Interview with Frazer Bourchier, President & CEO of Mandalay Resources Corp.

Recording date: 12th September 2024

Mandalay Resources (TSX:MND) presents an compelling investment opportunity in the gold mining sector, offering a unique combination of strong cash flow generation, high-grade operations, and a clear growth strategy aimed at achieving mid-tier producer status.

The company operates two primary assets: the high-grade Costerfield gold-antimony mine in Australia and the larger-scale Björkdal gold mine in Sweden. Together, these operations produce between 90,000 to 100,000 ounces of gold equivalent annually, generating substantial free cash flow of $50-70 million per year. This cash flow generation is particularly noteworthy given Mandalay's current market capitalization, with CEO Frazer Bourchier stating it's "approaching half our market cap."

Costerfield stands out as one of the highest-grade gold mines globally, with average grades ranging from 10 to 15 grams per ton. This exceptional grade profile allows for robust margins, with Bourchier noting a 100% margin on Mandalay's relatively small 400-ton a day plant. While Björkdal operates at lower grades, efficient operations and favorable conditions, including low-cost green power, enable it to maintain healthy 40% margins.

Mandalay's growth strategy is twofold. First, the company has doubled its exploration budget to $10-15 million annually, focusing on both near-mine opportunities and regional exploration. This increased investment aims to extend mine life and potentially grow resources organically. Second, Mandalay is actively pursuing strategic M&A opportunities to accelerate growth.

The M&A strategy is disciplined, targeting producing assets in tier-one jurisdictions with a preference for "friendly" combinations. This approach is designed to create value through increased scale, improved market presence, and operational synergies.

An interesting aspect of Mandalay's operations is its antimony production at Costerfield. Recent price increases have significantly boosted the value of this by-product, though management maintains a conservative approach in their planning, viewing it as potential upside rather than a core part of the investment thesis.

Mandalay's management team, led by industry veteran Frazer Bourchier, emphasizes realistic goal-setting and consistent execution. This focus on delivering on promises is crucial for building investor confidence in the often-volatile mining sector.

Key investment considerations include:
Strong cash flow generation relative to market capitalization
High-grade operations providing robust margins
Clear, two-pronged growth strategy
Potential antimony upside
Experienced management with a conservative approach

Risks to consider include execution risk in the M&A strategy, gold price sensitivity, and potential liquidity constraints due to concentrated share ownership. In the current macro environment, Mandalay is well-positioned to benefit from industry consolidation trends, the premium on assets in stable jurisdictions, and growing interest in critical minerals like antimony. The company's focus on organic exploration also addresses the industry-wide issue of reserve replacement.

For investors seeking exposure to a cash-flowing gold producer with significant growth potential, Mandalay Resources offers an attractive risk-reward proposition. The company's strong existing operations, coupled with its strategic focus on both organic and acquisition-driven growth, position it well for potential value creation in the coming years.

View Mandalay Resources' company profile: https://www.cruxinvestor.com/companies/mandalay-resources-corporation

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