Mandalay Resources Corp

TSX:MND

Earnings Call Transcript

[Operator]

Good morning. My name is Deryn, and I will be the conference facilitator today. At this time, I would like to welcome, everyone, to the Mandalay Resources Corporation Q4 and Full Year 2017 Financial Results. Joining us on the call is Mark Sander, President Chief Executive Officer and Director of Mandalay Resources. This call is scheduled for 60 minutes. [Operator Instructions] 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 current expectations are disclosed under the heading Risk Factors and elsewhere in the company's annual information form dated March 31, 2017, available on SEDAR and the company's website.Thank you, Dr. Sander, you may begin your conference.

[Mark Vandyke Sander, CEO, President & Director]

Thank you very much. Good morning, everyone, and thanks for joining this conference call. I'm actually delighted to be able to closeout 2017 and relay to you how we're set up to really move forward and had an opportunity to deliver on our strategy and our commitment to add shareholder value. But we know 2017 was a challenging year for us and due to the -- innovation event at Cerro Bayo in June, which resulted in placing the operation on carried maintenance, while we study how to safely reopen the mine and get the 7 permits needed to mine the life of -- remaining Life of Mine plan.Having said that, it's really, really rewarding for me to be able to tell you how Bjorkdal picked up slack. They had an extraordinary fourth quarter, producing about 22,000 ounces just in the quarter at a cash cost let me look here [indiscernible] of $617 an ounce. That is actually better than the typical annual performance we had in mind annualized performance, and we believe we can sustain in the range of 60,000 ounces at upper $700 cash cost per ounce going forward. We did have a boost from positive grade reconciliations at Björkdal. This -- really due to the fact that we tuned up our block model to predict grades accurately in the 1 to 2.5 to 3-gram range where 90% of our ore is, and we rented some high-grade pods that we knew about and they were much higher grade than we thought in our block model. And that is because we chose not to invest in detailed drilling mills beyond what's needed for great control and effective mining of those, and so we're left with some upside surprise. But that will recur from time-to-time, but we are confident that we've eliminated or substantially eliminated the possibility of downsized surprises. At Björkdal, I will point out also that we've got the Par Goting, our GM, who is ending his first 9 months of being the GM, and he has rejuvenated the operational team, and they are in a position that I recall now called self-generating. And the turnaround for the first years of ownership, that is really driven by the corporate perspective. And it's absolutely clear now that they are generating their own future, which is quite personally rewarding for me and for the management team to see that happening. At Costerfield, produced in line with previous quarters and years. We had all said for the last years, that we have expected lower grades from the mine. And in fact, we realized that -- nonetheless, the management team was reduced, the run rate, annualized run rate of operating cost by about $6 million, so that the cash cost per gold equivalence ounce, at 70 -- $707 an ounce for the third quarter was really respectable and that is a testament to the local managing team. And Melanie McCarthy, who is actually heading up her first year now as GM. At Costerfield, as you know, we added Brunswick to the reserves that was announced earlier this week. So actually both sites, Björkdal and Costerfield has replaced production of last year. And at Costerfield, the development of Brunswick from which we should expect or first of all in the second quarter is pretty much on track. That is being done by contractor and it should be largely completed by Q4. It is very short and sweet in terms of capital development phase at Costerfield, and we also have the next orebody, well we hope there is an orebody emerging in our drilling there is a target zone underneath the old kendall and Costerfield deeps fines just like all our other exploration targets