Mandalay Resources Corporation

Good morning. My name is Mark and I will be your conference operator today. At this time, I would like to welcome everyone to Mandalay Resources Q2 2023 financial conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, you can press star and then the number two. 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 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 headings Risk Factors and elsewhere in the company's annual information form, dated March 31st, 2023, available on CDAR and the company's website. Mr. Boucher, you may begin your conference.

Thank you, Operator, and welcome everyone around the world. On this second quarter 2023 financial results conference call today, available either by audio only or by webcast as per the call and link instructions on our August 3rd release, is Ryan Astorberry, Mandalay's Chief Operating Officer, and Nick Dwyer, Mandalay's Chief Financial Officer. Unfortunately, Chris Davis, Mandalay's VP of Operational Geology and Exploration, is in transit to our operation in Sweden. Mandalay Resources released its Q2 2023 financial results at market close yesterday. You can find our consolidated financial statements and MD&A on the Mandalay Resources website or under our profile on CDAR. As in the next slide, as for the key deliverables and outcomes this past quarter, we produced 20,850 consolidated saleable gold equivalent ounces. Our cash cost per ounce of gold equivalent produced was $1,159. Our all-in sustaining cost per ounce of gold equivalent produced was $1,644. The consolidated quarterly revenue was $39.7 million. The consolidated quarterly adjusted EBITDA was $8.9 million. And cash on hand at the end of the quarter was $32.8 million. As of July 2023, all gold hedges are extinguished. And the mine extension permit at Bjorkdal Eastern Extension was received during the quarter.

Next slide.

As you may have noted from our Q2 production and sales results release four weeks back, the first half of 2023 has been challenging at both our operations. This has impacted our ability to meet the previously stated annual production and cost guidance for this year, mostly due to a combination of the non-recurring mainly and some systemic issues related to underground ore mine tons and grade shortfalls. Initially, we expected higher production levels in the second half compensate for the shortfall experienced year-to-date. However, after careful analysis, we now understand that despite the remaining anticipated back-end weighted H2 2023 production expectations, this will not be sufficient to overcome the H1 2023 deficit to plan. And we revised our production guidance downwards to a consolidated 88,000 to 100,000 saleable gold equivalent ounces. As a large portion of our cost base at both operations are fixed rather than variable. This will have a direct impact on our forecast full year cash costs and all in sustaining costs. With cash costs expected now to range from 1,010 to $11.70 per equivalent ounce, and all-in sustaining costs from $13.70 to $15.80 per equivalent ounce. We have investigated the root causes of the grade discrepancies and have recalibrated our geological modeling and scheduling, and our tons discrepancies, and have adjusted our mobile fleet accordingly. This now instills greater confidence in our revised guidance. While we acknowledge that the revision is unfortunate, it has given us valuable insights into the factors that caused the recent production shortfall. We are proactively implementing mitigating solutions, and my team has high confidence that these actions will prove effective in improving our performance moving forward. In spite of these challenges, our exploration budget remains unchanged. and we consider it a key focus area for the future. Our vision is to rely on mainly organic exploration success at 10 million to 14 million US this year at both operations, including near mine and regional drilling on our tenement packages. This exploration work is planned to underpin the growth of our valuable assets. Despite these challenges, Mandalay did turn a profit during the quarter and adjusted EBITDA of $8.9 million, as I stated, and making it our 12th consecutive quarter of profitability. I would now like to pass the call off to our Chief Operating Officer, Ryan Astorberry.

Ryan?

Thanks, Fraser. Just next slide, please.

Now to expand on the operational performance.

