© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning. My name is Rob, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to Mandalay Resources Corporation's Fourth Quarter and Year-End 2020 financial Results Call. Joining us on the call is Dominic Duffy, President, Chief Executive Officer and Director of Mandalay Resources. [Operator Instructions] Please note that this conference is being recorded. 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 30, 2020, available on SEDAR and the company's website.I'll now turn the conference call over to Mr. Dominic Duffy. Please go ahead.
Thank you, Rob. Good morning, everyone, and thank you for joining us today. Today on the call is Nick Dwyer, Mandalay's Chief Financial Officer. And he's going to walk through the financials with you. I also have Chris Davis, Mandalay's Vice President of Exploration and Operational Geology, to give you a quick update on where we stand on our current exploration program and the plans that we have going forward. Mandalay released its fourth quarter and full year 2020 financial results at market close yesterday. You can find our consolidated financial statement and MD&A on the Mandalay Resources website and also under our profile on sedar.com. Mandalay Resources delivered another excellent quarter in Q4 2020. We leveraged our strong operational performance, a 20 -- a 32% increase in realized gold prices, our good cost control to achieve one of our best quarters on record.Before I get into our operations, though, I wanted to take a moment to have Nick Dwyer speak on our financial performance and just how significant this quarter in 2020 as a whole was for the company. Are you on the line, Nick?
Yes. Thanks, Dom. So Mandalay had an outstanding Q4 in the 2020 year. For Q4 2020 compared to Q4 2019, we doubled our quarterly consolidated revenue to $45.3 million. We grew our quarterly adjusted EBITDA by over 400% to $25.3 million, which was the third highest result in company history. We also grew our consolidated production by 47%. We lowered our all-in sustaining costs by 14%. And we generated an adjusted net income of $12.1 million. The company closed the 2020 year with $34.2 million in cash. This cash balance was similar to the amount at the end of Q3. However, it's important to note that the year-end amount does not include an additional $5 million payment relating to a delayed shipment from Costerfield. And this would normally have been received by the year-end, but it was received early January. The fourth quarter was capped off by a tremendous full year in which the company demonstrated dramatically improved financial results. For the full year 2020, we generated $179 million in revenue. It's the highest annual result since 2016, and that was when we had 3 operating mines rather than the 2 that we have today. We generated a record adjusted EBITDA of $94.2 million and a record EBITDA margin of 53%. We generated $72 million in net cash flows from operating activities; generated $25 million in free cash flow, which again exclude the previously mentioned delayed $5 million shipment from Costerfield. And produced an adjusted -- record adjusted net income of USD 43.7 million (sic) [ USD 34.7 million ] or CAD 0.51 income per share, which is the equivalent to 25% of the market cap of the company at the close of 2020. Thanks. I'd like to turn the call back to you, Dom.
