Wesdome Gold Mines Ltd. (WDOFF) Q1 2023 Earnings Call Transcript

Wesdome Gold Mines Ltd. (OTCQX:WDOFF) Q1 2023 Earnings Conference Call May 11, 2023 10:00 AM ET

Company Participants

Heather Laxton - Chief Governance Officer and Corporate Secretary

Lindsay Dunlop - Vice President, Investor Relations

Warwick Morley-Jepson - Board Chair and Interim CEO

Fred Langevin - Chief Operating Officer

Scott Gilbert - Chief Financial Officer

Mike Michaud - Vice President Exploration

Conference Call Participants

Don DeMarco - National Bank Financial

Wayne Lam - RBC

Andrew Mikitchook - BMO Capital Markets

John Scholdnick - Desjardins

John Tumazos - John Tumazos Very Independent Research

Operator

Good morning, everyone, and welcome to the Wesdome Gold Mines First Quarter 2023 Financial Results Conference Call. I will now hand the call over to Heather Laxton to begin today.

Heather Laxton

Great. Thank you, operator, and good morning, everyone. Thank you for joining us. Before we begin, we'd like to take this opportunity to remind everyone that during this call, we will discuss our business outlook and will make forward-looking statements. These comments are based on our predictions and expectations as of today.

Actual events or results could cause outcomes to differ materially due to a number of risks and uncertainties, including those mentioned in the detailed cautionary note contained in yesterday's press release and in the company's management discussion and analysis dated May 10, 2023. Both documents are available on our website and on SEDAR.

Please note that all figures discussed on this call are in Canadian dollars unless otherwise stated. The slides used for this presentation and a recording of this call will be posted on the company's website.

And now it's over to Lindsay Dunlop, Vice President of Investor Relations.

Lindsay Dunlop

Thanks, Heather. Speaking on the call today will be Board Chair and Interim CEO, Warwick Morley-Jepson; COO, Fred Langevin; CFO, Scott Gilbert; and VP Exploration, Mike Michaud. Also on the call today is Raj Gill, VP Corporate Development. Warwick please go ahead.

Warwick Morley-Jepson

Thank you, Lindsay, and good morning, everyone. I am pleased to report that we have had a good start to the year producing 28,368 ounces of gold, both cash costs and the all-in sustaining cost came in slightly below our annual guidance, and we are well-positioned to meet our production and cost guidance for the year. The second quarter is off to good start, as well as the benefits of the mining cycle embed themselves within the – with the use of the [indiscernible] Kiena and reconciliations provide positive results at Eagle River.

Fred will now take us through the operational results in more detail.

Fred Langevin

Hi, everyone, and thank you for attending this morning. As Warwick mentioned, we're off to a good start to 2023 with both mines producing either in-line or better than internal targets, while diligently advancing initiatives are key to unlocking the full potential of the two assets. Starting with Eagle, Q1 production significantly exceeded internal projections due to two main factors. First, the [overlap on] [ph] process at the end of 2022 due to the weather issues causing the shutdown of hauling between the mine and the mill contributed to the great analysis over performance. But over and above that, the underground market performed above expectations.

The main contributing factor to this overperformance being the positive reconciliations seen in Q1 of last year in Falcon continuing into Q1, with two stopes together yielding close to 15,000 tons at 25 grams per ton. As planned, we also processed the last of the remaining Mishi [Open Pit] [ph] or in Q1. Development performances exceeded targets in Q1, which puts us into a good position to deliver on our plan for the rest of the year.

Finally, during Q1, at Eagle, we had successfully transitioned longhole drilling activities from start perform and we're happy to report that bringing this productivity 100% under our control is already yielding benefits, both in efficiencies and on costs. At Kiena, mining in Q1 yielded better great than expected, mainly due to the fact that we were able to source a higher proportion of material from the higher grade Kiena Deep, as opposed to the lower-grade material in other zones such as S50.

Also, our recovery efforts of diluted ore from previously mined areas yielded better-than-anticipated rates. On the development side, the team's relentless focus on the Kiena Deep brand execution continued in Q1, with development performance is exceeding internal targets against this quarter.

