- Firm has two producing mines with exploration and growth upside
- Operating in mining-friendly jurisdictions
- High-grade Youle vein in Australia set to increase mine life and profit margins
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 project produces gold and antimony and covers 1,293 hectares. It has a mine life of three to four years and an annual processing capacity of 14,000 tonnes. Proved and probable reserves stand at 474,000 tonnes at 13.4 grams per ton (g/t) gold, 3.8% antimony for 204,000 ounces of gold and 17,800 tonnes of antimony.
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 and proved and probable reserves are 11.1 million tonnes at 1.54 grams per ton (g/t) gold for 548,000 ounces of the precious metal.
Last year, 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, 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:
In August this year, Mandalay reported on what it called an "excellent" financial performance in its second quarter to June 30, thanks to improvements at its mines in Australia and Sweden and a rising gold price.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) came in at US$21.2 million for the three months, up from US$4.1 million at the same stage last year. Revenue was US$42.3 million, also up considerably versus US$26.3 million seen in 2019.
At Costerfield, it was a period of high production with averaged processed grades of 11.2 grams per ton (g/t) gold and 4.2% antimony, while Björkdal delivered another steady quarter of gold production with 11,250 ounces, an improvement from the previous quarter.
Then on October 14, the group raised its guidance for full-year gold-equivalent ounce production across its mines, thanks to a very strong performance from its Australian operation in 3Q.
In the three months to September 30, the miner produced 22,793 saleable gold ounces from Australia and Sweden combined, which was the best quarterly consolidated result since the fourth quarter of 2017. It was also the fourth consecutive quarter-over-quarter improvement in consolidated saleable gold production.
Based on revised metals prices (namely, not those used for the forecast in January this year), the firm added that it now expects consolidated gold-equivalent ounces to be between 100,000 and 109,000 ounces for the year to December 31 - up from between 93,000 and 106,000 ounces.
On October 21, it announced further exploration success at the Youle deposit at its Costerfield mine, which is expected to lead to a longer mine life at 'significant' profit margins.
Since first ore was mined at Youle in August last year, the deposit has been a consistent producer of high-grade, and latest drilling has uncovered a new high-grade domain around 100 metres (m) below current operations, which could add more high-grade mine-life.
Assays from this location include 99.8 grams per ton (g/t) gold and 0.2% antimony over a true width of 0.30m in one hole.
Recent drilling also indicated potential for significant extension to the historic Minerva Reef, which lies 50m above current infrastructure and is already dewatered by the Youle operation.
The firm hit 12.6 g/t gold and 3.1% antimony over a true width of 0.24m in one hole, which Mandalay believes is the southern extension to the historically mined Minerva Reef area, on the eastern side of the group of historic workings.
What the broker says:
Following the exploration update on the Youle deposit at Costerfield, broker Mackie repeated a 'Buy' rating on Mandalay and a C$5.20 price target (current price: C$1.56).
Most of the drill assays were focused on the newly producing high-grade Youle zone for delineation and extensional purposes, with the remainder focused on the potential to outline new mineralization in and near the historic Minerva Reef, said analyst Stuart McDougall.
Of particular note, four of the deeper holes confirmed a new area of high-grading gold mineralization in the footwall of the existing ramp, around 50 to 100m below the deepest lateral development headings, he noted.
- Third-quarter financials
- Precious metals moves
- Exploration and production news
What the boss says:
In the firm's third-quarter production and sales release, CEO Dominic Duffy, said: "Mandalay continues to build upon the momentum generated during the first half of the year by delivering another strong production and sales quarter. We expect to fulfil or outperform our consolidated 2020 production guidance on a gold equivalent ounces basis".
He added that "due to the excellent capital development progress made at Costerfield, that site has accelerated capital development originally planned for 2021 into this year, increasing the development metres and investment at Costerfield. We also intend on increasing exploration spend by approximately $1 million at Costerfield for the remainder of the year to follow up on the encouraging results seen to date."
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