Sherry, see the highlighted Q & A discussion in the conference transcripts
Mandalay Resources Corp (OTCQB:MNDJF) Q2 2020 Earnings Conference Call August 13, 2020 8:00 AM ET
Company Participants
Dominic Duffy - President, Chief Executive Officer
Nick Dwyer - Chief Financial Officer
....Operator
Good morning. My name is Michelle and I'll be your conference facilitator today. At this time, I'd like to welcome everyone to Mandalay Resources Corporation Second Quarter 2020 Financial Results Conference Call.
Joining us on the call is Dominic Duffy, President, Chief Executive Officer and Director of Mandalay Resources. [Operator instructions]
This call contains forward-looking statements, which reflects 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 and the company's annual information form dated March 31, 2020, available on the SEDAR and the company's website.
At this time, I'd like to turn the call over to Mr. Duffy. The floor is yours.
Dominic Duffy
Thank you, Michelle. And thank everybody for joining us today for our second quarter 2020 financial results call. Today I'm joined by Nick Dwyer, Mandalay CFO, and he'll be there to help us out if we have any financial questions at the end of this call.
The second quarter, it has continued with excellent operational performance for the year even with the continuing challenges to the industry -- the industry has faced, as a result of COVID-19. We have been able to maintain the health and safety of all our employees while continuing the operations with impressive results, especially from our Costerfield operation. In relation to Costerfield, the second quarter was definitely continuation of the excellent results from the first quarter, as development continued along the high-grade Youle vein resulting in continual grades over the quarter of 10 grams per tonne gold.
We finished a quarter with 10,353 ounces of saleable gold and 946 tonnes on saleable antimony. The grades from the Youle vein continue to be excellent and we increased tonnages from the Youle vein compared to the previous quarter. However, several of the levels have moved into the low grade extends of the deposit, lowering the grade slightly. We expect saleable gold and antimony production of the course of the third quarter and a further left in the fourth quarter, as a ramp-up in starting the Europe begins to take effect.
Production from the Bjrkdal decrease during the quarter and we expect it to be completely monitored by the end of the third quarter, after which nearly all of our production will be from Youle vein.
Capital development also proceeded at a faster rate than was actually forecast. And this will allow for further flexibility in the mining of the Youle vein going forward. During the quarter, we also begin the process of building a capitation to flotation column, which we expect to improve the overall recoveries in processing plant by at least 3% when commissioning is carried out in the fourth quarter of 2020.
On June 22, we also gave an update on exploration for the company this highlighted the success we have been having in extending the Youle load. It also outlined some very promising early drilling results at the Brown’s area. We will continue drilling at the multiple targets at Costerfield for the remainder of 2020. And we expect to give an update on major results later in the year. Financially Costerfield performed exceptionally well during the quarter. It was producing a cost -- in cash costs of $663 per ounce, and all in sustaining costs of $1,025 per ounce.
Moving on to Bjrkdal. We saw a slight improvement in production and operation, so we still producing below our expected rates. The good news being that May and June were the highest production months for the first half year-to-date showing that production is lifting at operation, and we expect to continue further lift for the remainder of the year, as production from the Aurora zone is ramped up.
During the quarter starting from the Aurora zone was minimal, however, we now developing on six active levels of that time. The operation produced a total of 11,250 ounces of saleable gold for the quarter. And for the remainder of the year our focus will be developing deeper into the Aurora zone with drilling has definitely indicated that we do see increase in gold grades in the deposit the database deposit into the deeper it goes.
We also updated the market on your Bjorkdal exploration results in June. They showed a continuation of growth of their Aurora zone and also some very promising preliminary results in the drilling up to 500 meters north of Aurora. And the production at the Bjorkdal for Q2 was produced cash costs of $1,078 per ounce and all in sustaining costs of $1,490 per ounce, making the operation profitable even with this slow first half of the year.
We were very close and pleased to close out all of the requirements for this syndicated refinancing of the company during the second quarter and completed the conversion of the remaining gold bonds. This now lays the company in a very stable ground as imperative growth continuous.
I'd now like to move on to earnings for the second quarter. We were helped-out by better than expected gold prices and exchange rates which were slightly countered by the lower antimony process. The final annual results were excellent with revenues of $42 million when compared the $26 million of revenue in the second quarter of 2020. The significant growth over the prior 12 months is evident.
Our cost of sales was $20 million. Our adjusted EBITDA was $21 million. Adjusted net income for the quarter was $8 million, which this does exclude the $6 million, $6 million, $8 million fair value loss related to the gold hedges. We expect to continue safe fluctuations in fair value gains and losses going forward. This valuation is directly linked to the gold price at the close of each quarter and takes into account to the three year period of the hedges that we currently hold.