Thanks, Nick. With 4 consecutive quarters of remarkable operational and financial improvement, Mandalay has not only demonstrated that it has turned the corner, we have now shown that this turnaround is sustainable. This continued performance highlights not only the successful execution of our operational strategy at Costerfield, which was to reach, develop and ramp up the high-grade production at Youle, but it also demonstrates our positive growth trajectory and underlying long-term value and cash-generating potential for both sides.Turning to our operations. On a consolidated basis, Mandalay produced 27,350 ounces of gold equivalent in the fourth quarter of 2020 at a cash and all-in sustaining cost of $930 and $1,350 per ounce respectively. Mandalay's consolidated production rose by 47% compared to Q4 of 2019. This production lift was driven in large part by high quality, low-cost production from Costerfield mostly notably from the Youle vein.For the full year 2020, Mandalay met its upwardly revised production guidance that was upgraded to 100 -- from 100 -- to 100 -- from 100,000 to 109,000 ounces of equivalent gold, producing -- we ended up producing 103,440 ounces. This was a 35% year-over-year increase at significantly improved cash and all-in sustaining costs of $843 and $1,254 per ounce respectively. At Costerfield in Q4 2020, Costerfield produced 12,230 ounces of gold and 960 ounces of antimony for 15,100 ounces of gold equivalent produced. This is nearly double the production over the same period in 2019, where Costerfield produced 4,750 ounces of gold and 684 tonnes of antimony for 7,600 ounces of gold equivalent. Costerfield's cash cost per ounce of gold equivalent produced $668, down 38% from the year-ago quarter. And the all-in sustaining costs were $1,077. That's 34% lower than Q4 of 2019. This resulted in Costerfield posting yet again a record quarter, quarterly adjusted EBITDA of $20 million, which surpassed the previous record of $18.8 million set in Q3 2020. For the full year 2020, Costerfield generated $68 million of adjusted EBITDA. The uplift in production and reduced costs in Q4 2020 were largely grade driven, as our process grades averaged 11.2 grams per tonne gold and 3.5% antimony. For the full year of 2020, Costerfield produced 44,960 ounces of gold and 3,900 tonnes of antimony for 58,150 ounces of equivalent gold. That's 131% production increase year-over-year. Costerfield's cash and all-in sustaining costs for 2020 was $634 and $1,010 respectively.Looking ahead, we expect to see a similar production profile and continued high-grade at Costerfield over the course of 2021. And we are guiding annual production equivalent -- we are guiding annual gold equivalent production of between 53,000 and 60,000 ounces. At Björkdal, we continued to deliver stable, profitable performance. The mine produced 12,250 ounces in Q4 of 2020, which was slightly higher than the 10,990 in the fourth quarter of 2019. Cash and all-in sustaining costs were slightly higher at [Technical Difficulty] at $1,251 and $1,616 per ounce respectively versus $1,071 and $1,416 per ounce a year ago. This resulted in quarterly revenue of -- in Q4 2020 of $19 million and $6.4 million in adjusted EBITDA. For the full year 2020, Björkdal generated $81.5 million in revenue and $32 million in EBITDA, both improvements over 2019. For the full year 2020, Björkdal produced 45,296 ounces of gold, down 12% year-over-year. Björkdal's cash costs and all-in sustaining costs for 2020 were $1,112 and $1,435 respectively. We continue to execute our new operating strategy of Björkdal to focus on maximizing the delivery of higher margin or feed to the mill for greater profitability. This means boosting the overall mix of high-grade underground ore and supplementing the mill capacity with low-cost, low-grade stockpile ore. While this transition is still underway, we have seen 4 consecutive quarters of steadily increasing underground tonnage delivered to the mill. We're working to ramp up our production and haulage of underground ore, with the goal of delivering 1.1 million tonnes of high-grade underground ore to the mill per annum. Haulage numbers are definitely trending positively. In the last 3 quarters, we have seen a positive lift in the underground tonnage. We are also developing further into the high-grade lower levels of the Aurora zone. However, we are seeing some delays in stoping in Aurora, as a majority of the ore drives are extending further than originally expected as further mineralization is found at the extents of the deposits. We expect Björkdal's performance, both operationally and financially to improve significantly as we execute this strategy and have guided annual gold production of 2021 of 52,000 to 57,000 ounces. Overall I'm pleased with the current state of our operations heading into 2021. Both are in strong positions, stable, growing and generating significant cash flow. As we mentioned in our production and cash guidance released in January, we expect to take our annual consolidated production from 103,000 ounces in 2020 to between 105,000 to 117,000 ounces in 2021. We are also guiding improved cash and all-in sustaining costs of $800 to $1,000 per ounce, and $1,100 to $1,300 per ounce respectively. One other points of operation, -- one other point, sorry, is that the first quarter of 2021, we will be restating our process -- restarting our processing plant at Cerro Bayo to process mineralized waste dumps that can have value in the current metal price environment. It is a 3-month scheduled trial that could be continued further in the event that -- of the economics of the program proving feasible.Now I'd like to move on to the exploration front. Subsequent to the quarter end, we reported some exciting exploration success. And I would like to turn the call over to Chris Davis to talk about these highlights. Chris?
