Mandalay Resources Corporation (MND) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Mandalay Resources Corporation's Q1 2025 Conference Call. Today's 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, 2025, available on SEDAR and at the company's website. Mandalay Resources disclosed its financial results at market close. You can access their consolidated financial statements and MD&A on either the company's website or through our profile on SEDAR. [Operator Instructions] Please be advised that today's conference is being recorded. Joining us today on Mandalay's call are Frazer Bourchier, President and CEO; Hashim Ahmed, Executive Vice President and CFO; Ryan Austerberry, Chief Operating Officer; and Chris Davis, our VP, Operational Geology and Exploration. I would like to turn the call to Mr. Frazer Bourchier.

Thanks, operator, and for everyone joining the call today. This morning, we'll primarily review Mandalay's first quarter performance with some commentary on the proposed merger of equals with Alkane Resources. Please note, all dollar references made in this conference call are in U.S. dollars. Mandalay started 2025 on a good note. The theme this past quarter was clear. Transformation through disciplined execution, prudent capital allocation and continued exploration investment. In the first quarter, we delivered a 41% year-over-year revenue increase to $78 million, supported by strong metal prices. We also achieved a 152% year-over-year increase in net income to nearly $15 million. Importantly, we ended the quarter with over $88 million in cash and no debt, a testament to our operational consistency and financial discipline. Now free cash flow generation over the next quarter at similar gold prices to this past quarter will not quite replicate Q1 due to planned increased capital investment and taxes owing. Subsequent to the quarter, we announced a transformative transaction for Mandalay with the proposed merger of equals with Alkane Resources of Australia. The combined company will have 3 well-established cash flowing mining operations. In Tier 1 jurisdictions, a pro forma production base of approximately 180,000 ounces by 2026 and enhanced scale to pursue a re-rating opportunity. That re-rating opportunity is based upon increased free float, share trading liquidity, indices inclusion and dual listing on both the Australian Stock Exchange and Toronto Stock Exchange. We're confident this is the right strategic move to unlock long-term value for both Mandalay and Alkane Resources shareholders. I would now like to hand the call over to different members of my executive team to recap the solid quarter results, which have followed on from the exceptional year we had in 2024. First, Ryan Austerberry, our Chief Operating Officer. Ryan?

Thanks, Frazer. From an operational standpoint, quarter 1 of 2025 was a mixed but expected quarter. Our consolidated gold equivalent production was 22,342 ounces, down 10% from quarter 1 last year, but in line with guidance. Starting with Costerfield, as planned, quarter 1 of 2025 was a transitional quarter for the site. We produced just over 9,500 ounces of gold and 161 tonnes of antimony. This 20% year-over-year reduction in gold output and 60% reduction in antimony was due to lower head grades as we mined scheduled areas of the Shepherd and Youle veins, which were at the lower end of our grade distribution. Gold head grade averaged 0.96 gram per tonne, down from 12.4 gram per tonne and antimony dropped to just below 1% from 2.2%. Mining volumes decreased 18% year-over-year to just over 25,500 tonnes. This was a reflection on the production being mined from the extremities of the deposit, hence, the mucking and backfilling cycle times were substantially increased, coupled with a dedicated safety drive, which slowed production that was adopted for quarter 1 this year after a poor performance in this discipline at the end of 2024. Capital development was focused on establishing a new exploration drill drive. On the processing side, we delivered a 5% increase in throughput to just over 34,400 tonnes. The improved two-stage crushing circuit is performing well, feeding a finer and more consistent product to the mill, which contributed to more stable plant performance despite lower grades. Looking ahead, once the new tailings storage facility comes online in quarter 2 of 2025, we expect to see a notable reduction in tailings-related costs. The facility will provide approximately 6 years of additional capacity and remove the need for necessary paste fill operations that have inflated our unit costs in recent quarters. As for Björkdal, the quarter showed some encouraging signs. We produced 10,827 ounces of gold, a 4% increase from quarter 1 of 2024, driven by improved underground mine grade from the main zone and enhanced mill throughput and recoveries. Underground ore mine decreased 9% to just over 225,000 tonnes due to restricted access to one of our production fronts in February as well as temporary equipment constraints, specifically a shortage of loader availability impacting backfilling activities. That said, we saw a strong rebound in ore development, advancing nearly 1,100 meters, a 29% increase from quarter 1 of last year, aided by the mobilization of a dedicated contractor to bridge the gap on delayed 2024 development. Processing volumes were just over 355,000 tonnes, up 3%, thanks to operational improvements and finer screen trials that increased plant reliability and efficiency. We also made strategic equipment investments, including a new cable bolter and advanced our equipment replacement program, which is essential to sustain productivity and improve operating consistency in the quarters ahead. To summarize, both sites executed to plan, and we are now better positioned for stronger production and improved cost performance in the second half of the year. Now over to Hashim.

