MANDALAY RES's (MNDJF) CEO Brad Mills on Q2 2014 Results - Earnings Call Transcript

Aug. 9.14 | About: Mandalay Resources (MNDJF)

MANDALAY RES CORP. (OTC:MNDJF) Q2 2014 Earnings Conference Call August 7, 2014 8:00 PM ET

Executives

Brad Mills - CEO

Analysts

Andrew Kaip - BMO

Ben Asuncion - Haywood

Ross Carden - Polygon

Operator

Good morning, my name is Elizabeth and I will be your conference facilitator today. At this time I’d like to welcome everyone to the Mandalay Resources Corporation Q2 2014 Financial Results Conference Call. Joining us on the call is Brad Mills Chief Executive Officer and Director of Mandalay Resources. This call is scheduled for 60 minutes. All line have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer period, (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 28, 2014 available on Cedar and the Company’s website.

Thank you. Mr. Mills you may begin your conference.

Brad Mills

Thank you, very much operator. Good morning everybody and welcome to the Mandalay Q2 earnings conference call, I assume everybody has had a chance to read the press release and the related documents, it was a normal quarter for us in line with expectations and given the production performance. If you’d relate it to transition to the 1400 ton a day ramp up at Cerro Bayo and also the transition to Cuffley ore mining at Costerfield impacted costs a little bit negatively and built operations during the period, further offset in Chile by a better Chilean peso exchange rate. I’m pleased to report that both of the operations are now sort of making significant traction on completion of their growth projects and we expect both higher volumes and progressively lower costs during the third and fourth quarters going forward. So basically from our perspective we’re on track with what we had planned to do during the course of the year. So let me go ahead and pause there and turn the call over to questions and answers, thank you very much.

Question-And-Answer Session

Operator

This is the conference operator. At this time I would like to open the call for questions, (Operator Instructions). Mr. Mills your first question comes from Andrew Kaip with BMO. Please go ahead.

Andrew Kaip - BMO

Just a couple of questions, one the transition to the Cuffley lode as well as, as the ramp up to 1400 tons per day at Cerro Bayo, do you see higher costs migrating into the third quarter or is your view that you’re behind that and we’ll probably see more regular cost structure in both operations.

Brad Mills

Sure, so Cerro Bayo effectively achieved its design right at the end of the second quarter and so far hasn’t really delivering at the full 1400 ton a day design rate. So I think we should expect to see a pretty solid second half from Cerro Bayo. The Cuffley transition is running a month or two months late in terms of its delivery. We saw the first stoping ore delivered from Cuffley in August. So we’re just starting to see the ramp up of Cuffeley's stoping ore. So we’re probably really running a month to a month and a half behind in terms of ramp up at Costerfield. So we’ll see a little of spillover I think of costs into the third quarter. So it’s going to be a bit of a blended quarter where it’s kind of shaping up at this point in time, with kind of a month looking more similar like the second quarter and then hopefully month and a half to two months looking more like what we expect to see Cuffley starting to ramp up.

Andrew Kaip - BMO

And then just grades at Cerro Bayo, should we be expecting them to be slightly below or more in line with the second quarter moving into the remainder of the year or do you see those grades improving.

Brad Mills

I think you’ll see grades that are very much in line with resource grades for the rest of the year. I think you’ll see probably a little better maybe in the second half than we saw in the first half. So dramatic changes that but I think maybe just a little bit more aligned on the resource grades [indiscernible].

Andrew Kaip - BMO

And then similarly with Cuffley ore beginning to enter to the, into the processing plant and should we, or what kind of grade improvements should we be looking at?

Brad Mills

So I think the plan is to see the grades kind of rise from around 8.5 to 9 to maybe around 10.5 to 11 by the year end. Grahams will go over that and the [indiscernible] to somewhere between 4% and 5%. And the issue with Costerfield is as you know, small mine it can be more variable, and it's just so dependent on exactly which stope is mined in which period of time. So it’s the least predictable of our operations from a grade perspective. But that is what the older [ph] is telling us it should be going. So hopefully that behaves itself.

