Mandalay Resources Corporation

Good morning, ladies and gentlemen, and welcome to the Mandalay Resources Corporation Second Quarter 2024 Conference Call. 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 companies 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 28th, 2024, available on SIDAR and the company's website. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during the call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, August 28th, 2024. I would now like to turn the conference over to Fraser Boucher,

please go ahead.

Thank you, operator, and welcome everyone.

Joining us on the call today are Hashim Ahmed, our Executive Vice President and Chief Financial Officer, Ryan Osbury, our Chief Operating Officer, and Chris Davis, our VP of Operational Geology and Exploration. Yesterday, Mandalay Resources disclosed its second quarter financial results at market close. You can access our consolidated financial statements and MD&A on either the company's website or through our profile on SIDAR. Mandalay achieved sizable financial programs in the first half of 2024 relative to our market capitalization with solid production results and a stable cost profile. In the second quarter alone, all in U.S. dollars, we generated $24 million in cash flow from operations at adjusted EBITDA of $36 million. Company strengthened its balance sheet, and we ended the quarter with a cash balance of $63 million. Based on these results and ongoing cash flow expectations, Mandalay repaid the entire $20 million outstanding balance on its revolving credit facility, subsequent to the quarter end in July 2024. I am pleased to announce that the company now has no significant debt apart from minor equipment leases. Additionally, the undrawn $35 million revolving credit facility remains available until 2027, enhancing our financial flexibility and supporting our corporate strategic objectives. Operationally, the company is well on track to meet our annual production guidance 90 to 100,000 gold equivalent ounces. Having produced approximately 26,000 gold equivalent ounces in Q2, totally about 51,000 gold equivalent ounces during the first half of 2024. Equally important, we remain focused on various exploration activities, all with the intent to extend the mine life at Coltsfield as we have successfully done for the past 15 years in acquiring the assets, and outlining higher grade portions of the large gold vein system we have at Yorkville, both above and below the Marvel unit. Our strategic focus on quality organic growth at both operations, coupled with a continuous review of external opportunities, continues to set the stage for our anticipated asset value growth, and thereby shareholder growth at Mandalay Resources. Looking ahead, we continue to execute internal plans for development and stopping, with intent to increase production from higher grade areas of Yorkville, while ramping up near mine exploration drilling to again replace the pleated reserve of the group. We will continue to manage our balance sheet prudently when half of our financial flexibility maintains strong cashflow generation. I would now like to hand a call over to different members of my executive team to recap the second quarter results from Mandalay Resources. First, Brian Osterberry, our chief operating officer. Brian.

Thanks Fraser. At

Costa Field, we produced 13,773 gold equivalent ounces during quarter two of 2024, marking an increase of approximately 32% compared to the same period last year. This increase was driven by a rise in the average milled gold head grade from 7.4 gram a tonne in quarter two of 2023, compared to 12.1 gram a tonne in quarter two of 2024. There was a slight quarter over quarter decrease in milled throughput from an extended process plant stop due to planned capital improvements. Costa Field processed 30,757 ores tons in quarter two of 2024. We continue to focus on plant optimization and expect no adverse impacts for the remainder of the year. Additionally, the Costa Field site faced manageable geotechnical challenges that required some adjustments to the mine schedule. However, for the second half of the year, we anticipate improved plant throughput and we expect similar to, or slightly lower gold equivalent, mining grades. Processed antimony grades were lower at .1% during quarter two of 2024 compared to .4% in quarter two of 2023 due to mining more tons from the lower grade antimony shepherd deposit. This trend in antimony grade is expected to persist as shepherd becomes the dominant raw body. Importantly, we have received planning permission for the construction of a new tailing storage facility. Expect to commence work this month, which when completed in the first half of 2025, will give an additional six plus years mine life capacity. The off-dale has demonstrated sustained improvements over the last four quarters, achieving a production of 12,600 gold equivalent ounces in quarter two of 2024. This marks a 21% increase from the 10,400 ounces produced in quarter two of 2023. This performance was driven by ore from the higher grade Aurora development being included in the plant feed material in June, which resulted in processed underground and stockpile mixed feed grades averaging 1.3 grams a ton for that month. In quarter two of 2024, the average plant feed grade, including low grade stockpile from the surface was 1.2 gram per ton with a processing throughput of 331,450 tons. The increase in throughput compared to the same quarter last year was due to the completion of the milk conversion project. In the latter half of the year, we will concentrate on optimizing the current technology and systems at the mine, with a focus on deep bottlenecking the mine process to provide flexibility, enhance productivity, and underground mine tons, thereby lowering unit costs. I'd like to pass the call to Hashim, our executive vice president and chief financial officer, who will highlight Mendeley's financials.

