Bradford Mills - Bradford Mills

Ben Asuncion - Haywood Securities Chris Thompson - Raymond James Michael Parkin - Desjardins Capital Markets

Thank you very much. Good morning, everybody.

Welcome to the Mandalay’s Q3 financial operational conference call. Let me start out just go up through the operations and give some flavor on operational performance, and then touch a little bit on financials and production guidance for next year.

If we start with Costerfield, had another excellent quarter, both production and costs all-in 10,930 saleable ounces of gold and 964 saleable tonnes of antimony in the period, a cash cost of $553 per gold equivalent ounce and all-in costs of $763 gold equivalent ounces during the period. But Cerro Bayo production was somewhat impacted by the last few days of the strike in July, and a continued lower grade of ore mined, as we mine out the bottom on the Fabiola and Dagny mines.

Production was 5,305 gold ounces during the period and 632,498 silver ounces in the period. And cash costs of $8.31 per ounce of silver net of gold credits, and all-in costs of $15.18 silver net of gold credits during the period.

At Cerro Bayo, we expect to experience better grades as we go forward and can complete the mine out of the Fabiola mine in the fourth quarter and start adding Delia Southeast development ore and then complete the mine out of Dagny mine the first quarter of next year, where we’ll be fully transitioned to Delia Southeast to Delia Central and the beginning of Coyita mine production from the end of the first quarter onward next year. At that time, we expect grades to recover to the normal ores grade of around 250 grams of silver per tonne and 2 to 2.5 grams of gold per tonne at really in the second quarter of next year.

And both of our operations were impacted by some seasonal summer issues, which are normal slowdown issues in the Swedish summer. We took some effort to try a little bit, but we still experienced a bit of that.

The other key impact was a number of operational changes that we started to commence in the quarter. This resulted in production somewhat below prior quarters at 9,761 ounces of gold production at cash costs of $934 per ounce and all-in costs of $1,110 per ounce.

During October, we started the first significant change in the underground mining operations, where we’re segregating in real-time the grade of development or based on real-time assays, and then the month jus tcompleted. We saw that we can reject up to 30% of the material from the development ore that was previously mills, which essentially contains no or little grade.

The impact on grade is about a 50% improvement in grade to mill as a consequence of implementing that process. So that is the first real evidence of our ability to start to shift the grade in the underground mine and we will expand that program to include stoping ore over the next six months.

So we are something really been able to experience progressive improvement and grade performance in both dollars as we go forward and start to impact the operating culture in that mine. At the same time, we’ve previously noted, we have replaced the general management there, and we’ll have a new general manager starting out in next few days.

We also think he’ll provide significant guidance and leadership for the team and [handful of guiding habits] [ph], achieve the transition through a higher grade and more probable operation. Overall financially, we’re on track to deliver record year for production, revenue, and possibly our second best year ever on EBITDA basis.

And that is despite obviously a significant lowering gold and silver prices. So the business is performing well on a financial level and generating significant cash flow sufficient to cover its capital expenditures exploration and difference.

Looking forward to 2016, we have – we see a slightly better production profile emerging with some shifts with Cerro Bayo and Björkdal, both performing somewhat better on the back of higher grades in 2016 and cost of fields were performing slightly lower, so producing slightly less gold antimony on lower grade expectations next year. Overall about 5% to 6% increase in planned production in 2016.

When we look at the cost guidance and the overall cost guidance, there’s one thing that to note the budgeted assumptions for foreign exchange in that are $73 – $0.73 U.S. dollars per Australian dollar, Chilean peso of 674 per U.

S. dollar and 8.4 Swedish krona per U.S.

dollar. So for those who are trying to track that, that’s the exchange rate that’ll be used in counter patient on the cash and on costs.

As a conclusion, Mandalay operations continue to perform well in a challenging price environment. We’re strongly cash flow positive and able to cover capital expenditures, exploration and dividends more gradually building cash.