At quarter-end, the rent was just shy of level 123 elevation. This positions the mine very well for a seamless transition into the new 129 mining horizon to ramp up production in 2024. It also provides drilling platforms for delineation to proceed sooner, validating or rates and shape and firming up our [indiscernible] understanding in the area well ahead of mine.

We also had great success in developing to – and into the new A2 Zone on 118, 116, and when 114 levels. We're on schedule to commence mining in this new zone in Q2 and development groups so far have outperformed the [indiscernible]. The paste fill plant has been steadily operating in Q1, and the team at site is already seeing opportunities to optimize the process. We'll be acting on those in the near future.

[Finally] [ph] we continue to engage with regulators to secure the authorization to execute on the exploration ramp project. First exhibition of the portal and subsequently of the ramp is expected to proceed in [H2] [ph] after the required permits are secured. This improved ability to find and execute that both sides is a direct result of our newly bolstered technical team.

We're further leveraging this bench strength in other key areas such as our annual internal life-of-mine process, which has been launched a few weeks ago and is expected to further increase our confidence in our assets. Also, we have made significant headwinds on the procurement side of things, locking down statements on key consumables such as fuel and go support. Over to you Scott.

Scott Gilbert

Thanks, Fred. During the Q1 2023, we sold 30,000 ounces of gold, which generated revenue of 76.7 million and a cash margin of 34.4 million. Cash cost was $1,407 per ounce and the AISC of $1,977 per ounce. Operating cash flow was $5.1 million and a free cash outflow was $19.6 million. Eagle River complex sold 24,000 ounces, generating a cash margin of 32.5 million with cash cost per ounce of $1,192 and AISC of $1,709.

Kiena sold 6,000 ounces generated cash management of $1.9 million and cash cost per ounce of $2,267 in AISC $3,048 per ounce. The cost per ounce are high due to processing fluid grade [indiscernible] while the ramp to be keen in the deep [indiscernible]. The unit cost [indiscernible] production increases growth for the remainder of the year.

All the equipment, infrastructure upgrades and the development at Kiena will be included booked capital for the remainder of 2023. Also during the quarter, $20.1 million of net proceeds was raised under the ATM. Funds used to be down the revolver by 8 million and the payable by 12 million. At March 31, 2023, the cash balance is 25.1 million [to] [ph] 46.7 million drawn on the [call] [ph]. Working capital efficiency has decreased 38 million at September 31, 2022 and 14.7 million at March 31, 2023.

Over to you, Mike.

Mike Michaud

Thanks, Scott. At December 31, 2022, Wesdome's combined proven and probable mineral reserves remain just over 1 million ounces at an average grade of almost 13 grams per ton. Additionally, we have a combined measured and indicated mineral resource exclusive of reserves of 350,000 ounces and an inferred vent resource of 1.1 million ounces.

Resource and reserve estimates of [indiscernible] reflect the higher cutoff rates, reduced exploration budget in H2, a higher allocation towards definition, to infill drilling, including 25,000 meters in the Falcon Zone, Eagle River, as well as a more stringent and robust approach to reconciliation, 3D modeling and resource classification.

In 2023, the company has budgeted 137,000 meters of drilling to convert a portion of the existing large M&I and inferred resource base into reserves. We also plan to add houses at several of the new discoveries made in 2022. At Kiena, recent drilling at the Kiena Deep zone has continued to return good results and have extended the Kiena Deep A Zone an additional [125 meters] [ph] down funds. The A Zone now extends continuously from 1,100 meters to approximately 2,000 meters below surface and remains open at depth.

Highlights of the recent drilling included 76 grams per ton over 10-meter core length. We are pleased with the recent drilling that continues to better define and expand the recent discoveries adjacent to the Kiena Deep A Zone, namely the Footwall, south limb, and Hanging Wall Basalt zone. These zones have the potential to increase the number of ounces per vertical meter and to provide additional working phases during mining that will be using the same underground infrastructure utilized to access the A Zone.

The discovery of the Hanging Wall Basalt zone highlights the potential data ounces within the Basalt with a rock quality significantly better than in the A Zone. At Presqu’ile, recent drilling has continued to highlight the higher grades and the continuity of the mineralization, including one hole that returned 24 grams per ton over 3.3 meter core length.