We encountered several temporary but significant factors affecting our production during the first half of this year. On a consolidated basis, the company produced 20,850 saleable gold equivalent ounces during quarter two, up slightly by 5% as compared to quarter one, 2023, but down 11% as compared to quarter two, 2022. During Quarter 2, 2023, Yorkdale produced 10,397 saleable gold ounces. The challenges faced during Quarter 2, as with Quarter 1, were related to personnel vacancies, mined tonne volumes and stope dilution. As may be noted on the graph on the bottom left, we are encouraged by the positive signs of steady increases to mined ore volume and grade from Q2 from Bjorkdal underground and expect ongoing productivity enhancements from a consistency in hauled underground tonnes as new contractor trucks were commissioned and staffed. Increased underground tonnes mined from the higher grade central eastern extension area. A focus on mining practices to reduce stoke dilution of which we are starting to see some positive returns. In addition, as referenced by our CEO earlier, we are excited to have successfully obtained the mining concession for the newly designed anticipated higher grade eastern extension of our Bjorkdal mine. This significant development grants us the extension of the mining envelope by an additional 350 metres, effectively encompassing entire mineral resource base that has been drilled and defined over the past two years. When noting the graph on this slide, second from bottom right, you'll see at Costa Field there was a shortfall in underground mine grade. The drop in grades can be attributed primarily to a delay in stope progression into the higher grade core of the EULAW body. For the latter half of this year, we plan to retreat production fronts into the higher grade core of Yule, while continuing to develop along the multiple veins of the Sheppard ore body. The Sheppard ore body encountered some longer than expected waste areas along strike, which hampered ore tonne delivery to the mill. In addition, some production issues were further exacerbated by supply chain issues resulting in a delay in receiving a remote underground loader. While we initially anticipated its arrival during quarter two, we now expect it to be delivered and fully functional during quarter three. There is a future focus on having some redundancy in critical mobile mining equipment. As a result, Costa Field produced 10,453 saleable gold equivalent ounces during quarter two of 2023. Staffing levels have also been an issue at Costa Field. However, various initiatives including modified hiring practices and an accelerated training in addition to an effort to employ experienced operators should help alleviate this labour gap. I'd like to pass the call on

to Nick, who will walk through the financials.

Nick?

Thank you, Ryan. So for Q2 2023, Mandalay generated approximately $40 million in revenue and $9 million in adjusted EBITDA. These amounts were lower as compared to previous quarters due to the lower produced and sold ounces year on year. Of those consolidated quarterly amounts, Costfield contributed $21 million towards revenue and $5 million to adjusted EBITDA, with Bjorkdal making up the remaining $19 million and $5 million in revenue and adjusted EBITDA, respectively. As compared to the same period last year, our realised gold price pre-hedge remained broadly in line at $19 million $149 per ounce, while the antimony price declined about 6% to $12,406 per tonne. Cash and all in sustaining costs per saleable gold equivalent ounces during Q2 2023 were $1,159 and $1,644 approximately 14% and 18% higher as compared to Q2 2022, respectively. These higher unit costs were a direct result from a lower production rate. With the operational initiatives ongoing, which Ryan, our CEO, just spoke through, we anticipate unit costs will decrease over the coming quarters at both sites.

Next slide, please.

The Mandalay entered the quarter with $33 million in cash on hand and $25 million in total interest bearing debt outstanding. $40 million as per our new facility and nearly $5 million in equipment leases. This results in an $8 million net cash position at the end of Q2 2023. Beneficially for the company, and in connection with the prior credit agreement, the last 4,000 ounces hedged per month were delivered at the end of Q2 2023. Now, with all of those hedges requirements expired, we anticipate cash flows in the future to lift as a result. That's in the assumption that metal prices remain similar to current spot prices. For Q2 2023, Manlate generated about $3 million in free cash flow. I would like to send a call back to Ryan to discuss our exploration developments in place of our temporarily absent VP of Exploration, Chris Davis.

Thank you, Ryan. Thanks, Nick. Next slide, please.

You'll note on the right a plan and a line section view of our Costa Field mine. At Costa Field there were two areas of focus for near mine exploration focused on our efforts to replace our mine depletion. Extension drilling on the Sheppard ore body continued through quarter two with the focus shifting from a depth extension infill program to a southern extension program. Alongside this drilling, the Brunswick DEETS program recommenced targeting Yule or Shepherd style mineralization below the recently producing Brunswick mine. If successful, we are targeting to have some of this incorporated into our mineral reserve update that will be effective from end of this year. Going into quarter three, 2023, Mendeley expects the drilling programs extending Sheppard and Brunswick at depth will continue.

Next slide, please.

This is the next slide, the Costfield Regional Drilling. Regional drill testing was undertaken approximately two kilometres east of the current mine outside the central corridor with a continuation of the True Blue Drill Program. The first intercepts from this program were released in February this year. Additionally, the West Costa Field Drilling Program was concluded and the Northern Dykes Drilling Program was commenced with the intent of drill testing below historic workings along Dyke-hosted gold antimony mineralization. This True Blue Program is scheduled to continue with a new drill program to start in quarter three, testing for Costa Field-style mineralization underneath the historic Robinson Mine, as the hope is to determine if a duplicate of the central corridor could be identified and replicated along this trend line over the coming years.

