- Both mines continuing to be significant cash generators in 2021
- Costerfield seeing continued exploration success at one of the highest grade gold mines in world
- Group expects to be debt free in 2021
What Mandalay Resources does:
Mandalay Resources Corp (TSE:MND) is a metals miner and produces gold, silver and antimony.
The company is focused on operating and optimizing its mines at Costerfield in Australia and Björkdal in Sweden. Both assets have the potential for further growth via production and exploration. The aim is to be cash generative, to self-fund exploration, establish and maintain high operating margins and return cash to shareholders.
The Costerfield mine produces gold and antimony and covers 1,293 hectares. Antimony has various uses including making paints, flame-proof materials and ceramics, as well as an alloy with lead. Björkdal has a mine life of over a decade and has a processing capacity of 1.3 million tonnes a year. The project covers over 12,000 hectares.
In 2019, Mandalay struck a binding deal with Equus Mining to dispose of its third asset, the Cerro Bayo mine in Chile, a non-operating asset since, which had been on care-and-maintenance since 2017, when a flood led to output being suspended. Also in 2019, the firm arranged the sale of other non-core assets - the Challacollo concessions to third parties, and the Ulu project in Nunavut.
How is it doing:
On June 29, Mandalay released promising exploration drill results from its Björkdal operation in Sweden, which abode well for mining higher gold grades within the current life-of-mine plan.
The results are via two drill campaigns, which focused on the eastern margin of the orebody, where significant veins have been encountered.
In the Main Zone veining program, highlight intercepts included 174 grams per ton (g/t) gold over true width of 0.49 meters (m) from 388.7m depth in one hole. The same hole also hit 8.85m of 6.1 g/t gold from 106m depth.
Meanwhile, in the Lane Zone veining campaign, Mandalay hit 25.3 g/t gold over a true width of 1.03m in one hole from 51.8m depth. In another hole, 226.0 g/t gold over a true width of 0.21m from 269.8m depth.
Earlier in the month, the precious metals miner reported more positive drill results from its Costerfield mine in Victoria, Australia, which have extended the newly discovered Shepherd zone there.
High grades at both the eastern and western veins were identified in the assays underscoring the potential of a large system.
Encouraging assays included 172.3 grams per ton (g/t) gold over a true width of 0.27 meters (m) in one hole at the eastern vein and 712.8 g/t gold over 0.10m in another drill hole at the western vein.
In mid-April Mandalay Resources released 1Q production figures marking the third consecutive quarter of increased production. The miner produced 28,676 gold equivalent ounces during the period and sold 28,218 ounces, with 23,857 ounces of gold sold – its highest quarterly amount in three years.
The figures saw a year-over-year uptick, in 1Q 2020 Mandalay produced 25,677 gold equivalent ounces and sold 24,276 ounces.
Across both the Björkdal and Costerfield mines, as of December 31, 2020, total proven and probable reserves totaled 799,000 ounces of gold and 21,900 tonnes of antimony. That compared to 752,000 ounces of gold and 17,800 tonnes of antimony at the end of 2019.
What the broker says:
Following the release of encouraging exploration drill results from Mandalay’s Björkdal operation in Sweden, on June 29, Research Capital reiterated its BUY rating for the company.
The rating was accompanied by a $5.50 per share target price, based on the continued use of a 1.0x multiple to net asset value, the mid-day note stated.
“We are maintaining our BUY rating and target price of $5.50/share, based on our long-term gold price of US$1,850/oz and discounted cash flow models (5%) for the Björkdal and Costerfield underground mines,” wrote Stuart McDougall, analyst at Research Capital. “We still include US$125 million for unmodelled resources, but note that the stock trades at 2.9x our ’21 CFPS estimate, versus a consensus average of 6.8x for gold producers that we track in our comps.”
In terms of future stock catalysts, Research Capital pointed to the ongoing exploration updates as well as 2Q financials, which will be released in August.
- More exploration results from Australia
- Further exploration in Sweden
- Precious metals price moves
What the boss says:
In a statement accompanying the recent exploration update from the Björkdal operation Dominic Duffy, CEO of Mandalay said:
"We are very encouraged by the high grades within veining to the east of the mine and by the strong indications of major extensions to two previously mined high-grade skarn lenses. Results from these two programs support Mandalay’s primary objective of elevating gold grades within the site’s current life-of-mine plan.”
Duffy went on to note: "Building upon the success of these two campaigns, exploration efforts will test another eastern extension, as well as following-up on the targeting of the skarn mineralization sitting above the veining. This drilling aims to gain sufficient information to support a mining concession application that will cover the extended veining. Beyond these targets, significant extension potential also exists within the Aurora Zone and surrounding veins, which will also be a major focus of underground exploration efforts at Björkdal in the near future."
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