Mandalay Resources Corporation

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Good morning. My name is Felina, and I will be your operator facilitator for today. At this time, I would like to welcome everyone to Mandalay Resources Corporation's Q3 Financial Results Conference call. Joining us on the call is Dominic Duffy, President, Chief Executive Officer, and Director of Mandalay Resources. On this call, my apologies, 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 31, 2021, available on SADAR and the company's website. Please go ahead.

Thank you, Felita. Good morning, everyone, and thank you for joining us today. With me on the call is Nick Dwyer, Mandalay's chief financial officer, and I also have Chris Davis, Mandalay's vice president of exploration and operational geology. Mandalay released his third quarter 2021 financial results at market close yesterday. You can find our consolidated financial statements and and DNA on the Mandalay Resources website or under our profile on CETA. Overall, we are very pleased with progress that the company has made over the first nine months of the year. Mandalay is continuing to demonstrate its ability to sustain the momentum generated in 2020 and has developed a successful operational and financial track record. This quarter again showcased the quality of our yield deposit with its high gold grades and low cost profile. Largely driven by this strong performance, Mandalay anticipates that our consolidated 2021 saleable production, excluding the positive results from Cerro Bayo, will be at the higher end of our 105,000 to 117,000 ounces. of gold equivalent production given in our guidance. Here in the third quarter, Costa Field produced its highest ever amount of 18,950 gold equivalent ounces at 13 grams per tonne gold and 4% antimony, making it one of the highest gold grade mines in the world and the second highest in Australia to our neighbours across the road at Fosterville. As compared to the same period last year, Costa Field's production grew by approximately 30%, which helped immensely in driving down Costa Field's cash cost per gold equivalent ounce, which produced $546, which was the best result since Q1 2016. Before I discuss our operations in more detail, I'd like to pass it on the call off to Nick. So we'll walk us through the financial highlights of the company during the third quarter. Nick?

Thanks, Dominic. So Mandalay delivered another excellent quarter, which now marks our seventh consecutive quarter of profitability. We grew our quarterly consolidated revenue by 6% to $53 million as compared to Q3 2020. We also earned a healthy quarterly adjusted EBITDA of $25 million, which is a 48% margin. The main driving force behind this was a 13% increase in gold equivalent ounces sold of 29,509 ounces in the quarter. It should be noted that due to ongoing global shipping issues, Costa Field's Q3 2021 revenue declined slightly to $27 million from Q3. the 27.9 million that we made into q3 2020. this delay caused these delays caused a postponement in our september flotation concentrate shipment valued at 5.5 million dollars which was recognized at the start of october we're expecting an improvement in global shipping logistics over the coming quarters and we anticipate we will be caught up on our concentrate exports by year end Madeleine realised gold price was lower in Q3 2021 at 18,038 per ounce compared to the 19,012 during Q3 2020. However, the decline in gold price was offset by antimony strung appreciation over the same period from 5,600 per tonne on average to just over $10,000 per tonne. And currently the antimony price is around $13,000 per tonne, which is great for the company. As a direct result of lower costs and increased production at Costafield, we did see a decrease to our consolidated cash costs, which was $825, and all in sustaining cost of $1,135 per ounce. compared to, and so this was compared to 826 and 1,282 per ounce respectively in Q3 2020. The company recorded an adjusted net income of $10.1 million or 11 US cents per share or 14 Canadian cents and a consolidated net income of 9.3 million, which is 10 US or 13 cents Canadian in the period. Lastly, we closed the quarter with $29.8 million in cash, which was lower than the $39 million on the books in the previous quarter. This decline was expected, however, it was larger than planned due to the previously mentioned global shipping delays out of Costa Field. The other expected significant impacts on cash over the third quarter were also at Costa Field where we paid our full 2020 annual tax and the 2020 royalties of $7 million and $2.7 million, respectively. We also paid $5 million for loop and reclamation work in Q3. However, in Q4, we expect a release of funds of approximately $3.5 million through the reduction of our security bond there, which is part compensation for the work performed in 2021. And as with every quarter, we reduced our syndicated facility to $47.7 million through a $3.8 million debt repayment. Looking toward our year-end cash balance and going forward, we expect a significant lift as our payment obligations normalise. Finally, and subsequently here at the quarter end, Mandalay filed a short-form perspective for $200 million Canadian dollars, which will be valid for a period of 25 months. At the moment, Mandalay does not have any plans to raise capital under this perspective. The shelf offering will just be used only for an opportunity that the company deems likely to ultimately contribute to its overall growth strategy and be accretive to shareholders. I'd like to turn the call back to Dominic. Thank you. Tom?

