mill. In addition, some production issues were further exacerbated by supply chain issues, resulting in a delay in receiving a remote underground loader. While we initially anticipated its arrival during quarter 2, we now expect it to be delivered and fully functional during quarter 3. There is a future focus on having some redundancy in critical mobile mining equipment. As a result, Costerfield produced 10,453 salable gold equivalent ounces during quarter 2 of 2023. Staffing levels have also been an issue at Costerfield. However, various initiatives, including modified hiring practices and an accelerated training, in addition to an effort to employ experienced operators, should help alleviate this labor gap. I'd like to pass the call on to Nick, who will walk through the financials. Nick?

Thank you, Ryan, So for Q2 2023, Mandalay generated approximately $40 million in revenue and $9 million in adjusted EBITDA. These amounts were lower as compared to previous quarters due to the lower produced and sold ounces year-on-year. Of those consolidated quarterly amounts, Costerfield contributed $21 million towards revenue and $5 million to adjusted EBITDA, with Björkdal making up the remaining $19 million and $5 million in revenue and adjusted EBITDA, respectively. As compared to the same period last year, our realized gold price pre-hedge remained broadly in line at $1,949 per ounce, while the antimony price declined about 6% to $12,406 per tonne. Cash and all-in sustaining costs per salable gold equivalent ounces during Q2 2023 were $1,159 and $1,644, approximately 14% and 18% higher as compared to Q2 2022, respectively. These higher unit costs were a direct result from a lower production rate. With the operational initiatives ongoing which Ryan, our COO, just spoke through, we anticipate unit costs will decrease over the coming quarters at both sites. Next slide, please. The Mandalay ended the quarter with $33 million in cash on hand and $25 million in total interest-bearing debt outstanding, $20 million as per our new facility and nearly $5 million in equipment leases, which results in an $8 million net cash position at the end of Q2 2023. Beneficially for the company and in connection with the prior credit agreement, the last 4,000 ounces hedged per month were delivered at the end of Q2 2023. Now with all of those hedges requirements expired, we anticipate cash flows in the future to lift as a result. That's in the assumption that metal prices remain similar to current spot prices. For Q2 2023, Mandalay generated about $3 million in free cash flow. I would like to turn the call back to Ryan to discuss our exploration development in place of our temporarily absent VP of Exploration, Chris Davis. Thank you. Ryan?