Thanks, Dominic. Last month, we announced encouraging results from our extension drilling at the high-grade Youle Deposit at Costerfield. The drilling, which was intended to further delineate the recently discovered high-grade southern gold domain, returned results that convey a link between the current mine development and the -- and provide strong indications that the high grades continue through this site. Some of the drilling highlights include 264 grams per tonne gold and 19.7% antimony over a true width of 0.23 meter and 94.7 grams per tonne and 16.4% antimony over a true width of 0.05 meter. We also encountered new high grades to the north of Youle at depth, grading at 345 grams per tonne gold over 19.7 -- sorry, and 19.7% antimony over a true width of 0.11 meter, and 316 grams per tonne gold over true width of 0.22 meter. But I guess most excitingly, step-out drilling down tonnage on Youle returned grades of 460 grams per tonne gold over a partially recovered vein, which was 11 -- sorry, 0.11 meter. This intercept is 130 meters down plunge of the previous high-grade intercepts and could represent the anticipated beginning of a new structural domain at Youle. At Björkdal, drilling over the last few months has been focused on the eastern and depth extension of Aurora as well as the eastern extension of Lake Zone. Significant and exciting results have been received in both programs, with highlights of 4.8 grams per tonne gold over a true width of 2.5 meters at Aurora, and 119 grams per tonne gold over a true width of 0.44 meter at Lake Zone. Also earlier this this week, we announced our resource and reserves updates for both of our operations, with positive results at each. We extended our mine life at Costerfield to 4.5 years, increasing our mineral reserves for gold and antimony by 25% and 22% respectively net of depletion. Most significant is that we nearly doubled our proven reserve at the high-grade Youle vein, which was the driving force behind the company's turnaround in 2020. We also maintained a long mine life until 2029 at Björkdal and increased our underground mineral reserves, which is slated to be the primary source of mill feed going forward. Looking to 2021, we have budgeted the largest combined exploration expenditure in the company's history of USD 9 million. At Costerfield, our focus is threefold: the growth of high-grade resources at depth on Youle, drill testing of the exciting Youle analog environment at depth under Cuffle, Augusta and Brunswick deposits, including the deeper Fosterville sale environment. And advancement of the promising browns and Western corridor projects. At Björkdal, we will be focusing on delivering higher grade resources and extending the Aurora system as well as building on Lake Zone and Main Zone resources. We have also identified a number of surface targets which we'll be undertaking bedrock geochemical analysis and diamond drill testing. Thank you. I'd like to hand back to Dominic.
Thanks, Chris. Before I take any questions, I'd like to take a moment just to revisit our main corporate priorities and our program on each. On our last earnings call, I laid out 4 core areas of focus for Mandalay. First, we want to maximize our cash flow from operations. We want to continue to take advantage of the record-high gold price environment. This means continuing to grow production at Costerfield and ramping up high-margin ounces from Björkdal underground. As Nick mentioned, we generated $72 million in net cash flows from operating activities this year and delivering -- driving record adjusted net income of $34.7 million and $25 million in free cash flow.Next, we want to unlock further value and extend mine life through exploration. At Costerfield, this is extending the mine life at the high-grade Youle deposit and unlocking further value through new discoveries. At Björkdal, our objective is to continue to delineate and grow Aurora and other high-grade ore sources. We're pleased to have grown our mine life at Costerfield, and maintained a 9-plus-year life at Björkdal while growing underground mineral reserves. Our third priority is derisking our balance sheet. We plan to significantly strengthen our balance sheet in the coming quarters. As of quarter end, our debt position was $59 million. It's worth noting that despite us paying $4.5 million towards our hedging program in 2020, mainly driven by the recent strengthening and -- mainly driven by the recent strengthening of the Australian dollar relative to the U.S. dollar, we anticipate receiving proceeds from the Australian dollar gold forward contracts in the near term. Our improved operations and cash generation allowed us to grow our cash position to $34.2 million at year-end 2020, not including the $5 million shipment receivable that was recovered in early January 2021. We expect this trend to continue. And we are on track to not only have 0 net debt by 2021, but to have cash exceeding our debt. And lastly, with our balance sheet currently beginning to be derisked, we will turn our attention to reinvesting cash in growth opportunities that will continue to strengthen the business and surface value for our shareholders.Thank you, everybody, for joining us today. This concludes a part of our presentation. I would now like to open the lines up for questions.
