TORONTO, Feb. 21, 2018 -- Mandalay Resources Corporation ("Mandalay" or the "Company") (TSX:MND) today announced its unaudited financial results for the year-ended December 31, 2017.
Mandalay’s audit of its 2017 annual consolidated financial statements is not yet complete and accordingly all financial amounts referred to in this news release are unaudited and represent management’s estimates. Readers are advised that these amounts are subject to audit and may be subject to change as a result. The Company intends to file its condensed and consolidated financial results for the year ended December 31, 2017, together with its Management’s Discussion and Analysis (“MD&A”) for the corresponding period, at the close of business on February 22, 2018 under the Company’s profile on www.sedar.com and on the Company’s website at www.mandalayresources.com. All currency references in this press release are in U.S. dollars except as otherwise indicated.
The Company generated revenue of $38.1 million, adjusted EBITDA of $14.4 million and consolidated net loss of $23.4 million, or $0.05 loss per share, for the fourth quarter of 2017.
For the full-year 2017, Mandalay generated revenue of $163.0 million, adjusted EBITDA of $48.6 million and adjusted net loss before special items of $10.4 million. After special items totaling $32.6 million ($19.8 million Cerro Bayo write-off of assets and $12.8 million of Cerro Bayo incident related expenses), the Company reported consolidated net loss for the year of $43.0 million and $0.09 loss per share.
There were several one-time items contributing to the Company’s net cash outflow in 2017 that Mandalay expects will not recur going forward. In 2017, free cash flow for the Company totalled $20.0 million outflow. However, this amount includes $12.8 million of expenses related to the search and recovery effort after the June, 2017 inundation at Cerro Bayo and follow-on redundancy and care and maintenance costs. The Company expects that, from 2018 onwards, care and maintenance costs at Cerro Bayo will be about $6 million per year. The other items the Company incurred which it does not expect to recur in 2018 include $26.4 million of cash outflows, including:
- Net repayment of borrowings of $14.2 million (mainly consisting of part repayment of the Gold Loan, and drawdown of the Revolver Facility);
- Increase in reclamation deposit required at the Lupin mine of $7.5 million (which the Company is working to recover); and
- Dividends of $4.7 million (the Company has suspended its dividend policies on its common shares during 2017).
The Company also spent $1.7 million on reclamation on the Ulu and Lupin sites in 2017, which it expects will reduce the estimate of final closure costs there and possibly be reimbursed through reduction of required reclamation deposits.
Mandalay also expects the benefit of the cash inflow from the record fourth quarter production at Björkdal to be reflected in the first quarter 2018 financial results.
Commenting on 2017 results, Dr. Mark Sander, President and CEO of Mandalay, noted, “2017 was a challenging year for the Company. Mandalay generated 12% lower revenue in 2017 than in 2016 due to suspension of production at Cerro Bayo after the inundation on June 9, 2017. Lack of production from Cerro Bayo was offset by record production at Björkdal, which continues to demonstrate operational improvements. Mandalay cost of sales decreased by 15% year-on-year as relatively high-cost Cerro Bayo left the mix and Björkdal unit costs declined significantly. With the impact of lower revenue, the Company generated only 4% less adjusted EBITDA and follow-on reduced net income before special items in the current quarter.”
Dr. Sander continued, “The fourth quarter of 2017 was distinguished by record performance at Björkdal. The fourth quarter saw the highest gold production at Björkdal since Mandalay assumed ownership. For the last three quarters of 2017 since the turnaround really took hold, the mine has produced at an annualized rate of almost 68,500 ounces of gold at an average cash cost of $770/oz. We are pleased that the grade control program continues to function well and that the debottlenecking actions we took in the open pit and underground mines at the end of the first quarter performed exactly as planned. We expect continued good performance from Björkdal into 2018 as the management team builds on its success.
“Costerfield continued to deliver dependable performance in the fourth quarter of 2017, producing 12,360 gold equivalent ounces at a very sound cash cost of $707 per ounce, and at an all-in cost of $902 per ounce. We expect continued performance at these levels for the upcoming year as development of the new Brunswick lode is completed and production transitions from Cuffley to Brunswick.