Taking this into account, the company had a consolidated net loss of US$3 million. The capital spend for the quarter was $10 million with the three biggest items being on capital development, exploration and the tailings expansions that are built on. We will say that 2020 and 2021 our high capital use for Mandalay, we expect $10 million expected to be spent in both years on the expansion of the build out tailing facility. Although this $20 million total of work will provide demand with $10 million of totaling capacities going forward.
Mandalay finished a quarter with $21 million cash and cash equivalents and this is very similar to the Q1 closing cash balance. However during Q2, we did incur a net 5 million outlay for the final repayment of the gold bonds. And also there was a $3.4 million shipment of monthly concentrates from Costerfield that was delivered at a port pushing the payment into third quarter.
And in summary, even with the negative impacts from COVID-19, the company put together a very strong first half of the year, mainly due to the continuing great results from the Aurora load. We expect improvements from Bjorkdal for the remaining two quarters and a further lift also from Costerfield in the final quarter of the year. The $42 million adjusted EBITDA generated year-to-date is more than four times amount generated in the comparative 2019 period showing when you're
doing very well operationally, with more upside expected in the quarters to come as we taking advantage of the current insight in gold environment.
At the current time, we're not adjusting our guidance however with COVID-19 situation creates potential significant uncertainties and difficulties for everyone. So we will continue to monitor the situation closely and make adjustments if we gain the unnecessary.
That is all I have for today, and I'll turn it back to the moderator for any questions.
Question-and-Answer Session
Operator
Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Kevin Tracey with Oberen Asset Management. Please proceed with your question.
Kevin Tracey
So just taking the midpoint of your costs and production guidance for the year. It looks like in the second half, you'll do about US$60 million of cash flow before your patching agreement, which is I think about US$0.50 per share. Does that sound about right to you and is the plan to use this cash flow to pay down debt?
Nick Dwyer
Yes . The exact numbers I'd have to check on that. You said $60 million for the second half of the year, that you say cash flow?
Kevin Tracey
Yes.
Nick Dwyer
No, our cash flow isn't $60 million for the second half the year, it will be lower than that. However, we do begin paying down our financing facility from the end of Q3. So for the next 12 months period, we'll be paying down $3 million a quarter at the end of each quarter, and then the repayment schedule will be lifting after that first 12 month period. However, we will be looking at the option of paying down the debt facility faster. Obviously we did $65 million is a lot of debt for a small company of our size. Yes, we definitely would like to take advantage possibly to lower our interest payments going forward. However, that being said, our interest payments will be below 5% going forward with the way, it is currently calculated.
Kevin Tracey
And previously, when you issued three year guidance, the expectation was for roughly 50% production growth in Australia in 2021. At this point, is there any reason to expect something different?
Dominic Duffy
The reason, we took this stuff during our three year guidance, because we were -- we had indications from our regional reserves and resources to give what we felt was a pretty good guidance of what we were going to find deposit going forward. When we originally hit the Aurora load at the end of last year, the first level was under performance. And then subsequent levels did appear to be over performances on average.
So, as we were in that load early lot, towards the end of last year, we found out that there wasn't enough certainty to give a three year guidance going forward. So that's why we did change back to one year guidance, because we were a little uncertain about what year was going to give us. In relation to the prior three guidance, so we go last year before, as that is really the only guidance we have given for 2021 at the current online be able to use that as a current guide where we expect will be. And we're really trying to get the guidance out us over the course of the fourth quarter as we continue to update our Bjrkdal but yes, we definitely do expect safer, at least the Costerfield in 2021.
Kevin Tracey
You seem to be penalized by relatively short mine life at Costerfield. Now you have a long track record of continuing to extend that mine life. And I'm just wondering with the early results from some of these new targets. Are you confident the next five years can look like the last five years in terms of continually extending the mine life in Australia?
Dominic Duffy
Yes. So currently we anticipate with Youle vein, we have approximately three years of production in front of us 21, 22, 23. And then after that, we don't have a deposit to move on to, however, three years is probably the largest reserves we have had at this deposit. And we have been operating for 10 years now. So we are very actively drilling to find the next load that we will move on to. We are drilling more heavily than historically Costerfield has. What I would like to have ideally is at least six years mine life in front of us. And we have been this year drilling has been a little different for the first half of the year. We have been drilling a lot more targets in generally. So that we can select which one will be the most likely that would turn into the next reserve or the deposit. So we've been drilling True Blue, Damper Gully, MacDonald, Robinson's, Brown's, the expiration release last quarter some very good in early indications from the Brown's load, which is a couple of kilometers east of the current working.
And that is a completely new corridor that Mandalay has not previously and there are old workings above the old Brown's and Robinson's mines. And I don't know, if you know, but all of our price excess has been related to drilling under all-time workings from the 1800s, early 1900s. I am confident that we will be able to find the next deposit to move on to. And ideally, I'd like to get six years of reserves on drill down.
Operator
[Operator Instructions] Our next question comes from the line of [Lawrence Clooney] a Private Investor.