[Operator Instructions] Our first question is from the line of Robert [indiscernible] with Mandalay.
Congratulations on the great quarter. And great, it's quite an accomplishment that you've turned the company around and made such tremendous progress. The first question I have is kind of a housekeeping question. Are you aware that you guys have a spam sync for e-mail inquiries to Investor Relations?
No, no. I did not realize that. We would appreciate if you could reach out to Edison with our Investor Relations.
Yes, yes, I have, and he's been quite helpful. But half hour ago or so just before the conference call started, I checked the website, and that's still info@mandalayresources.com. And so yes, I've alerted Edison to this problem. But I was wondering if you guys were wondering why you never got any questions from investors through the e-mail. So...
Okay. No, thank you very much for highlighting that again. And we'll follow up and ensure that the situation is remedied.
Excellent, excellent. Okay. On to more important questions. Can you kind of give a little bit more color about the elevated all-in sustaining costs over at Björkdal?
Yes. So the mining attributed to the increased costs in the fourth quarter where we did have quite a bit further development, operational development in the first quarter as we were developing quite a bit of Youle. And there was very little capital during the period, capital development. So that pushed operating costs and subsequently the all-in sustaining costs. We also were winterizing, so preparing for the winter and had some tailings work to do. So it was anomalous in the fourth quarter, and we were anticipating higher cash spend during that quarter. But I think you'll see in the first quarter of this year, you will see that total costs are back in line to what we were obtaining in the first 3 quarters, total overall operating costs.
Excellent, excellent. My next question regards Cerro Bayo in Chile. Do you know the approximate tonnage to be gone through of the tailings? And how long that might last? I mean might it last 6 months, 1 year, 1.5 years?
At the current time, it's only a trial processing. So we've scheduling 3 months trialing to see what the actual results are. These are actually waste dumps were mined from the old Taitao pit and several others in the '90s. Quite a few years ago, a study was done to see if these waste dumps were eligible and the results came back negative. More than anything, it is taking advantage of these current high silver prices and to see if these dumps can be profitable processing through our plant. So we anticipate we'll be passing through 1,400 to 1,500 tonnes per day. And the program, if it is profitable, could be extended by a quite period because there are several million tonnes of these waste dumps still at Cerro Bayo. The margins will not be extremely significant, but we do anticipate that they will definitely cover the holding costs at Cerro Bayo as well as giving some profit on top.
Well, if that could be accomplished, every little bit helps, and that would be excellent. Could that also perhaps serve as a catalyst to Equus to exercise their option contract on the property perhaps?
Yes, I can't speak 100% for what John and Equus -- Equus' plans are. But I do speak to them regularly, and I am quite certain their business model is factored pretty much solely around Cerro Bayo. And that option expires at the end of this year, so I would be surprised if Equus does not realize on that option and purchase Cerro Bayo. And we -- if they do, Mandalay becomes a substantial, the largest shareholder of Equus. So for us, it is important to show you that these waste dumps can be profitable. And it might be a big catalysts for people beginning to see the Equus -- the value in Equus as well, which is a benefit to us.
Okay, excellent. Getting close to the end of my questions here. On the balance sheet going forward, do you anticipate holding higher levels of cash in 2021, 2022 versus the past to prevent the financial problems that hit the company here in 2019 and early 2020?
