logo-loader

Mandalay Resources' acquisition drive pays dividends

Published: 08:12 02 Sep 2015 BST

Bjorkdal
Pictured, the mine development Björkdal, in Sweden.

How is it that shares in Mandalay Resources (TSE:MND) have virtually tripled over the past five years, when most other junior gold mining companies have suffered severe and sometimes catastrophic share price falls?

The answer is simple: judicious acquisitions.

Across a period when the gold price went right up and right down again, Mandalay put together an unassuming portfolio comprising three key mines, all of which make money at the current gold price.

First was the Costerfield antimony-gold project in Australia.

This was part of the original deal that created Mandalay in 2009, and at the time the project had already been in production for two years.

That track record of cash generation has continued, even if the latest figures reflect the recent turbulence in the gold market.

These show that Costerfield produced 9,563 ounces of gold in the second quarter of this year, down from the 10,416 ounces produced in the previous quarter, but considerably up on the 7,256 ounces produced in the corresponding period a year ago.

More noteworthy than the ebb and flow of individual quarterly production numbers was the recent progress the company has made on cash costs, which dropped from US$989 per gold equivalent ounce in the second quarter of 2014 to US$578 per ounce in the second quarter of this year.

On site all-in costs now stand at US$795, which allows for very healthy margins even at today’s weaker gold price of around US$1,100 per ounce.

That sort of cost cutting capability is essential if investors are to be kept onside, given the current bearish sentiment that prevails in the market towards gold miners, and if Mandalay is going to hang on to the gains it’s made over the past five years.

At the Cerro Bayo silver mine in Chile, the second major asset to come into the company, the picture on costs is more mixed, as the company is currently transitioning mining to a new vein and had to deal with the short-term impact of a strike at the end of June.

But margins are nonetheless still intact.

During the second quarter of 2015, Mandalay produced just under 600,000 ounces of silver at Cerro Bayo as well as 5,361 ounces of gold.

All-in on site costs rang in at US$14.84 per ounce of silver produced, net of gold credits, still reassuringly under the current prevailing silver price of US$15.22 per ounce.
Once mining at the new Delia SE mine at Cerro Bayo gets underway in earnest, it’s likely that costs will start dropping back towards the US$11.36 per ounce all-in that Cerro Bayo delivered last year.

Finally, at the Björkdal gold mine in Sweden there are no comparables since this is Mandalay’s newest acquisition and wasn’t owned by the company in the second quarter of 2014.

But once again Mandalay has acquired a producing asset with an existing track record, likely to deliver plenty of useful cash flow into company coffers over the coming years.

During the second quarter production at Björkdal ran to 11,494 ounces of gold produced at all-in site costs of US$1,035 per ounce.

Margins are expected to widen as a new assay lab opens and the company begins to implement the findings of its optimisation plan.

All told, Mandalay’s three key assets are currently producing at a combined average all-in cost of US$1,038 of gold equivalent, which is comfortable enough with gold trading at over US$1,100 per ounce.

The margins ought to become even more comfortable when the various initiatives kick in and push costs down further.

Nevertheless, in spite of that optimistic prognosis on costs, there has been some inevitable short-term weakening in Mandalay’s share price over the past few months as sentiment towards the gold sector in general soured even further.

But nothing that Mandalay’s shareholders have experienced has been anything like the catastrophic declines in value that have been suffered by many of its junior gold mining peers.

That’s because it has assets that can still make money even at today’s commodities prices.

And because the company is more than willing to return a substantial amount of that money to shareholders.

The last quarterly dividend amounted to US$3.3mln. It won’t be the last.

And if the outperformance of Mandalay’s shares is anything to go by, the market knows it.

Mandalay Resources unveils positive Q4 figures

Record production in its fourth quarter helped gold and silver miner Mandalay Resources (TSE:MND) lift fourth quarter profits despite weak prices for both metals.In the three months to December 2014 revenues rose by 71% to US$67m from a year earlier, underlying profit was up by 55% to US$21.5m...

on 27/2/15