A growing Mandalay remains Desjardins’ top pick

Mandalay Resources (TSX: MND; US-OTC: MNDJF) has bumped up its full-year production guidance after reporting solid third-quarter numbers.

The Toronto-based firm has revised its 2014 forecast to 141,000 to 156,000 equivalent oz. gold, up from 138,000 to 148,000 oz. on the back of record third-quarter output, which includes production from its newly acquired Bjorkdal gold mine in Sweden.

Mandalay churned out 39,021 equivalent oz. gold, which is 6% more than what Desjardins analyst Michael Parkin had expected. He has a $1.50 target and “top-pick” rating on the stock.

The gold-equivalent production included 18,990 oz. gold, 1,000 tonnes antimony and 823,379 oz. silver from Mandalay’s three producing assets, beating BMO analyst Andrew Kaip’s expectations of 17,600 oz. gold, 800 tonnes antimony and 765,000 oz. silver. Kaip has a $1.20 target and a conservative “market perform” rating.

But both analysts agree the stellar quarter was due to Mandalay’s gold-antimony Costerfield underground mine in Australia’s Victoria state, where miners are stoping ore from the new Cuffley lode.

Costerfield delivered half of the gold and all of the antimony produced in the quarter, which was its best to date. The increased production came from higher tonnages mined and processed, with wider mineralization at Cuffley.

The company has also revised its annual production guidance for the mine to reflect higher antimony production and lower gold output, which largely offset each other.  

Mandalay’s flagship Cerro Bayo silver-gold mine in southern Chile contributed all of the silver and 34% — or 6,445 oz. — of the total gold in the quarter. Compared to the same quarter last year, both silver and gold output at the mine grew more than 12% due to improved grades and higher throughput. 

Lastly, the firm’s newest asset Bjorkdal churned out 3,091 oz., or 16% of the total gold production, which wasn’t included in the previous full-year guidance. Mandalay took ownership of the mine on Sept. 10 by acquiring Elgin Mining.

Despite higher production, Mandalay dropped 18% in gold-equivalent sales compared to the year before. It sold 29,572 equivalent oz. gold, including 16,106 oz. gold, 852 tonnes antimony and 467,606 oz. silver.

The decline in sales mainly owed to bad weather at Cerro Bayo, which delayed loading of concentrates at the port. Management expects to ship the delayed concentrates along with the new concentrates in the fourth quarter.

Desjardins’ Parkin adds that this “could prove better financially if metal prices continue to reverse the declining trend in the third quarter.”

In his Sept. 11 initiation report, Parkin outlines his expectations for Mandalay. He says the firm, with the addition of Bjorkdal, could grow its gold equivalent production by more than half by 2015 from its 2013 output of 126,908 equivalent oz. gold. This could bring the company to mid-tier producer status by 2018, he says. 

Along with growth, Parkin argues that Mandalay is a low-cost producer and “one of the lowest all-in sustaining cost producers under coverage. By our estimates, it has the potential to maintain an AISC profile US$1,000 to $1,050 per equivalent oz. gold for the next several years.”

Mandalay shares recently closed flat at $1, within a 52-week window of 77¢ to $1.22.

The company had $69 million in cash and equivalents at June’s end.