Thanks, Ryan. As a reminder, numbers noted are in US currency. As Frazier mentioned earlier, our stable cost structure has enabled the company to capitalize on the current metal price environment, resulting in strong cash generation for the quarter. Since the start of 2024, Mendeley has increased its cash balance by nearly $36 million, reaching $63 million at the end of June 2024. Consolidated revenue for Q2 2024 rose by 59% to $63 million, up from approximately $40 million in Q2 2023. This growth was mainly driven by an increase in production, leading to higher gold sales of 26,759 ounces in Q2 2024 compared to 20,229 ounces in Q2 2023. At Puyolkdol, the site achieved its highest quarterly revenue, nearing $29 million, driven by increased tonnage processed in Q2 2024 compared to the same period last year. Meanwhile, at Posterfield, the site recorded its third consecutive -over-quarter revenue increase, reaching $35 million. Additionally, higher realized metal prices further contributed to revenue with gold price at $2,314 per ounce and antimony at $20,320 per ton in Q2 2024 compared to 1,949 per ounce and ,004.6 per ton in Q2 2023. Total cost of sales, excluding depletion and depreciation expenses, decreased 14% from $29 million in Q2 2023 to $25 million in Q2 2024. The decrease came predominantly from a 2.7 million buildup of gold in processing inventory during the current quarter. However, this inventory movement held off that increases in mining costs from unplanned spend to reinforced production areas of Posterfield, as well as higher processing costs at both sites during Q2 2024 compared to Q2 2023, due to higher tonnage at biocular and higher costs of tailing and water management at Posterfield. Our consolidated cash costs and -in-sustaining costs per ounce of gold equivalent produced during Q2 2024 were $1,022 and $1,419, respectively, representing a decrease compared to Q1 2024 and the same quarter last year. This reduction was primarily due to increased gold equivalent production and a relatively stable cost space, and it remains well within our annual guidance provided earlier in January. In summary, the company generated approximately 16 million in free cash flow during Q2 2024, which equates to approximately $582 per ounce

of gold equivalent sold.

With

the revolving credit

facility fully repaid as of July 2nd, 2024, Mandalay has a cash balance of about $43 million. With a growing cash position and an ungrown $35 million revolving credit facility, this cash reserve provides us options in evaluating growth opportunities that align with our long-term objective. I would like to now pass the call to our VP of Exploration

and Operations Geology, Chris Tep. Chris.