Thanks, Nick. Just next slide, please. On this slide, you will note on the right plane an aligned section view of our Costerfield mine. At Costerfield, there were 2 areas of focus for near mine exploration, focused on our efforts to replace our mine depletion. Extension drilling on the Shepherd orebody continued through quarter 2 with the focus shifting from a depth extension infill program to a southern extension program. Alongside this drilling, the Brunswick dips program recommenced, targeting Youle or Shepherd style mineralization below the recently producing Brunswick mine. If successful, we are targeting to have some of this incorporated into our mineral reserve update that will be effective from end of this year. Going into quarter 3 2023, Mandalay expects that drilling programs extending Shepherd and Brunswick at depth will continue. Next slide, please. This is -- the next slide is the Costerfield regional drilling. Regional drill testing was undertaken approximately 2 kilometers east of the current mine outside the central corridor with a continuation of the True Blue drill program. First intercepts from this program were released in February this year. Additionally, the West Costerfield drilling program was concluded and the northern dykes drilling program has commenced with the intent of drill testing below historic workings along dyke-hosted, gold-antimony mineralization. This True Blue program is scheduled to continue with a new drill program to start in quarter 3, testing for Costerfield style mineralization underneath the historic Robinson mine, as the hope is to determine if a duplicate of the central corridor could be identified and replicated along this trend line over the coming years. Next slide, please. The next slide focuses on Björkdal near mine. At the Björkdal, 3 new mine targets were progressed, firstly, veining in the intermediate surround of the Aurora orebody were targeted. Secondly, the Eastern Extension of Lake Zone was drilled. Thirdly, the North Zone area was tested for dip and strike continuity. We're excited that drilling of North Zone into a new area of veining intercepted approximately 180 meters to the north of Aurora. This new area is called the Boreal Zone, and a news release detailing this discovery along with the drilling update from the rest of the North Zone and the Lake Zone Eastern Extension program was released in July 2023. The highlights of the North Zone and Boreal Zone included 207 grams per tonne of gold over 0.55 [ in the ] meter and 73 grams per tonne of gold over 0.45 [ in the ] meter. Additionally, drill intercept highlights of the Lake Zone Eastern Extension program included 117 grams a tonne over 0.35 [ of a ] meter and 89 grams per tonne of gold over 0.45 [ of a ] meter. Next slide, please. The next slide is the Björkdal surface drilling. This slide outlines our full tenement package at Björkdal, which covers a considerable extent with a vast number of different style targets. Surface drilling during quarter 2 was primarily focused on the depth and strike extension of the Storheden mineralization situated approximately 500 meters to the north-northeast of the current mine. Extensional drilling is aimed at testing the extent of mineralization identified over a strike length of 3.5 kilometers. The secondary focus for the surface drilling was the depth testing of the Quartz Mountain target originally mined within the Björkdal open pit. During quarter 3, drilling is expected to continue on newly defined Boreal Zone and conclude on the Aurora surrounds program. New programs are due to commence infilling the Eastern Extension of Main Zone as well as the east of the Aurora Zone. Drilling will also recommence in the Southwestern tenements on the Lapptjarm and Tarsnas targets. With that, I'd like to return the call back to our CEO, Frazer Bourchier.

Thanks very much, Ryan. I appreciate you filling in for Chris Davis, who's absent for this call. He will be on our next quarterly call, our VP of Exploration. Look, just as I wind up, it's now been 4 months for me into this new and exciting position as Mandalay's President and Chief Executive Officer. And I want to reiterate that Mandalay is well positioned financially with a good balance sheet, cash on hand, and excellent credit facility, 2 cash-flowing assets in Tier 1 jurisdictions, with a prolific history of past metal production, both within our tenements and adjacent to our tenements. We have no permitting risk. We have no large capital blowout build risk. This is important, especially in today's difficult equity capital markets, thereby allowing for optionality in achieving our long-term growth and value-creation objectives. I remain excited with our organic pipeline of growth opportunities as I further familiarize myself with our 2 operating assets. And we will continue to invest strongly in exploration to both replace depletion and extend mine life in known mineralized areas while stepping out in search of potential new near-mine discoveries. There is no doubt that in parallel to these activities of operation and exploration, I remain open to exploring with my Board all avenues to grow this corporation in size and scale with potential accretive M&A transactions. I have a fully-engaged, reinvigorated Board of which we are all meeting in person, in country for an important corporate strategy session this month to further flush out these details and parameters and align on a go-forward strategy, which I will share in due course and as appropriate for a publicly-listed company. I wish to thank everyone, and this concludes this portion of the call. And I would like to open the lines for questions now, and back to you, operator.

[Operator Instructions] And our first question comes from the line of [ Ernie Maleche ], who is a private investor.

Congratulations on the improvement in performance in Q2. I was very impressed by the amount of underground tonnage at Björkdal now. It seems that you're not using the stockpile anymore. Is that correct?

Ernie, look, it's Frazer here. Thank you for your question. Not quite correct, but I will actually give that question over to Ryan Austerberry, our Chief Operating Officer to answer it. Ryan?

Yes. Thanks for the question there. Yes, as Frazer said, no, we're still utilizing a portion of the stockpile in our mill feed, especially over the summer period in Sweden where there's a lot of the staff take vacation and we have summer workers who are less familiar with the operation in place of the normal workers. So -- but our aim is to, of course, get as much underground feed into the plan as possible and reduce the amount of stockpiles.

And a follow-on question is, my understanding is that you're permitted to actually process like 1.7 million tonnes per year. Is that correct at Bjorkdal?

