The second quarter for Mandalay Resources Corp (TSE:MND) was dominated by the tragic events at the Delia NW mine at its Cerra Bayo asset in Chile.
Flooding at the mine on 9 June resulted in the death of two miners and the suspension of mining activities while the company and the authorities attempted extensive rescue efforts.
Operations remain suspended at Cerro Bayo, the mining company said in its second quarter results statement, and are expected to remain so for the rest of this year.
Suspension of operations caused reduced silver and gold production, and therefore revenue, at a higher cost per ounce than envisaged.
Elsewhere, the company's Björkdal asset in Sweden delivered record gold production during the quarter while the Costerfield project in Australia continued to deliver solid output.
In the three months to the end of June, Costerfield produced 14,300 ounces of gold equivalent, down from 17,023 ounces in the same period of 2016.
The all-in cost per gold equivalent ounce produced rose to US$962 from US$772 the year before.
At Björkdal, 16,112 ounces of gold were produced, compared to 12,648 in the same quarter of 2016. The all-in cost fell to US$1,081 an ounce from US$1,212 a year earlier.
At Cerra Bayo, 359,457 ounces of silver was produced, compares to 462,462 ounces the year before. Gold production declined to 3,174 ounces from 3,818 ounces the previous year.
The all-in cost per silver ounce rose to US$24.05 from US$16.54 previously.
Aggregating the output from all three mines, Mandalay produced 38,491 gold equivalent ounces, versus 39,653 ounces the year before. The average all-in cost per gold equivalent ounce rose to US$1,173 from US$1,095.
Group revenue declined to US$44.12mln from US$54.17mln, reflecting suspension of mining activities at Cerra Bayo.
Adjusted underlying earnings (EBITDA) more than halved to US$12.13mln from US$22.13mln a year earlier. The bottom line turned negative, with a consolidated net loss of US$10.11mln versus net income the previous year of US$3.61mln.
Second quarter results were adversely affected by the expenses of search efforts related to the flooding incident at Cerro Bayo and accrual of estimated future costs stemming from the event. Non-cash adjustments include the write-off of the remaining carrying value of mining interests associated with the Delia NW mine, a loss of $0.5 million of property, plant and equipment, and certain other costs.
“Operations at Cerro Bayo remain suspended pending completion of the investigation of the cause of the event and the risk assessment of restarting mining in the vicinity of Laguna Verde,” said Dr Mark Sander, president and chief executive of Mandalay.
“In addition, the Chilean regulator, Sernageomin, has issued a decree that it must approve a request to reopen based on the results of the risk assessment. This process is likely to add an additional one to two months to the one to two months months needed to complete the risk assessment, making it unlikely that we will be in a position to restart mine development and production this year; therefore, we are providing revised guidance for 2017 assuming no Cerro Bayo production or capital spending for the rest of the year while maintaining guidance for Björkdal and Costerfield,” Dr Sander revealed.
Turning to the company’s operations at Björkdal, Dr Sander said the company is pleased that the grade control program continues to function well and that the actions taken to remove bottlenecks in the open pit and underground mines at the end of the first quarter performed exactly as planned.
“Second quarter results reflected higher than planned mill feed grades as well as higher mining rates and we expect continued good performance from Björkdal for the rest of the year,” Dr Sander said.
“Costerfield continued to deliver dependable performance in the second quarter of 2017, producing 14,300 gold equivalent ounces at a very sound cash cost of $648 per ounce, and at an all-in cost of $962 per ounce. We expect continued performance at these levels for the balance of the year,” he added.
The company recently completed a debt restructuring leaving the balance sheet in “a strong position” according to Dr Sander.
“We have ample funding to maintain our capital investment program in our existing mines, restart Cerro Bayo, and maintain working capital. We also have the ability to act quickly on attractive acquisition opportunities that may arise, which remains a core strategic objective for the company,” Dr Sander concluded.
Shares in Mandalay were down 1.5 cents at C$0.36 in early deals.