TORONTO –
Sweden, Australia, Chile.
Two top executives own 8.5 percent of the
shares. Six percent of trailing revenue dividends to shareholders four times a
year. “No additional capital raising.” That is a direct quotation. No debt
raising either, the boss says.
Gold equivalent production will grow to
300,000 ounces from half that currently.
Mr. 60-year-old CEO seems to live the themes
he touches before an audience of 150 experienced investors.
His name is Bradford Mills. The
company is Mandalay Resources (TSX: MND). His
surname fits the resource business. The company ticker rhymes with find.
The dividend word I am searching in my financial dictionary.
I own Mandalay because Mandalay bought Elgin
Mining, which merged with the company that owned the Sweden mine: Bjorkdal.
I was fortunate to visit that 25-year-old mine 4 years ago. My coverage
was for TCR, for Ticker Trax and for private clients.
I was early to the far north. Stockholm
IN AUTUMN is a sophisticated city of islands, sushi joints, mod-hotels and edgy
young punks. The Skellefte District around Bjorkdal in northern
Sweden is magical in a way: forested, thick with reindeer, moose, and lemming.
Like a lost continent.
Even after a pouring of the 1 millionth ounce
of gold close to the Arctic Circle there, my thesis (at the time the company
was called Gold-Ore Resources) anticipated a BJORKDAL overhaul
of the mine’s development plan, a systematic sizing up of the open pit and a
switch to a contractor with technological savvy.
Took more time than I figured. I held Elgin
shares, anyway.
Part open pit and part underground mine, the
engineering and geological teams at Bjorkdal since then are said to be
cruising. This is what I hear from the operator of the Sweden subsidiary before
Elgin got it.
Today, Bjorkdal has
150 workers — a metric of efficiency that ranks well among Mandalay’s peer
group as graded by gold-equivalent production.
Mr. Mills, speaking in Colorado a week ago,
sees Sweden rising to 200,000 ounces in two years or fewer.
Mandalay is a producer that pays a 3 percent
dividend — one that could double to 8 percent yearly “if the shares don’t
move,” Mr. Mills said. “I don’t see that happening.”
I know all this sounds exotic, maybe too
cookie-cutter perfect.
Sweden’s hydroelectric power runs Mandalay
about 4 cents per kilowatt hour. Sounds Manitoba-cheap to me. The Sweden mine
is mostly mechanized, and what I understand from earlier principals of the
mine, mill recoveries easily can increase by 5 percent.
Bonus time up
north
Wire-framing Bjorkdal’s underground veins and
robo-shaving the open pit are likely to improve grades. Mr. Mills, who must
have an internal search engine optimizer for his presentations, states
Bjorkdal’s average grade is 2.1 grams per metric ton against 1.5 grams
delivered to the mill(s). A lot more rock is getting shmooshed than needed
before the concentrates are hauled to the processing plant/mill.
In the southern hemisphere, capital
spending in Chile (Cerro Bayo Mine) is $50 million this year and $35 million
next year.
The haul there puts Mandalay ahead of most of
the primary silver and other producers it considers peers. That is regarding
fully loaded costs of mining and cash-flow margins. I own one of those peers,
Endeavour Silver, which has no dividend (as Bill Murray says in GHOSTBUSTERS).
Before I add a note about Australia, let me
indicate the slide that discusses value dynamic. In Mandalay’s case, it
references only Sweden.
Still, the entire slide show has other
references, and so does Mr. Mills’ audio/video. As our TCR family
understands given our 42 months of equity-muck, I no longer will introduce,
track or even discuss philosophy with any company — resources, special
situations, biomedical — that neglects to separate its paper pile from its
fundamental pile.
I think Mandalay has that in its executive
flow charts from day one in 2009.
The Australia Sosterfield gold-antimony
mine is seeing workers reduce stope sizes to 3.5 meters on average from 5
meters. “Costs increase but grades do as well,” Mr. Mills says.
I don’t know Mr. Mills from Eve. Mandalay has
no idea this profile is coming. I added to my Elgin-converted Mandalay shares
this week.
Let me phrase that differently. I mean, I
knew the name. He is a high-flyer who ran Britain’s Lonmin, which
does platinum group metals in a big way. He also called shots at BHP Billiton’s
copper division.
Anyway, when Mr. Mills puts on the record
that his agitation heap-leach in Chile will be doing 4 million ounces of silver
by 2017, and he displays most of the engineering metrics to support the
case, I am in. Makes me wonder why I own non-producing silver companies.
Fumpf,
makes me wonder why I own producing silver companies that have no dividend.
[I already know what those folks will say: But we are growing the
company | the resource | the production | the assets (by acquisition).
Come 2017, if Mandalay does not come close to
Mr. Mill’s orderly targets, I can grind its mill in endless paragraphs of
invective. Naturally, I will as is our custom at TCR refrain
from cuss-words and razor-blade references.
Oh, did I say the company is buying back
shares? All of this information came in 19 minutes, 60 seconds fewer than
required at the Colorado show. Video link here.
TCR rating:
plain-spoken English, 2 a-hems, 1 aww, no body parts, no jargon or
semi-automatic weapons, intermittent bits of smart pacing and clever use of
slides.
I am not going to get into the exploration
side of Mandalay’s Chile silver-gold veins and holdings.
Except to say Mr. Mills sees that exploration
boosting mine life to 10 years “hopefully … and more than covering our mine
depletion.”
The video link
again:
http://www.denvergoldforum.org/dgf14/company-webcast/MND:CN
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