We continue to evaluate acquisitions in a current stressed environment and we’ve seen a number of opportunities and we’ll continue to see if any of those meet our overall investment criteria. Over the next couple of months, our planned news flow with a year-end production reporting in January, followed by our exploration update, and then a little bit later with the year end financials, and then new reserve and resource results, which will come in February – in the February.

So let me go ahead and pause here and open the call up for questions.

Good morning, guys, and congratulations on the solid quarter. But just two questions here.

I guess, Brad, if you can give us some color on what some of the efforts that you’ve been doing and so far as lifting the grades at Björkdal? And how how those options that you’re evaluating, I know, you’re looking at some pre-sorting as well as obviously implementing a new mine plan to target higher grades.

Can you give us some color on how that’s working and how that would translate sort of throughout the year in terms of what we should expect for grade improvements?

Sure, Ben, let me try and tackle this. There are three key things that we’re focusing on in the next six months at Björkdal.

The most important impact that that we’re now able to take advantage of is the development in assay turnaround times that allow us to real-time sort material, as it comes out of mine. The first application of that has been in the separation of the development ore or on being development ore and where we do chip samples of every phase for front, back and sludge samples from the drilling, and then place all of that material in stockpile until we get those results back in about two days, there days right now.

And then we’re able to segregate that based on ore and waste. And as I mentioned on the call that will allow us to segregate – we’ve seen about 30% of the material gets rejected in that process.

And the residual material grade increase, it’s about 50% plus over where we traditionally have been placed in the concentrator. So what’s that obviously telling us is that, there was a lot of material that was being processed that has no grade effectively in historical performance.

The next thing that allowed us to do is obviously build a much different stoping plan as a function having that assay information on the level above and below the stope design. And so we wind up with significantly different stoping lines as a consequence of that.

And that will have a significant formal impact on the grade of stoping ore, but we expect essentially similar kinds of improvements in results here. Mining less waste and better quality ore being delivered to the concentrator.

It takes a little bit of more time to develop the stoping strategy to go with the ongoing control. And that’s very much a focus of our work over the next three to six months to change the design of stopes.

And we’re doing a few things there, obviously, using the same kind of long section technology that we use at our other mines, but also putting a lot more effort into engineering the stope design. And so making sure that we’re mining the quality portions of the veins.

And we’ve seen a number of issues with the stope is on in historical mine. One major effort there will be to reduce the stope by its – from the current 20 meter design to 15 meters to allow for better control of the veins within the stope intervals.

We’ve seen a lot of instances where total 20 meters, they actually – this mine outside of the vein, the vein disappears in the wall and actually like we’re just mining waste. So those changes will be implemented over the next six months.

And then the third impact is, we have a major trial ore sorting and we’ll start in May of next year. We had very good results in our test that we did this year.

And, again, we saw that we were able to reject about 30% of sorted material with potentially mill grade and add 50% to 60% better grade in the routine material containing 95% of the gold. So we will do a 30,000 tonne test starting in May.

And if that is successful, we’ll probably just rule that out in terms of – and just implement that as part of no operating practice and acquire more solutions. So those three things all, we think all are very material impact on the grade performance.

And we’re not forecasting exactly what that will look like in terms of the outcome, because there are obviously a few moving pieces around that. But the goal is to try and over the next six to 12 months get the mill grade up to the reserve rate of around 2 grams.

And if we’re able to achieve that then we’ll effectively, yes, the production rate we like is – we think is in the right number for this operation input.

Okay. Thank you.

And the proportion of ore that you’re looking at next year in terms of a blend between open pit and underground. Could you just give us a sense of what that split would look like?

Ben, I don’t have that number right in front of me. Let me get back to you on that one, but I just don’t have in front of me right now.

Okay, perfect. And just one last thing then.

At Cerro Bayo in the Southeast when do you – how do you see the grade improvements sort of laddering in? So when do you see, I guess, obtaining that kind of study, say, production mix and grade in 2016?

Yes. We’ll be in a kind of steady state by from the second – should be from the second quarter onward next year.

The sequencing is that the Fabiola mine finishes in the fourth quarter this year. So we’re starting to add some development work on Delia Southeast in the current quarter.

