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Mandalay Resources poised for significant production upside
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27th August 2012
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TORONTO (miningweekly.com) – Through handpicking its projects, with the focus firmly on acquiring underperforming assets, TSX-listed Mandalay Resources had transformed itself from holding a number of poor-performing assets three years ago, to having become a formidable mining force on the Toronto bourse.

During the time from the company’s inception in 2009, it had managed to lift its production to an expected 4.4-million silver-equivalent ounces in 2012. This is expected to result in revenue of about $164-million for the year, rivalling that of peers Endeavour Silver, Silver Standard, Fortuna Silver and Aurcana.

Mandalay CEO Bradford Mills, a former CEO of miner Lonmin and current director of nickel producer Norilsk Nickel, told Mining Weekly Online in an interview that it is as a result of the company’s careful selection of projects that it now owned two operating mines holding significant upside potential.

These are the Cerro Bayo silver/gold mine, in southern Chile, which it acquired in August 2010, and the Costerfield gold/antimony mine in Victoria, Australia, acquired in December 2009.

“We expect to expand our Cerro Bayo and Costerfield operations by 20% each during 2013. As things are, we are already looking at achieving between four-million to five-million silver-equivalent ounces this year alone,” he told Mining Weekly Online.

He said the company was designed around high-grade, high-margin deposits, and that the strategy was now paying off.

During the second quarter ended June 30, the company on a year-on-year basis more than double its earnings before interest, taxes, depreciation and amortisation to $21.56-million, a new quarterly record for the company, and revenue rose by 91% to $46.53-million.

The company’s net income for the quarter also jumped to $19.24-million, a rise of 896.9%, boosted by noncash and nonoperating income of $3.77-million derived from market-to-market adjustments of silver and gold put options and deferred tax income of $199 965.

Mandalay ended the quarter with $11.2-million cash in the bank, with the fair value of gold and silver puts totalling $6.4-million at the end of the quarter.

SIGNIFICANT UPSIDE

The miner said it is currently developing a third mine at the Cerro Bayo operation, which, when at full capacity, would ramp up production to 1 200 t/d, and is expected to take place during the fourth quarter this year, at which time the company expected to also make a decision as to whether it would develop a fourth mine at the operation, potentially pushing production up to 1 600 t/d.

At the Costerfield operation, which is currently operating at its design capacity of 200 t/d to 250 t/d, a decision was also expected by the fourth quarter on whether to develop the prospective Cuffley Lode, which is currently being defined using three drill rigs on site.

Mandalay had also as recently as July announced a maiden resource estimate at its La Quebrada copper/silver exploration property, which is also located in Chile.

The National Instrument 43-101-compliant indicated resource estimate was 34.8-million tons grading 0.6% copper and 10 g/t silver, for the expected totals of 459-million pounds of contained copper and 11.2-million ounces of contained silver.

The study placed the inferred resource at one-million tons grading 0.6% copper and 11 g/t silver, for 13-million pounds of contained copper and 400 000 oz of silver.

At the time Mills said the high proportion of indicated resource relative to inferred was owing to excellent continuity of mineralisation within the mineralised horizons. “This significant resource occurs on just 4 km2 of our 7 418 ha property,” he said.

Mills told Mining Weekly Online that he believed in significant upside potential of the gold price, saying that the silver price generally follows gold’s trend. “We expect the price of gold to top $2 000/oz within the next six months, driven higher by the massive quantities of money being printed by many governments at present,” he said.

The company’s Toronto-listed stock on Monday afternoon traded 2.67% higher at 77 Canadian cents apiece.
 

Edited by: Creamer Media Reporter

 

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