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Edited Transcript of MND.TO earnings conference call or presentation 5-Nov-19 1:00pm GMT

Q3 2019 Mandalay Resources Corp Earnings Call

TORONTO Nov 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Mandalay Resources Corp earnings conference call or presentation Tuesday, November 5, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dominic Duffy

Mandalay Resources Corporation - President, CEO & Non-Independent Director

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Conference Call Participants

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* Ross Carden

Polygon Global Partners LLP - Analyst

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Presentation

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Operator [1]

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Good morning. My name is Michelle, and I'll be your conference facilitator today. At this time, I'd like to welcome everyone to Mandalay Resources Corporation's Third Quarter 2019 Financial Results Conference Call.

Joining us on the call is Dominic Duffy, President, Chief Executive Officer and Director of Mandalay Resources. (Operator Instructions)

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 the 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, 2019, available on SEDAR and the company's website.

At this time, I'd like to turn the call over to Mr. Dominic Duffy. You may begin.

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Dominic Duffy, Mandalay Resources Corporation - President, CEO & Non-Independent Director [2]

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Thank you, Michelle, and thank you, everybody, for joining us today to discuss Mandalay Resources Third Quarter 2019 Financial results.

I'd like to start by saying, although we saw steady-state operation at our Björkdal operations and the improvements at the Costerfield operation, the company is still performing below expectations. This is due to continuing issues in the Brunswick vein at our Costerfield mine, which is causing us significant issues from the poor ground conditions. That's resulted -- that is resulting in excessive dilution of the ore, more than 30% dilution we tend to be obtaining from the Brunswick lode. This has been slowing our production and lowering our gold and antimony grades from the operation.

The gold recovery at Brunswick ore has also been significantly below our expectation levels. This is due to the refractory nature of the ore. As a result, our October 17 -- as a result, on October 17, we lowered our 2019 guidance at the Costerfield mine from 23,000 to 28,000 ounces of equivalent salable gold by year-end.

And that being said, we are beginning to see improvements at the Costerfield mine as we did breach the Youle vein during the third quarter. And what we have seen to date has been significantly improved ground conditions. And we have processed our first batch of material. In the results, we're reporting slightly higher-than-expected recoveries for both gold and antimony.

So even though the third quarter results were not where we were hoping for, we are beginning to see the turnaround of the operations as Costerfield transitions from the Brunswick vein to the Youle vein over the coming quarters. This will result with the Costerfield mine returning to profitability, which combined with the positive earnings of the Björkdal mine will be putting the company in good financial position.

I'd like to move on to the financials now. For the third quarter 2019, the company reported revenue of $28.8 million and adjusted EBITDA of $5.6 million and consolidated net loss of $1.4 million or $0.02 per share. I will note also that this was our highest EBITDA since first quarter of 2019. It has been helped by the gold price, although we are beginning to see the results of the improvements.

Consolidated salable production for the quarter was 16,625 ounces of equivalent gold production with a cash cost of $1,277 and all-in sustaining cost of $1,629. Both these consolidated costs continue to be high, although we will begin to see them dropping as profitable -- into profitable numbers as the high-grade Youle vein in Costerfield begins to ramp up production over the coming quarters.

At the Björkdal mine, we had stable quarter of production with 11,880 ounce of salable gold production, resulting in revenue of $21.7 million and adjusted EBITDA of $8.7 million and consolidated net income of $4 million. Cash costs were $941 per salable ounce and all-in costs were $1,200 (sic) [$1,205] per salable ounce of gold.

Production for the third quarter was lower than the second quarter as we did not process any of the high-grade skarn material as we're focusing on drilling this material for planning purposes. We do expect to see skarn process in fourth quarter and as a result, lifting production from this material.

In summary, for Björkdal, we are happy with where the operation is sitting, and we expect to be -- and see the benefits of the significant overall discovery coming into production over the course of 2020 and improving overall production of the operation. This, combined with the pause in open-pit operation and subsequent lowering of cost has put the Björkdal operation in a very good position moving forward to improve on its current financial earnings.

Moving on to Costerfield mine, it produced 4,745 ounces of the salable equivalent gold production. This resulted in a revenue of $7 million and an adjusted EBITDA loss of $1.7 million and consolidated net loss of $3 million. As a result, we had very high cash costs of $1,800 and all-in costs of $2,290 per ounce of salable equivalent gold. Even though these results were poor, the positive to Costerfield is that we began development on the Youle vein. We see it's a key to turn Costerfield mining into becoming again a very profitable operation.