And you should see that in terms of a lift of silver and gold production in the fourth quarter versus the third quarter. That will continue sort of we’ll get progressively into the first quarter when the Dagny mine completes its stoping out of the lower level of Dagny mine.

And we start commencement of steady state stoping ore in Delia Southeast from – into the second quarter of next quarter, which point we – our ore sources are all Delia Central, Delia Southeast, and development ore coming from Coyita at that time, as well as the Delia will also be producing ore throughout next year. So really by second quarter next year we should be back to kind of normal reserve base.

Prefect. Thank you very much, Brad.

Congratulations, guys. Another good quarter.

Two quick questions here. Could you just comment on what your sense is for reserve results replacement when you – obviously on the back of exploration, results delivered to-date this year?

So, Chris, without promising what the exact outcome, I think we’re on track to replace reserves and recourses for the year. We’ve been doing a lot of infill drilling and mere mine extension drilling, particularly at Cerro Bayo.

More of the effort at Coyita fields has been on essentially looking for a new vein system to replace the gradual depleting company load. We should have some hopefully interesting things to say about that by the time we get to the exploration report.

But the expectation overall, I’m sorry, in Björkdal, we’re – I think we’re on track to probably dollar replacement years away, because we’re significantly beyond that. So I think overall we should replace reserves and maybe growing a little bit.

But also probably have an interesting sort of portfolio of high grade, high-quality targets that we’ll focus on for 2016, where we’ll remain be in a better position to significantly add resources going through 2016.

Great. That’s good to hear.

Thanks, Brad. And you mentioned a little bit on the M&A strategy.

I wonder, if you could just unpack what sort of targets you’re looking at by way of production? I know, we’ve spoken before about margin as well, but if you just talk through that a little bit, and what sort of value do you see in the market today if any?

Yes, absolutely. So our objective at this point in time is to acquire production.

We’re targeting sort of 100,000 annual motional ounces. This is kind of the basic units.

In the marketplace what we’re obviously seeing is significant amount of stress, it’s emerging over the last three months. We’ve seen some rather spectacular train racks.

We know some of them are large, not we being specific about them. Obviously, our focus is on distressed assets that we can add significant technical input to improve.

And so that remains kind of the challenge to look at some of these assets and look at what we do we’ll produce this better result and what might be otherwise achievable, and therefore add significant value. I think beyond that, I probably can’t say too much other than there’s a very active covering force at the moment.

Okay, great. Thanks, Brad.

Hi, guys. Congrats on a good quarter.

Just a follow-up question on Björkdal. Regarding the – you mentioned already in the operating results that were previously released that you have a seasonally weak period than the third quarter due to kind of heavy absence of employees because of the holiday season.

Is there any plans to basically build the stockpiles, I think there’s some discussion around that going – on a go-forward basis to have something in place to run on when you’re understaffed in the mine on a temporary basis?

Yes, I think that’s very much the objective is to try and smooth out that seasonal issues with employment that impact production. And that will probably be a combination of some building in the stockpiles during the series that lead up to that.

And also probably better management of the workforce. So that we don’t end up piling all of our vacation into one or two months and then back to our overall production line.

It’s a bit of a cultural issue, I think that bringing in new gentlemen, Andrew, will help ship some of that and I think it’s a – the intent here would be to see if we can resolve that issue in a useful and helpful way for both the company and employees. So the answer is broadly, yes, and I don’t have a specific answer exactly how we’re going to fix it.

We took some steps in the current year, it worked partly successfully, we’ll have it successful as a result.

Okay. All right.

That’s it from me. Thanks, guys.

Well, thanks, everybody, for being on the call this morning and for those very helpful questions. I really I had nothing more to add other than we’re looking for a strong finish to the year.

And going into 2016, both in a strong financial and operating position and good position to achieve our capital exploration programs and continue to lower value through dividends to shareholders. And we’ll continue to look for value-add acquisitions, as we move through this current distressed period in the gold price.

Well, thank you, everybody, for being on the call today, and look forward to talking soon. Thank you very much.

Thank you.