Bradford Mills - Chief Executive Officer and Director

Chris Thompson - Raymond James Benjamin Asuncion - Haywood Securities

Thank you very much. Good morning, everybody.

Welcome to the Mandalay first quarter conference call. I think the most important thing is we just had a very solid quarter, both operationally and financially.

Production during the quarter, everyone has seen, 42,277 gold equivalent ounces at cash cost of $742 an ounce and $969 at the AISC cost basis. Sales are little bit better at 44,711 ounces during the quarter.

Generated $56.7 million of revenue, $24.3 million in EBITDA, net earnings at $12.5 million or $0.03 a share, and cash balances built in the quarter after paying $4 million in dividend, so just very solid all around. I would highlight the Costerfield performance, which was excellent in the quarter, we're seeing real benefits from the completion of the migration to the 10 meters stope heights and very good dilution control resulted in very good grades, which translated into good gold and antimony production and excellent costs and cash flows, so a major contribution in the quarter.

And we expect them to maintain that performance pretty much for the balance of this year as Cuffley continues to be a growing feature in the overall mix in ore production, and so we expect a solid year from them. Björkdal was steady during the quarter.

Production was up a little bit. The costs were in good shape at $797 on a cash basis and $940 on AISC basis.

And we expect progressive improvement over the course of the year as we continue to work through our changed program at Björkdal, and really focus on improving underground mine dilution, particularly towards the backend of the second half of the year. At Cerro Bayo, we're going through a lower grade portion of the mine, at this stage the bottom of the Fabiola and Dagny mines, and we will basically finish mining both of those mines in the next quarter or so.

And the main ore production will transition to the Delia Central section and to the Dalila mine. And then later in the year, towards the end of the year or early next year, we bring in the Delia Southeast wing, which is actually the highest grade vein on the property.

So we expect to see grades gradually improve throughout the year and climb back to sort of standard resource grade certainly by yearend. So a pretty steady, as she goes, at Cerro Bayo during the year.

And at Challacollo, the work program is progressing. We were kind of looking toward the end of the Q2 for market update.

Main activities included water well drilling, the plant and site engineering and cost estimation, so pretty much on track at Challacollo to filing permits towards the middle of the year for eventual construction of that project. Dividends $3.4 million for this quarter, declared $0.0083 per share or CAD0.0101 per share, so good solid dividend performance as well.

And finally, reaffirming total guidance for the balance of the year as per our original guidance we still see ourselves well inside the range. And on both, production and overall cash costs, trending maybe a little bit better on overall cash costs than the original guidance helped as noted in the release by favorable exchange rates and our operational currency in Australian dollars, Chilean pesos and Swedish krona, and also lower oil prices.

So looking forward, we really expect a very solid performance for the balance of the year and kind of similar performances with gradually improving performance in Cerro Bayo lifting overall volumes and helping us a little bit further on the cost side as we go forward. So that's really the wrap up.

And I'm happy to pause and turn the conference call over to questions at this time.

Brad, just a quick question, I guess, on Björkdal. What are you planning on running the mill at by way of throughput, I guess, this year?

Are you planning on drawling that back a little bit as you increase the head grades to the mill?

So currently this year's design is 3,500 tons a day, Chris. And we expect it's to pretty much be full throughout the year.

Longer-term, if we're able to achieve the improvement in grade, what we would expect in the underground mine is lower volumes and higher grade coming from the underground mine, which net-net would be more ounces, but maybe less tons through the mill. So that's one of the possible outcomes towards the end of this year going into next year.

Another possible outcome is, we're having pretty decent success in extending the open pit resources, and we maybe able to offset lower volumes and they concentrated with more open pit ore. And so net, again, overall more ounces both from the underground and the open pit with the grade mix change.

So we're still working through all of that detail as we understand this ore body a bit better, but the best number to use I think at this time is kind of the 3,500 tons for the full year.

And then another quick question on, that is the recoveries were 90%. Any chance we're going to see those increase.

I mean, that's a good figure.

Yes, again, we've just completed the full assay of all of the mills circuits and systems, and there is a whole bunch of findings that will come out of it. We've started to implement some of the improvement programs, replacing some of the older gear, new spirals, et cetera, which should help us.

We were able to achieve a bit better grade in the quarter as well, which attributes much of the lift in ounces. And grade and recovery go together here.