Next slide, please. The next slide focuses on Bjorkdale near mine.

At Bjorkdale, three near mine targets were progressed. Firstly, veining in the intermediate surrounds of the Aurora ore body were targeted. Secondly, the eastern extension of Lake Zone was drilled. Thirdly, the North Zone area was tested for dip and strike continuity. We're excited that drilling of North Zone into a new area of veining intercepted approximately 180 metres to the north of Aurora. This new area is called the Boreal Zone and a new release detailing this discovery along with a drilling update from the rest of the North Zone and the Lake Zone Eastern Extension Program was released in July 2023. Highlights of the North Zone and Boreal Zone included 207 grams per tonne of gold over 0.55 of a metre and 73 grams per tonne of gold over 0.45 of a metre. Additionally drill intercept highlights of the lake zone eastern extension program included 117 grams a tonne over 0.35 of a metre and 89 grams a tonne of gold over 0.45 of a metre. Next slide please. The next slide is the Bjorkdal surface drilling. This slide outlines our full tenement package at Bjorkdal which covers a considerable extent with a vast number of different style targets. Surface drilling during quarter two was primarily focused on the depth and strike extension of the store heat and mineralization situated approximately 500 meters to the northeast of the current mine. Extensional drilling is aimed at testing the extent of mineralisation identified over a strike length of three and a half kilometres. The secondary focus for the surface drilling was the depth testing of the Quartz Mountain target originally mined within the Bjorkdale open pit. During quarter three, drilling is expected to continue on the newly defined boreal zone and conclude on the Aurora surrounds program. New programs are due to commence in filling the eastern extension of main zone, as well as the east of the Aurora zone. Drilling will also recommence in the southwestern tenements on the Lapjarn and Tarsness targets. With that, I'd like to return the call back to our CEO, Fraser Borshee here.

Thanks very much, Ryan. I appreciate you filling in for Chris Davis, who's absent for this call. He will be on our next quarterly call, our VP of Exploration. Look, just as I wind up, it's now been four months for me into this new and exciting position as Mandalay's President and Chief Executive Officer. And I want to reiterate that Mandalay is well positioned financially with a good balance sheet, cash on hand, an excellent credit facility, two cash flowing assets in tier one jurisdictions with a prolific history of past metal production, both within our tenements and adjacent to our tenements. We have no permitting risk. we have no large capital blowout build risk. This is important, especially in today's difficult equity capital markets, thereby allowing for optionality in achieving our long-term growth and value creation objectives. I remain excited with our organic pipeline of growth opportunities as I further familiarize myself with our two operating assets. And we will continue to invest strongly in exploration to both replace depletion and extend mine life in known mineralized areas while stepping out in search of potential new near mine discoveries. There is no doubt that in parallel to these activities of operation and exploration, I remain open to exploring with my board all avenues to grow this corporation in size and scale with potential accretive M&A transactions. I have a fully engaged reinvigorated board of which we are all meeting in person in country for an important corporate strategy session this month. To further flesh out these details and parameters and align on a go-forward strategy. which I will share in due course and as appropriate for a publicly listed company. I wish to thank everyone. And this concludes this portion of the call. And I would like to open the lines for questions now and back to you, operator.

Thank you. We'll now begin the question and answer session. Should you have a question, please press star followed by the one on your telephone keypad. you'll hear a free-tone prompt acknowledging your request. If you'd like to withdraw your request, please press the star followed by two on your telephone keypad. If you're using a speakerphone, please ensure you lift the handset before pressing any keys. One moment for the first question.

Once again, if you do wish to ask a question, please dial star one

on your telephone keypads now. Okay, and our first question comes from the line of Ernie Molesh, who's a private investor. Please go ahead, your line is open.

Hi, congratulations on the improvement in performance in Q2. I was very impressed by the amount of underground tonnage at Bjorkdal. Now, it seems that you're not using the stockpile anymore. Is that correct?

Ernie, look, it's Fraser here. Thank you for your question. Not quite correct, but I will actually give that question over to Ryan Astorberry, our Chief Operating Officer, to answer it.

