Mandalay Resources Corporation

Good morning ladies and gentlemen and welcome to the Mandalay Resources Corporation Third Quarter 2024 Conference Call. 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 this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, 7th of November, 2024. Today's 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 Heading Risk Factors and elsewhere in the company's annual information form dated March 28th, 2024, available on CDER and the company's website. I would now like to turn the conference over to Fraser Boucher, President and CEO. Please go ahead.

Thank you, operator, and welcome everyone. Joining us on the call today are Hashim Ahmed, our Chief Financial Officer, Ryan Osterberry, our Chief Operating Officer, and Chris Davis, our VP of Exploration. Yesterday, Mandalay Resources disclosed its third 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 CDER. This quarter, we're pleased to report strong financial performance, driven by revenue growth and free cash flow generation, underpinned by ongoing cost control and effective capital management, and supported by favorable metal prices. Our cash position has strengthened significantly, now standing at $55 million U.S. dollars as at the quarter end, more than doubling since December 2023. In addition, we repaid the remaining $20 million of our revolving credit facility during the quarter, meaning we now have zero debt. This positions Mandalay well to continue its pursuit of various strategic growth initiatives, while balancing operational investments, including organic exploration and debt management. Operationally, we faced some challenges in Q3. Our team remained focused, however, on minimizing impacts by building increased operational capacity throughout the last 12 months to allow for flexibility to accommodate these temporary disruptions. At Costerfield, we managed a slight production decline due to what tend to be typical quarterly metal grade variations in the Shepard deposit. And at Bjorkdahl, we experienced a wet weather event in July, leading to controlled, but prolonged, underground flooding in certain production areas, prompting adjustments to our production schedule. Strategically, we continue to prioritize operational efficiency through continuous improvement, leadership accountability, and capital optimization. We remain on track to achieve our annual production guidance of 90,000 to 100,000 gold equivalent ounces, maintaining our long-term commitment to increasing profitability, cash flow, and shareholder value. I would now like to hand the call over to different members of my executive team to recap the third quarter results from Mandalay Resources. First, Ryan Osterberry, our Chief Operating Officer.

Thanks Fraser. Q3 brought a mix of operational challenges and successes at Costerfield and Bjorkdahl. At Costerfield, the mine produced 8,218 ounces of gold and 252 tons of antimony in Q3 of 2024. Gold production remained stable year over year despite increased mine tonnage, which was partly influenced by low-grade stope overbreak. There remains a focus on mine design, including ground control improvements for shepherd sub-vetical stopes to minimize dilution. Antimony production declined by 36% from Q3 of 2023, attributed to increased feed from the previously planned, lowered antimony-grade shepherd deposit. Processing, however, has benefited from recent upgrades, including the replacement of the primary ball mill front end and the permanent use of our two-stage crusing circuit, improving throughput. Moving into Q4, we anticipate increased ounce production as we leverage these investments and return to higher-grade mining areas. Turning to Bjorkdahl, Q3 gold production was 9,626 ounces of gold, a 14% decrease from Q3 of 2023, mainly due to flooding in the eastern zone from an unseasonal rainfall event, which temporarily restricted access to the higher margin area. To counter this, we predominantly relied on lower-grade underground production areas and low-grade historic surface stoppoles to maintain mill capacity, impacting the overall blended plant feed grade. To improve underground water management, we are investing in further water infrastructure, including piping and pumping, to better manage water ingress. The completed mill conversion boosted throughput by 10% relative to the period 12 months earlier, reaching over 352,000 tonnes this quarter. This enhancement is demonstrating benefits by increasing our incremental ounces. Moving forward, our focus at Bjorkdahl will be on improving mine access in the eastern zone and ensuring stable production from the higher margin zones, as conditions allow. The site will continue to concentrate on processing and optimizing technology to de-bottleneck underground mining constraints facilitated with the assistance from a recent third-party group, subject matter experts, working with the management the past six months at site. This should improve operational productivity while positively influencing unit cost reductions. Engaging a mining contractor to undertake additional specific mining development tasks in quarter four will also aid our flexibility endeavours. I would like to now pass the call to Hashim, our Executive Vice President and Chief Financial Officer, who will highlight Mandalay's financials.

