Mandalay Resources Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 8, 2024

There are 12 speakers on the call.

Operator

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 companies 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. At this time, all lines are in listen only mode.

Operator

Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, August 28, 2024. I would now like to turn the conference over to Fraser Boucher. Please go ahead.

Speaker 1

Thank you, operator, and welcome, everyone. Joining us on the call today are Hashim Ahmed, our Executive Vice President and Chief Financial Officer Brian Osterberry, our Chief Operating Officer and Chris Davis, our VP of Operational Geology and Exploration. Yesterday, Mandalay Resources disclosed its 2nd quarter financial results at market close. You can access our consolidated financial statements and MD and A on either the company's website or through our profile on SEDAR. Mandolay achieved sizable financial progress in the first half of twenty twenty four relative to our market capitalization.

Speaker 1

With solid production results and a stable cost profile, in the second quarter alone, all in U. S. Dollars, we generated $24,000,000 in cash flow from operations and adjusted EBITDA of $36,000,000 Company strengthened its balance sheet and we ended the quarter with a cash balance of $63,000,000 Based on these results and ongoing cash flow expectations, Mandalay repaid the entire $20,000,000 outstanding balance on its revolving credit facility subsequent to quarter end July 2024. I am pleased to announce that the company now has no significant debt apart from minor equipment leases. Additionally, the undrawn $35,000,000 revolving credit facility remains available until 2027, enhancing our financial flexibility and supporting our corporate strategic objectives.

Speaker 1

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 twenty twenty four. Equally important, we remain focused on various exploration activity all 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, a large gold vein system we have at Bjorkdal, both above and below the Marvell unit. Our strategic focus on quality organic growth at both operations, coupled with a continuous review of external opportunities, continues to set the stage for our anticipated asset value growth, thereby shareholder growth at Mandalay Resources. Looking ahead, we continue to execute internal plans for development and stoping with intent to increase production from higher grade areas of Bjorkdal, while ramping up near mine exploration drilling to again replace depleted reserves at Costa Rica. We will continue to manage our balance sheet prudently to enhance our financial flexibility to maintain strong cash flow generation.

Speaker 1

I would now like to hand the call over to different members of my executive team to recap the Q2 results for Mandalay Resources. First, Brian Asturbary, our Chief Operating Officer. Brian?

Speaker 2

Thanks, Fraser. 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 gram a ton in quarter 2 of 2024. There was a slight quarter over quarter decrease in mill throughput from an extended process plant stop due to planned capital improvements. Cost field process 30,757 ore tons in quarter 2 of 2024.

Speaker 2

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 of 2024 compared to 2.4% in quarter 2 of 2023 due to mining more tons from the lower grade Antimony Sheppard deposit. This trend in Antimony grade is expected to persist as Sheppard becomes the dominant ore body.

Speaker 2

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 twenty twenty five will give an additional 6 plus years mine life capacity. The off sale has demonstrated sustained improvements over the last four quarters, achieving a production of 12,600 gold equivalent ounces in quarter 2 of 2024. This marks 21% increase from the 10,400 ounces produced in quarter 2 of 2023. This performance is driven by ore from the higher grade Aurora development being included in the plant B material in June, which resulted in process underground and stockpile mixed fee grades averaging 1.3 grams a ton for that month.

Speaker 2

In quarter 2 of 2024, the average plant fee grade including low grade stockpile from the surface was 1.2 gram per ton with a processing throughput of 331,450 tons. The 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, enhance 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.

Speaker 3

Thanks, Ryan. As a reminder, numbers noted are in U. S. Currency. As Frasier 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.

Speaker 3

Since the start of 2024, Mandalay has increased its cash balance by nearly $36,000,000 reaching $63,000,000 at the end of June 2024. Consolidated revenue for Q2 2024 rose by 59% to $63,000,000 up from approximately $40,000,000 in Q2 2023. This growth was mainly driven by an increase in production leading to higher gold sales of 26,759 ounces in Q2 2024 compared to 20,229 ounces in Q2 2023. At Peyachtrol, the site achieved its highest quarterly revenue nearing $29,000,000 driven by increased tonnage processed in Q2 2024 compared to the same period last year. Meanwhile at Costa Field, the site recorded its 3rd consecutive quarter over quarter revenue increase, reaching $35,000,000 Additionally, higher realized metal prices further contributed to revenue with gold priced at $2,314 per ounce and antimony at $20,320 per ton in Q2 2024 compared to $19.49 per ounce and $12,046 per tonne in Q2 20 23.

