Mandalay Resources Corporation (MND) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Mandalay Resources Corporation Second Quarter 2024 Conference Call. 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 28, 2024, available on SEDAR and the company's website. [Operator Instructions] This call is being recorded on Thursday, August 28, 2024. I would now like to turn the conference over to Frazer Bourchier. Please go ahead.

Thank you, operator, and welcome, everyone. Joining us on the call today are Hashim Ahmed, our Executive Vice President and Chief Financial Officer; Ryan Austerberry, our Chief Operating Officer; and Chris Davis, our VP of Operational Geology and Exploration. Yesterday, Mandalay Resources disclosed its second quarter financial results at market close. You can access our consolidated financial statement and MD&A on either the company's website or through our profile on SEDAR. Mandalay achieved sizable financial programs in the first half of 2024 relative to our market capitalization with solid production results and a stable cost profile. In the second quarter alone, all in U.S. dollars, we generated $24 million in cash flow from operations and adjusted EBITDA of $36 million, the company strengthened its balance sheet, and we ended the quarter with a cash balance of $63 million. Based on these results and ongoing cash flow expectations, Mandalay repaid the entire $20 million outstanding balance on its revolving credit facility subsequent to quarter end in July 2024. I am pleased to announce that the company now has no significant debt apart from minor equipment leases. Additionally, the undrawn $35 million revolving credit facility remains available until 2027, enhancing our financial flexibility in supporting our corporate strategic objectives. Operationally, the company is well on track to meet our annual production guidance of 90,000 to 100,000 gold equivalent ounces, having produced approximately 26,000 gold equivalent ounces in Q2, totaling about 51,000 gold equivalent ounces during the first half of 2024. Equally important, we remain focused on various exploration activities or with the intent to extend the mine life at Costerfield as we have successfully done for the past 15 years since acquiring the asset and outlining higher-grade portion, the large Goldman system we have at Costerfield, both above and below the more units. Our strategic focus on quality organic growth at both operations, coupled with the continuous review of external opportunities, continues to set the stage for our anticipated asset value growth and thereby shareholder growth at Mandalay Resources. Looking ahead, we continue to execute internal plans for development installing with intent to increase production from higher-grade areas of Björkdal ramping up near mine exploration drilling to again replace the treated reserves to contribute. We will continue to manage our balance sheet prudently to enhance our financial flexibility to maintain strong cash flow generation. I would now like to hand the call over to different members of my executive team to recap the second quarter results from Mandalay Resources. First, Ryan Austerberry, our Chief Operating Officer. Ryan?

Thanks, Frazer. At Costerfield, we produced 13,773 gold equivalent ounces during quarter 2 of 2024, marking an increase of approximately 32% compared to the same period last year. This increase was driven by a rise in the average milled gold head grade from 7.4 gram a tonne in quarter 2 of 2023 compared to 12.1 grams a tonne in quarter 2 of 2024. There was a slight quarter-over-quarter decrease in mill throughput from an extended process plant stock due to planned capital improvements. Costerfield processed 30,757 ore tonnes in quarter 2 of 2024. We continue to focus on plant optimization and expect no adverse impacts for the remainder of the year. Additionally, the Costerfield site faced manageable geotechnical challenges that required some adjustments to the mine schedule. However, for the second half of the year, we anticipate improved plant throughput, and we expect similar to or slightly lower gold equivalent mining grades. Processed antimony grades were lower at 2.1% during quarter 2 2024 compared to 2.4% in quarter 2 of 2023 due to mining more tonnes from the lower grade antimony shipped deposit. This trend in antimony grade is expected to persist as Shepherd becomes the dominant ore body. Importantly, we have received planning permission for the construction of a new tailings storage facility. We expect to commence work this month, which, when completed in the first half of 2025 will give an additional 6-plus years mine life capacity. Björkdal has demonstrated sustained improvements over the last 4 quarters, achieving a production of 12,600 gold equivalent ounces in quarter 2, 2024. This marks the 21% increase from the 10,400 ounces produced in quarter 2 of 2023. This performance was driven by ore from the higher-grade Aurora development being included in the plant fee material in June, which resulted in processed underground and stockpile mixed fee grades averaging 1.3 grams a tonne of that month. In quarter 2 of 2024, the average plant fee grade, including low-grade stockpile from the surface was 1.2 grams per tonne with a processing throughput of 331,450 tonnes. This increase in throughput compared to the same quarter last year was due to the completion of the mill conversion project. In the latter half of the year, we will concentrate on optimizing the current technology and systems at the mine with a focus on debottlenecking the mine process to provide flexibility, enhanced productivity and underground mine tons, thereby lowering unit costs. I'd like to pass the call to Hashim, our Executive Vice President and Chief Financial Officer, will highlight Mandalay's financials.

