Mandalay Resources - Steady As She Goes, Expect A $0.0064 Quarterly Dividend

| About: Mandalay Resources (MNDJF)

Summary

Mandalay continues to perform okayish, with gold and silver production in line with the expectations.

The guidance for 2016 should be met quite easily, and I expect all mines to perform as expected.

You can look forward to a dividend of $0.0064/share for a 5%+ dividend yield.

The exploration results are encouraging, and I think Mandalay has been able to replenish all mined tonnes and ounces.

Introduction

I have always liked Mandalay Resources (OTC:MNDJF) because it offers me exposure to a wide range of metals as this company produces gold, silver and antimony. The people running this show are pretty smart and I have faith in their ability to execute, and meanwhile, one gets paid a very nice dividend based on the revenue of the preceding quarter. So if the company doesn't perform well, the shareholders will feel it, but on the other hand, should a sudden price spike occur, Mandalay's shareholders will immediately notice the positive impact as the dividend will immediately increase.

MND Chart

MND data by YCharts

Mandalay does have an OTC listing, but I'd recommend you to trade in the company's shares through the facilities of the Toronto Stock Exchange, where Mandalay is listed on the main board with MND as its ticker symbol. The current market capitalization is just above $200M, and the average daily volume in Canada is in excess of 400,000 shares.

The year-end exploration update is actually pretty promising

One of the reasons why I continued to like Mandalay Resources is the level of transparency from this company, and its annual exploration updates that allow me to have a pretty good idea of how the company is doing and how it is replacing the ounces (and tonnes) it has mined.

A) Bjorkdal

At the Bjorkdal gold mine in Sweden, Mandalay has drilled almost 12,000 meters of core drilling as part of an extensive drill program focusing on both infill drilling as well as expanding the known resources. The majority of the amount of meters that have been drilled at the known open pit and underground resources, but it's interesting to see Mandalay has also bothered to drill 2,875 meters at the Nylunds deposit which isn't too far away from the existing mine.

Click to enlarge

Source: company presentation

The Nylunds zone is pretty interesting as it's located very close (200 meters) to the open pit at Bjorkdal, and in 2015, Mandalay has used a diamond drill rig to follow up on historical drilling that was conducted with an RC-rig. The drill program seems to have been pretty successful with the drill bit intercepting several gold zones at Nylunds, and the mineralization remains open to the north, south and west, so more exploration efforts are definitely warranted.

At the existing mine, the diamond drill rigs have intercepted many new gold-bearing veins with a grade that could very well be economic to mine. The mineralization at the underground mine also remains open to the north and the east, even after now having confirmed the continuity of the mineralization by 200 meters to the north and 100 meters to the east-northeast.

B) Costerfield

I have always thought of Costerfield as a very interesting project as not only does it produce an attractive amount of gold, it is also one of the few non-Chinese producers of antimony. Even though the antimony price is very low now, I do consider Costerfield to be an interesting call option on the antimony sector.

Click to enlarge

Source: company presentation

Mandalay has drilled 11,500 meters at Costerfield and the main thing to remember from the 2015 drill program is the fact the drill rig has now confirmed the existence of additional extensions to the Cuffley lode. The 'new' zone contains some high-grade gold and antimony (with antimony values of 3.8-7% - keep in mind rocks containing 7% antimony have a gross value of $385/t, the equivalent of almost 11 g/t gold). That's great, and it definitely looks like Mandalay's 2015 drill program has been able to replenish the ounces and tonnes that were mined during the year.

C) Cerro Bayo

14,000 meters have been drilled at the Cerro Bayo project in Chile with the majority consisting of a surface drill program, whilst also having drilled a few holes from an underground drill station.

Mandalay seems to have spent quite a bit of time on the Coyita vein where it has drilled 27 holes in the second semester of 2015, which are now confirming the company's thesis Coyita has a very strong mineralization all through the Laguna Verde zone, and the drill program even discovered a new parallel vein, the Victoria vein. This new vein doesn't reveal any high-grade nature yet, but it has the technical characteristics Mandalay has been looking for.

Click to enlarge

Source: company presentation

All in all, I'm pretty happy with the exploration update as I have the impression the depleted ounces have now been replenished, indicating the continuous focus on exploring is paying off. For 2016, Mandalay is budgeting $7M in exploration expenditures, and I'd expect the majority of this to be used to replenish the resources again.

The Q4 production results were in line with my expectations. What about the dividend?

Mandalay Resources has also provided a production update for the fourth quarter of 2015, and it produced almost 29,000 ounces of gold, 937 tonnes of antimony as well as 725,000 ounces of silver. That's pretty decent and totally in line with the expectations, and Mandalay has now also reiterated its official production guidance for 2016.

Source: press release

In the current financial year, it plans to produce 2.9-3.3 million ounces of silver, 3,000-3,500 tonnes of antimony as well as 100-115,000 ounces of gold, so the nice production mix will continue, and even though the antimony price is quite low, it is adding a nice additional touch to the financial results.

Talking about the financial results, I always try to calculate the quarterly dividend based on the provided sales results and average received prices for its commodities. You should be aware Mandalay has sold less than it has produced, so the revenue will be lower (as the 'excess' production will be included on the balance sheet as 'inventory' rather than cash).

So, based on the Q4 sales results, the total revenue will be US$44.03M. 6% of that amount is $2.642M and when you divide that over the total amount of shares, the quarterly dividend will be approximately US$0.0064/share for an annualized dividend yield of just in excess of 5%.

Investment thesis

Mandalay is still working hard for its shareholders, and I don't think anyone can be unhappy to see the production results coming in line with the previous expectations. On top of that, the exploration results in 2015 were also pretty good, and I don't expect the company to have any issue to replenish the resources it has mined out during the year.

Mandalay still has a generous dividend in place, and as the production results in Q4 were in line with the expectations, shareholders could expect a dividend of approximately $0.0064 for an annualized dividend yield of 5.15%. I do expect Mandalay to be free cash flow positive, so the dividend should not be jeopardized at all. Smart capital allocation and smart acquisitions are what will drive this company forward, and I would not be surprised to see Mandalay picking up more assets during the current commodity downturn.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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