We will see over the coming 3 quarters a significant ramp-up in ounce production as Youle begins to displace the Brunswick ore in the processing plant. The Youle vein is substantially higher grade than the Brunswick, and initial development has shown the ground conditions to be significantly improved as well. As I mentioned earlier also, the processing recovery from the first batch of process has reported very positively.

In sum -- I'm sorry, in relation to the liquidity of the company, as of the end of the third quarter, we had cash and cash equivalents of $23.2 million. And to assure liquidity of the company and provide financial flexibility, we are looking into long-term debt repositioning options. We are currently in discussions with a syndicate of lenders in respect to potential new senior credit facility.

So in summary, for the company, even though the financial results for the third quarter were not as good as we were hoping, we had Björkdal performing at a stable level, with further growth expected from the Aurora zone and Costerfield at the point of transition as it begins to ramp up production from the Youle vein.

I would expect this time next year to be reporting significantly improved operational performance -- operational and financial results as the company becomes a significant earner again.

Thanks. That's it for third quarter results. And I would like to turn it back to the moderator to see if we have any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Ross Carden with Polygon.

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Ross Carden, Polygon Global Partners LLP - Analyst [2]

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Congrats on the results. Just 2 quick ones for me. At Costerfield, I was just wondering at the Youle lode, can you comment on what you see in terms of grade reconciliation? I think that it's too early, just given you're ramping that up, but any color on the grade and how that's performing versus expectations will be good. And then my second one is on Björkdal, but maybe, yes, go ahead with that one first.

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Dominic Duffy, Mandalay Resources Corporation - President, CEO & Non-Independent Director [3]

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Yes, thanks, Ross. In relation to the Youle lode, we have only processed to date 1,600 tonnes of that material. What I can say with the grades there performing per block model virtually really no -- I would say antimony maybe reporting slightly over and gold slightly on the a bit less. It washes out to be pretty much on the block model grades. I will say the upper level of the Youle lode is a more complicated area, so -- where we do have slightly lower grades as we get down into the bulk of the Youle lode and get it down deeper that's when we really do begin to see the significant uplift in grades. So we will be seeing better grades over the course of Q4, but then we'll see -- the significant ramp-up begins in Q1, Q2 of 2020.

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Ross Carden, Polygon Global Partners LLP - Analyst [4]

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Got it. Okay. And then at Björkdal, I was wondering, when you look at the grade and thinking about the split between the open-pit, underground or any mill feed, what you saw in Q3, just wondered if you'd give any more split around that? And then also thinking about as we go into Q4, what we might expect to see in terms of overall tonnes milled and what the grade feed could be?

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Dominic Duffy, Mandalay Resources Corporation - President, CEO & Non-Independent Director [5]

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Yes. So I think in relation to the open pit, we haven't really seen any impact on the grades as a result of stoping the open pit because we have been able to ramp up underground tonnage. We expect to be producing 800,000 tonnes from underground this year and milling next year. So that has always been high grade in the open pit. So as we do pull more -- are pulling more tonnes from the open pit -- underground now, we don't really expect to see any grade variance as a result of that.

Where we do expect to see grade variance is as Aurora ramps up because -- in next year. We reported the end of 2019 reserves of the Aurora zone at a little over 2 grams per tonne, this is higher than the rest of the underground and generally what we are reporting from underground production. So we do expect our production to lift as we begin stoping from the Aurora zone next year. To date, we have not started a single stope in the Aurora zone. We are currently developing 5 levels, but these levels have continued slightly further than we were expecting as the mineralization continues. And to date, we still have not finished developing a single level on the Aurora as it continues both through the east and the west side.

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Ross Carden, Polygon Global Partners LLP - Analyst [6]

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Great. When do you think you'll start stoping next year from Aurora?

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Dominic Duffy, Mandalay Resources Corporation - President, CEO & Non-Independent Director [7]

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I would like to see this year, but it may be pushed into Q1 next year if the mineralization continues both in the east and west directions. Once we find then edge of these deposits, we will begin stoping.

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Operator [8]

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(Operator Instructions) Our next question comes from the line of [Gayle Docker] with Mandalay Resources.

We have reached the end of our question-and-answer session. I'd like to turn the call back over to Mr. Duffy for any closing remarks.

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Dominic Duffy, Mandalay Resources Corporation - President, CEO & Non-Independent Director [9]

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Thank you, Michelle. Just quickly in summary, the results were slightly below what we were expecting for this quarter. But as I mentioned earlier, as we do move into the Youle lode/vein and it begins to displace the Brunswick ore processing through the processing plant, I think you'll find the profitability of this company will return, and we will be looking much healthier early in 2020. Thank you, everybody, for joining the call, and that's it for us.

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Operator [10]

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Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.