Thanks, Ryan. As a reminder, numbers noted are in U.S. currency. As Frazer mentioned earlier, our stable cost structure has enabled the company to capitalize on the current metal price environment, resulting in strong cash generation for the quarter. Since the start of 2024, Mandalay has increased its cash balance by nearly $36 million, reaching $63 million at the end of June 2024. Consolidated revenue for Q2 2024 rose by 59% to $63 million, up from approximately $40 million in Q2 2023. This growth was mainly driven by an increase in production, leading to higher gold sales of 36,759 ounces in Q2 2024 compared to 20,229 ounces in Q2 2023. At Björkdal, the site achieved its highest quarterly revenue nearing $29 million, driven by increased tonnage processed in Q2 2024 compared to the same period last year. Meanwhile, at Costerfield, the site recorded its third consecutive quarter-over-quarter revenue increase reaching $35 million. Additionally, higher realized metal prices further contributed to revenue with gold price at $8,314 per ounce and antimony at $2,320 per tonne in Q2 2024 compared to $1,949 per ounce and $1,046 per tonne in Q2 2023. Total cost of sales, excluding deflation and depreciation expenses decreased 14% from $29 million in Q2 2023 to $25 million in Q2 2024. The decrease came predominantly from a $2.7 million buildup of gold in process inventory during the current quarter. However, this inventory movement helped offset increases in mining costs and unplanned spend to reimpose production areas at cost as well as higher processing costs at both sites during Q2 2024 compared to Q2 2023 due to higher tonnage at Björkdal and higher cost of tilling and water management at Costerfield. Our consolidated cash costs and all-in sustaining costs per ounce of gold equivalent reduced during Q2 2024 were $1,022 and $1,419 respectively, representing a decrease compared to Q1 2024 and the same quarter last year. This reduction was primarily due to increased gold equivalent production and a relatively stable cost base and it remains well within our annual guidance provided earlier in January. In summary, the company generated approximately $16 million in free cash flow during Q2 2024, which equates to approximately $582 per ounce of gold equivalent sold. With the revolving credit facility fully repaid as of July 2, 2024, Mandalay has a cash balance of about $43 million. With a growing cash position and an undrawn $35 million revolving credit facility, this cash reserve provides us options in evaluating growth opportunities that align with our long-term objectives. I would like to now pass the call to our VP of Exploration and Operational Geology, Chris Davis. Chris.