“As expected, Cerro Bayo remained on care and maintenance through the entire fourth quarter. Staffing has been reduced to approximately 50, focused on: care and maintenance activities, investigating the cause of the inundation last June, and obtaining all permits necessary to restart and complete the life of mine plan. The Company has decided that, given the range of expectations about timing of the restart permitting process, it is appropriate to impair the carrying value of the asset by $19.8 million.”
Dr. Sander concluded, “Mandalay is committed as always to delivering strong shareholder returns and increasing net asset value per share to its investors. While the events at Cerro Bayo have indeed challenged this commitment, I am incredibly impressed by the dedication and focus of our people on generating value to not only counter that challenge, but go beyond.”
Unaudited Fourth Quarter and Full-Year 2017 Financial Highlights
The following table summarizes the Company’s financial results for the three months and year ended December 31, 2017 and 2016:
| Three months Ended December 31, 2017 | Three months Ended December 31, 2016 | Year Ended December 31, 2017 | Year Ended December 31, 2016 | |||||||||
| $’000 | $’000 | $’000 | $’000 | |||||||||
| Revenue | 38,093 | 32,391 | 162,997 | 185,543 | ||||||||
| Cost of Sales | 22,690 | 32,812 | 107,111 | 125,554 | ||||||||
| Adjusted EBITDA* | 14,405 | (2,321 | ) | 48,597 | 50,865 | |||||||
| Income from mine operations before depreciation and depletion | 15,403 | (421 | ) | 55,886 | 59,989 | |||||||
| Adjusted net income (loss) before special items* | 562 | (10,768 | ) | (10,391 | ) | (2,526 | ) | |||||
| Consolidated net loss | (23,350 | ) | (25,542 | ) | (42,983 | ) | (20,233 | ) | ||||
| Cash capex | 12,485 | 11,637 | 47,465 | 42,348 | ||||||||
| Total assets | 305,061 | 350,232 | 305,061 | 350,232 | ||||||||
| Total liabilities | 139,799 | 147,195 | 139,799 | 147,195 | ||||||||
| Adjusted net income (loss) per share* | $ | 0.00 | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.02 | ) | |
| Consolidated net loss per share | $ | (0.05 | ) | $ | (0.06 | ) | $ | (0.10 | ) | $ | (0.01 | ) |
* Adjusted EBITDA, adjusted net income (loss) before special items and adjusted net income (loss) per share are non-IFRS measures. See “Non-IFRS Measures” at the end of this press release.
In the fourth quarter of 2017, Mandalay sold 1% more ounces of gold equivalent than in the fourth quarter of 2016. This is a result of the breakthrough performance quarter at Björkdal offsetting the lack of production from Cerro Bayo. At the same time, average gold and antimony prices rose 5% and 9% quarter-over-quarter respectively, while average price of silver (of which the Company produced and sold none in the fourth quarter) decreased by 3%. The net effect is that Mandalay’s revenue of $38.1 million in the fourth quarter of 2017 was $5.7 million higher than in the fourth quarter of 2016.
Total cost of sales across the Company was lower in the fourth quarter of 2017 than in the fourth quarter of 2016. Other than the $8.2 million decrease due to the production suspension at Cerro Bayo, cost of sales decreased at Costerfield by $2.9 million, while it increased at Björkdal by $1.1 million. Consolidated administrative costs across the Company decreased by $0.9 million.
Mandalay generated $14.4 million in adjusted EBITDA in the current quarter, $3.7 million higher than in the previous quarter, and $16.7 million higher than the fourth quarter of 2016. This led to a consolidated net loss of $23.4 million in the fourth quarter of 2017 versus a loss of $25.5 million in the fourth quarter of 2016, which was impacted by the expenses of search efforts related to the flooding incident, care and maintenance costs at Cerro Bayo and and write-down of assets of $19.8 million.