We definitely do intend to [Technical Difficulty] cash balance. However, I do anticipate that, that will continue to grow substantially over the next 4.5 years. We have demonstrated how much cash we can generate while we are producing from the Youle at Costerfield. And we hope 4.5 years at least of that production. And with the recent results, we've seen Chris getting down deep, I would anticipate that will continue to grow further. So I don't anticipate that we'll have any financial concerns going forward. I anticipate that we will be growing our cash position. We do have our -- still a significant debt of $59 million that we are paying down $3.8 million a quarter going forward. So we'll be looking at what we do with that going forward as we become net debt free and have a lot more cash to play with. But our focus predominantly with the cash is maintaining a large cash balance and reinvesting in exploration. So we're starting to see the benefits of what that can do for the company. With a smaller uplift in capital exploration in Costerfield last year, we not only replaced depletion but added another year and a bit on top. And the results we're starting to see at Björkdal drilling into this -- the Lake Zone and Main Zone down deeper, starting to get some phenomenal grades, reporting back from that drilling. So we are seeing big success of putting money back into the ground. And that will be the priority with the amount of cash we are generating and growing our cash balance. But we definitely will keep a comfortable buffer.
Okay. Excellent. And then my last question is you guys have done such a tremendous job of turning the company around. And currently, you're my single largest position. Do you have any plans to expand your promotion efforts going forward, getting the word out to the investor community? Just seems nobody knows about the company, unfortunately.
Yes. So it has flown under the radar for many investors, and we do -- I think that is reflected in our market -- current market capitalization. We will be attending a lot more conferences this year. We are definitely speaking to a lot of banks to try and get a lot more following. We do only have 2 analysts still. There has been a lot of hesitancy for banks picking up on our story. And that's, to a large part, that we haven't proven that this turnaround is permanent. I think we have shown that it is here for the long term now with continuing the reserves especially at Costerfield. So we will be doing quite a bit to try and get the word out about Mandalay and how successful the company currently is and how much growth there still is in the company going forward.
Okay. Well, keep up the good work. And thank you guys for doing such a good job, and that's great. Thank you.
Our next question is coming from the line of Kevin Tracey with Oberon Asset Management.
I have a couple about the guidance at Costerfield, so the guidance for 53,000 to 60,000 gold equivalent ounces of production this year. And that compares to close to, say, 75 to 90 that you originally gave as part of your 3-year guidance a couple of years ago. So I'm wondering if that kind of higher level of production, it that just been delayed into 2022? Or is there something that's kind of changed about your mine that means that production won't get to those levels?
Yes. So that's easy to explain. Back 2 years ago when we were planning for Youle ore that we had drilled out, we found the Youle Deposit and had drilled out the main central high-grade core of Youle, that's where the focus was. And as you drill out further, you -- we really had little information on that. You -- back from what the size of our reserves in Youle 2 years ago to what they are now, it's growing significantly. Because we have continued to drill out further into Youle, and it's gone laterally significantly. And as you go out further from the high-grade core, the grade you are getting lower grades as deposits slowly drops down, but they're still very profitable. So as a whole, it did drop the overall grades of Youle drilling out to the extents, but it did increase our reserves significantly. So that all it really was, was a timing issue with drilling to actually understand how much bigger the deposit was and what we had originally drilled out. In the hindsight, we probably should have continued to drill out the whole deposit before reporting so many years ahead. But the net result is positive for us. We are -- the grade of that highest-grade core of Youle has not dropped. But we have just added the extremities of the Youle load as well, which drops a grade over the period, but that's quite a few ounces.
Got it. Okay. And just more specifically on the exploration results and your plans for this year, I guess do you expect to again replace more than 100% of production this year at Costerfield? And as far as Youle goes, what's your best guess at this point in time of what that mine life will ultimately be?
