Mandalay Resources Q1 2024 Earnings Call Transcript

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May 9, 2024

There are 7 speakers on the call.

Operator

This call is being recorded on Thursday, May 9, 2024. 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.

Operator

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. I would now like to turn the conference over to Mr. Fraser Boucher, President and CEO. Please go ahead, sir.

Speaker 1

Thank you very much, operator, and welcome all. But before getting into our quarterly performance, I want to extend a warm welcome to Hashem Ahmed, our EVP and Chief Financial Officer on his inaugural Mandalay conference call. Achim brings a wealth of industry experience, particularly in Financial Management, Corporate Strategy and Capital Markets, making him a great addition to our leadership team. As we continue to progress into our next growth phase, Hashim will be instrumental in guiding our financial strategies and ensuring our ongoing fiscal success. Also joining us on the call today are Ryan Osterberry, our Chief Operating Officer in Melbourne and Chris Davis, our VP of Operational Geology and Exploration also in the Melbourne area.

Speaker 1

Yesterday Mandalay Resources disclosed its financial results at market close. You can access our consolidated financial statements and the MD and A on either company's website or through our profile on SEDAR. Mandalay sustained its operational and financial momentum generated through the second half of last year and commenced this year strongly and safely in achieving a solid production outcome of nearly 25,000 gold equivalent ounces across both of our operations, about 60% from Colsterfield, 40% from Bjorkdal. This achievement positions the company on our previously stated trajectory towards meeting our annual production guidance of 90,000 to 100,000 gold equivalent ounces. Of notable mention is Mandalay's substantial enhancement in cash reserves with a cash balance increase of over $20,000,000 during the quarter, leading to a closing quarter cash balance of US47 million dollars which as we build upon these achievements.

Speaker 1

Our primary focus remains on closely monitoring key operational lead metrics, which flow into these important financial lag metrics. We continue to proactively address any potential risks to achieving our 2024 operational plan and to bolstering our cash flow generation. Of equal importance, we remain exploration centered on extending the mine life at Costerfield as has been replicated over the past 15 years. The strategic focus on quality organic growth at both operations along with continuing to review all external opportunities sets the stage for an exciting year ahead for Mandalay. I would like to now hand the call over to different members of my team to recap various sections that pertain specifically to them and our Q1 results, Mandely.

Speaker 1

So first, Ryan, our Chief Operating Officer.

Speaker 2

Thanks, Faiza. During the Q1 of 2024, we successfully produced 14,500 and 66 gold equivalent ounces at Costa Field. This is despite challenges caused by 2 separate adverse weather events leading to temporary site access restrictions and power disruptions in January February of 2024. In quarter 1, 2024, Coffey Field mined 31,259 tonnes of ore, making a 19% increase from the 26,285 tonnes mined in Q1 of 2023, 12 months earlier. The increase in mining rate can be attributed to addressing a specific non systematic incident encountered at beginning of 2023.

Speaker 2

Furthermore, total capital development in quarter 1 of 2024 amounted to 131 meters, which was 20% lower than the 165 meters achieved in quarter 1 of 2023. However, this was intentional due to prioritization of rehabilitation work over capital development advancement. Vosterville processed 32,872 ore tonnes in quarter 1 of 2024, a 7% decrease compared to the 35,382 tonnes processed in quarter 1 of 2023. The decline in processing volume can be attributed to various factors. The wet weather occurrences, processing challenges posed by Sheppard ore, which is inherently harder than Yule ore, so somewhat slightly lower throughput rate and the same systematic conditions that affected past processing variances and which are being addressed with capital investment.

Speaker 2

A significant budgeted maintenance stop is planned in the plant in May this month or rebuilding the front end of the plant to assist with material flow to optimize throughput. Process gold grades were higher during quarter 1 of 2024 at 12.4 grams a tonne gold compared to 7.7 grams a tonne gold in quarter 1 of 2023 linked to processing of lower grade stockpile material 12 months earlier. Conversely, the processed antimony grades were lower in quarter 1 of 2024, standing at 2.2% in contrast to 2.6% in quarter 1 of 2023, which can be associated to mining more tonnes from the lower grade Antimony Sheppard deposit. The grade trend in Antimony milled head grade is expected to persist as Sheppard becomes the dominant ore body being extracted. The Yorkdale showcased sustained improvements over the last four quarters, achieving a production of 10,370 gold ounces, marking a 16% increase from the 8,969 ounces recorded in quarter 1 of 2023.

