Mark Sander - President & CEO Sanjay Swarup - CFO

Craig Johnson - Scotiabank Mike Parkin - Desjardins Capital Markets

Thank you. Good morning everyone and thank you for joining this call early Friday morning and also I would like to thank you for your patience as we delayed actually this call by 24 hours to make sure that we got the numbers right for this morning's call.

I would like to make a few remarks just to summarize what we released and really spend the most time on your questions. Well looking back at 2016, just in summary, we generated $186 million of revenue, $51 million of EBITDA, and that led to $2.5 million loss before special items.

The special items that we discussed in the press release and the MD&A include $10 million impairment for the reserves of finding Cerro Bayo and I will discuss those more in a couple of minutes. And we had already taken $4.2 million at Cerro Bayo in Q1 of 2016.

So that makes a total of about $14 million at Cerro Bayo. And then the other major item is there is a change in the Chilean tax law that disallows the cost of declamation after mining have stopped that at the end of any mine life, not just ours.

And that we had to essentially disallow $4.8 million of taxes, tax assets, or to deal with that new Chilean law. Moving to -- and we ended the year with just about $67 million in cash.

In terms of headlines I'd like to actually move Cerro Bayo to the end of the list of operations because I'm sure there will be the most questions about Cerro Bayo. But we are really happy with where we enter 2017 in Björkdal and we have had now almost two months of crushing the low grade material and count we actually do get a 50% upgrade in the gold content of the low grade material which really puts the floor on the lowest grade of mill feed we can expect in about 0.95 grams per tonne.

And there is lot of left out to process so and we're adding to it with B quality ore everyday mined from the plant. If it's well the flotation expansion project is contract for commissioning in Q3 and we continue to really implement the grade control as prior call last year and our level of confidence in our ability to accurately tell us with counting and optimize the short-term plan to produce the best outcomes in a rolling three-months period is growing every day.

In 2016, Costerfield was our real backbone. It generated almost $24 million in cash for the company and really generated no surprises on either way upside or downside there in operation that is in really good control and the team there is just fabulous in keeping the mine in the group.

Let's turn to Cerro Bayo you will have seen that we did decide to take an additional $10 million rate debt. And that is delinked to emerging new findings of great distribution in Delia South East as we open it up.

The actually impact won't surprise anybody. We've singled that for the last couple months of press releases and the full impact on the reserved numbers we will be coming out with next week, but they won't surprise you given the financial impact we took for the mine.

The change in the reserves along Delia South East does impact the revised guidance for 2017 performance since Delia South East is the major source of no fee in 2017. So we have downgraded both the ounces and elevated the cost per ounce at Cerro Bayo and then that's fully now reflected on page which page -- page four press release.

We have reduced capital a bit at Cerro Bayo as a result and we have also reduced capital a little bit at the other operations to offset the impact of reduced cash flow from Cerro Bayo in 2017. The reduced capital at the other sites will not impact 2017 production have [ph] and we also have taken a 10% reduction in headcount at Cerro Bayo to manage the optimization of cost during 2017 in this period of time.

It does remain an upside at Cerro Bayo and we want to talk about this with 100 Lakes we have not able to reach consistently the targets in the middle of the lake. If we have scattered very high grade intercepts that we have not been able to put together into any kind of inferred or indicated resource.

Part of the revised capital plan at Cerro Bayo is actually to reduce the meters of capital development may be to get across the lake and accelerate that so that we will be able to start drilling in that area by the end of this year and look forward to seeing how those fold together. And there are a few surface targets not immediately within a verdict that remain on our list attached during the first half of this year.

So I would like to close by really thanking you for your patience again. As we've gotten our 2016 firmly into place and I'm going to answer questions.

Yes hi guys, good morning. Thanks for taking my call.

Couple of questions here, I'm going to start with Björkdal. Pretty surprised by the cash cost number at Björkdal for Q4.

Can you may be just speak to what happened there and that say you're confident in your 2017 guidance because that would be a step change lower off of the Q4 number?

Yes. So the numbers to watch at Björkdal is actually the total cost of sales.

The issue with Björkdal is we were getting on the new mine plant that was basically published in the 4th of December and there is an increase stripping in capital dollar rates, we're not learning that capital operating developed rigs I'm sorry to get on that plan. So real cost did rise.

