Mandalay Resources Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 10, 2023

There are 6 speakers on the call.

Operator

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. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, There will be a question and answer session.

Operator

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 headings Risk Factors and elsewhere in the company's annual information form dated March 31, 2023, available on SEDAR and the company's website. Mr. Boucher, you may begin your conference.

Speaker 1

Thank you, operator, and welcome everyone around the world. On this Q2 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 Asturbary, Mandalay's Chief Operating Officer

Speaker 2

and Nick

Speaker 1

Dwyer, Chief Financial Officer. Unfortunately, Chris Davis, Mandalay's VP of Operational Geology and Exploration is in transit to our operation in Sweden. Mandalay Resources released its Q2 2023 financial results at market close yesterday. You can find our consolidated financial statements and MD and A on the Mandalay Resources website or under our profile on SEDAR. Next.

Speaker 1

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 $11.59 Our all in sustaining cost per ounce of gold equivalent produced was 16.44 The consolidated quarterly revenue was $39,700,000 The consolidated quarterly adjusted EBITDA was $8,900,000 and cash on hand at the end of the quarter was 32,800,000 As of July 2023, all gold hedges are extinguished. And the mine extension permit at Bjorkdal 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 twenty twenty three has been challenging at both our operations.

Speaker 1

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 non recurring mainly and some systemic issues related to underground ore mined tons and grade shortfalls. Initially, we expected higher production levels in the second half compensation expense 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.

Speaker 1

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 $10.10 to $11.70 per equivalent ounce and all in sustaining costs from $13.70 to $15.80 per equivalent ounce. We have investigated the root causes of the grade discrepancies and have recalibrated our geological modeling and scheduling. And our tons 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.

Speaker 1

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 US10 $1,000,000 to US14 $1,000,000 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 and adjusted EBITDA of $8,900,000 as I stated and making it our 12th consecutive quarter of profitability.

Speaker 1

I would now like to pass the call off to our Chief Operating Officer, Ryan Asturbarian. Ryan?

Speaker 3

Thanks, Fraser. Just next slide, please. Now to expand on the operational performance. We encountered several temporary 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.

Speaker 3

During quarter 2, 2023, Yorkdale produced 10,397 saleable gold ounces. The challenges faced during quarter 2 as with quarter 1 were related to personnel vacancies, line tonne volumes and stope dilution. As maybe 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 Bjorkdal underground and expect ongoing productivity enhancements from a consistency in hold underground tons as New contractor trucks were commissioned and staffed, increased underground tons mined from the higher grade Central Eastern Extension area, 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 Bjorkdal mine. This significant development grants us the extension of the mining envelope by an additional 3.50 meters, effectively encompassing entire mineral resource base that has been drilled and defined over the past 2 years.

Speaker 3

When noting the graph on this slide, 2nd 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 Yule ore body. For the latter half of this year, we plan to retreat production fronts into the higher grade core of Yule, while continuing to develop along the multiple veins of the Sheppard ore body. The Sheppard ore body encountered some longer than expected waste areas along strike, which hampered ore ton 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.

Speaker 3

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 Q2 of 2023. Staffing levels have also been an issue at Costerfield. However, various initiatives including required hiring practices and an accelerated training in addition to an effort to employ experienced operators should help alleviate this labor gap.

Speaker 3

I'd like to pass the call on to Nick, who will walk through the financials.

Speaker 2

Thank you, Ryan. So for Q2 2023, Mandalay generated approximately $40,000,000 in revenue and $9,000,000 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, cost of field contributed $21,000,000 towards revenue and $5,000,000 to adjusted EBITDA, with Bjorkdal making up the remaining $19,000,000 $5,000,000 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 $19.49 per ounce, while the antimony price declined about 6% to $12,406 per tonne.

Speaker 2

Cash and all in sustaining costs per saleable gold equivalent ounces during Q2 2023 were $11.59 $16.44 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 CEO, 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 $33,000,000 in cash on hand and $5,000,000 in total interest bearing debt outstanding.

Speaker 2

Dollars 20,000,000 as per our new facility and nearly $5,000,000 in equipment leases. This results in an $8,000,000 net cash position at 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 in 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.

Speaker 2

In Q2 2023, Mandalay generated about $3,000,000 in free cash flow. I would like to turn the call back to Ryan to discuss our exploration developments in place of our temporarily absent VP of Exploration, Chris Davis. Thank you.

Speaker 3

Ryan? Thanks, Nick. Just next slide, please. On this slide, You'll note on the right a plan and a line section view of our Costerfield mine. At Costerfield, there were two areas of focus for near mine exploration, focused on our efforts to replace our mine depletion.

Speaker 3

Extension drilling on the Sheppard ore body continued through quarter 2 with the focus shifting from a depth extension infill program to a southern extension program. Alongside this drilling, the Brunswick DEETs program recommenced targeting Yule 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 the drilling programs extending Sheppen and Brunswick at depth will continue. Next slide, please.

