Wesdome Gold Mines Ltd. (WDO) Earnings Call Transcript & Summary

Good morning, and welcome to Wesdome Gold Mines Pre-Feasibility Study Teach-In. I will now hand the call over to Heather Laxton, Chief Governance Officer to begin today's call.

Thank you, operator, and good morning, everyone. Before we begin, please be reminded that during this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events and 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, which is 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. A copy of the NI 43-101 technical report will be filed on SEDAR within 45 days. Leading the teach-in this morning will be Duncan Middlemiss, President and CEO; Marc-Andre Pelletier, Chief Operating Officer; and Mike Michaud, Vice President, Exploration. Also on the call are Scott Gilbert, Chief Financial Officer; Raj Gill, Vice President, Corporate Development; and Lindsay Dunlop, Vice President, Investor Relations. And now it's over to Duncan, who will begin today's Kiena PFS teach-in.

Great. Thanks very much, Heather. Well, here we are at the announcement of our PFS and a positive restart decision by our Board. It's a very exciting time for us. We have a high-grade underground gold project with a prolific location just outside of Val d'Or, Quebec, the heart of the Abitibi. As we've been saying, the capital to restart Kiena is modest as the major infrastructure is in good condition and in place. The 930 meter deep shaft, the 2,000 tonne per day mill, the tailings area and the associated buildings, all required to operate a modern-day mine. With all permits in place we are well positioned for a quick restart. As per the PFS, our U.S. dollar per ounce cash cost of USD 380 per ounce and our all-in sustaining cost of USD 676 per ounce, certainly places the Kiena Mine and first quartile of cost metrics. The current PFS mine life is 7 years. However, with our recent success on the exploration front, with the discovery of the Footwall Zone and expansion of the A Zone, we feel confident that this will grow. Additionally, our other underground targets, such as the B Zone and VC Zones below the 1,000 meters, hold a lot of promise. Our CAD 6 million surface program to test the property is now underway with a lot of potential to probe past producing mines and existing resources. I would again reiterate that there is jurisdictional and local community support for the Kiena Mine restart. So this can be a win-win situation as the economic impacts are front and center in the region. We have a community engagement committee, which is in place so that we can best proactively respond to requests and concerns. Next slide, please. The after-tax net present value of CAD 367 million at USD 1,600 per ounce gold, increases to CAD 491 million at current spot, which is USD 1,900 per ounce and shows the torque this project has to spot gold prices. The average annual gold production of 84,000 ounces with over 100,000 ounces being achieved in 2024 and beyond, and again, with exploration upside, we believe this could certainly grow. As a base case, Kiena Mine will average CAD 86 million of free cash flow at USD 1,600 per ounce or CAD 110 million at USD 1,900 per ounce. This is a torque mine. All capital, it's self-funded. We have the liquidity. Eagle is performing well, and production will start in Q3 at Kiena, thereby funding some of the CapEx. As discussed in the press release, we've included in a paste fill plant, water treatment plant, tailings management area enhancements, power and ventilation upgrades, which escalated the overall CapEx of the project. However, we are building this for the long term. We believe there are opportunities to reduce project CapEx, and the PFS is a snapshot in time of a base case. I will now pass it over to Marc-Andre to give further details on the PFS.