Thanks, Hashim. At Costerfield, during Q2, exploration remained directed towards building new mine resources and reserves and drill testing regional targets. Close to mine infrastructure, there were 5 areas of focus for the quarter. Through the north of the field, drilling continued on the extension of Shepherd resources, whilst another program commenced testing for Kendall Bain in between Youle and the historic mine. Within the center of the field, our program commenced testing the gap between Shepherd and Brunswick, where limited drilling existed before. And to the south of the field, drilling continued on the extension of the Cuffley system with testing to the north as well as southern extension of the Cuffley Deeps panel, an area of increasing excitement for us. Heading into Q3, near mine exploration will continue to focus on the costly Deep and North programs, whilst also completing the extensional drilling of Kendall. The Gap drilling will be completed and a new program following the northern depth continuation of the Brunswick deposit will commence. Further afield in Mandalay's Costerfield regional programs, drilling was completed on Brunswick Northern and Southern extension programs as well as the True Blue Southern testing program. Commenced during the quarter were 2 deep holes, 1 testing under the True Blue Resource and the other under the historic Robinson's line. Both deep holes look to test the geological setting that host the high-grade yield deposit at these locations. Also within Q2, an extensive soil sampling program was commenced, covering large portions of the tenements granted in 2023 to the east and west of Costerfield. In Q3, the main focus will be to the north of the field where one deep hole will test the northern repetition of the central system, whilst another will concentrate on the historically mined stakes also within the north of the field. At Björkdal , near-mine drilling was ongoing on the extension of the -- as yet still unbound system with programs dedicated to the Northern Extension and the Aurora depth extension. Also, the scan extension drilling was completed during the quarter and an infill program targeting the Eastern extension of the deposit was commenced. In Q3, drilling will remain focused on the Northern Aurora extensions as well as infill drilling of the higher-grade eastern extension area. Surface drilling for regional exploration also commenced at Björkdal at the end of Q2 with the focus on the depth extension of the Storheden deposit. This program will continue through Q3 with another program due to commence on the extension of the Novariant resource. During Q2, Mandalay made public the results of 2 exciting drilling campaigns that had focused on the extension of the Novariant resource and a series of prospective targets to the Southwest of Björkdal where gold and VMS mineralization was expected. Both programs were successful in intercepting gold mineralization with grades comparable to those seen within the active mine. Standout intercepts for these programs were 13.3 grams per tonne gold over 5.5 meters at Novariant and 5.3 grams per tonne gold over 7 meters at Lapptjam within the Southwest tenements. I look forward to sharing further results with you in the near future. I would like now to return the call back to our President and CEO, Frazer Bourchier.

Thank you, Chris. Mandalay remains well positioned to enter a new phase of disciplined growth as per our updated corporate strategy from late last year and become a key mid-tier player in the gold sector over the next 3 to 5 years. In parallel, we continue to focus on enhancing operational discipline to ensure steady production within projected costs. We will continue to efficiently allocate capital resources and self-fund exploration growth to replace and grow our reserve base, targeting both near mine and regional opportunities. We believe these strategic priorities, along with continuing to assess inorganic growth opportunities that align with our core strength will continue to drive long-term value for our shareholders. Thank you, everyone. And this concludes the portion of the call. I would like to open the lines for questions now.

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

Great. First, Costerfield. Earlier this year, you had expected that grades would take down in the second half of the year and production in the second half will be lower than the first half. It sounds like getting to some of the higher grade parts of the mine has been delayed and I hear you when you said production should be around stable in the second half. So my question is looking to next year, is a fair assumption that we should see the grade at Costerfield decline in production to decline in 2025?

Thanks for that call, Kevin. I'm going to let Ryan answer that question. But very briefly, while the grades do taper off this year, we're still in the middle of our budgeting process for next year, but Ryan can give a higher level view of how grades trend within Costerfield over the next 12 to 18 months?

Yes. Thanks for that question, Kevin. I expect the gold grade will be pretty stable and similar. The antimony grades slightly drops away. So that's the slight difference we'll probably see in the latter half of this year. In terms of next year, as Frazer mentioned, we're redoing our life of mines now and production-wise, in terms of mine tonnage should be expected to be similar to what we're producing this year.

Okay. Good. And then at Björkdal, so the best quarter we've seen in a while there. On the script Frazer, if I heard you right, you mentioned you're still in the process of ramping up higher grade ounces there. So should we take that comment? Do it mean that the production rates you saw in the second quarter, which again, for the best number we've seen in a while, can be actually improved upon? Or how should we think about that?

Yes. Again, I would always caveat these are great operations that generate cash, a good platform, but they're not massive operations. So we get bumps along the road. Generally, the improvement of Björkdal probably had more to do with the mill conversion project that we completed, and we've ramped up from 1.25 million tons to now close to 1.5 million tonnes. However, we will always continue to focus on the higher-grade portions including Aurora below Marvel and the Eastern extension, but we have more development work to do there and some more drilling to do before that's sustainable. But Ryan, I'm not sure if you wanted to add a comment to that as well for Kevin?