Thank you, Ryan. Q1 2025 was a solid financial quarter for Mandalay. We delivered strong revenue and profitability despite lower production and higher cost pressures. Revenue increased 41% year-over-year to $78 million, up from $56 million, supported by higher realized prices as gold averaged $3,046 per ounce and antimony averaged nearly $35,000 per tonne, more than double last year's price. Net income rose 152% to $15 million, up from $6 million a year ago, reflecting that price leverage even as we faced inflationary and operational cost pressures. That said, cash operating cost per ounce increased 30% to $1,348 and all-in sustaining costs rose 40% to $2,004 per ounce, mainly due to lower consolidated gold equivalent production down 10%, increased sustaining capital, particularly infill drilling at Costerfield and accelerated development at Björkdal. Capital expenditures totaled $16.7 million, up from $13.1 million last year. These investments were front-loaded and in line with our 2025 plan with key allocations, including completion of the new tailings facility at Costerfield, ramp-up in mine development and strategic underground equipment replacement at Björkdal. Despite this higher spend, we generated $11.2 million in free cash flow, maintaining a healthy financial position. We ended the quarter with $88.3 million in cash and no debt after fully repaying our $20 million revolving credit facility in 2024. We also have $35 million in undrawn credit facility. We remain well capitalized and focused on disciplined capital allocation that supports long-term value creation for our shareholders. I would like to now pass the call to our VP, Exploration and Operational Geology, Chris Davis. Chris?

Thanks, Hashim. Exploration continues to be a strategic pillar of value creation for Mandalay. At Costerfield, drilling is in a ramp-up stage for True Blue with 3 drill rigs turning and the fourth scheduled to commence soon. Efforts are focused on delivering extension and greater context around the exciting results obtained late last year. As a reminder of our February, Resource and Reserve update, True Blue showed impressive growth, quadrupling its inferred gold equivalent ounces to 96,000 at an exceptional grade of 22.6 grams per tonne. This is a compelling pipeline target that may become our next mineable zone. As for near mine, we drilled aggressively across Cuffley Deeps, Sub KC and Kendal zones. We're investing in infill drilling to convert inferred resources into indicated and to extend high-grade mineralization. In Q2, drilling will commence on the Sub KC conversion program as the underground platform is completed. Drilling will also test the depth extension of the Brunswick South deposit. Meanwhile, at Björkdal, drilling has been focused on North Zone and the Eastern Extension area, building on the encouraging results of 2024. We also plan to recommence work at the Storheden target, roughly 800 meters northeast of the current mine. The expanded resource base helped increase reserves by more than double the depletion of 2024, extending the mine life to over 10 years. As of our February 2025 update, Mandalay's combined reserves grew 9% year-over-year to 815,000 gold equivalent ounces, while a combined measured and indicated resources increased 14% to almost 2 million ounces. I would now like to return the call to Frazer.

Thank you, Chris. To summarize, Q1 2025 was a solid start to the year, highlighting disciplined capital deployment, high metal prices and strong financial performance despite temporary in-situ metal grade headwinds. We will enter Q2 with momentum and expect stronger production, although it will be coupled with higher capital plus tax payments, but there will be lower capital spending expected in the second half of the year. We are also excited by the exploration potential, most notably at True Blue, our Costerfield operation in Australia, reflecting exciting gold and antimony drill intercepts, and where 3 drills are turning and a fourth will be mobilized soon. Exploration remains a key strategic pillar, delivering value for shareholders, and we are committed to investing in this part of our business. Let me conclude by taking a few moments to discuss the combination of Mandalay Resources with Alkane Resources. As noted previously, we see this as a true merger of equals. In fact, based on the exchange ratio, Mandalay shareholders will own 55% of the pro forma company, and we will have 3 of their current Mandalay directors, including myself, sitting on a 6 Board seat. And of those 6 directors on that Board, there will be a new Chair who is independent of both Mandalay and Alkane. The shares of the combined company will be dual listed on the TSX and ASX. This will give Mandalay shareholders easy access to trading liquidity while providing exposure to the potential for a re-rating driven in part, as I stated earlier, by indices inclusion, most notably, the ASX 300, but also the GDXJ, and this should drive incremental demand for the shares. Since announcing the transaction, we have seen an increase in the share price of both Mandalay and Alkane in addition to price outperformance relative to our peers. More importantly, I have seen and heard firsthand how excited both Mandalay and Alkane shareholders are about the potential of this transaction. I spent a week in Australia marketing in support of the transaction and we will soon spend another 1.5 weeks marketing in North America and Europe. The reaction in key financial centers such as Sydney and Melbourne was very encouraging. Investors in Australia, Asia, North America and Europe see the powerful platform this combination presents with enhanced scale of over USD 650 million in market cap, that's about CAD 900 million in market cap and just over AUD 1 billion in market cap, all pre-re-rate. Also diversified operations in exceptional jurisdictions and with exciting organic exploration potential across the portfolio. All of this is underpinned by a robust balance sheet that pro forma will be significantly net cash positive at close and which provides a platform for future growth with notable free cash flow generation and healthy operating margins. At this point, I will be pleased to open up this conference call for any questions. Operator, if you could please provide instructions to everyone participating if they have any questions they would like to ask. Thank you very much.