Given the significant upside that the Presqu’ile zone could represent for Kiena, the company is planning to commence an exploration ramp from service later this year once we are in receipt of the necessary permits. This exploration ramp, which is already included in this year's budget, will provide the ideal platform to complete further drilling to improve our confidence in the resource space, but also to test mineralization at depth where it remains open down plunge.

And the added benefit of the exploration ramp is that it could be used to connect to Kiena's existing underground ramp backward, providing access to surface for the existing operation. This could represent a significant milestone on the company's journey to unlock additional potential of Kiena as it would provide second access for conveyance of material and personnel, freeing time for additional ore hoisting via the shaft.

Other days, such as reduced ventilation costs and savings from added operational flexibility are also expected. Studies are ongoing to pursue these options. Presqu'ile is just one example of a number of near mine, near surface resources that could be used to augment production at the mill. As such, surface exploration started last year that tested some of these additional targets, namely the Shawkey and Dubuisson Zones. Initial encouraging results have been returned, and we plan to disseminate the results in the near term.

At Eagle River, drilling has continued to extend the mineral resources down plunge, particularly at the high-grade 300 East Zone. This represents the longer-term mining areas. However, the focus is shifting to explore areas laterally, along strike and near service and within the volcanic rocks similar to that of the Falcon zone.

Most recently, surface and underground drilling from the 355-meter level exploration drift on the west side of the mine has [defined] [ph] an up plunge extent of the Falcon 7 zone and has now extended the mineralization to surface. This could represent a new mining area with new infrastructure, which could provide improved logistics for mining.

Additionally, surface drilling over the past year has returned encouraging results from what are interpreted to be parallel zones to Falcon-7 including the 5 zone, which is similar to and believe to be an extension of the Mine 5 zone within the diorite. Access to this stone from the neighboring Falcon 7 zone will improve drilling, development, and future mining of the zone.

Surface drilling has also returned a number of good values further to the west of the Falcon 7 zone in what are interpreted to be shoots having a similar periodicity to the high-grade shoots within the mine diorite. These sold will be further explored from surface, but longer-term, a 355-meter level development could be extended further to the West to provide drilling platforms and for mining.

Further, the discovery of the Falcon 7 zone in volcanics has prompted exploration along strike and to the east of the diorite, particularly in the area of the previously mine 2 zone that has its own infrastructure. One drillhole returned beneath the 2 zone 223 grams per ton gold over 0.4 meters and will be one of the priorities for drilling in the future. Back to you, Warwick

Warwick Morley-Jepson

Thanks, Mike. In summary, during our Q4 call earlier this year, I highlighted these four primary focus areas that must be executed on this year. I'm happy to say that we continue to make excellent strides in the first quarter towards the ramp that gives us access to the Kiena Deep later this year and early next year. The ramp is now below 123 level, progressing ahead of this year's budget, and we should see production and cash flow benefits earlier in 2024 than initially expected.

We have communicated our intentions to reduce our outstanding balance on our credit facility, and we have done exactly that, reducing the debt in Q1 from $55 million down to $47 million, and our plan is to continue on an aggressive pay down throughout the course of the year through operating cash flow and disciplined use of the ATM. From what we have seen at the operation so far and assuming gold prices stayed strong, I see this year as a free cash flow inflection point. [Neutral] [ph] this year and returning to free cash flow positive status in 2024.

The key technical hires added last year in this are already showing their value, addressing several challenges and opportunities and have yielded cost savings in the procurement process. We will be publishing our annual year report this summer, which will be available on our website. On the subject of hiring of our permanent CEO, good progress has been made, and we hope to be in a position to update you on this in Q2.

Lastly, our Annual General Meeting will be held this year on May 24 at 10:00 a.m. Eastern Time at the TMX Broadcast Centre in Toronto. We are pleased to be returning to an in-person format, and I do look forward to meeting you then.

This concludes our call today. We will now open the lines for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from the line of Don DeMarco from National Bank Financial. Your line is open.

Don DeMarco

Okay, thank you very much. Good morning, team and hello Warwick. So, congratulations on a great quarter. Now Eagle performed well in the quarter, and I was hearing that maybe one of the contributing factors is that over the last month, the grades were elevated. Does that suggest that there's going to be momentum at Eagle into Q2? And if so, like I mean, is this – would we expect this kind of cost performance through the rest of the year? Or is this just more of a one-off quarter?

