Investors looking for lower cost, high grade producers were given another reason to turn to Mandalay Resources (TSX: MND) as the company's Costerfield mine in Australia continues to grow.
The latest study from the mine, which is in Australia's Victoria province and sits roughly 10-km northeast of Heathcote, shows that it will likely be taking gold and antimony from the Cuffley lode, one of four lodes in the area, for many more years to come.
A preliminary economic assessment (PEA) on Cuffley outlines a four-year mine life with total production of 129,000 oz. of gold and 12,000 tonnes of antimony from the high grade deposit.
That should be enough metal to generate an after-tax net present value (NPV) of $67 million using a gold price of US$1,300 per oz., an antimony price of US$9,500 per tonne, and a 5% discount rate.
With those solid numbers, Mandalay is ramping up activity at the deposit as it pushes to convert indicated resources to reserves by the end of the year while finishing off a decline to the depths of the deposit. At the end of July that decline had sunk 286 metres of the planned 330 metres.
As for resources, the deposit now has indicated resources of 133,000 tonnes grading 16.9 grams gold and 5.4% antimony for 72,000 oz. of gold and 7,000 tonnes of antimony. It also has inferred resources of 273,000 tonnes grading 10.4 grams gold and 3.2% antimony.
Mandalay expects that it will cost only $28 million to develop Cuffley, the kind of low cost project that investors favour these days, and it is generating the cash flow to help fund its ventures.
The company recorded earnings before interest, tax, depreciation and amortization (EBITDA) of $11 million in the second quarter of this year on the back of production from its two mines: Costerfield and Cerro Bayo, a silver and gold mine in Chile. The company has also pleased investors by distributing some of its retained earnings back to shareholders in the form of a dividend that is 6% of gross revenues.
Last year Costerfield produced 18,036 oz. of gold and 2,481 tonnes of antimony, with most of the production coming from its Augusta mine. It had proven and probable reserves of 178,000 tonnes grading 8.9 grams gold and 4.1% antimony. As for Cerro Bayo it produced 2.9 million oz. silver and 17,000 oz. of gold. The mine has proven and probable reserves of 2.3 million tonnes grading 241 grams silver and 2.2 grams gold.
BMO Capital Markets analyst Andrew Kaip models life-of-mine production of 273,000 oz. of gold and 33,000 tonnes of antimony at Costerfield through 2019 and values Costerfield's NPV at $69 million using spot metal prices.
In Toronto on Sept. 11 the company's shares were trading for 81 cents. Mandalay has 361.3 million shares outstanding on a fully diluted basis with $23.9 million in cash in its treasury and no debt.
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