Thanks, Nick. Turning to our operations, consolidated saleable production was 33,000 ounces of gold equivalent for the company, which was the highest production amount we've seen since the fourth quarter of 2017. As I discussed earlier on the call, a large part of this strong quarter was due to the continued high-grade ore from Costerfield. Looking ahead to the next quarter and into early next year at Costerfield, we will continue with the scheduled stoping of the upper levels of Yule and the development on the lower levels of Yule. And we also expect the entering into the shepherd zone on the southern extent before year-end, which is very exciting for us. In line with the previous quarters, Bjorkdal generated $20.5 million in revenue and $6.8 million in adjusted EBITDA during the third quarter of 2021. Production was slightly better at 11,250 saleable gold ounces. However, it is still below the planned production rates. The major reason for this underperformance has been the ongoing dilution issues in several stopes, and most importantly in the Aurora zone. A lot of work has been ongoing to get the dilution under control, including supporting the hanging walls with long bolts at the top of the stoves, changes in our draw pattern design, removing development drives from the hanging wall side of the deposits, among other changes. As a result, we have been seeing improvements with these changes that are very encouraging. Bjorkdol was able to post a very strong September with the highest gold grade feed for the underground since December 2019, producing at over 1.5 grams per tonne. So it was the highest grade we've seen year to date. Cash and oil in sustaining costs were slightly higher at Bjorkdol at 1,186 and 1,440 pounds respectively higher. versus the 1,050 and the 1,337 per ounce a year ago. These increases were mainly due to higher costs of production and the relative strengthening of the Swedish Krona against the US dollar. That says we have improved our unit costs since the second quarter of this year. Looking forward, we expect to see a further decrease in these unit costs as we ramp up the stoping in the high-grade lower levels of Aurora and anticipate seeing mining grades lift for the remainder of 2021 and 2022. Lastly, at Bjorkdal, we are currently on track to achieve our strategic objective on 1.1 million tonnes from the underground. I feel we have reached a sustainable high production tonnage rate from Bjorkdal, so our focus going forward will remain on dilution control to lift underground grades. Moving on to Sarabatio, our third quarter 2021 results included 2,925 saleable gold equivalent ounces, which provided a healthy 5 million in revenue and $1.5 million in adjusted EBITDA. Last month, it was announced that Equus Mining decided to exercise its option to purchase the company Aminata Cerro Bayo from Mandalay, which owns a Cerro Bayo mine. The transaction is scheduled to be completed on December 1st. In exchange, Mandalay will be issued Equus shares amounting to a 90% holding of Equus, at the date of closure. Mandalay will also maintain a 2.25% net smelter royalty on production, above 50,000 ounces of gold equivalent from Cerro Pello. In addition to our operations and financial success, we have been having a lot of exploration success over the course of 2020, 2021, sorry. So I would like to turn it over to Chris Davis to fill you on that. in on the exploration updates. Chris?