Warwick Morley-Jepson

I'm going to give Fred to give you some of the detail there. But one thing that I would like to point out that we did make reference to the ounces that were left on the ground as a result of our challenge that we had in transporting material from the mine to the mill at the end of 2022. Those rates were higher than what we had in our current guidance. And that was the start of a good beginning in Q1. Fred, would you like to give a little bit more color there?

Fred Langevin

Yes, of course. At Eagle, I mean, the very high-grade nature of the ore body mix for inherent variability and really the great overperformance that we've seen in Q1 really was due to two specific stopes that we mined out – started to mine into Q4 and the continued strong performance. Those folks are now behind us. They're mined out. And so, we expect rates to normalize the budgeted levels for the rest of the year.

Don DeMarco

Okay, great. Thanks. Next question then, you're progressing ahead of schedule in reaching a 129 level. Are you at a point where you can, kind of dial-in the specific month that you expect you might reach the 129 million? I think it's maybe sometime in Q1, but you know with that level of resolution, what month you might hit at this point?

Warwick Morley-Jepson

Yes. Certainly, as I said, we are some couple of months ahead in that program. We started off at the beginning of the year, having achieved rates greater than what we have in our budget, and that has continued to be seen during the first quarter and now into the second quarter. So, we had indicated that our budget called for our arrival at 129 almost at [year-end] [ph], and we see that coming forward at this time to in and around October. So, it's positive. But what we need to also appreciate that when we get to 129 level, we do need to develop that station. The station itself being one of the largest stations with the interlevel between [as we mine] [ph]. So, what we really are doing is being the production from 129 level forward in 2024 and not into 2023 at this stage.

Don DeMarco

Okay. So, you're going to potentially hit the 129 in October, but it will take some time to develop a station there. And maybe just finally, also on progressing towards the 129 ramp, what are some of the factors that contributed to your outperformance on versus schedule? Is it regarding the labor or the rock that you're going through, or how is it the year ahead of schedule? What's going well, in other words? And do you expect it to continue?

Warwick Morley-Jepson

Yes, I'll hand over to Fred again. But what I would say from a rock point of view, we are in the Basalt, which is the more competent material that we have done in the area. And so from that point of view, it is consistent. And I'd also just to reiterate the fact that we have got all the equipment and the teams where they need to be at a time where it was the challenge in 2022. Would you like to give a little bit more color on that, Fred?

Fred Langevin

Nothing much more to add, basically, it's very good going conditions in the Basalt. I mean there's no challenge developing there and it's very predictable in terms of behavior. Also, very good discipline on the operations side of things, where the goal of getting towards the bottom of that brand is the absolute priority at sites and everyone is well aware of that. And as Warwick mentioned, I mean, we have additional equipment now that have secured our capacity to not only deliver on our development targets, but also exceed them to some extent. And we're using that capacity with those extra holders to exceed our internal targets.

Don DeMarco

Okay, thank you very much. Congratulations again on a strong quarter and good luck with Q2. That’s all from me.

Warwick Morley-Jepson

Thanks very much, Don.

Operator

One moment for our next questions. Our next question comes from the line of Wayne Lam from RBC. Your line is open.

Wayne Lam

Great. Thank you. Good morning guys. Just a question on Kiena. Just on the timing of capital spend. Given the progress that you've made relative to schedule, should we expect the gross spend to be relatively front-half weighted? And then are there any additional large equipment-type purchases remaining or is the majority of spend all just related to the underground development?

Warwick Morley-Jepson

Yes. I'd say the spending in Q1 is typically lower than what we would see throughout the year. The spends tend to increase as we get our cuts in a row going into Q2 and Q3. So, they're not going to increase significantly from where we are now. Our overall spend for the year remains as we have given guidance, just over $104 million for the year for both sides. And as far as Kiena is concerned, it contributes just over 45% of that amount.

Wayne Lam

Okay. Great. Thanks. And then just curious if you had any detail on how the ground conditions or rock competency has looked as you, kind of move deeper into the mine?

