Mandalay Resources Corporation Announces Record Results for the First Quarter of 2011

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1 Mandalay Resources Corporation Announces Record Results for the First Quarter of 2011 TORONTO, ON, May 16, Mandalay Resources Corporation ("Mandalay" or the "Company") (TSX: MND, MND.WT) is pleased to announce that it achieved record quarterly financial results for the three months ended March 31, All currency references in this press release are in U.S. dollars except as otherwise indicated. A complete copy of the Company s financial statements for the first quarter of 2011, together with the associated MD&A can be accessed under the Company s profile on and on the Company s website at Brad Mills, Chief Executive Officer of Mandalay, commented The Company has achieved a number of key milestones during the first quarter of We achieved record metal production in concentrate at Costerfield, produced our first concentrate and commenced shipments from Cerro Bayo, started development of the third mine at Cerro Bayo and increased reserves and resources at both Cerro Bayo and Costerfield. Exploration drilling at Cerro Bayo and Costerfield continued and we commenced drilling at the La Quebrada project. Underlying net income before non-cash fair value adjustments of ($1,563,973) related to our silver price protection program and silver note has more than doubled to $3,971,215 (relative to the fourth quarter of 2010), Mr. Mills continued. Even with these fair value adjustments we delivered record net income of $2,407,240. EBITDA for the first quarter was also a record at $7,680,583. The Company achieved these excellent financial results despite the negative impact on sales as a result of the Japanese earthquake of March 10 th and the subsequent declaration of force majeure by Dowa from March 16 th to April 14 th, During this force majeure period, the Company decided to continue normal operations and, as a result, ended the quarter with 270,329 ounces of silver and 1,033 oz of gold in concentrate inventory. We anticipate this inventory will be sold in the 2 nd and 3 rd quarters of Shipment of concentrate resumed in early May. During the first quarter, the Company commenced a price protection program and purchased 900,000 put options for silver at $25/oz. After the end of the quarter, West Face Capital Inc. exercised C$15 million of its share purchase warrants. The Company intends to use substantially all of the proceeds of this capital injection to purchase further gold and silver puts to protect its anticipated revenues in The Company will provide further details of this program once it is completed. All of these results and actions have positioned the Company to deliver significant earnings and cash flow over the next 18 months as Cerro Bayo ramps up to full production, unit costs decline, reserves and mine lives at our operations are extended through exploration and development while revenues are largely protected from any substantial falls in gold and silver price through 2012.

2 First Quarter 2011 Financial Results The following table summarizes the Company s financial results for the three months ended March 31, 2011 and 2010: March 31, 2011 March 31, 2010 $ $ Revenue 16,609,053 2,956,389 EBITDA 7,680,583 (638,770) Profit/(loss) from mine operations 6,203,493 (222,338) Net Income/(loss) 2,407,240 (2,137,679) Total assets 109,170,133 37,774,785 Total liabilities 42,540,721 7,726,859 Earnings/(Loss) per share 0.01 (0.02) In the first quarter of 2011, the Company generated revenue of $16,609,053 versus $2,956,389 in the same period last year. EBITDA for the quarter was $7,680,583 versus negative EBITDA of $638,770 in the equivalent period last year. Profit was much improved in the first quarter of 2011 because Costerfield produced at or near full production versus being in early ramp up during the same period of 2010 and Cerro Bayo generated revenue for the first time. Net income was $2,407,240 (gain of $0.01 per share) versus a loss in the same period last year of ($2,137,679) (loss of 0.02 per share) after including the negative effect of $1,563,074 of non-cash fair value adjustments (these adjustments are described in further detail in Note 15 of the Company s financial statements for the three months ended March 31, 2011 and 2010). During the quarter, the Company achieved record metal prices on the sale of all its products of $1410/ounce ( oz ) of gold, $35.81/oz of silver, and $14,433/tonne ( t ) of antimony. First Quarter 2011 Operational Highlights: In the first quarter of 2011, Mandalay produced and sold record amounts of payable gold, silver, and antimony relative to the fourth quarter of 2010, and the first quarter of Details are shown in the table below: Units Quarter ended March 31, 2011 Quarter ended December 31, 2010 Quarter ended March 31, 2010 PRODUCTION Gold (oz) 5,978 2,330 1,483 Silver (oz) 339, Antimony (t) SALES Gold (oz) 4,945 2,406 1,361 Silver (oz) 69,