Mandalay ended the fourth quarter with $16.9 million in cash and cash equivalents and with $15 million drawn on the total $40 million revolving credit facility.
Fourth Quarter and Full-Year 2017 Operational Highlights
The table below summarizes the Company’s capital expenditures and operational unit costs for the three and twelve months ended December 31, 2017 and 2016:
| | Three months ended December 31, 2017 | Three months ended December 31, 2016 | Year ended December 31, 2017 | Year ended December 31, 2016 | |||||
| $’000 | $’000 | $’000 | $’000 | ||||||
| Björkdal | |||||||||
| Gold produced (oz) | 22,035 | 10,934 | 62,028 | 48,143 | |||||
| Cash cost* per oz gold produced | $ | 617 | $ | 1,160 | $ | 816 | $ | 956 | |
| All-in cost* per oz gold produced | $ | 848 | $ | 1,374 | $ | 1,083 | $ | 1,190 | |
| Underground capital devel. & open pit prestrip | 4,502 | 2,144 | 14,499 | 9,611 | |||||
| Capital purchases | 3,902 | 2,000 | 9,699 | 4,917 | |||||
| Capital exploration | 140 | 948 | 1,823 | 3,980 | |||||
| Costerfield | |||||||||
| Gold produced (oz) | 7,222 | 7,523 | 31,512 | 41,310 | |||||
| Antimony produced (t) | 805 | 792 | 3,115 | 3,598 | |||||
| Gold equivalent produced (oz) | 12,360 | 12,403 | 52,137 | 60,076 | |||||
| Cash cost* per oz gold equivalent produced | $ | 707 | $ | 837 | $ | 701 | $ | 640 | |
| All-in cost* per oz gold equivalent produced | $ | 902 | $ | 1,096 | $ | 991 | $ | 890 | |
| Underground capital devel. & open pit prestrip | 553 | Nil | 2,437 | Nil | |||||
| Capital purchases | 954 | 1,033 | 4,492 | 3,407 | |||||
| Capital exploration | 787 | 1,010 | 4,020 | 4,551 | |||||
| Cerro Bayo | |||||||||
| Silver produced (oz) | - | 365,214 | 794,533 | 1,731,031 | |||||
| Gold produced (oz) | - | 2,807 | 5,909 | 13,792 | |||||
| Cash cost* per oz silver net byproduct credit | - | $ | 17.48 | $ | 14.10 | $ | 12.29 | ||
| All-in cost* per oz silver net byproduct credit | - | $ | 25.99 | $ | 27.05 | $ | 20.87 | ||
| Underground capital devel. & open pit prestrip | - | 2,014 | 5,971 | 8,260 | |||||
| Capital purchases | 741 | 260 | 2,216 | 3,292 | |||||
| Capital exploration | 529 | 762 | 1,402 | 3,040 | |||||
| Consolidated | |||||||||
| Gold equivalent produced (oz) | 34,395 | 31,293 | 131,186 | 145,498 | |||||
| Average cash cost* per oz gold equivalent | $ | 680 | $ | 1,101 | $ | 851 | $ | 899 | |
| Average all-in cost* per oz gold equivalent | $ | 945 | $ | 1,385 | $ | 1,175 | $ | 1,189 | |
| Underground capital devel. & open pit prestrip | 5,055 | 4,158 | 22,907 | 17,871 | |||||
| Capital purchases | 5,651 | 3,317 | 16,465 | 11,821 | |||||
| Capital exploration | 1,778 | 4,179 | 9,093 | 13,805 | |||||
*Cash cost and all-in cost are non-IFRS measures. See “Non-IFRS Measures” at the end of this press release.
Björkdal gold mine, Sweden
Björkdal delivered its best quarter since being acquired by Mandalay in 2014, with its highest gold production (22,035 ounces) and lowest cash and all-in costs ($617/oz and $848/oz, respectively). These results are based on continued grade control discipline, improved rates of underground stoping and open pit production, and, to some extent, positive grade reconciliations in high-grade parts of the mine. As a result, mill head grade averaged approximately 1.76 g/t for the year, much higher than the previous year’s 1.35 g/t. Recoveries were also higher in 2017 due to the successful commissioning of the flotation expansion mid-year, which increased recoveries by approximately 1.5%.