Thanks,

Hashim. At Costerfield during Q2, exploration remained directed towards building near-mine resources and reserves and drill testing regional targets. Close to mine infrastructure, there were five areas of focus for the quarter. To the north of the field, drilling continued on the extension of shepherd resources, whilst another program commenced testing the Kendall Baining in between Yule and the historic mine. Within the center of the field, a program commenced testing the gap between Shepherd and Brunswick, where limited drilling existed before. And to the south of the field, drilling continued on the extension of the Cuffley system with testing to the north, as well as southern extension of the Cuffley deeps panel, an area of increasing excitement for us. Heading into Q3, near-mine exploration will continue to focus on the Cuffley deeps and north programs, whilst also completing the extensional drilling of Kendall. The gap drilling will be completed, and a new program following the northern depth continuation of the Brunswick deposit will commence. Further afield in Mandalay's Cossfield regional programs, drilling was completed on Brunswick northern and southern extension programs, as well as the True Blue southern testing program. Commenced during the quarter were two deep holes, one testing under the True Blue resource, and the other under the historic Robinson's mine. Both deep holes looked to test the geological setting that hosts the high-grade Yule deposit at these locations. Also within Q2, an extensive soil sampling program was commenced, covering large portions of the tenements granted in 2023 to the east and west of Costerfield. In Q3, the main focus will be to the north of the field, where one deep hole will test the northern repetition of the central system, whilst another will concentrate on the historically mined spikes, also within the north of the field. At Beorbdell, near mine drilling was ongoing on the extension of the As Yet Still Unbound system, with programs dedicated to the northern extension and the Aurora depth extension. Also, the SCARN extension drilling was completed during the quarter, and an infill program targeting the eastern extension of the deposit was commenced. In Q3, drilling will remain focused on the northern Aurora extensions, as well as infill drilling of the higher-grade eastern extension area. Surface drilling for regional exploration also commenced at Beorbdell at the end of Q2, with the focus on the depth extension of the Soheedan deposit. This program will continue through Q3, with another program due to commence on the extension of the Norbarriot resource. During Q2, Mandalay made public the results of two exciting drilling campaigns that had focused on the extension of the Norbarriot resource, and a series of prospective targets to the southwest of Beorbdell, where gold and VMS-DAL mineralization was expected. Both programs were successful in intercepting gold mineralization, with grades comparable to those seen within the active mine. Standout intercepts for these programs were 13.3 grams per tonne gold over 5.5 metres at Norbarriot, and 5.3 grams per tonne gold over seven metres at Lhapshan, within the southwest tenements. I look forward to sharing further results with you in the near future. I would like now to return the call back to our president and CEO, Fraser Boucher.

Thank you, Chris. Mandalay remains well-positioned to enter a new phase of disciplined growth. As per our updated corporate strategy from late last year, and become a key mid-tier player in the gold sector over the next three to five years. In parallel, we continue to focus on enhancing operational discipline to ensure steady production within projected costs. We will continue to efficiently allocate capital resources and self-fund exploration growth to replace and grow a reserve base, targeting both near mine and regional opportunities. We believe these strategic priorities, along with continuing to assess inorganic growth opportunities that align with our core strength, will continue to drive long-term value for our shareholders. Thank you, everyone. And this concludes this portion of the call. I would like to open the lines for questions now.

Thank

you. Ladies and gentlemen, we

will now begin the question and answer session. Should you have a question, please press star, followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star, followed by the number two. If you are using a speakerphone, please make sure to lift the handset

before pressing any keys. Your first question comes from the line of Kevin Tracy from

Auburn Asset Management. Your line is now open.

Great, thanks for taking my questions.

First,

cost of field. Earlier this year, you had expected that grades would take down in the second half of the year, and production in the second half will be lower than the first half. It sounds like getting to some of the higher grade parts of the line has been delayed. And I hear you when you say production should be around stable in the second half. So my question is looking to next year, is there something that we should see the grades of cost of field decline and production decline in 2025?

Thanks for that call, Kevin. I'm gonna let Ryan answer that question, but very briefly, while the grades do taper off this year, we're still in the middle of our budgeting process for next year, but Ryan can give a higher level view of how grades trend within cost of field over the next 12 to

18 months. Yeah, thanks for that question, Kevin.

I

expect the

gold grade will be pretty stable and similar. The antimony grade slightly drops away, so that's the slight difference we'll probably see in the latter half of this year. In terms of next year, as Fraser mentioned, we're redrawing our life of mines now, and production-wise, in terms of mine tonneys, should be expected to be similar to what we're producing this year.

Okay, good. And then at Borthal, so the best quarter we've seen in a while there, and the script, Fraser, if I heard you right, you mentioned you're still in the process of ramping up higher grade ounces there. So should we take that comment to mean that the production rates on the second quarter, which again, are the best number we've seen in a while, can be actually improved upon, or how should we think about that?

Yeah, again, I would always caveat, these are great operations that generate cash, a good platform, but they're not massive operations, so we get bumps along the road. Generally, the improvements at Borthal probably had more to do with the mill conversion project that we completed, and we've ramped up from 1.25 million tonnes to now close to 1.45 million tonnes. However, we will always continue to focus on the higher grade portions, including Aurora below Marble and the Eastern extension, but we have more development work to do there, and some more drilling to do before that's sustainable. But Ryan, I'm not sure if you wanted to add a comment to that as well for Kevin.

