Mandalay looks for discounted opportunities

The strategy at gold and antimony producer Mandalay Resources (MND-T) is to find assets that can generate enough cash to grow themselves, as well as fund the next acquisition. So far, that strategy appears to be working at the junior’s mine in Australia.

Mandalay purchased 100% of the small but high-grade Costerfield mine in Australia from Western Canadian Coal for US$10 million at the end of 2009. Last year, the mine produced 7,661 oz. of saleable gold and 1,106 tonnes of saleable antimony.

In the first six months of this year Costerfield has already produced 7,384 oz. of saleable gold and 925 tonnes of saleable antimony.

Western Canadian Coal inherited the mine when it merged with Cambrian Mining, and Costerfield became “an orphan in their large portfolio of coal mines,” Mark Sander, Mandalay’s chief operating officer, says.

“Our hallmark is looking for deeply discounted properties with unrecognized exploration, operational or commercial upside,” he explains. “We then realize value not only from the ongoing cash flow, but also for bringing the upside to market awareness – extended mine life, lower costs, expanded production, or whatever.”

The Costerfield mine – 100 km north of Melbourne – is small, but Mandalay hopes exploration of several veins in and around the mine will add to its reserves and resources. The company has two drilling projects: the Augusta Deeps project, where it is focusing on infilling and extending the W-Lode ore shoot to depth in the existing Augusta mine; and the Brownfield project, in which the company is drill testing targets for new shoots along strike of the E- and W-Lode north and south of the Augusta mine. 

Mandalay has earmarked US$4 million for exploration at Costerfield this year.

So far its Brownfield project has expanded drill targets beneath inferred resources previously reported on the N-Lode East and N-Lode West veins, and also discovered a potential new mineralized shoot beneath the historic Alison mine workings 500 metres north of the Augusta Decline.

“The Brownfield program is testing below all the veins in the district that were mined in the late 1800s and early 1900s,” Sander says. “There are a number of historic mines, none of which have ever had modern drilling on them. We’re focusing on Brownfield projects on old veins near the mine because we can get to them quickly from the Augusta decline.”

Two assays from the Alison vein, taken from two drill holes 50 metres apart, yielded 1 metre of 3.5 grams gold per tonne and 27.6% antimony, and 1 metre of 7.4 grams gold and 27% antimony.

So far Mandalay has tested half of its planned targets in the Brownfield project.

Meanwhile, its Augusta Deeps exploration program is drilling the vertical extent of the W-Lode, which is open at depth. Drilling from January to June generated 15 new intercepts on the W-Lode, 10 of which were above the mill feed cut-off grade of 2.9 grams gold equivalent per tonne over 2 metres, the company reported in August.

Drilling has also determined that N-Lode ore shoots in the east and west veins are open at depth, and could measure 200 metres to 300 metres or more in length, the company says.

The company is accessing three veins through its Augusta portal and mining the W-Lode, East Lode and North Lode.

Ore is hauled 2 km to a concentrator at Brunswick, a formerly producing open-pit mine on the company’s property that is now used to store water. The concentrator produces a gold-bearing stibnite concentrate by standard flotation methods, and the concentrates are trucked to port and shipped to Chinese smelters. 

Costerfield has proven and probable reserves of 88,200 tonnes grading 9.9 grams gold per tonne and 6.1% antimony.

Measured and indicated resources amount to 273,814 tonnes of 11.4 grams gold per tonne and 6.6% antimony, and inferred resources of 245,753 tonnes with 8.9 grams gold per tonne and 4% antimony, Sander says.

Mandalay plans to complete a new resource estimate before April.

“The key to growing to improving this mine is to get a major second source of ore,” Sander explains. “The W-Lode and the
E-Lode are producing at the highest rate they can, because the rate of production is constrained by the dimensions of the ore shoot. The N-lode is providing a small flow of additional ore to the mill, limited due to its small size and limited access. But we’re hoping that the Alison discovery could be a source of a significant volume of high-grade production to increase the total output of the mine.”

Mandalay also owns the Cerro Bayo mine in Chile, which the company reopened last year. The mine produced 284,324 oz. silver and 1,552 oz. gold in the second quarter of 2011.

At presstime Mandalay traded at 67¢ per share within a 52-week range of 25¢ and 97¢. It has 268.8 million shares outstanding.