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Mandalay Resources' improved production bodes well, says Ambrian

Published: 11:38 09 Oct 2013 BST

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Mandalay Resources' (TSE:MND) improved Q3 production provides it with a foundation, on which to improve on its 2013 guidance, reckons broker Ambrian, which continues to rate the shares a 'buy'.

It also bodes well for continued dividend payments, highlights analyst Duncan Hughes.

The broker notes that continued improvements at both the firm's Costerfield (Australia) and Cerro Bayo (Chile) operations demonstrate the miner's strength in a tough environment for the sector. 

The quarterly gold sales from Costerfield were 51% higher than the broker's forecasts due to mining and production improvements and much better head-grade, while at Cerro Bayo, they were up 38% on Ambrian's  forecast.

"Despite global metal prices being lower than forecast, Mandalay’s impressive production and sales led to revenue exceeding our expectations for the quarter," said Hughes.

"Gold sales were well ahead of forecasts and more than offset the fall in prices. Antimony sales were largely in line with expectations, but sadly prices continued to fall, resulting in an anticipated fall in antimony revenue despite record production. 

"Silver revenue was slightly below expectations due to the slightly lower price received that we had forecast. 

"Thus, revenue (before payabilities and utilising average quarterly prices) is likely to be slightly above our expectations, mainly due to the impressive gold production and sales."

The firm has said full year production will be at the upper end of previously-announced guidance of 16,000-21,000 ounces gold and 2.8-3.1Moz silver from Cerro Bayo and 20,000-25,000 ounces gold  and 2,800-3,000 tonnes of Antimony from Costerfield.

The broker, which targets C$0.95 for the stock, said: "We expect Mandalay to continue meeting its targets in 2013 and are confident that 2013 production guidance is more than achievable. 

"It is our expectation that the company will maintain positive margins on sales and should be highly profitable for the financial year despite the recent falls in precious metal and antimony prices. 

Hughes added: "Mandalay is one of a shrinking number of producers that is consistently generating cashflow from operations."

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