That pretty much covered it, Fraser. I think, yeah.

Yep. Okay,

and

then on the exploration front, it's been a while since we've gotten an update with some drilling results at cost fulfilled. I think I'm looking back, it looks like it's been last November. Can you just give a brief update on how things are going? I heard Chris talk about some excitement at Copley, and just give us some sense of your confidence of whether reserves will be replaced at cost fulfilled this year.

Sure, Kevin, again, by the way, we will be coming out with a press release for an update on cost fulfilled within the next month or so, but I'll hand

that question over to Chris.

Yeah,

thanks, Kevin. Yeah, we have had, it's been a little while since we put out the press release, but we do have a number of projects that are actually coming up to significant milestones at the moment. So that is the interpretation and assays are complete. So we will be putting something out soon. And yeah, we do expect to make headway with the reserves, but it's probably too early to give you any specific indication on that at the moment.

Okay, and so the cash flows have been great, and now the credit facility paid off. Is there any thoughts of potential dividend?

Yeah, thanks, Kevin. Again, I have strong views that dividend is certainly an option for return to shareholders, but it probably ranks second or third in terms of our priority. The main one being to ensure that we don't have better investment opportunities within either the existing operation or potentially a pro forma larger company if we do some sort of acquisition or at market combination and share buyback is another option. It's just that with dividends, I feel, unless you're thinking of a special dividend, once you turn that tap on, one has to ensure that that's sustainable. I don't like turning dividends on and off. So that's not our preference at this particular moment.

Okay, and lastly, I'm confused by the disclosure around your gold hedges in your reports. So you hedged 25,000 ounces this year, and then there's this note that you did two separate restructuring transactions covering another 15,000 ounces with expiration dates in 2025. So I'm gonna take this that you've moved some of those 25,000 ounces you hedged in your reports. So you're gonna move that this year to next year or that you hedged 25,000 this year and another 15,000 next year?

Look, again, Kevin, no, your first part is right. We just pushed stuff up, but I'm going to let our CFO Hashim give a response to that pushing out into 2025 of existing ounces. We didn't add any

of those. Yes, thank you, Fraser. So what we did here was a three-step process. Number one, as you're right, we did enter a ,000-ounce hedge in the beginning of the year. We delivered on the first month, but then we restructured it in the second half, and then in the recent quarter, we restructured 15,000 out of that, approximately 24,000 to next year, and there's approximately, I would say, 67,000 in the second half of this year. So that's one part. So it's been actually restructured. We haven't added any new collars on that hedging. We did purchase a put option for the second half of the year, which secured our gold sales at a minimum of $2,200 per ounce for the second half of this year. We purchased that for approximately $700,000, and that gives us a strong protection for the second half of the year on the gold price. But that has an upside. We only purchased the put option, so that has an upside on the gold price.

It's just got a protection at the lower end. Got it, okay, thank you.

Your next question is from the line of Daniel Baldini, private investor. Please go ahead.

Hi, thanks for taking my question, and congratulations on the nice results. So if I read these SETI disclosures correctly, it looks like your lead independent director has sold every last share of Mandalay, which he owned. And so my question is, should I interpret this to mean that this lead independent director no longer supports the strategy that you're trying to implement here at Mandalay?

Yeah, thanks for the question, Daniel. Good question, I was expecting it. I'll summarize it two ways. No, he still strongly supports the strategy and is committed. It was unfortunate, but he had a personal financial issue in which led to that particular transaction. So while we've certainly spoken collectively, that's neither his view nor the view of any of the other directors in terms of the direction that Mandalay is headed. But I completely understand the optics were extremely unfortunate, and this was a personal matter, financial management matter for our lead independent director, Rohan Mionkers.

Well, okay, I'm not sure I believe that, but because at the moment that he was disposing all of his Mandalay shares, he was buying shares of Co-Tech, where he's also a director.

So

I mean, I agree, the optics are terrible, but if you go back and look at this guy's various involvements, when he became your lead independent director, the stock was 870, and now it's 249. Hopefully it'll go up as a result of these nice results. And all the other things he's been involved with are duds. So I think you should find someone who has a real genuine financial interest in the company and have them as your lead independent director, and someone who has a record of creating winners. And can help you turn Mandalay into a winner. Anyway, just a thought, thank you for your time.