[Operator Instructions] I'm showing no questions at this time. I would now like to turn it back to Frazer for closing remarks.

Frazer, there's actually a couple of questions that came across the webcast. The first one is, given your financial results during the quarter were excellent, revenue and earnings were both up significantly. Based on the strong performance and momentum in your business, why merge with Alkane now?

Yes. Look, thanks for that. Again, to emphasize, we strongly believe that this is a great strategic fit for all the reasons I've shared really since I joined the company 2 years ago in terms of a desire to grow, to get increased trading liquidity, increased capital market scale, diversification, remain in Tier 1 jurisdictions, index listing. So all of this lines up exceptionally with Alkane, and we started discussions 7 or 8 months ago. So we think it's a great fit, both strategically and operationally, and it's met all our stated criteria. So irrespective of both our and their recent strong performance, that to us, that does not change the overall thesis in conclusions that we've drawn in terms of this merger. So we've done a lot of due diligence inside and the respective boards of each company have strongly recommended this transaction.

There's another one. What is your outlook for antimony? Was -- sorry, was Mandalay's antimony production an important factor in this transaction?

Mandalay -- well, look, I don't usually try to predict what the price of antimony is going to be, although we do believe it will continue -- there will be continued strong demand for antimony, and it certainly has helped with our overall financial performance. It was certainly a nice side benefit, but this was not a leading driver in terms of why the deal was done by either side in terms of our antimony production. It is a strategic mineral. We, as a pro forma company, will remain the largest producer from a single company in the Western world of antimony. And it's rightfully attracted more investor attention lately and certainly has contributed to valuation. So Alkane is excited about that as well. But yes, I can't really give a prediction on what the cost or the price of antimony is going to be going forward.

Last one. As a Mandalay shareholder, what do you expect the transaction to close? And what do I need to do?

Look, both sides, of course, are going to require shareholder meetings, and we're working on the materials now for the Mandalay shareholders, the circular information. We expect those materials, which will include information on Alkane's assets converted to 43-101 from JORC as well as pro forma financials. We hope to have that filed by early June at the latest with a shareholder vote targeted about 25 business days, let's say, 1 month after that, by the end of June or early July latest. So those materials will be going out. We expect close after that vote to be 3 or 4 weeks later at most, we would hope in July. It's subject to Australian Foreign Investment Review Board and Swedish Foreign Direct Investment approvals, although we feel that's a very low risk that that's not going to be supported. It's more a timing issue that, that might take an extra 2 or 3 weeks. But we will certainly keep everyone informed. But really, the takeaway for now is a Mandalay shareholder, you don't have to do anything. And I do emphasize this will be dual listed. There will be no delisting going on here. The Mandalay shares at close will convert to an Alkane share, but they will still trade on the Toronto Stock Exchange, where we expect healthy liquidity on both exchanges. So we'll keep everyone posted. And remember, the Mandalay Board has unanimously recommended that Mandalay shareholders support this transaction by voting in favor. So we hope that we'll see success there, and we'll keep the market informed.

Yes, there are no further questions.

Okay. Look, thank you, everyone, for joining. And look, as we advance the Alkane transaction, our focus does remain on maximizing shareholder value through both continued operational execution, ongoing exploration work, as you've heard about True Blue and Sub KC at Costerfield as well as North Zone and Storheden and Björkdal as well as starting to work on ensuring there's a smooth integration with the 2 companies on successful close. Again, this transaction is fully aligned with our growth strategy that was set and established 2 years ago when I joined of a vision to become a mid-tier gold producer, and it certainly establishes a platform for enhanced cash flow generation and greater market visibility and what we strongly believe will be a significant re-rating. So thank you, everyone, for your time. Operator, thanks for hosting the call.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.