like [ coupling ] and in load the targets for us are underneath historic mines that were mined 100 years ago. And the old Costerfield mine itself was the biggest producer in the previous centuries. And we're tagging good intercepts below that as we speak. Now we have high hopes for extending the mine life again. As a company, and what that means is that our financial results were -- you can read it, and we generated in the fourth quarter revenue of $38 million and EBITDA of just over $14 million, with a consolidated net loss of $23.4 million. We did take for the full year, a write-down on our carrying value of Cerro Bayo to reflect the emerging timing we expect for dating the permits to restart and execute the complete Life of Mine. As previously guided, we're not expecting to restart in 2018, and do expect to restart somewhere in 2019. And [ ore ] conservatism and financial purposes, we have imperative value assuming at a first quarter 2020 restart. The full year results of $20 million in cash outflow is actually heavily weighted by one-time items, including net repayments of borrowings of $14 million. Its increase reclamation deposits at Lupin of $7.5 million, which we expect to get back, and the costs of search and rescue and redundancy and going down to care and maintenance at Cerro Bayo. Those totaled about $34 million for the year. And we do not really expect those to recur, so -- and certainly the cash flow from the fabulous fourth quarter at Björkdal is still coming in as we concentrate the process, and we get paid by the customers. Going forward in 2018, we are making -- we are working intently on putting ourselves up really for the next acquisition. We put a self-registration in place that will help us support a major acquisition. We indeed have $25 million left undrawn on the revolver that [ Sandier ] put in place with HSBC in Q3. And we have $16 million in cash as of the end of the year. We have seen interesting targets out there and remain very optimistic that we will be able to find something and with our relationship with HSBC and other banks and investors, we will be in a position with the self-registration to be able to move quickly when we find the right one. And our operations, we anticipate a -- another good year at Björkdal. I think the guidance is 57,000, 58,000 to 63,000 or 64,000 ounces and that all depends on the great performance of our block models in the high-grade zones. We have been able to sustain the high rates of production of highest quality [indiscernible] from open pit and underground, and actually, the management attention on site is turning to low-hanging cost reduction fruit. And we are focused on great control and upping the volume of high-grade ore, and we did lose site a bit on some of the challenges they can overcome in the cost arena and there are several projects underway that should impact that significantly over the next few quarters. In exploration, we'll spend another $3 million, $3.5 million of exploration there. We're just getting underway now as the site comes out of the called [ Witcher. ] And there will be results to report as we go forward. At Costerfield, we plan to obviously stay on track with developing in Brunswick and mine out as efficiently and low cost as possible through rest of the Costerfield and investor loans that exist in the reserves. As I said before, we remain upside there as with the emerging full orebody under the old Costerfield mine body. We released those results in our previous investor presentations and press releases, and we'll continue to communicate on those going forward. We do have a program to shed and exit our noncore assets. We've got 4 of those slated to go. We completed agreements for 2 of them. We are in final stages of negotiating the definitive agreement with the third, and we have been entertaining our potential bidders for the forth. So that program is well underway. And I look to adding the cash flow from those 2 this years' results. At this point, I, again, like to infect you with my optimism, and my thanks to our staff for really weathering a challenging year and setting ourselves up for a return from a strong value generating profile going forward. At this point, I'll entertain any questions you may have. Thanks.