Costerfield gold-antimony mine, Victoria, Australia
Costerfield continued its dependable performance, in which well-controlled costs and a consistently full plant deliver production that is directly related to the grade of mill feed in the period, and cash costs per ounce that are inversely related. Grade variations are predicted well, and generate expected variability in production and financial results. Costerfield’s production of 12,360 ounces gold equivalent in the fourth quarter of 2017 was less than in the third quarter of 2017 due to lower grades. Lower production in the fourth quarter of 2017 compared to the fourth quarter of 2016 was expected, as a year ago Mandalay was mining in the heart of the highest-grade portion of the Cuffley lode and currently is mining lower-grade parts of the deposit. After the end of the fourth quarter, Mandalay committed to develop the Brunswick lode, which resulted in Mineral Reserve additions and an extended mine life for the operation.
Cerro Bayo silver-gold mine, Patagonia, Chile
No production occurred at Cerro Bayo in the fourth quarter. As of the end of 2017, care and maintenance staff (of about 50 employees) is focused on keeping the infrastructure in good condition for restart, investigating the causes of the Delia NW inundation, and obtaining regulatory permits for the restart. Any restart will be contingent on the Company being confident that flooding will not recur in the mines around Laguna Verde and the receipt of all permits necessary for the life of mine plan. The Company is engaged with Chilean regulators to submit high-quality applications based on this work, respond to questions with timely, high-quality answers and achieve rapid permitting outcomes.
Challacollo, Chile
Mandalay completed its water exploration program at Challacollo in the second quarter of 2017, finding sufficient supply of groundwater to support a potential operation. The Company continues to pursue both the achievement of receiving water rights associated with this new source and the environmental permit for exploration drilling to enlarge the Mineral Resource.
La Quebrada
The La Quebrada copper-silver project in central Chile remained on care and maintenance throughout the period. Spending on care and maintenance at La Quebrada was less than $0.1 million during the fourth quarter of 2017.
Lupin and Ulu
The Lupin and Ulu gold projects in Nunavut, Canada were acquired with the Elgin acquisition and are currently held for sale as non-core assets. On October 31, 2016, the Company entered into a definitive agreement for sale of both projects to WPC Resources Inc. (“WPC”), but the transaction was not completed due to a C$9.1 million increase in reclamation bonding requirement for the Lupin project that was imposed shortly before the planned closing date. Subsequently, and due to the bonding requirements, the Company and WPC entered into two separate non-binding Letters of Intent regarding WPC’s potential acquisition of the two projects on terms that are substantially similar, in the aggregate, to those contemplated by the prior definitive agreement. A definitive agreement for Ulu, consistent with the Letter of Intent, has since been executed and the Company and WPC are in the process of negotiating a definitive agreement for Lupin with WPC. During the fourth quarter of 2017, the Company decided to recognize a $1.5 million-write-down at the Ulu and Lupin assets.
Conference Call
Mandalay’s management will be hosting a conference call for investors and analysts on February 22, 2018 at 8:00 am (Toronto time).
Analysts and interested investors are invited to participate using the following dial-in numbers:
| Participant Number: | (201) 689-8341 |
| Participant Number (Toll free): | (877) 407-8289 |
| Conference ID: | 13676606 |
A replay of the conference call will be available until 11:59 pm (Toronto time), March 8, 2018 and can be accessed using the following dial-in number:
| Encore Toll Free Dial-in Number: | (877) 660-6853 |
| Encore ID: | 13676606 |
| MANDALAY RESOURCES CORPORATION Unaudited consolidated statements of loss and comprehensive loss | ||||
| Years ended December 31, 2017 and 2016 | ||||
| (Expressed in U.S. dollars) | ||||
| Year ended | ||||
| December 31, | ||||
| 2017 | 2016 | |||
| ( | ||||