COMPAÑÍA MINERA CERRO BAYO HYBRID POWER GENERATION SYSTEM MAY 2015 TSX // MND

Transcription

1 COMPAÑÍA MINERA CERRO BAYO HYBRID POWER GENERATION SYSTEM MAY 2015 TSX // MND

2 Forward looking statement disclaimer This presentation contains "forward-looking statements" within the meaning of applicable securities laws, including statements relating to life of mine production plans, exploration plans and the growth and strategy of Mandalay. Actual results and developments may differ materially from those contemplated by these statements depending on, among other things: exploration results or production results not meeting management s expectations; capital, production and operating cost results not meeting current plans; and 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, 2015 and in its final prospectus dated September 2, 2014, copies of which are available under Mandalay's profile at Although Mandalay has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forwardlooking 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. 2

3 Oz Au Eq. Annual Production Oz Au Eq. Year-End Reserves US$ MM Mandalay creates exceptional shareholder value We create exceptional shareholder value through the acquisition of undervalued assets that can rapidly become cash generative, self fund exploration, establish and maintain high operating margins and return cash to shareholders within a planned period of time. Mandalay is committed to operating safely and in an environmentally responsible manner, while developing a high level of community and employee engagement Costerfield, Australia Gold & Antimony Cerro Bayo, Chile Silver & Gold Challacollo, Chile Silver & Gold Björkdal, Sweden Gold Revenue, EBITDA (1) & Dividends (2) Revenue EBITDA Dividends $92.2 $171.8 $166.9 $79.9 $184.6 $67.7 $64.4 $32.0 $20.6 $1.7 $3.2 $11.1 $ Production & Reserves (3),(4) 300, , , , ,000 50,000 0 Reserves Production 15, , ,175 63, , , , ,908 1,123, , , ,000 E ,200,000 1,000, , , , ,000 0 (1) The Company defines EBITDA as earnings before interest, taxes and non cash charges/ (income). EBITDA should not be considered by an investor as an alternative to net income or cash flow as determined in accordance with IFRS. (2) Annual cash dividend paid quarterly, based on 6% of the Company s trailing quarter s gross revenue and the future cash requirements of the Company 3 (3) Refer to notes on Mineral Reserves in the Appendix, (4) Price assumptions for gold eq. oz were based on each year s price calculated in the Mineral Reserves table reserve prices used were $1,200 Au, $20 Ag and $10,000 Sb * Calculated based on $0.92 share price and annualized at $ per share, Q dividend of $0.0121

4 Cerro Bayo silver-gold mine producing since 1995 Land package 23,106 hectares Ownership 100% 2014 silver production 3,329,519 oz 2014 gold production 27,600 oz 2015E silver production Moz 2015E gold production 23,000 27,000 oz P&P Reserves (1) g/t Ag; 2.13 g/t Au Current throughput 1,400 tpd Plant recoveries (Q4 2014) Ag: 92.34%, Au: 89.96% 2015E cash costs/oz Ag net Au credits / 2014A $ $8.00 / $5.30 The Energy Challenge at Cerro Bayo All power is currently self-generated using diesel Mandalay has been investigating environmentally friendly and cost-effective power generation alternatives since acquisition Three underground mines and the remoteness of location make Cerro Bayo highly energy dependent and consumptive, over and above industry averages (1) Refer to notes on reserves in the Appendix 4

5 Identifying the energy issues at Cerro Bayo One: Costs high due to remoteness Approximately 15% of operating costs at Cerro Bayo are power related, higher than industry averages 2 nd highest operating cost on site after manpower Energy generated on site originates from two power sources: o o Processing plant power 6 x 1MW CAT generators Mine power house 3 x 1MW Atlas Copco generators Diesel prices inflated due to logistical issues getting to site (ferried across Lake General Carrera) Two: Prohibitive short mine life Short mine life prevents long lived capital investment in energy alternatives as upfront capital costs cannot be recovered 5