Speaker 2

This advancement is mainly credited to improve grades in the Eastern Extension Zone and an 8% uptick in ore tonnage processed. Great Pacific, there was a 9% increase in the average head grade climbing from 1.05 grams per tonne gold in quarter 1 of 2023 to 1.15 grams per tonne gold in quarter 1 of 2024. Throughput lifted from 317,543 tonnes in quarter 1, 2023 to 143, 146 tonnes in quarter 1 of 2024, in part due to the successful and ongoing mill ramp up commissioning. For the remainder of the year, we anticipate stable gold grades, driven by increased mining activity in higher grade underground areas and heightened attention to further minimizing underground development and stope ore dilution. Lastly, in the Q1 of 2024, total capital development amounted to 845 meters, which included exploration capital drive mining, marking a 17% increase from the 7 22 meters recorded in quarter 1 of 2023.

Speaker 2

The reduced capital meters, the capital development progress observed in quarter 1 of 2023 can be largely attributed to staffing challenges. Increased capital development helps generate increased working stope fronts, which in turn aids to increase required mining flexibility. I would now like to pass the call to Hashim, our EVP and Chief Financial Officer, who will highlight Mandalay's financials.

Speaker 3

Thanks, Ryan. As a reminder, numbers noted are in U. S. Currency. As Fraser mentioned earlier, it's worth reiterating that our stable cost structure has enabled the company to capitalize on the current metal price environment, resulting in strong cash generation for the quarter.

Speaker 3

In comparison to Q4 2023, Mandalay substantially increased its cash balance by over $20,000,000 reaching $47,000,000 in cash with a net cash position of approximately $20,000,000 by Q1, twenty twenty four. Consolidated revenue rose by 32 percent to $55,000,000 compared to $42,000,000 in Q1 2023. This significant increase was primarily driven by 16% higher gold ounces sold in Q1 2024 compared to the same quarter in 2023. This reflects higher production mainly due to increased throughput at the October and a higher mid gold head grade at Kostrophe. Additionally, higher realized metal prices further contributed to the revenue with $2,200 per ounce gold and antimony at $13,823 per ton in Q1 2024, which is higher by 13% and 8% respectively compared to Q1 2023.

Speaker 3

As compared to last year, operating costs remained relatively stable at 27,000,000 dollars Our consolidated cash cost and all in sustaining cost per ounce of gold equivalent produced during Q1 2024 were $10.39 $14.30 respectively, marking a decrease compared to the corresponding quarter last year, primarily due to increased gold equivalent production and relatively stable cost base. This remains well in line with our annual guidance provided earlier in January. In summary, the company generated $16,000,000 in free cash flow during Q1 2024, equating to approximately $6.36 per ounce of gold equivalent sold, which was mainly due to a twofold increase in cash flow from operating activities. Finally, I'm pleased to announce that subsequent to Q1, we successfully renegotiated an extension to our revolving credit facility with Scotiabank, now extended until 2027. This enhances our financial flexibility towards growth capital expenditures and other M and A initiatives that may offer significant returns aligning with our long term growth objectives.

Speaker 3

I would like to now pass the call to our VP of Exploration and Operations Geology, Chris Stavros. Chris?

Speaker 4

Thanks, Hashim. During Q1 2024, drilling efforts at Kosta Field were concentrated on growing near mine resources and assessing regional targets. 4 near mine areas were active during the quarter. Firstly, the infill drilling on Sheppard focused on the westernmost staining within the system. In the center of the field, drilling continued on the Brunswick depth testing program and to the south, 2 drilling programs tested the depth extension of the Cuffler deposit as well as the northern extension of the Sub King Cobra resource.

Speaker 4

Moving into Q2, near mine exploration will prioritize the Cuffley Deeps programs and the Sheppard infill programs. Another focus area will be the link between the Sheppard Veining and the Brunswick deposit, where a mineralized connection is anticipated through currently non tested ground. Regional exploration at Costerfield primarily targeted the True Blue deposit with 1 program extending the inferred mineral resource and another testing the mineralized corridor with without drilling up to a kilometer further south. Towards the end of the quarter, 2 additional drill programs began testing the northern and southern strike extents of the Brunswick mineralized corridor. At Bjorkdal, near mine drilling activities in Q1 focused on depth testing of this large system with programs dedicated to the depth and eastern extension of Aurora and the northern continuation of veining below the marble horizon.