Thank you, Ryan. In Q3 2024, we delivered another quarter of strong financial performance, supported by our commitment to cost discipline and revenue growth. Here are the key highlights. Revenue increased to $55 million, up from $41 million in Q3 2023, driven largely by the increased metal prices. Operating cost rose by 7% -over-year due to increased cost for tailings and water management at Costa Field and increased throughput at Bjorkdahl. Net income for the quarter was $5 million, up from $4 million in Q3 2023. The increase in revenue and the stable cash flow enabled us to offset these increased operating costs. In Q3 2024, operating cash flow in Q3 2024 rose substantially to $21 million and free cash flow rose noticeably to $13 million compared to $4 million and negative $6 million last year respectively. This improvement in cash flow underscores our efficient use of resources, which benefited from strong metal prices. All in sustaining costs per ounce sold on a consolidated basis was $1,790 for Q3, up 25% -over-year, mainly driven by increased operating costs and a reduction in ounces produced. As of September 30, 2024, our cash balance stood at approximately $55 million compared to $27 million at the end of Q3 last year. We fully repaid our evolving credit facility during the quarter, which leaves us with $35 million in undrawn facility. Working capital grew by 13% -over-year to $54 million, providing us the flexibility to support operational and growth initiatives. I would like to now pass the call to our VP of Exploration and Operational Geology, Chris Davis.

Chris? Thanks Hashim. Exploration continued at a steady pace in Q3, with a focus on building high-confidence resources at both Costerfield and Björkdell. At Costerfield, we continued to focus on near-mine growth, particularly within shepherd and kendal veins. In the past, notable intercepts include 291 grams per ton of gold over 1.26 meters and 752 grams per ton gold and .8% antimony over 22 centimeters, both of which underscore the ongoing high-grade potential of these deposits. Drilling below and to the south of Cuffley also yielded positive results, with one intercept recording 550 grams per ton gold over 15 centimeters, suggesting an exciting extension to the existing resource in the area. Looking ahead to Q4 and beyond, we are now very much focused on deep drilling in the Cuffley area to assess resource continuity at depth. We are also advancing regional programs to test other high-potential zones, especially within the True Blue area. At Björkdell, we concentrated on infill drilling targeting the eastern extension of Main Zone, whilst building Aurora Downplunge and North Zone below Marble. Additionally, we continued on-surface drilling at the Storheden deposit, an underground mine potential 800 meters northeast of Björkdell, and the open pit potential at Norberiot. Both areas have been identified as highly prospective earlier this year. We remain on track to complete the Aurora Depth Extension Program and initiate drilling again within the eastern extension area, focused on Lake Zone in Q4. Björkdell's exploration initiatives are focused on validating high-grade resources, and our drilling results to date affirm the potential for sustained resource growth across key zones, as has been our past experience. I look forward to sharing further results with you in the near future. I would like to now return the call to our President and CEO, Fraser Boucher.

Thanks, Chris. In summary, although Q3 presented some challenges, our -to-date performance reflects solid revenue growth, cash flow, and a strengthened balance sheet. This continues to position the company well in becoming a mid-tier contributor in the Gold Center over the next three to five years. We will continue to focus on operational discipline, efficient capital allocation, and self-funded exploration growth to replace and to grow our mineral reserve base, targeting both near-mine and regional opportunities. In addition, as for the past six to eight months, we continue to assess inorganic growth opportunities to also drive long-term value for our shareholders. Thank you, everyone, and this concludes this portion of

the call. I would like to open the line for questions now. 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 telephone keypad. 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 one. Hi, can you guys hear me okay? We can hear you

now. There was some feedback, but is this Kevin?

Yes, yes, thanks for taking my questions, Frazier. I have a couple to start on antimony. The prices have moved up a lot. Unfortunately, the great Mandalay has been mining in terms of antimony has fallen quite a bit, and I understand that's kind of expected as you move to Shepherd. But is there any scope for improvement there? I suppose I look back at the last reserve report, and I think the average grade of antimony in the reserve report was .9% and the average mine grade in this most recent quarter is 1.1. So I'd just be curious to comment on that. And then secondly, I don't really understand how the antimony market works, but I'm curious, is there any chance you could sign longer term contracts to try and lock in some of these higher prices or is it totally a spot market?