What's happening now is, as you recall and as we discussed earlier September and October and November grades remained low and actually what's up a bit transpiring is that we knew that they start coming as where we were in the mine plant and they also predicted actually the fabulous December that we had. That's why they're confidencing us being able to predict with our great control that is coming at us, it's growing and the real drives in the cost per ounce is that again we were elevating our stripping and development rates and only had essentially one month of upgrades to deliver as we go forward into 2017.

The ability now to adjust for areas of low grades that we see and high grades that we see to mine plant by mine plant is better and we will not see those month periods of normally low grades and therefore the total ounces produced is pretty higher.

Okay.

Across which to average out the cost per ounce.

Okay. Would it be fair to assume that cost per ounce are likely to decline throughout the year or do you see it as being say a steady figure?

Well I think it will decline through the year. We are on quite a provider, what I will call continuous improvements in not only what we mine but how we mine it and there are a number of projects going on to impact that.

The other thing that happens at the end of the year is that we commission -- in the third quarter that we commission the floatation expansion consisted of 1.5%, 1.8% increased recovery which again is more ounces and those come at actually zero extra cost. But that again we will write-down the cost per ounce towards the end of the year.

Okay. And then just on the consolidated cost base exceeding consolidated cash cost exceeding the revised guidance, what would you say was the driver of that and what did you guys not see?

The main driver is its emerging great shortfall at Delia South East and if you look at the Cerro Bayo cash cost in Q4 they were pretty high.

Yes.

We did a great job in managing their total spending rate with this reduction in cost and so on. But the ounces, just again we were counting and we were actually I think [ph] we were signaling the expected return to grades in Q4.

And as we got into the deeper levels of Delia South East, there those didn't happen. And we've now again we've revised the reserves estimate on that in the plan from a whole gain and to understand the significance for the entire life of mine and that's what the revised guidance is based on.

Okay. I guess good transition to Cerro Bayo is with respect to the -- it seems to be a trend say over the past year of having more say lower ore or issues as you go deeper in some of the events.

Do you see that as a continued trend or is that do you guys believe that is isolated to the veins that remind in 2016 and Delia South East?

Yes that's a great question. So in Coyita, the bulk of the Coyita reserves is in Coyita Southeast.

And if you look at the geometries there all through last year in order to in-sale the Björkdal, we had actually drill through Coyita. And so we not have Coyita intercepts that supported the original resource announcement couple of years ago.

But we now also have essentially twice the mine intercepts that we gained as we drill through the Bunka. Well the density or the abundance of drilling in Coyita is much higher than it was in Delia South East.

And one of the things we can talk about next week when the full resource and reserve statement comes out is that again we have some inferred material in Coyita Central under the lake and again we expect to be able to upgrade. And then the other major source of future production is Marcela and Marcela geologies are quite different in fact years ago when core was mining Marcela, Dominic is our announced COO was down there and he has pictures of the vein and we have not only the drilling but the old underground production sampling.

And so the actual basis of data points to support that reserve are quite strong. We at this point we're pretty confident about again Delia all right Coyita South East and Marcela.

Okay, thanks Mark. And with the evaluation or the impairment at Cerro Bayo, I get say a new carrying value of $34 million roughly and using 1275 Gold and 1850 silver I think is what was in the financials, do you know what was in that estimate, was that only reserves is there some inferred resources that were added as part of the mine plant to calculate that carrying value?

Great. First of all I think it's higher than 41.

Yes. So the carrying value were 61 for Cerro Bayo it is down actually and now it's going to be 51 compared to that.

Sorry I missed that.

So the previous carrying value of Cerro Bayo was $61 million and it is now $51 million and not including that $4.8 million tax this year.

This question is that the model that we said that will include just reserves or some other materials well so --

So it includes some inferred but not so much embedded material yet to be discovered.

Okay.

They inferred has been profitable to Cerro.

Yes. The inferred has been discounted for historical -- historical of conversion to indicated and proven or probable.

Okay. And then is it fair to like as we say, as analyst update our models today awaiting reserves next week.

Is it fair to with respect to -- I'm trying to take a guess at what the lower grade would be Delia South East. Is it fair to just take say the new guidance versus the old guidance at Cerro Bayo assumed the same tonnage and that's kind of your -- that's your new grade?