Again, Ernie, Frazer here. It's probably more like 1.45 million tonnes. But -- and Ryan can add some further color to that if you need to, but it's 1.45 now by the end of this year. We're not quite complete with the mill upgrade, but that should be in order by the end of this year from the current about 1.25 million tonnes per annum.

Yes. Could you provide some color on the mill upgrades? What exactly are you upgrading?

I'll hand that over to Ryan. Ryan?

Yes, thank you. Yes, correct. We're -- actually, you're correct, we're permitted to deposit 1.7 million tonnes of tailings sand per year, that's via permit. Currently, we were around 1.25 million tonnes, and that's going to the project we're doing is an upgrade of the throughput of the plant, and that will increase our throughput, we expect, by 200,000 tonnes per annum. So that's an upgrade to our ball mill to a different type of ball mill where we're operating it to a grate discharge mill.

[Operator Instructions] Okay. There seems to be no further questions from the phones at this time. So I'll hand the floor to Edison for any questions from the webcast.

Frazer, there is one question from Kevin Tracey of Oberon and it reads, last quarter, the great disappointment was related to more variability at Shepherd than expected. You said more infill drilling was going to be done to better understand things. What have you learned over the last 3 months? And do you expect a grade at Shepherd that will support production at about 55,000 ounces for the next several years at Costerfield, and that was from Kevin Tracey of Oberon.

Okay. Thanks, Edison. I'm going to give a high-level and then hand over to Ryan for more details. The short answer is we're always doing more infill drilling. Yes, we are getting more clarity on the lower part of Youle, the upper part of Shepherd. And that's giving us a bit more certainty on what we think forward grades will be. And we're also accelerating moving into what we call Shepherd South as well to expand the resource. So the plan is, of course, we don't come out with an official forecast until later in this year or early next year. So I won't comment on the exact ounces for next year that we expect at Costerfield, although we don't expect any major surprises. But Ryan, would you like to add any more color to the infill drilling question of what we learned?

Yes. So we've completed a large amount of infill drilling and it's still ongoing. The Shepherd orebody, it's broken up into a number of veins. So it's really to help us define those veins, what mines we should be mining and where. So I'd say we're gaining that knowledge now. We're sort of getting into Shepherd properly now, true Shepherd. So that knowledge has really picked up over the last quarter and following through into this quarter. So I expect by Q4, we'll have a good handle on grades in Shepherd, but things are starting to look more positive.

Okay. Edison, I presume there are no other questions that have been filed by Q&A as opposed to audio.

Sorry, Frazer. There's a couple of follow-ups from Kevin. I'm just going to address them now. So the first one is, you revised your guidance before you received the permit extension at Björkdal. Did you include the assumption that you would mine the Eastern Extension this year in the guidance? And then as a follow-up -- we'll address the first, and then I'll go to the second question.

Yes. The short answer is we're very pleased to get that permit. It does not materially impact this year. It certainly helps us for next year because there's a bit of a lag time in terms of further development and progressing into the Eastern. So that is a good underpinning, but it doesn't change our forecast for this year.

All right. And then his third question is, how many tonnes do you hope to mine at the Eastern Extension next year? What could this mean for the grade and production at Björkdal?

Look, I'll give a high-level again. I won't get specific to tonnes. It will certainly be an increase in our proportion of mined and fed material into the mill, as we expect that to be higher grade material, but we'll be fleshing that out as we do our mine plans during our annual budgeting process over the next 2 to 3 months, and we can probably share that more when we give our forecast next year.

All right. Thanks, Frazer. At this moment, I don't see any further questions from the webcast.

Okay. Look, I want to thank everyone again for their time joining this call. It's our first switch over from audio to a webcast, and going forward, there'll be more on webcast. There'll be more communication in terms of sharing our future plans. And thank you again. Operator?

Thank you. This now concludes the conference. Thank you all very much for attending. You may now disconnect your lines.