3 Antimony (t) EQUIVALENT Au Ozs. 1 Produced (oz) 19,920 5,270 2,667 Sold (oz) 11,597 8,854 2,510 1 Equivalent Au Ozs is calculated by converting silver to gold at a ratio of 39/1, converting antimony to equivalent gold ounces by taking the average antimony price realized during the period and multiplying it by the tonnes of antimony produced or sold during the period and dividing the resultant number by the realized gold price and adding these two numbers to the actual ounces of gold produced or sold. Costerfield gold-antimony mine, Victoria, Australia During the first quarter of 2011, the Costerfield mine delivered 13,017 t of ore to the plant and completed 903 metres ( m ) of operating development. The plant processed a record 18,618 t of ore in the period, producing 4,528 payable oz of gold versus 1,483 oz gold in the first quarter of 2010 and 2,330 oz in the fourth quarter of Payable antimony production for the first quarter of 2011 was 512 t versus 201 t in the first quarter of 2010 and 356 t in the fourth quarter of Cash cost per ounce of gold equivalent produced at Costerfield in the first quarter was $759/oz versus $1,129/oz in the first quarter of 2011 and $732/oz in the fourth quarter of The Company expects the cash cost to decline toward its previous 2011 guidance of $500 to $600 per oz of gold equivalent in future quarters. Cerro Bayo silver-gold mine, Patagonia, Chile During the three months ended March 31, 2011, the Cerro Bayo mine produced 36,089 t of ore while completing 1,027 m of operating development. Performance with respect to both these measures was higher in the first quarter of 2011 than in the fourth quarter of 2010, when development activities in Dagny and Fabiola mines were still ramping up. A total of 339,366 oz of saleable silver and 1,450 oz of saleable gold in concentrate were produced in the quarter versus no production of saleable metal in concentrate in the previous quarters. For this first production quarter, cash cost per ounce of silver net of gold credits was $17/oz. The Company expects costs to decline toward the previous 2011 guidance of $10 to $11/oz as production continues to ramp up. First Quarter 2011 Exploration Update During the first quarter of 2011, exploration drilling continued at Cerro Bayo and Costerfield and all preparations were completed to commence drilling at La Quebrada in early April At Cerro Bayo, all detailed drilling of the Yasna vein necessary to complete a new Mineral Resource estimate was completed in the first quarter of 2011; mine design and costing work necessary to estimate the first Mineral Reserve for the vein progressed. Completed Mineral Resources and Reserves estimates for the Yasna vein were announced in a press release dated April 5, Infill drilling on the Dagny and Fabiola veins continued through the quarter. At Costerfield, drilling of the Augusta Deeps continued through the quarter and the process for estimating Mineral Reserves and Resources as of December 30, 2010 was commenced. A

4 revised Mineral Resource and Mineral Reserve estimate for Costerfield was announced on April 18, Brownfields exploration for new ore shoots in the district commenced in March Permits to drill at La Quebrada were received in late January All preparations to begin drilling were completed in March, and drilling commenced in early April. The Company will announce drill results as soon as practicable. Corporate Developments Hedging Arrangements On February 11, 2011, the Company purchased 50,000 oz/month of silver put options at a strike price of $25/oz of silver for the period of July 2011 through December 2012 from PB Financial Services Inc., a subsidiary of Bache Securities (Prudential) for a total consideration of $1,962,000. This gives Mandalay the right, but not the obligation, to sell silver to PB Financial Services Inc. for the price and in the amounts noted above. This instrument ensures that Mandalay will receive a minimum of $25/oz of silver for 50,000 ounces per month during the period of July 2010 through December The downside price insurance effectively covers the total operational costs of the Cerro Bayo mine during this period. On May 6, 2011 West Face Capital Inc. exercised 45,454,545 of its warrants to purchase common shares of the Company at a price of C$0.33 per share, resulting in gross proceeds to the Company of C$14,999,999. The Company intends to use substantially all of these proceeds to hedge 2012 gold and silver production by purchasing additional put options, details of which the Company will announce when the program is completed. The financial reporting impact of these hedges under IFRS will potentially produce non-cash distortions in earnings on a quarterly basis as IFRS require that these hedges be marked to market each quarter. The Company will clearly disclose the financial reporting impact of these hedges, whether positive or negative. In the first quarter of 2011 the mark-to-market loss on this hedge position was $977,700 as reported in its financial statements. The Company does not intend to trade in these securities but to hold them to maturity as price protection for its future revenue, earnings and cash flows. The ultimate expense or gain on these hedges will thus be realized in the quarter in which they mature. Debt Facility On February 2, 2011, the Company closed the second tranche of a two year senior secured debt facility totaling $10 million with Sprott Resource Lending Partnership ("Sprott Lending") at an interest rate of 11% per annum. In the second tranche, Mandalay received an additional $5 million advance under the credit facility upon Sprott Lending receiving perfected security interests in Mandalay's Cerro Bayo mine in Chile. The credit facility is part of the $13.2 million in debt and equity financing that the Company announced on December 3, The first stage of that financing, a $3.2 million private placement of common shares to Sprott Asset Management L.P. for and on behalf of certain funds, was completed on December 14, The first $5 million tranche of the credit facility with Sprott Lending closed on December 24, 2010.