Warwick Morley-Jepson

Fred, would you like to take that one.

Fred Langevin

Yes, of course. In terms of the ramp itself, as we move deeper, like I mentioned, the ramp being in the Basalt, there is no concern there with ground stability at all. The growing conditions are excellent and development proceeds at pace. In terms of when we get into the shift in the commodity, which typically holds the ore of the A1 and A2 Zones. I would say the development in the A2 Zone has been promising, where the ground conditions that we've encountered there on one level 118, 116, and 114, actually a bit better than what we had anticipated. And that is contributing to the fact that we're going to be able to mine that zone in early Q2 now.

Warwick Morley-Jepson

I'd also just like to add to what Fred said. One issue is, what we anticipated. The other is our learnings from the experience that we're gaining through mining into the shift. So that certainly is benefiting us a great deal as well.

Wayne Lam

Okay, great thank you. And then maybe just last one for me. Just curious on the ATM. You guys had executed the same amount on that facility versus the free cash outflow this quarter. Can we anticipate a similar pace on that ATM as you kind of complete the spend at Kiena?

Warwick Morley-Jepson

Yes. Wayne, I'd just like to say that it's been our intention to get ourselves to a cash-neutral position. The rate of execution has really been one that is defined by the disciplined approach to how we're dealing with it. Our assessment of where the gold price is and our control of costs through the execution of our mining operations.

So, we also are keenly aware of the issues that have been raised by analysts and investors as to the use of the ATM. And so, we would like to execute it – make use of it on a continued discipline basis, but also driving to a position on which we can close it as soon as we can. So, if we see the opportunity to make use of it during the course of this quarter in a disciplined fashion, we certainly would do so.

Wayne Lam

Okay, great. Thanks for taking my questions.

Operator

One moment for our next question. Our next question will come from the line of Andrew Mikitchook from BMO Capital Markets. Your line is open.

Andrew Mikitchook

Good morning. Congratulations on the quarter, and thank you for all the comments and answers on the Kiena question. Just coming back to Eagle, is there any guidance or commentary you can give us on how Q2 is going? Is generally the performance you've seen in Q1? Are you generally seeing that extend into Q2?

Warwick Morley-Jepson

Yes, Fred is going to give you some color there.

Fred Langevin

Yes, Fred speaking here. Right now, Q2 is lining up to be, I would say, in the similar range as Q1. One thing that I would like to mention, though, is the overperformance in Q1 really is – at this point, we see this as a one-off. And where the ounces were heavily, more heavily skewed towards H2 for Eagle. Now, we see that the ounces being a bit more regular throughout the year.

Andrew Mikitchook

Okay. And generally, are there any other I guess, variations that we should expect in the year in terms of performance of the mine in terms of scheduled downtime, scheduled moves in mining phases that would create variation in your expected performance for this year? Or is it looking like more stable than, call it, recent quarters?

Fred Langevin

Yes, Fred again. We don't expect significant shutdowns or downtimes to any of the mills or any of the bigger equipment, let's say, of the mines, and that's true for both operations. So, we have – you can expect a steady stream of production from the two sites based on what we are seeing so far. It looks like the year is going to be, I would say, there's going to be very few valuations.

Andrew Mikitchook

Okay. And last question is just maybe for Mike. On one of those slides you put up, had the boundary between the exploration license and the mine license. And if I interpreted that correctly, does the Falcon Zone head for that boundary or am I looking – misinterpreting that?

Mike Michaud

Well, that's it, Andrew. Right now, the Falcon zone and what we consider to be a recent extension of that zone is within the lease boundary. And then after that further to the west towards [new Lake] [ph] and 9 zone, that would be on our regular exploration claims. And that's an area that we have permits typically to drill on that area and would require a separate – we have got to the mining stage there. But for now, any mine that we would do in Falcon and the immediate extension of that is on our lease area, our mining lease.

Andrew Mikitchook

Okay. That’s great. Thank you very much for all the answers. And I’ll pass the microphone to the next person. Thank you.

Warwick Morley-Jepson

Thanks Andrew.

Operator

One moment for our next question. Next question is from the line of John Scholdnick FROM Desjardins. Your line is now open.