Speaker 3

Total cost of sales excluding depletion and depreciation expenses decreased 14% from $29,000,000 in Q2 2023 to $25,000,000 in Q2 2024. The decrease came predominantly from a $2,700,000 buildup of coal in process inventory during the current quarter. However, this inventory movement helped offset increases in mining costs from unplanned spend to reinforced production areas at Costa Rica, as well as higher processing costs at both sites during Q2 2024 compared to Q2 2023 due to higher tonnage at biocontrol and higher cost of tailing and water management at Costa Rica. Our consolidated cash costs and all in sustaining costs per ounce of gold equivalent produced during Q2 2024 were $10.22 $14.19 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.

Speaker 3

And it remains well within our annual guidance provided earlier in January. In summary, the company generated approximately $16,000,000 in free cash flow during Q2 2024, which equates to approximately $5.82 per ounce of gold equivalent sold. With the revolving credit facility fully repaid as of July 2, 2, 2024, Mandalay has a cash balance of about $43,000,000 With a growing cash position and an undrawn $35,000,000 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 Operations Geology, Chris Stipp. Chris?

Speaker 4

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. To the north of the field, drilling continued on the extension of Sheppard Resources, whilst another program commenced testing the Kendall vein in between Yule and the historic mine. Within the center of the field, a program commenced testing the gap between Sheppard and Brunswick, where limited drilling existed before.

Speaker 4

And to the south of the field, drilling continued on the extension of the Cuffley system Kupli system with testing to the north as well as southern extension of the Kupli Deeps Panel, an area of increasing excitement for us. Heading into Q3, near mine exploration will continue to focus on the Cuxley Deeps 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. Commence during the quarter were 2 deep holes, one testing under the TrueBlue resource and the other under the historic Robinson's mine.

Speaker 4

Both deep holes look to test the geological setting that hosts the high grade Yule 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 dykes, also within the north of the field. At Bjorkdal, 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 Skarn Extension drilling was completed during the quarter and an infill program targeting the eastern extension of the deposit was commenced.

Speaker 4

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 Bjorkdal at the end of Q2 with a focus on the debt extension of the Storheeden deposit. This program will continue through Q3 with another program due to commence on the extension of the Norbariat resource. During Q2, Mandalay made public the results of 2 exciting drilling campaigns that had focused on the extension of the Norbariat resource and a series of prospective targets to the Southwest of Bjorkdal, where gold and BMS style mineralization was expected. Both programs were successful in intercepting gold mineralization with grades comparable to those seen within the active mine.

Speaker 4

Standout intercepts for these programs were 13.3 grams per ton gold over 5.5 meters at Norbariat and 5.3 grams per ton gold over 7 meters at Lufshan within the Southwest tenement. 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, Fraser Boucher.

Speaker 1

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.

Speaker 1

Thank you everyone. And this concludes this portion of the call. I would like to open the lines for questions now.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from the line of Kevin Tracey from Auburn Asset Management. Your line is now open.

Speaker 5

Great. Thanks for taking my questions. First, at cost of field, earlier this year, you had expected that grades would take down in the second half of the year and production in the second half to 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 say production should be around stable for the second half.

Speaker 5

So my question is looking to next year, is it fair assumption that we should see the grades of cost of fuel decline and production to decline in 2025?

Speaker 6

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 Colchester field over the next 12 to 18 months.

Speaker 7

Yes. Thanks for that question, Kevin. I expect the gold grade will be pretty stable and similar. The antimony grade slightly away. So that's the slight difference we'll probably see in the latter half of this year.

Speaker 7

In terms of next year, as Fraser mentioned, we're redoing our life of mines now. And production wise, in terms of mine tonnage, it should be expected to be similar to what we're producing this year.

Speaker 5

Okay, good. And then at 4th call, so the best quarter we've seen in a while there, on the script, Fraser, 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 to mean that the production rates on the second quarter, which again, the best number we've seen in a while, can be actually improved upon or how should we think about that?

Speaker 6

Yes. Again, I would always caveat, these are great operations that generate cash, good platform, but they're not massive operations. So we get bumps along the road. Generally, the improvements at Bjarto probably had more to do with the mill conversion project that we completed and we've ramped up from 1,250,000 tons to now close to 1,450,000 tons. However, we will always continue to focus on the higher grade portions, including Aurora below Marble and the Eastern Extension, but we have more development work to do there and some more drilling to do before that's sustainable.

Speaker 6

But Ryan, I'm not sure if you wanted to add a comment to that as well for Kevin.

Speaker 7

That pretty much covered it, Fraser. I think, yes.

Speaker 5

Okay. And then on the exploration front, it's been a while since we've gotten an update with some drilling results that cost fulfilled. I think I'm looking back, it looks like up 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.