5 For Further Information Bradford Mills Chief Executive Officer Greg DiTomaso Investor Relations Contact: About Mandalay Resources Corporation Mandalay Resources is a Canadian-based natural resource company with producing assets in Australia and producing and exploration projects in Chile. The Company is focused on executing a roll-up strategy, creating critical mass by aggregating advanced or in-production gold, copper, silver and antimony projects in Australia and the Americas to generate near-term cash flow and shareholder value. Forward-Looking Statements This news release contains "forward-looking statements" within the meaning of applicable securities laws, including statements regarding the Company s intention to purchase additional gold and silver put options and the anticipated financial benefits associated with those options, expected growth in earnings and cash flow over the next 18 months and cash costs of gold and silver production over the balance of Readers are cautioned not to place undue reliance on forward-looking statements. Actual results and developments may differ materially from those contemplated by these statements depending on, among other things, changes in commodity prices and general market and economic conditions. The factors identified above are not intended to represent a complete list of the factors that could affect Mandalay. A description of additional risks that could result in actual results and developments differing from those contemplated by forward-looking statements in this news release can be found under the heading Risk Factors in Mandalay s annual information form dated March 31, 2011, a copy of which is available under Mandalay s profile at In addition, there can be no assurance that any inferred resources that are discovered as a result of additional drilling will ever be upgraded to proven or probable reserves. Although Mandalay has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Non-IFRS Measures This news release contains references to EBITDA, cash cost per ounce of gold equivalent produced and cash cost per saleable ounce of silver produced, net of gold credits, all of which

6 are non-ifrs measures and do not have standardized meanings under IFRS. Therefore, these measures may not be comparable to similar measures presented by other issuers. The Company defines EBITDA as earnings before interest, taxes, depreciation and amortization. EBITDA is presented as the Company believes it is a useful indicator of relative operating performance. EBITDA should not be considered by an investor as an alternative to net income or cash flows as determined in accordance with IFRS. For a detailed reconciliation of net income to EBITDA, please refer to page 8 of management s discussion and analysis of the Company s financial statements for the first quarter of Cash cost per ounce of gold equivalent produced and cash costs per saleable ounce of silver produced net of gold credits, are presented because these statistics are key performance measures under control of the operations that management uses to monitor performance, to assess how the Company s mines are performing, and to plan and assess the overall effectiveness and efficiency of mining operations. These performance measures should not be considered in isolation as a substitute for measures of performance in accordance with IFRS. Equivalent gold ounces produced or sold is calculated by adding to saleable gold ounces produced or sold, the saleable antimony tonnes produced or sold times the antimony realized price divided by the gold realized price. The total cash operating cost associated with the production or sale of these equivalent ounces in the period is then divided by the equivalent gold ounces produced or sold to yield the cash cost per equivalent ounce produced or sold. The cash cost per ounce of silver produced net of gold credit is calculated by deducting gold revenue from the cash operating costs in the period and dividing the resultant number by the silver ounces produced in the period. Equivalent Au Oz. is calculated by converting silver to gold at a ratio of 39/1, the approximate ratio of gold price to silver price in the quarter, and by converting antimony to equivalent gold ounces by taking the average antimony price realized during the period and multiplying it by the tonnes of antimony produced or sold during the period and dividing the resultant number by the realized gold price. Gold equivalent ounces of silver produced or sold and gold equivalent ounces of antimony produced or sold are added to the ounces of actual gold produced or sold in the period to arrive at the total ounces of gold equivalent produced or sold in the period.