Reasons to Consider Buying Mandalay Resources

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With gold and silver mining companies soaring in the beginning of 2014, investors may want to consider buying shares in a company that haven’t soared as of late. One such company is Mandalay Resources (OTCMKTS:MNDJF).  Mandalay Resources’ stock is up just 20 percent for the year while its peers in the junior gold mining sector are up 40 percent.

Mandalay Resources is one of the better-run small-cap gold and silver mining companies. It has a market capitalization of $289 million and it trades at less than seven times trailing earnings. Furthermore, it has a dividend yield that exceeds 4 percent. This last point makes Mandalay especially appealing amongst its peers, which often offer investors no dividend or a very small one.

That being said, the company’s stock is not as cheap as it looks. The reason the shares appear to be so inexpensive is that the company’s two operating mines — the Cerro Bayo gold and silver project in Chile and the Costerfield gold and antimony project in Australia — are generating a lot of cash flow now but they do not have large resource bases.

This is a consequence of the company’s mining strategy. Mandalay tries to find relatively small amounts of high-grade resources on its properties, builds small mines, and extracts these resources quickly in order to fund further exploration and mine expansion. Because its initial findings are small, it has minimal initial capital expenditures and it can begin to generate cash flow quickly and without punitively diluting shareholders.

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