It's extremely hard to say. Suffice to say that our lowest -- our deepest hole was grading over 400 grams per tonne. It was 11 centimeters narrow, but that's Youle. So we know that it's open at depth. It does appear to be moving into a different structure, but that's quite common in Youle, within Youle and all the deposits with mine at Costerfield. So it's open at depth. I do not know to what depth it will go down. And we know that Fosterville is mining over a kilometer depth now. Our deepest hole is around about 600 meters down into Youle. I would anticipate that we will replace depletion, but it's very early on in the year to understand how much more we can add. We are continuing to drill ground as well. So the hope is that, that will emerge into something that we can move into a resource this year and subsequently a reserve. We are attacking the actual Cuffley load again once again because of information that we've gathered from Youle and how it behaves at depth. We have Chris and his team has come up with a hypothesis so the Cuffley load has moved into a different structure, which we haven't -- we did actually intercept several years ago, creating quite a wide intercept, over a meter. I think it was 11 grams. So that we're actually just starting drilling now and should be intercepting over the coming weeks. So there's a lot of money being put into exploration this year. So $6.8 million more than we ever had -- have previously in Costerfield. So I do anticipate we will be able to replace our reserves. But that being said, a lot of our focus this year is not specifically aimed at reserve replacement, it's more aimed at target testing and actually pure exploration. Because I point back to the prior 10 years of Mandalay, almost the bulk of our drilling has been focused solely in at infill drilling, with very little target testing regenerative drilling. I think over 10 years, we've startled to drill even 10 million of that type of drilling. So this year, we're drilling 10 -- $6.8 million worth of drilling. And the bulk of it is trying to find significant extensions to older deposits, or finding brand-new deposits such as browns. Hopefully, that answers it.
Yes. And then lastly on the cost guidance for Costerfield, at the midpoint it implies roughly $115 per ounce of higher costs relative to 2020. Now by my math, the strengthening Australian dollar might account for half of that. I'm wondering if you could talk a little bit more about what the other -- where the other increase is coming from? And if this cash cost guidance for 2021, is that a reasonable kind of expectation for 2022 and the years on as you continue to develop Youle?
Yes. So it is reasonable, I think. Costerfield is a little different virtually every other mining operation in the world in that our stoping production is actually more expensive than development because of -- we have plant restructuring. So we mine the stopes as narrow as possible to decrease dilution. And because of relatively poor ground conditions in Costerfield, we have to backfill our stopes virtually after every blast using cemented rockfill and then reopen the stope. So development is quite simple for us, just advancing. Actual stoping is -- does result in a higher operational costs when we are mining. And thus, Youle is transitioning more from becoming a development operation to over 50% of our production over the course of 2021 will be stoping. That's where the bulk of our actual operating cost lift comes from, sorry. If we do continue to grow the deposit at depth and have more operational development, a high ratio of development than stoping, then we may see a slight decrease in costs over the course of the year.
Okay. All right. And congrats on a good year.
The next question is coming from the line of [ Lawrence Cooney ], a private investor.
Dominic, I just want to congratulate the team on the turnaround. I've been investing in Mandalay since 3 years ago, so I've ridden out the storm. So I have a series of questions, but I do have one comment about the Investor Relations point of contact. I wonder if you could verify the phone number as well? Because I haven't been getting any callbacks.
Yes, yes. So the -- sorry, I don't have the actual number on hand. I would have to get back to you. I'll have Edison reach out to you, Lawrence.
Okay, thank you. I do have a series of small questions here. So I'll start off with the Björkdal mining operation. The last time we chatted on the quarterly call, I asked -- I inquired about the ore sorter order. Is there any consideration being put forth on that?