Yeah, thanks for that, Kevin. I'm going to on the excuse me, sorry, on your first question with respect to the antimony grade, which is I realized that's a bit of a good news, bad news. The bad news is we knew the grades were going to get lower as we went down and they are underperforming a little bit. Good news is the price doubled to offset that. Not ideal timing, but I will actually hand that question over to our chief operating officer to answer in terms of the grades of antimony. And then when he's done, our CFO will speak to your question on metal prices for antimony and concentrate. So Ryan, if you're available, could you answer that first question for Kevin, please?

Yeah, hi, Kevin. The antimony grades in the reserves will be showing that the higher grade as there is higher pillars of antimony still left up in old areas of Augusta, which is which would be remnant style mining. It's not. It's more coming in at the end of the mine loss currently. There are some areas in Shepherd that does have some high grade antimony as we know when we mined through that area and some of those close out pillars, which will be mining over the next couple of years, they'll still come through the feed. So there will be some high grades coming, but it won't be consistently there.

Thanks Ryan. This is Hashim. So Kevin, to answer your second question, the antimony market is the pricing is pretty vague. And we have already checked in this past quarter, especially if there were instruments, financial instruments available to lock in the prices of these prices. Unfortunately, due to the vague, I would say market as well as the market is much smaller in that area as well. There's no financial instruments which would help us lock in long term prices. So we've looked at it. That being said, we will continue to see if there's anything that surfaces in that realm in the future.

Okay.

And

then on the business development efforts, previously the focus seems to have been on merger of equals type transactions. And I'm wondering with the improvement in the cash balance and the balance sheet, the good outlook for free cash flow and so on, has that shifted at all? Are you more interested in looking at individual asset purchases for cash? Or yeah, if you could just comment on that.

Yeah, thanks, Kevin. I'm always hesitant to be too explicit on M&A, but it's a fair question. And the reality is two things. One is for asset purchases as opposed to, let's call it combinations of equal type companies. In this metal price environment, the expectations are actually quite high. Let's put it that way. Good on people wanting to sell extremely high, believing this metal price, but it becomes actually quite dilutive. And I've been very focused on ensuring whatever we do is not dilutive to the shareholders. So while we look at it, ironically, I would say it's become more difficult on asset purchases in the last six, seven months. As to the app market ideas, I mean, I think you know our approach is one that's very prudent, probably a little bit conservative and risk averse because we're very wary of diluting our shareholders. But there's still some potential there of other players that are in the same situation and that dialogue always continues to progress.

Okay, and then quick one finishing up here on the capex guidance, you seem to be tracking to the low ends of your 41 to 49 million range. Could you comment on that? And is that range a reasonable starting point as we look ahead to 2025?

Yes, I could answer that. Kevin, our capex guidance was, of course, a bit light in the front half of the year. As we started the year, we started to pick up some of those projects, which were projected for this year. And the primary one was the tailings at Gosterfield. That was back ended in the year anyway, so there is a much higher activity in capex in Q4 as opposed to the first three quarters. Now, once again, that is primarily attributable to the tailings work that is going to be taking place at Gosterfield. So although we expect that Q4 is going to pick up in capex, we might be slightly lower than our expected budgeted spend, but within the guidance range.

Okay, and is that a reasonable range to expect for 2025?

Probably, although I want to caveat that by saying we don't really give guidance for 2025 until early January, but I would say the only reason I'm comfortable saying that plus or minus is pretty consistent over the last two, three years. That does include exploration spend as well. Okay,

thank you.

Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. If you're using a speakerphone, please make sure that you lift your handset before pressing any keys. One moment while we prepare

the Q&A roster.

There

are

no further questions at this time. I would now like to turn the call over back to Fraser Boucher for closing remarks. Please go ahead.

Thank you, operator. And again, thank you everyone for dialing in, taking the time to listen to our Q3 results. Hopefully, it was concise and clear and we will be in touch with our next update at the right time. Thank you.

This concludes today's conference call. Thank you very much for your participation. You may now disconnect.