That pretty much covered it, Frazer, I think.

Okay. And then on the exploration front, it's been a while since we've gotten an update with some drilling results at Costerfield. I think I'm looking back, it looks like since last November. Can you just give a brief update on how things are going there? I heard Chris talk about some excitement at Copley and just give us some sense of your confidence of what the reserves will be replaced. The costs are billed this year?

Sure. Kevin, again, by the way, we will be coming out with a press release for an update on Costerfield within the next month or so, but I'll hand that question over to Chris.

Yes. Sorry. Thanks, Kevin. Yes, we have had -- it's been a little while since we put out the press release, but we do have a number of projects that are actually coming up to significant milestones at the moment. So that is the interpretation and assays are complete. So we will be putting something out soon. And we do expect to make headway with the reserves, but it's probably too early to give you any specific indication on that at the moment.

Okay. And so the cash flows then great, and now the credit facility paid off. Is there any thought of potential dividend?

Yes. Thanks, Kevin. Again, I have strong views that dividend is certainly an option for return to shareholders, but it probably rank second or third in terms of our priority, the main one being to ensure that we don't have better investment opportunities within either the existing operation or potentially a pro forma, a larger company if we do some sort of acquisition or at market combination and share buyback is another option. It's just that with dividends, I feel, and that's your thinking of a special dividend, once you turn that tap on, one has to ensure that, that's sustainable. I don't like turning dividends on and off. So that's not our preference at this particular moment.

Okay. And lastly, I'm confused by the disclosure around your gold hedges in your reports. So you hedged 25,000 ounces this year. I wonder if this note that you did 2 separate restructuring transactions, covering another 15,000 ounces with expiration days in 2025. So I want to take this that you've moved some of those 25,000 ounces you hedged this year to next year or that be hedged 25,000 this year and another 15,000 next year?

Look, again, Kevin, no, your first part is right. We just put stuff up. But I'm going to let our CFO, Hashim give a response to that pushing out into 2025 of existing ounces. We didn't add any though.

Yes. Thank you, Frazer. So what we did here was a 3-step process. Number one, we -- as you're right, we did enter a 25,000 ounce hedge in the beginning of the year, we delivered on the first month, but then we restructured it in the second half. And then in the recent quarter, we restructured 15,000 out of that, approximately 24,000 to next year, and there is approximately, I would say, 6,000 to 7,000 in the second half of this year. So that's one part. So it's been actually restructured, we haven't added any new callers on that hedging. We did purchase a put option for the second half of the year, which secures our gold sales at a minimum of $2,200 per ounce for the second half of this year. We purchased that for approximately $700,000, and that gives us a strong protection for the second half of the year on the gold price. But that has an upside. It's only -- we only purchased the production. So that has an upside on the gold price, it's just got a protection at the lower end.

Your next question is from the line of Daniel Baldini Private Investor.

Congratulations on the nice results. So if I read these steady disclosures correctly, it looks like your lead independent director has sold every last share of Mandalay, which he owned. And so my question is, should I interpret this to me that this lead independent director no longer supports the strategy that you're trying to implement here at Mandalay?

Yes. Thanks for the question, Daniel. Good question. I was expecting it. I'll summarize it 2 ways. No, he still strongly supports the strategy and is committed. It was unfortunate, but he had a personal financial issue and which led to that particular transaction. So while we've certainly spoken collectively, that's neither his view nor the view of any of the other directors in terms of the direction that Mandalay is headed. But I completely understand the optics. We're extremely unfortunate, and this was a personal mounter financial management matter for our Lead Independent Director, Abraham Jonker.

Okay, I'm not sure I believe that. But because at the moment that he was disposing all of his Mandalay shares, he was buying shares of Kotek, where he's also a director. So I mean, I agree the optics are terrible. But if you go back and look at this guy's various involvements, when he became your Lead Independent Director, the stock was 870, and now it's 249. Hopefully, it will go up as a result of these nice results, and all the other things he's been involved with her jobs. So I think you should find someone who has a real genuine financial interest in the company and have them as your lead independent director and someone who has a record of creating winners and can help you turn Mandalay into a winner. Anyway, just a thought, thank you for your time.