Yes. So there is consideration, and that's going to be investigated over the course of 2021. So there's 2 -- we do anticipate that we will be able to continue to lift our underground production from Björkdal. And there's 2 directions in which we can go at Björkdal, actually lifting the overall throughput through the processing plant. So we currently process and dispose 1.3 million tonnes per annum. We are permitted to process 1.7 million tonnes per annum. So over the course of 2021, we'll be looking at and doing a study, looking at what is the best and most optimal method to upgrade Björkdal in the longer terms. Because this is -- we have the 10-year is in front of us. But this is an operation that's been quite easy to continue to add additional reserves to this operation so it will be operating for much longer. So we do have a lot of room to upgrade the facility for large ounce production on an annual basis and have it long term. So there's 2 main routes that we'll be looking at, that is upgrading the whole processing capacity, or implementing the optical ore sorting. So we did do the feasibility study for the optical ore sorting 2 to 3 years ago, so we understand very well the total capital costs associated with that. We don't yet understand the total cost to upgrading the processing facility and that all that's involved mining-wise to be -- upgrade the total processing tonnage and underground feed significantly to understand the financial results of if we did that. So we do want to do a trade-off study between the 2 projects and look at how feasible they are, before actually selecting in which direction Björkdal is going to go. And that's going to be main focus of one of the studies at Björkdal this year. However, it won't be a capital investment we will be carrying out this year. Main focus exploration capital -- sorry, capital this year will remain on exploration.
Okay. Another question for the Björkdal mining operation. On the presentation, you mentioned deep drilling. Is that going to be similar to the deep drilling that occurred at Cuffley and Youle?
Sorry, at Björkdal? No, no, not that deep, definitely not. So it's an extension of the Main Zone and the Lake Zone. So what we did deeper drilling into Aurora out to the northeast, we did start to see some pretty significant grade intercepts. And Chris and his Björkdal team, they've done a lot of extrapolation in investigating this, and have found identified areas within the Main and Lake Zone where we could see a similar occurrence of what we're seeing around this Aurora zone back within those 2 areas. That's our primary focus at the moment, those 2 areas are down deeper. And so they're not stepping down like 500 meters down below. That is following these vein structures maybe 100 meters plus down deeper long. Chris did release on that a few weeks ago our first results coming back from that, and that was mainly around the Lake Zone. We will be updating further with more information on the Main Zone over the coming months as well. We're hoping to see repetitions of intercepting on average high grades down deeper there.
Okay. So it's not going to be like a deep hole drilling like it...
No, no, definitely. But as -- yes, as we are drilling -- this is also drilling deeper. But because of the whole depth of the deposit, it's going further to the northeast. And it is getting closer to actually another mining concession that we hold, which is Storheden. So we're getting closer to tying these 2 mining concessions together where we're permitted to mine. And it is highlighting the interest and possibly following up on what was called the Storheden deposit which if you'd like more information on that, we can discuss it another time.
Well, that's interesting because that was kind of my next question. So I can understand your need to reassess the mill and determine how to increase its gold recovery and throughput. I'm going to sort of tack here towards more the M&A theme. I found an article, actually a press release, from Mandalay Resources back in 2013 when Brad was the CEO. And he was talking about divesting into copper mining with the La Quebrada permits in Chile. So I was wondering, with all this new cash coming in, where does Mandalay sees ourselves going with M&A? And is there a possibility of getting into some more base metals to basically protect us against the interesting fluctuations in gold these days?
Yes. So I'll start with La Quebrada. It's a very interesting one because it's copper, silver, which is where the trend of copper and silver with where it's going at the current time, that deposit is of more interest to us. And actually Chris has recently just started reviewing the information at La Quebrada. Obviously, it has not been a high priority for us over the course of the last 2 years. My focus has been on our 2 operation assets to turn them around and become a successful company again. But now that we're in a pretty stable position, we are going to be in looking at La Quebrada and what is the best way forward for that property. It is neighboring and operating open pit mine with a deposit continuing in the open San [indiscernible] mined into the open pit. So that area has been successful with the Costerfield deposit. So we do want to understand that deposit a little better. And we do have the time now to begin investigating that to understand exactly what we're going to do with La Quebrada going forward, because there's value there we see. In relation to M&A and getting into base metals, still the priority of Mandalay is we are a precious metals producer, but we are not adverse to base metals as well, especially if they have a precious metal -- metals tinge to them. Our priority though over the course of 2021 is not on acquisitions and trying to find something to purchase. Because we still do think there's a lot more shareholder value to be realized with our current production results and current and drilling into our own properties, both Björkdal and Costerfield, to get some more value into Mandalay, before actually moving into that transition of trying to grow externally. So unlikely over 2021, we do want to understand it a little better what we have in Costerfield, which is why we're drilling so much more before we actually make any decisions and look at growing externally.