John Scholdnick

Thank you for taking my questions guys. Most of them have been answered, but I got one boring one left for you. Just on depreciation, it was higher this quarter than in the past. So, just wondering if this is, kind of a new run rate we should look at going forward?

Warwick Morley-Jepson

Yes. It definitely is the level that we're going to be asked. We've started to depreciate Kiena EOP approach since we declared commercial production December 1, 2022. So that's where the significant increase is.

John Scholdnick

Okay. So, we can look at kind of the per ounce depreciation this quarter and kind of apply that roughly going forward, I guess?

Warwick Morley-Jepson

Yes, exactly. That would be – the majority of the assets will be depreciated on the EOP basis as opposed to straight line. So, as you look at your [indiscernible] profile by that. So that's pretty good.

John Scholdnick

Okay. That makes sense. And last one for me. Just looking at the resource rates, I think you're doing some conversion drilling. I'm just wondering if with the tighter drill station, do you expect some higher grade? Do you expect those resource grades to move closer to reserve grades with the tighter spacing?

Warwick Morley-Jepson

Mike, do you want take that?

Mike Michaud

Yes. Sorry. So, is that Eagle or Kiena? I didn't catch that sorry.

John Scholdnick

I guess both more, I guess, at Kiena though, is a bit more pronounced?

Mike Michaud

Yes. Certainly, the Kiena is definitely the high grade part of all the mineralization on the property. And that's what's really in our reserve base. And a lot of the inferred and some of the surroundings always where the grade is lower. So, that's how that balances in the equation and the incurred and some of the measured and indicated this lower grade overall. But certainly, more drilling helps a lot here. We're finding that then we can better identify these high-grade shoots at both projects really, I mean, both high-grade mines. And typically, with that better defining the resources and research we can get a bump in grade typically as we get closer to the reserve status.

John Scholdnick

Okay. Interesting, appreciate that. That’s if from me. Thanks guys.

Warwick Morley-Jepson

Thanks, John.

Operator

One moment for our next question. Our next question is from the line of John Tumazos from John Tumazos Very Independent Research. Your line is open.

John Tumazos

Congratulations on all the good work. Now that it's May 11 and the second quarter is almost half over. Does it look like the June quarter production will be at least as much as the first quarter production?

Warwick Morley-Jepson

If I could answer that question John, the answer is, very much in-line with that. We are in a good position going into the year satisfying the guidance that we've provided. And we believe that our performance will continue. We did say previously that we were back-end weighted because of the mine sequence that we saw in Q1, we have brought some of those ounces in into H1, but [indiscernible], we'll see a consistent performance going forward.

John Tumazos

I saw in the release that you already raised [CAD $20 million] [ph] of equity. I guess that was through March 31. And the cash balances, [CAD $25] [ph] or slightly over half of the [CAD $47] [ph] in debt. Should we interpret from that, that you might only need to raise another [CAD $10 million or CAD $20 million] [ph] of equity in view of the rising gold price, the good production, the horizontal development being slightly ahead of budget, et cetera.

Warwick Morley-Jepson

Yes. I'd like to just emphasize that the $25 million that we have in cash is generally what we need from a continued working capital point of view. And so we need to have that in place on a continuous basis. So, we really look at the 47 million in the revolver with the debt that we're carrying at a rate of close on 7.7%. So, our intentions are to – as a paid down, I'd say the numbers that you quoted there would be at least what we choose to do during the quarter. It could well be higher if we see the opportunity.

John Tumazos

I'm not smart enough to understand stocks more. Today, we're down 10%. Is your policy opportunistic with the ATM where when there's a lousy day like today when we're down 9% or 10%, you wouldn't sell shares and on a good day when you're up 10%, that's the day you sell shares or do you just sell a little bit every day?

Warwick Morley-Jepson

It's very much a basis of what the market is doing on an ongoing basis. I mean we do see significant fluctuations during the day, as you know. And so we provide a draw and guidance to those that are doing it for us. And we are all involved almost on an off-day basis. I mean, as to where we are related to that floor and what the market is doing and how we wish to make use or not make use of the tool. So that's part of the discipline that we exercise in the use of it, John.

John Tumazos

Good. Thank you very much.

Operator

Thank you. And that concludes our Q&A session for today. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.