Thanks, Don. Subsequent to quarter end, we reported on three excellent developments at Costfield, which I would like to discuss here. Since our last update in June on the recently discovered Sheppard Zone, drilling has continued with the focus on extending mineralisation along Strike, as well as targeted infield drilling. in order to delineate and refine the structural model of Sheppard. Announced in early October, structural continuity of Sheppard has now been established through five separate veins, which was previously thought of as two veining horizons. The five veins roughly conform to these horizons, with the east horizon comprising the Sheppard and Merino veins, while the western horizon contains the Suffolk, Dorper and Southdown veins. The combined veining has now been extended over a strike length of 500 metres and approximately 100 metres vertical extent. The Sheppard system still remains open to the north, south and at depth, with the southernmost drill hole showing persistent veining with significant gold and antimony grades. The veining to the south of Sheppard looks similar in nature to the veining of the Yule deposit above, with stibnite accompanying the Goldgritch quartz veining. Some highlights of the southern extension include 14.8 grams per tonne gold and 11.6% antimony over a true width of 1.8 metres, 24.6 grams per tonne gold and 2.3% antimony over 1.2 metres, and 10 grams per tonne gold and 2.3% antimony composited over a true width of 8.2 metres. This composite of 8.2 metres is the widest yet discovered at Sheppard, which consists of several veins, including a 30 centimetre vein grading at 98.6 grams per tonne gold and 18.5% antimony, and a 17 centimetre vein grading at 156 grams per tonne gold and 19.1% antimony. To the north, within the Merino vein, we see significant gold grades with a drop-off of antimony. Some highlights include 390 grams per tonne gold over a true width of 11 centimetres and 114 grams per tonne gold over a true width of 23 centimetres. Moving into the western set of veins, some of the standout intercepts were 155 grams per tonne gold and 155 10.5% antimony over a true width of 11 centimetres, and 67 grams per tonne gold over a true width of 25 centimetres. Looking near term at Sheppard, in Q4 2021, we'll be developing a new deep drill platform at the base of Yule. From this platform, we'll be able to better access and test the depth continuation of the system. Within the same exploration release, we provided an update on the Costa Field deep drilling program. Built within a favorable environment of depth along the central Costa Field line, this program looked to build upon a previous campaign that resulted in the discovery of re-stole gold intercepted in 2016 at depths of approximately 800 meters. Whole CD002 was drilled underneath the Cuffley and Augusta deposits in search of the favourable geological conditions that are akin to those defining our neighbouring Fosterville deposit. CD002 intercepted two areas containing sub-vertical quartz fanning with visible gold within fold closures at depths of 800 and 900 metres Although very exciting results, the highest grade assay was 8 grams per tonne over 7 centimetres. These new gold-bearing horizons were actually to the west of the 2016 discovery and indicate that the breadth of the mineralisation at depth is approximately 500 metres wide. We have also reported on our drilling progress at the Browns Prospect, which is located approximately two kilometres to the east of the Shepherd Deposit and Yule Mine. A 17-hole drill program confirmed the presence of a promising gold system comprising two main mineral as trends, exhibiting high-grade gold intercepts. The Felix trend is associated with the historic shallow Felix Brown Mine and also associated with alluvial workings that played an important role in gold production during the 1890s. Approximately 120 metres below the historic workings, the new drilling recovered 20 grams per tonne gold over a true width of 1.7 metres, which also included 158 grams per tonne gold over 9 centimetres and 111 grams per tonne gold over 16 centimetres. The newly discovered western trend is approximately 100 metres to the west and is interpreted to be blind to surface and hence not previously discovered. A highlight of this trend is 19 grams per tonne gold and 2.4% antimony over a true width of 1.01 metres. Visible gold was present in several intercepts through both trends, and mineralisation can be traced over 200 metres strike length and 300 metre vertical extent. Encouragingly, the significant grades found in the Brown's drilling program may only represent the most official expression of a more extensive mineral system at depth. The depth continuation of the Brown's mineral system may extend into and be hosted within the same favourable environment that hosts the Crossfield-style mineralisation of the Yule and Cuffley ore bodies. Thank you. That concludes the exploration update, and I'd like to hand the call back to Dom.

Dom? Thanks, Chris. With the Crossfield Corridor hosting over 2 million ounces of equivalent gold, It's currently one of the highest gold-grade producing mines. This untouched environment at depth will definitely be a focus of our exploration for 2022. So I'd just like to thank everybody. This concludes this portion of the call. I would now like to open the lines up for questions.

Thank you. If you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. And as a reminder to register for your question, please press the 1-4. And we do have a question. It comes from the line of Lawrence Retail, a private investor. Please go ahead with your question.

Hi, Dominic. I'd like to thank the team up front for turning around Mandalay Resources. I think you guys have done a really great job. Hello? Yep. Yeah, thanks, Lawrence. Okay, so I guess going forward, I wanted to know if you had to select between two operating mines, which one would you pick, the Yorkdale operation versus the Cerro Bayo operation as they stand today, and what their future prospects look like from an operating cost and bottom line revenue?

In going forward, then definitely there's no question we'll choose Bjorkdal over Cerro Bayo. Bjorkdal currently has 10 years of reserves in front of it, which will grow significantly. Cerro Bayo does not have that many mineable reserves. That has the stockpiles. The reason they have been so profitable over the course of this year is we have had a very high silver price as well when silver was at $28, $29. It was making a healthy profit, nothing world-breaking, but actual mineable reserves at Cerro Bayo, there's very little. And going forward, we do anticipate seeing significant uplifts in our grade at Yorkdale for two-fold reasons. One being mining improvements and getting the dilution down. which is the main focus, as I mentioned earlier. Previously, our main focus had been lifting tonnage rates, getting a sustainable high tonnage rate. Now we've reached a rate that can be very profitable and we just have to focus on reducing our dilution, which we're doing. But we also get great lifts from the exploration results Chris has been getting, especially down south to the northeast of the property. the continuation of the mine down deep. We're starting to see a lot higher grades on the north-eastern depth extension. So those grade increases from high-grade areas might be immediate. We're mining out towards them, so we'll see that ramp up over the coming years. But we are starting to see the effects of the changes we're putting in with the dilution control. So definitely...