Okay. I just have 2 closing comments. So I guess my recommendation to Chris is to contact Brad Mills and find out and get as much as we can with regards to his notes based on this comment from '23 (sic) [ 2013 ] press release. And just to close off, and thank you very much for the turnaround. And look forward to speaking to you again on the next quarter.
[Operator Instructions] Our next question comes from the line of [ Bernie Mulch with EMG ].
Congratulations on an excellent quarter. I just -- most of my questions have already been asked by other callers, but I do have a couple of questions on Costerfield. The recovery went up to 93.53%. Is that the result of the process improvements that you've implemented there?
Yes. It's -- there's been some improvements definitely, but the bulk of the improvements has been the type of mineralization that we have in Youle load. So it's very -- a lot of free gold, so we are recovering a lot more gold in our gravity circuits. Up to 50% of our gold comes out in gravity now. Previously, for example Brunswick, it was 25% to 30%. So that getting so much more in our gravity is lifting our recovery overall from the whole side. We are also, hopefully in March, we now have it on site. So hopefully we'll be commissioning in March, the new capturing flotation. So that we were anticipating a 2% lift in recoveries with that. Obviously, that recoveries have already improved so much since we started this capturing project. We may not get up to 2% further improvement from the captured, but we do anticipate that definitely getting over 1.5% improvement further with this capturing that should be commissioned in March. So because it's focusing on the very fine gold within our flotation circuit, almost all of our goal that goes to the tailings is microscopic very fine gold and the captured system that focuses on recovery of very fine gold. So that's where we expect to see our improvement -- further improvements this year with already improved recoveries at Costerfield.
I see. And on your hedges, are your hedges really making you money now? I mean the perception on the part of most investors is that Mandalay Resources is in the void because of the hedges. So if you can provide some color on the hedges?
Yes. So we -- when we took out the hedges to try and derisk it, we didn't want to -- we have to take these hedges out with the refinancing of the credit facility. But to try and derisk it, we decided to take it out in 2 currencies. So half of it was taken out in U.S. dollars, so 25,000 ounces per annum with the ceiling of I think it's $1,620 -- sorry, $1,630 gold price. But the other 25,000 ounces was taken out in Aussie gold price that at the time because of the low exchange rate, the devalued Aussie dollar, we got that at $2,390 per ounce that was locked in. And if you look at current Australian gold price, I think it's around about $2,270. So we'll be making around about $120 per ounce on that at the current time, losing possibly slightly more on the U.S. So it's close to breakeven, but with the Aussie exchange rate lifting, strengthening, that's becoming -- the margin with the Aussie hedge is becoming larger for us. So I think derisking it by splitting the currencies was a good decision.
Now as the gold that's hedged coming from Costerfield exclusively? Or is it Björkdal and Costerfield?
Yes. So the cost of the Aussie gold hedge is linked to Costerfield, and the U.S. dollar hedge is linked to Björkdal.
I see. Okay. That explains that. And congratulations on the excellent performance.
we have a follow-up from the line of Rob [indiscernible] with Mandalay.
A quick question. How close is Costerfield to Kirkland Lake's production areas?
It's approximately 30 kilometers away. So you've got Bendigo, then you go further to the East Fosterville. And then further continue long enough, 30 kilometers to the east, and that's where we are.
Thank you. At this time, we've reached the end of our question-and-answer session. I'll hand the call back to Dominic Duffy for closing remarks.
Yes, excellent. Thank you, everybody, for joining us today. Before we disconnect, I'd just like to give a special thank you to all the Mandalay team for their excellent hard work and contribution to delivering these fantastic results in Q4 and 2020 as a whole. And I really look forward to updating the market on our progress as we go forward. So have a good day, everybody, and thank you.
Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.