Speaker 4

Towards the end of the quarter, drilling also began on a Skarn Extension project aimed at extending the mineralized envelope known for its historically high grades. In Q2, near mine exploration at Myeokdal will continue in the North Zone depth extension and Skarn extension programs, as well as a new program focusing on the infill drilling focused on infill drilling the eastern extension of the Bjorkdalvein. There was no surface drilling conducted during Q1 2024. However, last month, Mandalay released exciting results from our northern prospect, Sortedan, situated 600 meters north of the Bjorkdal Mine. The 2023 program aims to confirm and give context to the previous drilling as well as test the system at depth.

Speaker 4

The drilling was successful in increasing the known depth extent of the deposit to 200 meters and confirming the mineralized strike length of 1.6 kilometers with some encouraging assays. During Q2, surface drilling will commence on will recommence on Storheiden and we will continue to update the market on our other regional drilling programs within the Eastern and Southern prospects. I would like to return the call to our President and CEO, Fraser Boucher. Fraser?

Speaker 1

Yes. Thanks a lot, Chris. I appreciate that. And look, throughout the remainder of 2024, our primary emphasis will be on further improving operational discipline with resulting steady production within projected costs And we will continue to efficiently allocate capital resources to our self funded exploration growth targeting both near mine and regional exploration opportunities with the plan to expand and prolong reserves at both of our assets. Our vision remains to become a mid tier gold producer in an industry that is in need of smaller scale producing consolidation into mid scale producer status.

Speaker 1

We are a diversified gold and antimony producer in top tier global jurisdictions with proven cost effective resource growth replacement based on ongoing organic exploration upside. With this newly enhanced management team aligned with this vision and with support of Cornerstone shareholders, this corporate growth strategy is underpinned by strong cash flows, dollars 16,000,000 free cash flow alone in the past quarter and a strong balance sheet including $47,000,000 in cash and a $35,000,000 active revolver. So Mandalay is positioned to transition into this new stage. I anticipate the company emerging as a key mid tier player in the gold sector over the next 3 to 5 years. So on that note, I wish to thank everyone.

Speaker 1

This concludes this portion of the call and I would like to open up the lines for any potential questions. Thank you.

Operator

Operator. Ladies and gentlemen, we will now begin the question and answer Your first question comes from the line of Kevin Tracy from Auburn Asset Management. Please go ahead.

Speaker 5

Great. Thanks. Hi, Fraser. It was good to see the grades at Costerfield in the quarter. I was happy to hear you expect those grades to continue.

Speaker 5

So my question really is around what we can expect over the next few years of Sheppard. So I look back at your most recent reserve report and you made a pretty big revision down in the average grade from 12.5 grams to 10.5 grams per ton. Here we are this quarter processed grades over 12 and you say that's going to continue. So should we be more hopeful that maybe the average grades are north of 12 or I mean I understand this is coming off of 2023 when grades disappointed, but can you help me a little bit there?

Speaker 1

Sure, Kevin. I'll give you a high level and then I can refer further to some comments that Ryan may want to add. Look at the end of the day, the grades will stay for a little while at this, but it doesn't change the reserve grade that we updated. It's generally, I would say, a reverse hockey stick later this year. So those grades will still come off a little bit.

Speaker 1

So the reserve grade that we stated for now, we see no change in that. And although we do see what's happening sustaining for another 3 to 6 months before it starts to tail off. So it doesn't really change the reserve picture. Number 1, it doesn't necessarily change our guidance. That's still on line.

Speaker 1

When you use the term hope, I'd be a bit more optimistic and hope where the hope comes in really is the focus we have on our exploration, especially in the near mine in terms of those deposits that Chris shared being continued around Shepherd surrounds and Cuthiery deeps in particular. But maybe I'll if you have a further question on that, I can certainly have Chris and or Ryan ask comments. But does that answer your question for now?

Speaker 5

Yes. And maybe I could follow-up there on the optimistic. When and you mentioned on the in your prepared remarks that we should hope or you hope or expect to extend the mine life at Coster Field. Are we going to get another reserve report early next year or the previous management team had shifted to only updating the reserve reports every 2 years?

Speaker 1

No, I've changed that coming in. We'll go back to annual. That was just something that was an attempt last year, but I think we've all agreed at both our operations annual updates as per cutoff drilling September, December, we finish it and then announce early in the year and file it by February of the following year. So that will go back to annual, both of them.