So if you can push grade, we will get better recovery. It's pretty sensitive to that.

So that's a benefit of having a bit better grade performance in the first quarter.

Just a quick question and so far as Cerro Bayo, just to dig into how you see the grades unfolding for the remainder of this year? And so far as, I guess, when we start to over quote it, we really start to see the grades pick back up?

And then, just on, I guess an update on the exploration efforts that are going on there at the mine?

So one of the arts -- less science and more art in my planning is grades, as you know, in terms of trying to get those exactly at predicted rate. What we're finding is as we get to the bottom of these ore bodies, where they are less continuous and they're basically -- if the metaphor is you were mining the two, which was solid up at the top, you're now down on the roots, and you have this kind of spiky high grade with mix with patches of low grade.

So the grade has become significantly less sort of stable or predictable in the bottom couple of levels at both Dagny and Fabiola. We anticipated that, but the Björkdal mine was performing less consistently, let's put it that way, at those last couple of levels.

And so our grade estimation has been a bit of a swinging around in mining out those basically the last two levels. So I think really the issue is more this transition from the bottom levels of those two mines to the Delila and to the Delia veins section and eventually to the Delia Southeast.

We should see that, as I said, progressively through the year as the tonnage mix changes and we are currently for instance in the development mode in Delia, so we're starting to get some good grade development ore, we're not yet stoping there. We are also in the largely development mode in the Delia Central section, and we'll start stoping there.

So again, I think we should see progressive movement over the next three quarters back to kind of sort of standard reserve grade. And as soon as Delia Southeast comes on, I think in the beginning of the next year, we should see a lift backup to sort of the 250 gram kind of range, but I don't want to be more prescriptive than that just because you're in kind of a variable zone in the mine right now, and it can be a little bit unpredictable, but I would think about it as pretty much kind of the steady progression as a good way to think about it.

On exploration Cerro Bayo, we continue to infill drill and extend the main discoveries we made last year on Coyita and Yasna and so all of the drilling is currently focusing on converting Inferred and extending those resources to build reserves for the balance of this year. We're also going to do quite a lot of testing of additional targets in that area, under the lake -- throughout the lake area as the year goes on.

So hopefully, we will have a lot more information as we get into the second half of year about what the overall systems looks like, but the early going this year has been pretty much as expected in terms of conversion of the Inferred is building up the overall resource towards replacing or growing resources for yearend. So that's where we are at the moment.

And then maybe if I can sneak one last question in here, just in so far as Costerfield, is there any more regional exploration aside from the kind of infilling in reserve conversion that's planned for 2015?

Yes, we actually have a number of very interesting high priority targets at Costerfield, both in the underground and the regional basis. We've had some significant success continuing to drill deeper in the Cuffley lode area.

We're going to do a major test of drilling underneath the King Cobra Fault, which is a major bottoming fault as you probably remember. We have two drill holes that have already gone through that fault and both intersected some very interesting mineralization.

So we have high hopes that we will be able to add significant amount of additional resource, probably more in the Inferred category than in the Measured and Indicated by yearend. We are also looking at a number of potential new veins and new veins extensions in the geometry of the whole horsetail fault mineralization area that is N-Lode and Cuffley.

And then finally we have this very big regional anomaly, surface anomaly that's a little bit further to the northwest, its about 5 kilometers from the current portal where we have this very big top-of-bedrock geochem anomaly that's 2.5 kilometers long and about 200 meters wide with extremely anomalous gold and antimony values, where we will probably do at least one pass of drilling this year, maybe 10, 15 holes to try and understand the overall sort of opportunity in that untested system. So there is quite a bit that's happening there.

And again, much more will happen in the second half of the year on the testing of new targets. We've had good results in terms of infill and the extension drilling around the Cuffley lode so far this year, so again I think our look forward about the likelihood of replacing reserves this year looks very, very good, and then hopefully have maybe a fair few number of additional Inferred mineralized veins, hopefully tagged by the end of the year.

So thanks everybody for being with us this morning, and again just want to reiterate that we're very pleased with the quarter results and off to a very good start for the year. And just thank you everybody for being with us this morning.

And of course, happy to take any additional calls either through Greg or through myself over the course of today and tomorrow as you digest all this information. So thanks for being with us and look forward to speaking to you all next quarter.

Thanks very much.