Speaker 5

And just give us some sense of your confidence of what reserves will be replaced, the cost you feel this year?

Speaker 6

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.

Speaker 8

Yes. Tyler, thanks, Kevin. Yes, we have had it has 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.

Speaker 8

And yes, 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.

Speaker 5

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

Speaker 6

Yes. Thanks, Kevin. Again, I have strong views that dividend is certainly an option for return to shareholders, but it probably ranks 2nd or 3rd 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 form 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 unless you're thinking of a special dividend, once you turn that tap on, one has to ensure that that's sustainable.

Speaker 6

I don't like turning dividends on and off. So that's not our preference at this particular moment.

Speaker 5

Okay. And lastly, I'm confused by the disclosure around your gold hedges in your report. So you hedged 25,000 ounces this year. And then there's this note that you did 2 separate restructuring transactions covering another 15,000 ounces with expiration dates in 2025. So am I to take this that you've moved some of those 25,000 ounces you hedged this year to next year or that you've hedged 25,000 this year and another 15,000 next

Speaker 6

year? Look, again, Kevin, no, your first part is right. We just pushed stuff out, 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.

Speaker 3

Yes. Thank you, Fraser. So what we did here was a 3 step process. Number 1, we as you're right, we did enter a 25,000 ounce hedge in the beginning of the year. We delivered on the 1st month, but then we restructured it in the second half.

Speaker 3

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, dollars 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 collars on that hedging.

Speaker 3

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.

Speaker 5

Got it. Okay. Thank you.

Operator

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

Speaker 9

Hi, thanks for taking my question and congratulations on the nice results. So if I read these SEDI 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 mean that this lead independent director no longer supports the strategy that you're trying to implement here at Mandalay?

Speaker 6

Yes. Thanks for the question, Daniel. Good question. I was expecting it. I'll summarize it 2 ways.

Speaker 6

No, he still strongly supports the strategy and is committed. It was unfortunate, but he had a personal financial issue in which led to that particular transaction. So while we've certainly spoken collectively, that's neither his view nor

Speaker 3

the view of any of

Speaker 6

the other directors in terms of the direction that Mandalay is headed. But I completely understand the optics were extremely unfortunate. And this was a personal matter, financial management matter for our Lead Independent Director, Baham Yonkers.

Speaker 9

Well, 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 $8.70 and now it's $2.49 Hopefully it will go up as a result of these nice results. And all the other things he's been involved with are judged. 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.

Speaker 9

Anyway, just a thought. Thank you for your time.

Speaker 6

I've heard you, Daniel. Thanks for your comments.

Operator

Your next question comes from the line of Ernie Moelis from PMG. Your line is now open.

Speaker 10

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

Speaker 6

Yes. Thanks for the question. You're doing the math quicker in your head than I am. I'm pretty sure it matches up, but 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 stockpile grade, but the blended mill feed grade combined with the tons to match that production of gold ounces at Bjorkdal?

Speaker 7

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

Speaker 10

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

Speaker 7

Yes, correct.

Speaker 10

Okay. And the other question I have is, how has the change in dark tile affected the mix of products that you're producing? Is the amount in high grade gold still the same as a concentrate and has the flotation product changed any?

Speaker 6

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

Speaker 7

Yes. The splits are still roughly the same. So they still have not changed greatly the percent of the splits. So we're mining approximately 1,000,000 tonne. At the moment, our throughput is at around 1.4.

Speaker 7

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 tonne of the low grade stockpile this year, plan to use that in total. And but yes, the overall percentage split of the products between flotation and gravity is similar.

Speaker 10

Okay. 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?

Speaker 6

As gold equivalent ounces at Costerfield? Or are you talking about the costs that we reflect at Costerfield?

Speaker 10

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

Speaker 3

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 produced. Yes.

Speaker 10

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

Operator

Your next question comes from the line of Lawrence Retail, Private Investor. Your line is now open.

Speaker 11

Good morning, Fraser, and 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 possibly considering as an acquisition?

Operator

Well, I'll

Speaker 6

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 there'd be a bit of a conflict there anyway with the Director. So my I would say no, that's not really something we look at.

Speaker 11

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

Speaker 6

More of the former. We are engaged in a number of conversations, whether it's assets or potential combinations. Again, 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, coppers, etcetera, not rare earths.

Speaker 11

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

Speaker 6

Uncle Eric's golf handicap? You're not

Speaker 11

sure, are you?

Speaker 3

Okay. Yes, the golf

Speaker 6

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

Speaker 11

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

Speaker 1

Thank you.

Operator

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

Speaker 6

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.

Operator

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

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