Andrew Kaip - BMO

Okay. And then can you give a certain update on the Elgin transaction.

Brad Mills

So you’ve seen in the earlier press releases that the conditions that were necessary for closing the transaction, the securing agreements State of Kentucky and the Army Corps of Engineers for the full of these all Kentucky permits has been met and they paid out the reclamation funds required to achieve that in the last month and really we have completed the $5 million loan, which allows for the pay down of the spot debt that they had. So all of the major conditions for completing the transaction are now in place and we expect that the transactions to close on around September 10th. I'm not exactly sure when the date as early as that’s about right.

Andrew Kaip - BMO

Okay. And then are you already -- you already have people working with the Elgin crew?

Brad Mills

That’s correct. I was actually there earlier this week with Mark and Dominic and they've stayed on and Dominic has started the process of working with the mining team to look at the grade and quality of ore coming from the underground mine -- open pit mine. So that will be major project over the next six months. We are kicking-off next week with the complete review of the entire reserve and resource model and the planning that will go along with that for the revised mine extraction plan. We've also started metallurgical work in mill and there is a number of programs that to the extent that you’ve got going there. So effectively we started all the kind of early work to put science in place under the improvement program that we want to execute.

Operator

Your next question comes from Ben Asuncion with Haywood. Please go ahead.

Ben Asuncion - Haywood

I think most of my questions have been covered off. Just maybe if we can kind of get an update with what’s happening at Challacollo and kind of how you see the timelines progressing for that towards delivering the feasibility. I guess it was in Q1 of this coming year?

Brad Mills

Yes, sure. So what’s been happening at Challacollo is we’ve been doing all the infill drilling of the resource over the last about month and half. We have three rigs on the property. We’ve -- done about 60% of the work is completed, the drilling work. All the metallurgical drill holes have completed and samples both from that holes and the underground mine have been sent to the labs to start all the leach test work so that’s all commenced. We have also given the contracts for the engineering, the mine planning, environmental permitting have all been issued at this stage. So all of the elements that are required were completed, the feasibility study are now in place and we're on track for end of first quarter 2015 delivery of the feasibility study.

We will have an interim update on reserves and resources once all that information comes back. That was for the few more months we will complete the drilling and then get all the assets and different kind of work done. So that’s all stuff we’ll do in public till year end kind of number. But everything is on track and every progression we’re guessing is moving forward.

Ben Asuncion - Haywood

Perfect. And just touching on Björkdal for the reserve and resource and the updated mine plan. Will that come out with your sort of corporate reserves and resource update in kind of mid-Q1?

Brad Mills

It maybe earlier to that. Roscoe Postle Associates folks gave us kind of a three month time frame that they will need to complete the new revised 43-101 and mine plan. So as they start in mid-August and I’ll give it [indiscernible], so Mid-December in theory, could be some slippage in that. So sometime around either before Christmas or right after New Year is probably when we should expect that to come out. But it’s little bit earlier than everything else.

Ben Asuncion - Haywood

Okay, and then we’ll still be looking for an exploration update I guess from Costerfield and Cerro Bayo at kind of at the end of the year. Is that right?

Brad Mills

Yes, we will update at the year end and there will be two elements to that. There'll be a reserve and resource update statement itself which is mid-February and then the exploration update will be after -- will be in January. So probably in the January where talks about physically what’s going on in the field.

Ben Asuncion - Haywood

Okay, and can you just touch on that Cerro Bayo, what the drill program is now and then the work that’s being done I guess since the last update?

Brad Mills

Yes, so the plan for the balance of this year is to infill drill as much as can of the Coyita vein between the Peninsula and the existing reserves at that 500 meter of cycling. That’s been drilled by combination of underground angle holes from the Peninsula and from some -- for underground and the Yasna vein. So that basically two rigs are working on that and then the long our underground rig is working out infilling the Yasna vein system which includes Irene in Cassia as well. And so the idea hopefully is by year end to have a pretty good infill picture on at least Yasna and Coyita and hopefully bit more data on Irene in Cassia at that stage. So all of our drilling resource is for the rest of the year but since we committed to that program.