Speaker 5

Okay. And in terms of the mine life extension, where do you expect that to come from? Is that just more an extension of Shepherd or do you think Cuffley or TrueBlue showed some promising results last year. Is there any one of those that you think has the best prospects to add reserves this year?

Speaker 1

Look, I'll make some general high level comments and then I'll have Chris Davis weigh in. At the end of the day, this operation has always been exciting, but it has fluctuated between the 2 to 5 year mine life for the last 15 years since Mandalay got involved with Costerfield in 2009. So it's a bit of the nature of the ore body. We had the Yule success. We have some success around Shepherd.

Speaker 1

60%, 65% of our expenditure is focused on near mine because reserve extension even though it's never a guarantee it has proven to happen in the past, but it's important for us for a number of reasons. So between Shepherd and Copley Deeps is probably our highest prospectivity right now, but those things can change. When you make reference to TrueBlue though, we want to be clear that's pretty exciting to us, the whole regional. But when I think regional, I think sort of five plus years out. So that balance of the other 30%, 35% of our exploration spend is important.

Speaker 1

But we want to make sure that we continue to have at least a 3 to 5 year mine life in front of us on the near mine. I might say, Chris, would you like to add just a few high level comments to that in terms of prospectivity, especially on the near mine versus the regional?

Speaker 4

Yes, sure, Fraser. I think you've covered it pretty well. But I guess on the near mine front, really sort of where we're looking at the moment is sort of a Westwood progression step between Sheppard and Brunswick for that northern part of the field. That's something that we're testing at the moment. And we sort of we needed to kind of waive the testing horizon to actually sort of drilling some of our projects there from surface at the moment.

Speaker 4

But also at the same time, we're drilling underneath the Cuffly deposit to the south. But that's quite an exciting area because we already do have resources there and we're looking to sort of extend and upgrade those resources into something that's feasibly mineable. And then I guess moving on from there, we're pretty excited about the sort of 3 major areas that are within a couple of kilometers from our underground infrastructure. So there's the True Blue, the Brown's line and Northern Punch extension, which we're are drilling all of these this year, but we're continuing to build them.

Speaker 1

That's my $0.02 Thanks.

Speaker 5

Okay. And on Boerchtdal, so there the mine grade was around basically in line with what we've seen over the last couple of years. And if I heard correctly on the prepared remarks, the expectation is for the grades to be stable at Boerdal. And I guess why is that the case? Or I had thoughts coming into this year with more mining coming from the Eastern Extension higher grade zone that grades could improve more materially.

Speaker 1

Yes. Good question, Kevin. Let me again give a high level and then Ryan can add some further color. The plan because the system is so large in mass, as you correctly point out, the issue has never been the size of the system, although we always continue to extend it. It's targeting the higher grade sections.

Speaker 1

So there's 2 parts to that. One correct is the Eastern, but because we got that extension last year in the license, There is more development work to be done in that Eastern extension. So while we started to tap into it, there's a bit of a lead time before we can get into that and get more ore on a more consistent basis. And the second part is the overall feed grade looks a little bit lower because we've expanded our mill and that's because we're still underground mine constrained somewhat as we increase our development. So we top it up with the old open pit stockpile or we call the B ore.

Speaker 1

So that grade runs about 0.6. So the average weighted grade of the feed comes down. But to get back to your main question on underground mine, we are targeting the higher grade sections and also focused on minimizing dilution in stope and development areas for all other to try and get that grade to maintain a 1.5, 1.7 grams per tonne, so to speak, so the weighted average runs above what you saw in the financials.

Speaker 5

Okay, good. And on the business development front, can you just talk about what the activity levels looked like? And can you also confirm that your focus is on gold or are you open minded to other metals?

Speaker 1

Sure. I'll answer that in reverse. We are open minded with some restrictions in the sense that it's mainly gold, silver, copper antimony. We're not going off into rare earths or lithium or graphite or something like that. So we're not focused only on gold, but I would say precious metals and certainly with the copper elements and having antimony that gives us a certain interesting lead on some other opportunities we're looking at there.

Speaker 1

As far as how busy we're on that, I would say we're quite active. That's taking more and more of my time as I engage in discussions with a number of different parties. Fortunately, I leave in good hands the operations and exploration with Ryan and Chris. But with Hashim here and Scott Treblecock, who you would know, we are fairly engaged in doing respective PDs in discussions.