Unidentified Analyst
Hi, Dominic, I have a few questions. First one is could you explain the gold hedge that's currently in place with the refinancing of the debt?
Dominic Duffy
Yes, definitely Lawrence. So yes, obviously we saw that we were able to refinance the company with the position we were in when we were looking to refinance. It did take us a long time to actually find the banks willing to go into the syndicated facility because of the history of the prior two years of our operational performance. So what they required as a result of performance had been gone the prior year, we did have to take out the hedge facilities.
So, we were able to negotiate that was only for the 50,000 ounces. However, we’d have -- 50,000 ounces per year, however, did have to be over a three year period, the whole period of the financing facility. So, if the hedge is broken into two facilities, both of them 25,000 ounces per anum for three years, one is a U.S. dollar gold hedge with a ceiling at and I think extend $1,609 and the second is 25,000 ounce facility for three years.
Unidentified Analyst
Dominic. Let me ask based on the current term of the hedge, how does it work if the gold is $400 above the price of the hedge? I think the hedging at $1,625 ounce.
Dominic Duffy
So that no, the hedging price is stays the same at the $1,619.
Unidentified Analyst
Okay, so what's the impact of gold is trading at $2000 for the company? How does it reflected on the books?
Dominic Duffy
So over the course of the year, so on a monthly basis, so 25,000, so it's approximately a little over 2000 ounces by $400. That's the difference, we do have to pay to the bank around about $800,000 a we’re starting at $3,000.
Unidentified Analyst
So the 2000 ounce gold price, you're paying approximately US$800,000 a month to the bank.
Dominic Duffy
Yes, correct.
Unidentified Analyst
It's not as bad as I thought it was going to be. Does the hedge disappear if you pay the debt off in an expeditious manner?
Dominic Duffy
It's not automatic it would require negotiation with the bank, obviously because they're separate departments within the banking entity. So but they hope it would, it obviously depends where the gold price is at that time. Also, if gold was below $16,000, we would possibly consider not removing the hedge but we do feel that we would be off to get out of hedge if we did pay off the debt facility faster. But it's worth noting also that it's around about 50% of our gold production is currently hedged. So we still do get a full upside on the other half.
Unidentified Analyst
Yes. And different topic, and those who made some changes to the cost per build mill to increase recovery to 3%. Do you see anything happening at Bjrkdal with regards to gold sorter, or sorry ore sorter?
Dominic Duffy
Yes. Our optical or sorting. So we would be looking into the possible ore sorting in 2021. That'll have to be something that will present a board during our budgeting process at the end of this year, with the financial position of the company and where I expect our cash position to grow going forward. I would hope that we will be installing the optical also in the next year.
Unidentified Analyst
Does the temperatures have any effect on the mill during the wintertime? Or sorry, the ore time.
Dominic Duffy
Yes, it definitely does. So that's what the facility we estimated cost about $12 million. And that's because it has been indoor facility. Ice is a big concern as we have in optical or sort of washes material. And if it's immediately freezing then yes, the whole system doesn't work. It's not a chip system for us because of environment.
Unidentified Analyst
It sounds like you've single data vendor for this particular expansion?
Dominic Duffy
Yes, definitely. We have had a full whole feasibility carrier on it as well. But because of our financial position privacy we hadn't been able to carry through with the project.
Unidentified Analyst
What are the, with the drilling like underneath the Aurora zone as you go to depth?
Dominic Duffy
At the current time the deepest drilling we have drilled to date and all released on that show that the grades are higher than deep. Unfortunately, the drilling angles that we're drilling out now just are not optimum. So we can't really go much deeper from the last release, exploration release we gave. We won't be going much deeper of the reminder of this year, so we are putting out an exploration drive which will go above the vein so that gives us much better angle to drill down into it.
So I think over the course of next year, we'll start to get a better feel for where what this deposit looks like deeper then we have currently drilled. We do want to get below the marble contact, we have hit it in one of the holes down there. So we do now know where that last holes have just been above the marble. So our interest definitely is trying to understand what happens below the marble.
Unidentified Analyst
Well it seems like there is extension on both sides of that marble drift. I've been reading in the presentation in that so that's good news. Any thoughts as doing a deep hole drilling on the Bjorkdal property?
Dominic Duffy
Not at the moment so that these veins seem to peter out and the same in the mineralization disappears around about 80 meters below the marble. Now of course the Aurora zone is a completely different system. So we don't really know whether that could be the feed for the whole several kilometers going up above it with a continuation of veining we don't know. So that's why the important why we built understand why this area is so much better than everywhere else.
Unidentified Analyst
Sounds like it could feed other areas of the permitted area there.
Dominic Duffy
Yes, definitely. I would hope so.
Operator
Thank you. There are no further questions at this time and we've reached the conclusion of today's call. Thank you all for your participation. You may disconnect your lines at this time and have a wonderful day.