[Operator Instructions] Your next question comes from the line of [ Ernie Mollis ] from PMG.

Yes, I've got a question concerning the throughput at Bjorkdal. My math, if I use 1.19 grams per tonne times your tonnes milled, I get 10,767 ounces and not 12,396. So is it correct that the grade that you're talking about is 1.37 and not 1.19?

Yes. Thanks for the question. You're doing the math quicker in your ahead than I am. I'm pretty sure it matches up, but you may well -- it may be an issue in terms of production versus sold. But Ryan, do you want to comment on that and just confirm again the mill feed grade, which includes both the underground grade and the surface dockpile grade, but the blended mill feed grade combined with the tons to match that production of gold ounces at Björkdal?

Yes. That's correct. But to the question, the additional ounces, we had some other additional ounces come through from final sales from the previous months before. So that flowed through into this quarter. So that lifted the overall sale ounces.

So in other words, part of the additional ounces sold might have come from inventory.

Yes, correct.

And the other question I have is, how has the change in Björkdal affected the mix of products that you're producing? Is the amount in high-grade gold, still the same, the concentrate? And has the flotation product changed any?

Ryan, again, you can answer that, although I think our main products are generally the same, maybe the grade in the comp may be a little bit different. But Ryan, would you like to answer that question?

Yes. The split is still roughly the same. So they still have not changed greatly the percent of the split. So we're mining approximately 1 million tonnes. At the moment, our throughput is at around 1.4%, we still got some improvements to minor improvements to make to get to where we need to be or want to be. And so we're using about 400,000 tonnes of the low-grade stockpile this year planned to use that in total. But yes, the overall percentage split of the products between flotation and gravity is similar.

And then the other question I have on Costerfield is your price for the antimony concentrate, does that include the gold byproduct in the pricing?

Sorry, what do you mean by the price you mean? What we quote as gold equivalent ounces at Costerfield? Or are you talking about the costs that we reflect at Costerfield?

Yes. I'm talking about the antimony price itself. If the market price of antimony is below what you're actually getting, that the question is, is the 6 or 7 ounces per ton of antimony in gold included in that pricing?

Yes. So I can answer that question. Yes, we do include the additional impact of antimony prices increase in our realized price of gold equivalent ounces per use. Yes.

Your next question comes from the line of [ Laurence Retail ], Private Investor.

Thank you for the great results and the increased cash flow. I have a few questions, mostly to do with inorganic growth. With regards to Kotek, is this something you're possibly considering as an acquisition?

Well, I'll make a couple of comments. One is we don't ever really disclose what we're looking at until we push the button on it just obviously for governance and confidentiality reasons. But my gut would tell me to be a bit of a conflict there anyway with the directors. So my -- I would say, no, that's not really something we look at.

Okay. Are you still pursuing precious metals companies or -- and have -- are you entertaining more rare earths?

More of the former. We are engaged in a number of conversations, whether it's assets or potential combinations. Again, we -- I'm hesitant to really say anything. There's a lot of work that's involved and until we push the button, we tend to have a very disciplined careful approach to ensure it's going to add shareholder value, but it is more precious metals, copper, et cetera, not rare ones.

Okay. Last question. How's Uncle Eric's golf handicap these days?

Uncle Eric's golf handicap. I...

You're not sure, are you?

I don't really know. I don't golf myself, so.

Okay, then I retract that question. And again, thank you for your time.

There are no further questions at this time. So I'll hand the call over back to Frazer Bourchier for closing remarks. Sir, please go ahead.

Again, thank you, everyone, for your time listening into our call, and we were excited about this quarter. We're excited about the remainder of the year, and I look forward to speaking with everyone, if not sooner, during our Q3 earnings call in November. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you very much for your participation. You may now disconnect.