Ben Asuncion - Haywood

Okay. And then comparatively at Costerfiled the current drill program and what we would see in the back half of this year?

Brad Mills

Sure so we’re in the process of potentially winding down the first round of district exploration work that was completed over the six, seven months of the year. We continue with infill drilling around the couple of loads at this point in time which will continue probably through the rest of the year. I think we’re going to take a little bit of a breather on district exploration to let us just get caught up with the information flow and we have a huge round of new data on round drilling that we did during the first half of the year. And that gives us a new idea, that’s a new priority our targets and then we’ll probably sort of think about how to tackle those and probably be starting in the first half of next year.

Operator

(Operator Instructions) Your next question comes from Ross Carden with Polygon. Please go ahead.

Ross Carden - Polygon

Just a follow up on the question on Elgin acquisition. I just wanted to connect is there anything -- not that you’re getting old stuff in there. Is there anything you might being seen that’s changing your view on and when you think back to the climate, you have to see all the changes that you want to make it to offset [indiscernible] with your physical model on the coast [indiscernible] and you guys get at. Anything that’s changing there or is it all pretty much in line with what you previously got?

Brad Mills

I think it’s very much in line with what we saw when we were doing due diligence and what’s -- so no change in view I think. I think what we’re doing now is working it down into manageable pieces of focus work to actually execute the work on itself. There are essentially five areas of focus that will get translated into essentially projects. So there is the underground ore quantity and quality and development state. So the development state of the underground mine and its ability to produce the right grade in the right quality.

Similar kind of project around open pit mine itself and optimization in the open pit and grade and quality of ore. There is a program around the whole crushing and ore sorting and what is the right strategy for putting what material in the mill and what can and can we reject portions of the ore stream that have little or no gold content before they’re getting to the mill itself. So that’s a fairly important part of that. There is the mill recovery itself looking at what we can do to move the recovery from the 88 to something in the mid-90s. So the mill recovery program that will be based on the technical understanding of where the losses are in the mill itself. And then on the front end, the complete review of the geology exploration reserve and resource model and future potential on the frac station in district. So those five kind of major projects are basically getting organized, getting project owners getting people task and scope put together properly. And it will take a little bit time to get that work obviously underway.

And then we should start to see sort of progressive improvement as was those projects take hold over the next 12 to 18 months. Hopefully something [indiscernible] low hanging fruit and then stuff that is more and takes a little bit more effort or more capital to even that going forward.

Ross Carden - Polygon

Okay, that sounds good. And in terms of in the time of deposit and nothing and re modelling [indiscernible] how long do you think that's going to take?

Brad Mills

The resource model work as I mentioned is about three months starting basically next week of the beginning of that where we are going to read you all of the reserve resource model and the mine planning and that’s the kind of the underpin for the basic quality of ore from the underground mine and we will look at where is the gold, where are the best veins, what should the mine be -- the develop stage of the mine look like to produce those in reserve grade and reserve grade average and what do you need to do to get it to that point. So there is obviously -- that’s a key piece of work for delivering the right grade to the mill.

Operator

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

Brad Mills

Thanks everybody for being on the call and again, I think when we look at the second quarter it was a good quarter for us. It wasn’t our best, it wasn’t our worst but it was a good transitional quarter for us, solid earnings, solid cash flow, lots of happening in the Company as we transition the two projects to either higher mining rate or to the new mine. Quite a lot of work going on incorporating the Challacollo and Elgin and we’re very pleased with kind of where the Company is from a growth opportunity perspective now fully internalizing the business with the funding to execute that. So I'm pleased with that outcome. Obviously a good quarter from a dividend perspective as we see volumes continuing to grow and that impacts the quality of dividend as well. So solid second quarter all the way around and I very much appreciate everybody being on the call.

Operator

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!