Speaker 3

This is the next slide, the, Coffeyville 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. The first intercepts from this program were released in February this year. Additionally, the West Cossifle drilling program was concluded and the Northern Dykes drilling program was commenced with the intent of drill testing below historic workings along dark hosted gold antimony mineralization. This TrueBlue 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.

Speaker 3

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 Bjorkdal near mine. At Bjorkdal, 3 near mine targets were progressed. Firstly, veining in the intermediate surrounds of the Aurora ore body were targeted.

Speaker 3

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, an unusually detailed discovery along with the drilling update from the rest of the North Zone and the Lake Zone Extension, Lake Zone Eastern Extension Program was released in July 2023. Highlights of the North Zone and Boreal Zone included 207 grams per tonne of gold over 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 a tonne of gold over 0.45 of a meter.

Speaker 3

Next slide please. The next slide is the Bjorkdal surface drilling. This slide outlines our full tenement package at Bjorkdal, 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 Storehead and mineralization situated approximately 500 meters to the northeast of the current mine. Extensional drilling is aimed at testing the extent of mineralization identified over a strike length of 3.5 kilometers.

Speaker 3

The secondary focus for the surface drilling was the depth testing of the quartz mountain target originally mined within the Bjorkdal 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 in filling the eastern extension of Main Zone of the as well as the east of the Aurora zone. Drilling will also recommence in the South Western tenements on the Lappjean and Tarsnes targets. With that, I'd like to return the call back to our CEO, Fraser Borshi here.

Speaker 1

Thanks. 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 caller, 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.

Speaker 1

And I want to reiterate that Mandalay is well positioned financially with a good balance sheet, cash on hand, an 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 Tanami. 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.

Speaker 1

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 and 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.

Speaker 1

And I would like to open the lines for questions now and back to you, operator.

Operator

Thank you. We'll now begin the question and answer session. If you're using a speakerphone, please ensure you lift the handset before pressing any keys. One moment for the first question.

Speaker 3

For questions.

Operator

Okay. And Our first question comes from the line of Ernie Molesch, who is a Private Investor. Please go ahead. Your line is open.

Speaker 4

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

Speaker 1

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

Speaker 3

Yes. Thanks for the question there. Yes, as Fraser 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 plant as possible and reduce the amount of stockpile.

Speaker 4

And a follow on question is, my understanding is that you're permitted to actually to It's like 1,700,000 tonnes per year, is that correct, at Yorktown?

Speaker 1

Again, Ernie Fraser here. It's probably more like 1,450,000 tons. But and Ryan can add some further color to that if you need But it's 1.45 now. And 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 point 25,000,000 tons per ounce. Yes.

Speaker 4

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

Speaker 1

I'll hand that over to Ryan, right? Yes.

Speaker 5

Thank you.

Speaker 3

No worries. Yes, correct with actually, You're correct. We're permitted to deposit 1,700,000 tons of tailing sand per year. That's via permit. Currently, we were around 1.25 tonnes, 1,000,000 tonnes and that's going to The project we're doing is an upgrade of the throughput at the plant, and that will increase our throughput, we expect, by 200,000 tons per annum.

Speaker 3

So that's an upgrade to our bore mill to a different type of bore mill where we're upgrading it to a great discharge mill.

Speaker 4

Okay. Thank you. That's all I have. Thank you.

Operator

Thank you. Once again, if you do have any further questions, 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.

Speaker 5

Hey, Fraser. There is one question from Kevin Tracy 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?

Speaker 5

And do you expect a grade at Shepherd that will support production at about 65,000 ounces for the next several years at Costerfield. And that was from Kevin Tracy of Oberon.

Speaker 1

Okay. Thanks, Ed. 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 Yule, the upper part of Shepherd.

Speaker 1

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?

Speaker 3

Yes. So we've completed a large amount of infill drilling and it's still ongoing. The Sheppard ore body, 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.

Speaker 3

We're sort of getting into the getting into Sheppard properly now through Sheppard. So that knowledge has really picked up over the last quarter and flowing through into this quarter. So Yes, I expect by Q4 we'll have a good handle on grades in Sheppard, but things are starting to look

Speaker 1

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

Speaker 5

So I'm sorry, Fraser. 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 Yorkdale. Did you include the assumption that you would mine the Eastern extension this year in the guidance?

Speaker 5

And then as a follow-up, we'll address them first And I'll go to the second question.

Speaker 1

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 So that is a good underpinning, but it doesn't change our forecast for this year.

Speaker 5

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 Yorkdale?

Speaker 1

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 flushing that out as we to 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

Speaker 5

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

Speaker 1

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 web cast. There'll be more communication in terms of sharing our future plans and thank you again.

Speaker 1

Operator?

Operator

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

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Earnings Conference Call
Mandalay Resources Q2 2023
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