Ryan? Thanks for the question there. As Fraser said, no, we're still utilising a portion of the stockpile in our mill feed, especially over the summer period in Sweden where there's A lot of the staff take vacation and we have summer workers who are less familiar with the operation in place of the normal workers. But our aim is to, of course, get as much underground feed into the plant as possible and reduce the amount of stockpile

And a follow-on question is, my understanding is that you're permitted to actually process like 1.7 million tons per year, is that correct, at Yorkdale?

Again, Ernie Fraser here, it's probably more like 1.45 million tons. And Ryan can add some further color to that if you need to, but it's 1.45 now. By the end of this year, we're not quite complete. with the mill upgrade, but that should be in order by the end of this year from the current about 1.25 million tonnes per annum.

Yeah, could you provide some colour on the mill upgrades? What exactly are you upgrading?

I'll hand that over to Ryan, right?

Yep, thank you.

No worries. Yeah, correct with, actually, you're correct. We're permitted to deposit 1.7 million tonnes of tailing sand per year. That's via permits. Currently we're around 1.25 million tonnes and the project we're doing is an upgrade of the throughput of the plant and that will increase our throughput we expect by 200,000 tonnes per annum. So that's an upgrade to a different type of bore mill where we're upgrading it to a great discharge mill.

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

Once again, if you do have any further questions, please dial star 1 on your telephone keypads now to join the queue. There will be a brief pause now whilst we register any further audio questions. Okay, there seems to be no further questions from the phones at this time, so I'll hand the floor to Edison for any questions from the webcast.

Hey, Fraser.

There's one question from Kevin Tracy of Overon, and it reads, last quarter, the great disappointment was related to more variability at Sheppard than expected. You said more infill drilling was going to be done to better understand things. What have you learned over the last three months and do you expect a grade at Sheppard that will support production at about 65,000 ounces for the next several years at Closterfield? And that was from Kevin Tracy of Overon.

Okay, thanks, Edison. I'm going to give a high level and then hand over to Ryan for more details. The short answer is we're always doing more infill drilling. Yes, we are getting more clarity on the lower part of Ewell, the upper part of Sheppard, and that's giving us a bit more certainty on what we think forward grades will be, and we're also accelerating moving into what we call Sheppard South as well to expand the resource. So the plan is, of course, we don't come out with an official forecast until later in this year or early next year, so I won't comment on the exact ounces for next year that we expect at Costerfield, although we don't expect any major surprises. But Ryan, would you like to add any more colour to the infill drilling question of what we learned?

Yeah, so we've completed

a large amount of infill drilling and it's still ongoing. The shepherd ore body, it's broken up into a number of veins. So it's really to help us define those veins, what veins we should be mining and where. So I'd say we're gaining that knowledge now. We're sort of getting into the, like getting into Shepard properly now, true Shepard. So that knowledge is really picked up over the last quarter and flowing through into this quarter. So yeah, I expect by Q4, we'll have a good handle on grades in Shepard, but things are starting to look more positive.

Okay.

Edson, I presume there are no other questions that have been filed by Q&A as opposed to audio. Oh, sorry, Fraser.

There's a couple of follow-ups from Kevin. I'm just going to address them now. So the first one is, you revised your guidance before you received the permit extension at Yurto. Did you include the assumption that you would mind the eastern extension this year in the guidance? And then as a follow-up, we'll address that one first, and then I'll go to the second question.

Yeah, the short answer is we're very pleased to get that permit. It does not materially impact this year. It certainly helps us for next year because there's a bit of a lag time in terms of further development and progressing into the Eastern. So that is a good underpinning, but it doesn't change our forecast for this year.

All right, and then his third question is, how many tons do you hope to mine at the Eastern Extension next year? What could this mean for the grade and production at Yorkdale?

Look, I'll give a high level again. I won't get specific to tons. It will certainly be an increase in our proportion of mined and fed material into the mill, as we expect that to be higher grade material, but we'll be flushing that out as we do our mine plans. during our annual budgeting process over the next two to three months. And we can probably share that more when we give our forecast next year.

All right. Thanks, Richard.

At this moment, I don't see any further questions from the webcast.

Okay, look, I want to thank everyone again for their time joining this call. It's our first switch over from audio to a webcast. And going forward, there'll be more on webcast. There'll be more communication in terms of sharing our future plans. And thank you again. Operator? Thank you. This now concludes the conference.

Thank you all very much for attending. You may now disconnect your lines.