[Operator]

[Operator Instructions] Our first question comes from the line of [ Greg Linch ] a private investor.

[Unknown Attendee]

Mark, I was quite impressed with your little speech there. Being a shareholder here for while I'm pretty underwater on the stock, but I just wanted to more dwell on what the future is? Like I realized that the Indonesian at the Cerro Bayo was very dramatic thing and not something that someone can even predict or dissipate. But going on, I just wanted to know what would have to happen to -- in the future, what would you like to see to turn the company into profitability along the lines of the commodity increasing or just what things would you like to see happen?

[Mark Vandyke Sander, CEO, President & Director]

Mostly, I would like to see our staff keep delivering on the operating plans that we have. And making progress on permitting to restart Cerro Bayo and then really uncovering the next value-adding acquisition.

[Unknown Attendee]

[indiscernible]

[Mark Vandyke Sander, CEO, President & Director]

Those are the real -- really the three things.

[Unknown Attendee]

And just another question I have, sort of follow-up, like, I'm sitting here with my shares and I really believe in the management. I really have faith in you to turn this around. And I'm just sitting here wondering why -- if you have any reasons, why I should hold my shares? Or why some -- like a new investor would want to buy the purchases stock now as compared to some other company, like...?

[Mark Vandyke Sander, CEO, President & Director]

So I would point out a couple of things. One is, I don't know, if you get any of the-- can I say this, any of the investor, analyst reports from the brokers but from our analysis and theirs, we are strongly undervalued. Our current share price is in market cap is much lower than our Life of Mine plans suggest. And we believe, we are strongly oversold. I'd say any CEO in this position would say that, but I think, the main impediments on the share price is that it's been 3 years since we have done our last distressed asset acquisition. And yes, we have delivered on that turnaround at Björkdal it took about a little bit longer than we expected but not much. And time to our fundamental strategy get into a new asset for a really low cost, to which it is relatively straightforward to add value by applying, its good technical and management practice. And we have seriously looked at 4 or 5 in the last 6 months, 8 months. Nothing has come right for us yet. But again, we promised to the shareholders that whatever we do, we will make sense from an accretive position and a position that we are confident we can generate 3x to 5x times the entry price in increased value over the following 3 years to 5 years from an acquisition. So we have to be patient. We're not going to grow with valueless production. It's all about increasing value, and if you trust us to make those kind of investment decisions, then, by all means, you should invest in those. And certainly, there are -- well I own a fair amount of shares myself and the Board does as well. Again and I think it's a -- it is a good time [indiscernible] of our cycle to go forward with us.

[Unknown Attendee]

Well, I feel, it's greatly under value too. And I -- looking at the price, I should think I was -- you're about to go bankrupt. But if you're looking to buy some -- another property, like it's -- that's totally -- that's something, I'd like to hear because if a company can -- is thinking of doing that, they can't be -- they have to be in good financial shape. And that's why I am sticking in there. But...

[Mark Vandyke Sander, CEO, President & Director]

Here is one example of kind of a strategy and that is there are a number of silver mining companies out there, and they all have $4 million to $5 million worth of corporate overhead. We've proven to the addition of Björkdal, that we can add a mine to our company for no increase in overheads up to the $4 million to $5 million we already spent. Well, there is an immediate $4 million to $5 million a year cash flow gain by combining with or absorbing another silver mine company, which worked out to a net pricing value of $25 million or $30 million. It is available almost instantly within an acquisition of, in this case, a silver mine company. So that's not our only source and target but the simple back of the envelope consideration of, in this case, consolidation really is it's quite exciting. And it's just a matter of finding the management team of the silver mine company that is ready to combine with us.

[Unknown Attendee]

That sounds really good. Just one more question. I just, if I could -- it's regard to dividends. So is there any plan to reinstate the dividend at a later date when things possibly turnaround?

[Mark Vandyke Sander, CEO, President & Director]

Our, our longstanding strategy is to return cash back to shareholders, whatever possible. The condition of our revolver is that we need the consent of HSBC to do that. And when we can demonstrate to them the cash flows to support dividend, I'm confident that they will give that consent. And at any rate, the revolver has 2019, 2020 maturity. And -- so strategically, yes timing-wise and I think will be aligned on when we actually do it. We'll obviously see it, first in strongly positive cash flows. And then we need to get the [indiscernible] consent.

[Operator]

Ladies and gentlemen, we have no more questions. I would like to turn the call over to Dr. Sander for closing statements.

[Mark Vandyke Sander, CEO, President & Director]

Okay. Well, thanks, all, for getting up early and coming to join us. And I really look forward to seeing the Toronto-based investors at PDAC [indiscernible]. And as many of you asked Greg you can make appointments to see at the upcoming investor conferences. I've got a lot to talk about. And if you have any further questions, please, drop us an e-mail, and we can answer them or get back to you by phone. Well, thank you very much. And unless there is something else that you got online, I'll sign out.

[Operator]

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines now.