No, what will show up is that the grade is weighted towards the last, that the later years to mine plant. This year with the -- another low grade year and it will raise in the following three and that will be clear that but let's wait till next week when we can chat about that when that's disclosed.

Okay. Are you able to disclose what grades you're assuming for this year for Cerro Bayo?

Certainly think about that. I would -- we don't usually that and I think if you look at the Q4 actuals.

Okay. That will give us a good sense.

It will be up bit higher than Q4 actuals but our operating cost will be a bit lower because of the reduction in force. We basically gone from down to three mines -- three mill shifts from four so to match the mine up with the tonnage.

Okay, got it. And then one more for me just on the reduction in capital at the other operations is it fair to just assume that that capital was pushed into 2018?

The capital that we reduced so some of the capital did come at Cerro Bayo where we figured out a permanent way or a like a mine way to mine all of Coyita South East with less capital. We've also reduced some discretionary spending around fairly start on selecting and permitting that the next challenge.

At this moment we are building sort of a last list on the Cerro Bayo tailing dams, and we are postponing starting work on where the next tailing dams would be pending this exploration under the lake before we end up. At Björkdal the success of this training program for the low grades means that we can actually without giving up any total output postponed the capital or starting point that produces about same grade material as the screen finds are producing right now so we do the screening for no capital at all.

There is actually what we're telling about there is optimization of that -- of our plans for upgrading low grade material. And at some point we will put in the sorting plan and we made the much less of the sorting plan that we thought as far as integrate into our material flow through primary pressure.

So we're working on that as we speak. And then at Costerfield good capital reductions were minor things doing that.

Okay.

We have restarted our capital development at Costerfield to access some new ounce of mineralization that entered you'll see next week have entered reserves plan and we'll show them next week. And we are still working on put the right spending on the new drums we're paying us and again we'll have something say about that next week.

Hi guys thanks for taking my questions. I got a sense of what your depreciation could range between for this year?

In terms for this year you mean 2017 or 2016?

2017 in terms of with the write-down what? Can you give us guidance in terms of what that should kind of ballpark be?

Just a minute we're huddling here. We have got again I guess --

I will follow-up after the call.

Are you asking for Cerro Bayo or are you asking for the company?

Companywide?

That what I would say on there is what you can do is next week when the reserves come out, same thing we have on the books and depreciate it over the life of mine ounces that will show up in the reserve statement and estimated calculation that's how we do it and I don't think I can do it for you without it.

Okay. Can you just give us some color in terms of how you're seeing the Antimony market?

Is it --?

Actually that's a great question. The Antimony price has been climbing, it went up another $150 it's now precisely I can't tell you but it's like about to me $700 and we're not surprised.

The industrial markets are stronger than feared in China and they have in 2016 when the price was quite low, there was quite a bit of domestic production curtailments and we do know again that we are the most profitable concentrate are the Chinese Antimony Gold Smelting industry. And again this is not hot news this is like customers [ph] in China, which was a year ago but they had decreased their imports of other concentrates without the gold content in that and in favor of making what is much a large as which we can give it.

And do you have a sense, I remember you guys have talked about there was a inventory it was selling it back into the market. But think of it about a year ago that kind of help drive that weakness, is that pretty much all behind us now or do you have a sense on that?

I could -- I actually don't have that information at the tip of my brain. I don't.

Okay, no worries.

I can, yes I don't, I'm sorry.

Okay. Again thank you for being on the call and what I really want to point first in closing is concluding remarks on my commentary in the press release and yes we've had a bit of a breakdown at Cerro Bayo.

What has really hardened to me is the speed at which the guys at Cerro Bayo got on with it and figured about change or figured out the impacts on reserves, optimized the mines around that, and are now focused on doing the asset best they can with 10% fewer people and bit less [indiscernible]. The agility is something that we at Mandalay provide ourselves on.

I would say it's also showing up in the Björkdal now is every week getting measurably better at optimizing the ounces and telling us what's coming. Thank you, Björkdal.

So and then again Costerfield has gotten to the point where we're really over with the Antimony problem with years ago and wire handling issues there are well with that, looking forward and dealing with these things before they hit and have a financial impact. So I'm really positive through and learning really how agile and problem solving they are and I think that will [indiscernible] good steps as we keep and capture our next round of acquisitions.

Thanks very much.