So with Yorkdale, what other areas can you improve the operating cost? Because it always seems to be higher than cost or field. And what about the recovery grades? Is there any improvements to the mill beyond what we've discussed in a prior call, which is the reward sorter?

Yeah. Not really. Over the five years we've owned Bjorkdal, we haven't really been able to get significant recovery improvements from that operation due to the variable nature of where you're mining. The different geology does prove to have its complications when we seem to overcome one type of geology and then we move into another. So we're being pretty constant at that 89% to 90% recovery, which we're always trying to improve on, but it's a pretty stable recovery right there. The only real improvements, significant improvements we can see in the plant would be the optical oil sorting going forward. For costs, it's mainly related to our grades. If we can get our grades at higher ounces passing through the plant, our unit cost will drop. Unit cost per gold ounce will drop. But the actual mining cost is pretty flat rate.

Yeah, I realize that. It seems to be the same from year to year, the cost of operating the plant. It's all based on grade. What about... Some mentioned that as you mine deeper, you're getting farther away from the plant. Is there a possibility of putting in a conveyor system, or that's just too expensive? Or what about automation? I know some of the mines in Ontario are using a lot more automation. Yes, I'm sorry? Yes, the hauling trucks.

Yeah, yeah. So that would be significant capital investment, both haulage truck automation and conveyabouts. And conveyabouts, because of the layout of the mine, there's too many bends, et cetera, for our primary ramps going down that we wouldn't feasibly be able to put in conveyors. Also, it's quite a lot of capital investment to automate. The haulage isn't... It is a large part of it, but again, our focus, it is a low-cost operation per ton. Our focus is more so than trying to reduce our costs. It's trying to reduce our dilution and get the grades up.

Okay. Well, thank you very much for answering my question.

No problem. Thanks, Lawrence.

Thank you. If you would like to register for a question, please press the 1-4. And when you have a question, it comes from the line of Stuart McDougall of Research Capital. Please go ahead with your question.

Thanks, Operator. Hi, Dominic. I just have a couple quick questions, please. First, on cost or field, I noticed that the gold recovery popped up in the quarter as well as the processing cost. So one, can you confirm that the two are related? And two, what do you expect going forward? Do you expect it to remain at 96% on the gold side? And then secondly, could you just address the capital costs? capex guidance for the year relative to the year date spend and what we might expect in Q4 for the two mines. Thanks.

Yeah, okay. Thanks, Stuart. Firstly, on the recoveries at Costa Field, so we did put in the cab tube flotation cell earlier in the year, focusing on grabbing those fine particles of gold, and the results have been positive, and that's the main contributor for it was anticipated we'd get those higher recoveries, which we are getting. However, there is a slight increase in costs related to that as well, which is a reason for our costs rising slightly in the processing. Also, the FX Aussie dollar has been strengthening as well, which does push our costs up slightly. The second part of the question, capital, I'll actually hand that one over to Nick if you want to answer that.

Yeah, no problem. Hey, Stuart.

I think the way to look at our capex for the full year, we're going to be basically broadly in guidance and they're the midpoint at this stage and that's That's a slight overspend at Costa Field and a slight underspend at Bjorkdal, mainly just from additional capital development at Costa Field from finding their shepherd zone, essentially, and sort of continue on the development drives down deep there. On the Bjorkdal side, we're going to delay a bit of spend on the tailings from this year into next year. So, yeah, in short, it should be on guidance.

All right. Thanks, Nick. Thanks, Dominic. No problem. Thanks, Tim.

Thank you. As a reminder to register for a question, please press the 14. And at this present time, no one else has registered for any questions. Please continue with your presentation or closing remarks.

Thank you, operator. And thanks again, everybody, for joining us on the call today. I look forward to updating the market on our progress and have a great day and stay safe, everybody. Thanks.

Thank you. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.

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