Speaker 5

Okay. And then last thing, so creating all this great cash flow, you have net cash. So why hedge? And I saw you just in April, you extended part of the hedge into next year. So I was a bit surprised by that.

Speaker 5

Can you just talk about why you're doing that?

Speaker 1

Yes, that's a very good question. And so let me answer that. And so back in December 2023, when we entered into these hedges, which was about 20% of our production, 25% of our production just for this year, we kind of hard tailed that initially at the end of December of this year. Gold was trading at an all time high and we wanted to lock in to some of that opportunity more in a sense of creating a solid floor to our 2024 budget. It wasn't trying to capitalize on higher gold prices and going up especially for Bjorkdal being a lower margin even though it's a large operation.

Speaker 1

We wanted to just let's call it risk mitigation. Of course 75% of the gold production and 100% of the Antimony production is not hedged. But considering our operating performance in Q1 and our strengthening balance sheet, I currently do not see the need to do that further. I prefer to have our investors open to the gold price. So that was a risk mitigation measure put in 3 months ago after we did our budget I saw what it looked like, wanted to make sure we at least had a floor and we're going to exceed that.

Speaker 1

Now that I have more comfort there, my view is that we would not be going back to do that again.

Speaker 5

Okay. Thank you.

Speaker 4

Thanks, Kevin.

Operator

Your next question is from the line of Lawrence, Private Investor. Please go ahead.

Speaker 6

Good morning, gentlemen, and amazing results. I love the cash position we have. So I just have a few questions, mostly to do with Yorkdale. So if Fraser was to authorize the purchase of the optical sorter tomorrow, how would that look like at Yorkdale? How would it change the head grades on the mill?

Speaker 6

And how would you address the haulage constraints from the underground mine?

Speaker 1

Hi, Laurence. Look, thanks for that question. Let me answer it briefly and then I'm going to have Ryan add some further commentary. Look, we actually did consider ore sorting in the past, both screening and beneficiating type ore sorting as well as optical. There was a study done.

Speaker 1

At that time, not to say that we would not revisit that again, we found it was not economic and instead went the route of an increased mill throughput expansion, which was completed towards the end of last year and we're commissioning it in Q1, Q2. So that we found was had better economic returns than what we found was not beneficial in the study we did. But Ryan, would you like to add some more color to that for Laurence on the optical sorting?

Speaker 2

Yes. On the optical sorting, we did Charles number of years back, but the expansion was a cheaper capital option and also a sort of payback. And also with the optical sorting, it's not there is some gold that gets discarded. So ultimately, at the end, when we look at that, there's some profit loss in that. In terms of the mine, the mine at the moment is filling the plant.

Speaker 2

So we're not really constrained in that way. So in terms of moving ore, it's not we're not totally tracking constrained at the Orkdal. It also comes down to being mining constrained because it's well, that's a big operation and there are a lot of veins, it's narrow vein mining. So we have a lot of stopes on the go at one time. So that's probably our constraint, getting enough stopes online.

Speaker 6

Okay. So when do you think you're going to get the mill running at full capacity then, if I understood your previous comment?

Speaker 2

Yes. So, Ryan, do you want me to

Speaker 3

add that? Yes.

Speaker 1

No, go ahead. I mean, we're just about there, but you can let Laurence know the status of that.

Speaker 2

Yes. Basically in quarter 1, we've ramped up to almost at the where we expect to be around the 1,450,000 tons annualized throughput. There are some minor tweaks still going to the next quarter, and I expect by the end of this quarter, we'll be there at that throughput.

Speaker 6

Okay. I like to drill results from the property next door. I can't remember the name of it and my computer is not working these days. So you're going to have to refresh my memory on it. But I thought the drill results were really good.

Speaker 6

But evidently the price of gold had a bit of an effect on the price of the stock. So that was kind of disappointing. I don't have any more questions. So I thank you very much for your time and I wish you a wonderful day.

Speaker 1

Thanks, Laurence. Appreciate your questions.

Operator

There are no further questions at this time. I would now like to hand the call back to Fraser Beauchey for closing remarks. Please go ahead.

Speaker 1

Thank you, operator. And just again, thank you everyone for joining us, for your time. And I'm looking forward to an even more exciting Q2. So we will talk at that time. Cheers.

Operator

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

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Mandalay Resources Q1 2024
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