Mandalay Resources poised for more growth in 2021 as both its mines continue to be significant cash generators

Both mines continuing to be significant cash generators in 2021 Costerfield seeing continued exploration success at one of the highest grade gold mines in world Group expects to be debt free in 2021 What Mandalay Resources does: Mandalay Resources Corp (TSE:MND) is a metals miner and produces gold, silver and antimony. The company is focused on operating and optimizing its mines at Costerfield in Australia and Björkdal in Sweden. Both assets have the potential for further growth via production and exploration. The aim is to be cash generative, to self-fund exploration, establish and maintain high operating margins and return cash to shareholders. The Costerfield mine produces gold and antimony and covers 1,293 hectares. Antimony has various uses including making paints, flame-proof materials and ceramics, as well as an alloy with lead. Björkdal has a mine life of over a decade and has a processing capacity of 1.3 million tonnes a year. The project covers over 12,000 hectares. In 2019, Mandalay struck a binding deal with Equus Mining to dispose of its third asset, the Cerro Bayo mine in Chile, a non-operating asset since, which had been on care-and-maintenance since 2017, when a flood led to output being suspended. Also in 2019, the firm arranged the sale of other non-core assets - the Challacollo concessions to third parties, and the Ulu project in Nunavut. How is it doing: On February 26 this year, Mandalay posted full-year and 4Q results, which, the miner said, underscored the sustainability of its turnaround in 2020. For the 12 months to end-December, 2020, the company reported net income of C$9.3 million, swinging from a loss of C$18.6 million in 2019, on revenue of C$178.9 million, its highest since 2016, and up from C$107.8 million a year earlier. Free cash flow for the year came in at C$25.3 million, with C$72.2 million in net cash flows from operating activities. A remarkable performance from the high-grade Youle deposit in Australia had underpinned the performance, noted CEO Dominic Duffy, highlighting cash costs last year were US$843 per saleable gold equivalent ounce, a 21% improvement on the figure of US$1,066 per ounce for full-year 2019. For full-year 2020, Mandalay across its two mines produced 103,444 ounces of gold equivalent and sold 99,935 ounces of gold equivalent, meeting its 2020 production guidance and achieving 35% year-over-year growth. The previous month, Mandalay had posted fourth quarter production results, which showed the miner produced the highest amount of saleable gold in nearly three years - at nearly  24,488 ounces. The quarter was its fifth consecutive quarterly improvement in consolidated saleable gold production and highest consolidated gold output since 4Q, 2017. Mandalay put its 2021 full year output guidance at between 105,000 to 117,000 ounces of gold equivalent. The same month, the group reported further drilling success at the Youle deposit in Australia, which, it said, was likely to lead to a longer life for the asset. Mandalay also recently told investors that last year's exploration efforts had boosted both its operating mines, with an almost doubling of proven reserves at its Australia mine and an uplift of underground reserves in Sweden. At Costerfield, proven and probable reserves as at end 2020 for contained gold and antimony increased by 25% (255,000 ounces versus 204,000 ounces in 2019) and 22% (21,800 tonnes compared to 17,800 tonnes in 2019), respectively, net of depletion for 2020. The Costerfield mine life was also extended by one year to 2024, net of depletion for 2020 production, the group added. Across both mines, as of December 31 last year, total proven and probable reserves totaled 799,000 ounces of gold and 21,900 tonnes of antimony. That compared to 752,000 ounces of gold and 17,800 tonnes of antimony at the end of 2019. What the broker says: In a recent note to clients, Mackie Research analysts raised their target price on shares of Mandalay Resources to $5.50 per share from $5.20, while reiterating their ‘Buy’ rating, following a “strong outlook” from the gold miner during the past week as well as follow-up discussions with management. “We are now looking for about 40% growth in gold production over the next two years on expectations of higher grades,” the analysts said. “Total cash costs, in turn, are expected to decline by approximately 17%, net of antinomy credits at 2021 price guidance of US$6,600/tonne,” they added. The Mackie Research analysts also noted that Mandalay is now focusing its drilling efforts on resource expansion rather than reserve replacement, which continues to factor into their assumptions. At the company’s Costerfield operations in Australia, which is considered to be one of the highest-grade gold mines in the world, drilling recently cut 461 grams per tonne (g/t ) gold over 0.11 metres (m) (true width) from a partially-recovered quartz vein located 90m below the deepest known intercept on Youle and 200m below current on-vein development. As well, at Mandalay’s Bjorkdal mine in Sweden, nine recent holes extended the Lake zone at depth and returned some of the highest grades ever encountered at the mine – 119 g/t gold over 0.44m and 92 g/t over 0.4m. The analysts added that Costerfield now hosts Proven and Probable Reserves of 616,000 tonnes grading 12.8 g/t Au and 3.52% antinomy (Sb), while underground reserves at Bjorkdal total 5.6M grading 2.05 g/t gold. They also said that although Mandalay Resources ended the year with net debt of approximately US$30 million, management now expects the company to be debt-neutral by year-end. Inflection points: More exploration results from Australia Further exploration in Sweden Precious metals price moves What the boss says: In a statement accompanying the year-end reserve and resource updates in February, CEO Dominic Duffy outlined the group's plans for 2021. "Moving into 2021, at Costerfield, we will be drilling a number of Youle analogue targets through the main Costerfield corridor alongside mineral reserves growth drilling at Youle and Browns. "While at Bjorkdal, a significant exploration campaign is under way with the emphasis on building gold grade and optionality in mining areas. The four major areas of focus will be: identifying higher-grade areas within the Lake zone and Aurora deeps areas; testing of high-grade veining extensions to the east; growth of resources within skarnified lenses; and delineation and growth of Aurora." Contact Sean at sean@proactiveinvestors.com