I've heard you, Daniel, thanks for your comments.

Ladies and gentlemen, as

a reminder, if you would like to ask a question, please press star and the number one on your telephone keypad. If you are using a speakerphone, please make sure to lift the handset before pressing any keys. Your next question comes from the line of Ernie Molesh from PMG. Third line is now open.

Yes, I've got a question concerning the throughput at Bjorkdahl. My math, if I use 1.19 grams per ton times your tons milled, I get 10,767 ounces, not 12,396. So is it correct that the grade that you're talking about is 1.37 and not 1.19?

Thanks for the question. You're doing the math quicker in your head than I am. I'm pretty sure it matches up, but you may well, it may be an issue in terms of production versus sold. But Ryan, do you want to comment on that and just confirm again the mill feed grade, which includes both the underground grade and the surface stockpile grade, but the blended mill feed grade combined with the tons to match

that production of gold ounces at Bjorkdahl? Yeah, that's correct.

But to the question, the additional answers, we had some other additional answers come through from final sales from the previous months before. So that's by turn to this quarter.

So that lifted the overall sale of the ounces.

So in other words, part of the additional ounces sold might have come from inventory.

Yeah, correct.

Okay, and the other question I have is, how has the change at Bjorkdahl affected the mix of products that you're producing? Is the amount in high grade gold still the same, the concentrate, and has the flotation product changed any?

Ryan, again, you can answer that, although I think our main products are generally the same. Maybe the grade in the con may be a little bit different, but Ryan, would you like to answer that question?

Yeah, the splits are still roughly the same, so they still have not changed greatly, the percent of the splits. We're mining approximately one million tonne. At the moment, our throughput's at around 1.4. We've still got some improvements, minor improvements, to make to get to where we need to be or want to be. And so yeah, we're using about 400,000 tonne of the low grade stockpile this year, plan to use that in total. But yeah, the overall percentage split of the products between flotation and gravity is similar.

Okay, and then the other question I have on Kosterfield is your price for the antimony concentrate, does that include the gold byproduct in the pricing?

Um, sorry, what do you mean by the price? You mean what we quote as gold equivalent ounces at Kosterfield, or are you talking about the costs that we reflect at Kosterfield?

Yeah, I'm talking about the antimony price itself. If the market price of antimony is below what you're actually getting, the question is, is the six or seven ounces per tonne of antimony in gold included in that pricing?

Yeah, so I can answer that question. Yes, we do include the additional impact of antimony prices increase in our realized price gold equivalent ounces produced, yes.

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

Your next question comes from the line of Lawrence Retail,

private investor, your line is now open.

Morning, Frazier, and thank you for the great results and the increased cash flow. I have a few questions, mostly to do with inorganic growth. With regards to CoTec, is this something you're possibly considering as an acquisition?

Well, I'll make a couple comments. One is we don't ever really disclose what we're looking at until we push the button on it, just obviously for governance and confidentiality reasons. But my gut would tell me there'd be a bit of a conflict there anyway with the director, so I would say no, that's not really something we look at.

Okay, are you still pursuing precious metals companies and are you entertaining more rare earths?

More the former, we are engaged in a number of conversations whether it's assets or potential combinations. Again, I'm hesitant to really say anything and there's a lot of work that's involved and until we push the button, we tend to have a very disciplined, careful approach to ensure it's gonna add shareholder value, but it is more precious metals, coppers, et cetera, not

rare earths. Okay, last question, how's Uncle Eric's golf handicap these days?

Uncle Eric's golf handicap, I'm sure. You're not sure,

are you? Okay, yeah, I don't golf.

I don't golf myself, so.

Okay, then I retract that question and

again, thank you for your time. Thank you.

There are no further questions at this time, so I'll hand the call over back to Fraser Boutay

for closing remarks, sir, please go ahead.

Again, thank you everyone for your time listening in to our call and we were excited about this quarter, we're excited about the remainder of the year and I look forward to speaking with everyone if not sooner during our Q3 earnings call

in November. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you very much for your participation. You may now disconnect.