Exploration Successes At Costerfield And Björkdal Will Boost Future Production

Key Takeaways

• Emphasis on high-margin production and cost efficiency is set to improve earnings stability and net margins over time.
  
• Exploration successes and a strong financial position support future production growth, amplifying revenue and shareholder value.
  
• Limited reserves and production challenges at key sites, combined with market volatility for critical minerals, risk impacting Mandalay’s future revenue and profitability.

Catalysts

Engages in the acquisition, exploration, extraction, processing, and reclamation of mineral properties in Australia, Sweden, Chile, and Canada.

• Mandalay is focusing on high-margin production and cost efficiency, which is expected to enhance net margins and earnings stability over the coming years.
  
• The completion of the mill conversion project at Björkdal should increase annual throughput, driving potential revenue growth through stable process tonnage and grades.
  
• Exploration successes at Costerfield and Björkdal with new high-grade zones, such as True Blue and North Zone Below Marble, could significantly increase reserves and future production, thus impacting revenue and earnings positively.
  
• The strategic focus on organic exploration and a budgeted $12 million for exploration in 2025 could lead to resource expansion, thereby enhancing future production potential and resulting in revenue growth.
  
• Mandalay's strong financial position, with increased cash reserves and zero debt, provides liquidity for potential inorganic growth or strategic investments to amplify earnings and shareholder value.

Mandalay Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mandalay Resources's revenue will decrease by 0.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 19.8% today to 24.3% in 3 years time.
• Analysts expect earnings to reach $57.8 million (and earnings per share of $0.62) by about April 2028, up from $47.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.3x on those 2028 earnings, up from 7.3x today. This future PE is lower than the current PE for the CA Metals and Mining industry at 13.9x.
• Analysts expect the number of shares outstanding to grow by 0.93% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.92%, as per the Simply Wall St company report.

Mandalay Resources Future Earnings Per Share Growth

Risks

• The mine life at Costerfield remains limited, with just 4 years of reserves net of depletion, which could pose a risk to future revenue and production stability if not extended through successful exploration or reserve growth.
  
• Despite recent exploration spending, the reserves at Costerfield have not significantly increased, which may limit future production rates and could impact long-term revenue growth.
  
• Björkdal's production levels have remained relatively flat at 40,000 to 45,000 ounces per year for several years, indicating potential challenges in scaling production, which could constrain future revenue growth.
  
• The underground grades at Björkdal show a discrepancy between the proved and probable reserves and the higher resource grades, indicating potential issues in converting high-grade resources to operational reserves, possibly affecting earnings efficiency.
  
• Global market volatility and uncertainties around antimony pricing and export restrictions, given its critical strategic mineral status, could affect the profitability of Mandalay's antimony production and thus impact net margins.

Valuation

• The analysts have a consensus price target of CA$7.254 for Mandalay Resources based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $238.3 million, earnings will come to $57.8 million, and it would be trading on a PE ratio of 10.3x, assuming you use a discount rate of 6.9%.
• Given the current share price of CA$5.3, the analyst price target of CA$7.25 is 26.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.