6 Finding the energy solution at Cerro Bayo A strategy of reducing operating costs at Mandalay Resources across all cycles of mining Criteria development requires a fundamental investigation of energy alternatives Secure a lower cost energy alternative that matches our life of mine Reduce our reliance on high cost diesel fuel with significant transport costs Secure an energy alternative that maintains energy stability and minimizes risk of energy disruption Reduce our operating costs within a commercially acceptable time frame Provide an innovative solution, that also reduces CO2 emissions and is scalable/ flexible for operational changes Selected Alternative Hybrid wind/diesel generation and rebuilding of powerhouse with new generators Investment could be repaid over relatively short mine life (5 years) while obtaining operational cost savings Scalable: Cerro Bayo will be below the max capacity of 35% to 40% wind to diesel combination; enables additional turbines to be added later 6

7 Tonnes Key challenge for mines: alternative energy investment with payback during mine life To justify an upfront capital investment, a mineral resource needs sufficient mine life to ensure reasonable payback - 5 years of mine life required at Cerro Bayo Cerro Bayo has been increasing R&R and production annually. In 2013, the mine life was deemed sufficient to justify economics for investment in Hybrid Wind/Diesel Generation System. The discussion began with Rame Energy during 2013 and negotiations were concluded during ,000,000 Cerro Bayo Year End Reserves (Metric Tonnes) 2,500,000 2,000,000 1,500,000 1,000, , Year 7

8 Financing and key terms No capital costs to Mandalay Rame Energy to construct and finance wind farm allows Mandalay more capital for distribution into other areas of operation Immediate reduction on costs/kwh to Mandalay Power Purchase agreement configured for 5 years of higher unit generation costs, at which point unit cost halves for subsequent years o Supplier requires guarantee for recovering capital during current mine life o First 5 years Expected 12% savings annually (+US$1M annually) with wind generation unit cost approximately 30% cheaper than diesel during those years o After 5 years Overall cost savings expected to increase to 18% and wind generation unit cost lowers to be approximately 60% lower then diesel unit cost 8

9 Characteristics of wind turbines and diesel Wind Generation 3 bladed wind turbines, generating capacity of 600kW each, models Vestas V44 Delivers a total of approximately 1.5 to 1.7MW, will be able to reach full generating capacity of 5.2GWh annually Height of each tower will be 44 meters and the diameter of the rotor blades will be 44 meters Diesel Generation Includes assembling a new control room composed of a series of generators Atlas Copco QAC-1000 model with a power of 800 kw in conjunction with a model Q4002 PMS controller to enable higher efficiency compared to fuel consumption. 9

10 Site for 3 turbines 2 NE facing turbines 1 NW facing turbine 10

11 Interconnected system enables control and efficiency The interconnected electrical system will permit the connection of three different generation sources through an overhead line, designed to distribute power evenly Plant Powerhouse Wind Farm (3 turbines) Mine Powerhouse New Control Room Processing Plant Auxiliary Services Mining Operations Before hybrid solution 11

12 Environmental benefits a huge difference 1. Reduced petroleum consumption of over 2,000 tonnes of CO2 a year; it is estimated that Cerro Bayo will consume over 1 million liters less of diesel annually with the hybrid system 2. Zero emissions from wind farms Power generated by wind turbines have the least polluting impact on the environment 3. Carbon Credits Since this is a project related to the Clean Development Mechanism (CDM), there is the potential for carbon credits as CO2 producing generation is being replaced by environmentally friendly generation Reducing our consumption of 2,000 tonnes of CO2 a year is the same as. Taking 535 cars off the road each year A 747 flying for 3.59 days non-stop each year The energy use of 1 average urban home being met for 210 years Source: 12

13 3 key takeaways in finding energy alternative solutions 1. Integrate your environmental policies with strategy. Energy consumption within the mining industry is significant. Mining companies should establish clear processes and criteria to review and decide on energy alternatives. Ensuring a green decision must also fit and be 100% aligned with the corporate strategy and capital investment decision making. 2. Allow adequate time to come to the right decision. Life of mine considerations, providing for community buy-in and engagement and expert consulting are key to coming to a successful solution and decision point. 3. Build in flexibility. Investment has to be justifiable under lifespan of mine, existing power sources and contracts, and changing mine/ industry conditions. Cerro Bayo considered downside and upside production and R&R scenarios before contracting for wind farms. It also minimized risk by starting with reduced wind capacity from what is ultimately possible, to allow for scale up. 13

14 COMPAÑÍA MINERA CERRO BAYO HYBRID POWER GENERATION SYSTEM MAY 2015 TSX // MND