Thank you, Duncan. Slide 4, please. The mineral resources used for the PFS is based on the resource estimate of October last year, with the drill database closeout of September. The A Zone resource conversion to indicated went well despite less meters drilled due to the operational disruptions attributed to the COVID-19 pandemic. The total probable mineral reserves are over 1.5 million tonnes at a grade of 11.9 grams per tonne for a total of 601,800 ounces. 96% of the reserve ounces are in the Kiena Deep zone at a diluted grade of 12.9 grams per tonne. The remaining ounces come from the S50 Zone located on top of the Kiena Deep and from the Martin Zone, which is in the upper part of the mine. The VC and the South Zones are not included in the reserve PFS as they are currently uneconomic due to the amount of development required to access the resource. A larger resource base is required to convert these ounces into mineral reserves. The current mill process circuit is well suited to maximize the gold recovery with averages of 98.5% for the Kiena Deep ore and 97% for the other zones. A new mineral resource estimate, exclusive of reserves has been calculated with 156,500 ounces in the indicated category, of which 105,000 ounces is from the Kiena Deep zone. Additional mine design work is required to bring those ounces into reserves. Additionally, more than 112,000 ounces of the Kiena Deep ore remains in the inferred category. Diamond drilling is ongoing for the purpose of resource conversion. We have drilled close to 42,000 meters since last September, mainly in the Kiena Deep zone. This ongoing drilling demonstrates the potential to add more ounces per vertical meter with the discovery of the Footwall Zone that Mike will discuss later in the presentation. Additional ounces discovered in the Kiena Deep will improve the economics through higher overall throughput over a longer life of mine. Slide 5, please. The life of mine capital cost of the project is CAD 230 million, of which CAD 68 million is anticipated to be spent this year. In addition to the project capital cost, CAD 2 million for closure costs will be incurred. Mine capital costs of CAD 130 million, which includes mainly CAD 70 million for development, CAD 27 million for underground infrastructures, CAD 24 million for mobile equipment. The CAD 9 million in electrical power upgrades has been also identified in the PFS. In addition to mine capital, CAD 53 million will be spent to increase our tailings storage capacity, install the new water treatment facility and as Duncan mentioned, a new paste plant. The usage of paste fill underground will allow us to maximize stope cycle times in the Kiena Deep, minimize environmental impacts by decreasing the amount of tailings deposited in the torque and allowing for dry staking in the future. We believe the new infrastructure will put the operation in a very good position, allowing to increase of production and longer life of mine as we find additional reserves. Only CAD 2.4 million is required at the mill and the money will be spent this year. This confirms again the readiness of the mill for future production. Other CapEx -- CapEx estimated includes orders, indirect costs and a contingency of CAD 22.5 million, which represents an overall blended rate of 11%. Slide 6, please. You can see the production profile on the upper right of the slide. The production throughput ramps up during the life of mine to reach over 100,000 ounces per used starting in 2024 as the production for the Kiena Deep reaches about 700 tonnes per day as more mining block becomes available in the zone. Average gold produced per year is 84,000 ounces. The average operating cost is CAD 187 per ton mill. Note that the operating cost goes down as the production increase starting in 2024 to an average of CAD 164 per ton during the best year of the production. Cash cost per ounce and AISC are respectively CAD 502 an ounce and CAD 894 an ounce. After-tax NPV at 5% discount rate is CAD 367 million, a payback of 2.7 years. Slide 7, please. The sensitivity analysis reveals that the price of gold and the U.S. Canadian exchange rate had the most significant influence on the NPV compared to the other parameters based on the range of the values evaluated. By comparison, variations in the capital and operating costs have a limited influence on the NPV. At USD 1,900, the after-tax increases by CAD 124 million or CAD 37 million, for CAD 491 million. Slide 8, please. The PFS has just been completed, and we already see a lot of opportunities to improve the economics of the project and the potential for adding life of mine to our exploration success. We are already well-positioned for adding more ounces with the recent discovery of the Footwall Zone that Mike will introduce shortly. The bulk sample recovered 6% more gold than the reserve estimate at a fee grade of 15.7 grams per tonne versus model grade of 14.7. We are already working on reducing the utilization of sand in our paste fill recipe, which could represent a decrease of paste fill operating costs and provide additional tailings capacity. We see possible lower costs as well for the water treatment facility as more analysis would be formed once the mine gets into production. Please note that historically, there was no water treatment facility at Kiena, as the cyanide discretion was done naturally. I will now turn over to Mike.

Thanks, Marc-Andre. What a day for Wesdome. It's been 5 years since we drilled the discovery hole into the Kiena Deep A Zone and what a great ride it's been and now we have the opportunity to bring a great mine back into production. So, I think, that's really good day for Wesdome. But, look, I mean, I -- I think, I'm probably as excited now as I've ever been with this project. We had some hard drilling over the last year doing the infill drilling, converting as much of the inferred over to indicated as we can for the PFS. But we have a lot of meat still on the bone, so to speak. Lot of inferred resources there. You can see the results of some of our recent drilling. We have been expanding the A Zone, which is going to be an updated resource estimates. We still have 7 drills going on underground here. We've extended or expanded the VC Zone at depth. We're not drilling it right now, but we will be as we start to change our focus to exploration here. The B Zone, we've got a few holes into that, which is the down dip extension of the S50 and we're starting to hit some interesting things there. So lots of news to come. But, I think, we have a lot better understanding of this deposit than we did 5 years ago. And we see the potential at depth and the transitioning from sulfide rich zones to more higher grade visible gold in quartz veins, and that's what we're focusing on at the moment, and we had some great results. And certainly, one of those really exciting areas is the Footwall Zone. So next slide there, please. I guess, in a word, spectacular. Here we go again, right? I mean, here, we got the zone. Corridor vanning of high grade, 50 meters wide, potentially extending 300 meters down plunge already. Look, its early days. But it's pretty good. So, I mean, it's going to be a great summer. Obviously, a focus for us. We're going to pound away at that zone and see what this can add. But seeing where it sits right now and what we know, it has the potential to add a lot more ounces -- lot more ounces per vertical meter and change the overall project economics. So, I mean, that's all down the road, but that's really good so far. And we have a lot of exploration targets from the underground left to drill. We have targets that we've sort of hit earlier in the year that were -- we can't get back to right now, because we're focusing on this Footwall Zone right now. So I think a lot going on in the underground. Next slide, please. So in addition to the 7 underground drills, we also have 2 drills going on surface. We have a number of targets there. We've done airborne geophysics. We've done some deep MT surveys. We do some ice drilling. We're going to be doing barge drilling. So there's really a lot of things that need follow-up here. We have a good geologic model. We have built our team now for surface drilling. So, again, a lot of good news coming. Our first drilling is probably going to be following up on some targets that have already been tested and have some good results, so expect good success in those areas. We also have some conceptual targets to try some new ideas. So a good mix of exploration on surface. And this will only continue to grow as we go forward here, East and West of the Kiena Mine, but also in the North part of our property, where we're just currently doing the data compilation, which has a lot of great potential up there as well. We just opened up a Val d'Or exploration office. So that's going to help us to be able to focus the exploration on the other parts of our property. But in cooperation with Raj and the corporate development side, I mean, we're looking for other things, and we'll be able to manage other projects in the region through this Val d'Or office. So that's further afield, but further down the road. But you can see what Kiena is really doing here. It's getting us back into production. We're going to keep finding more and -- more targets. And, hopefully, will be acquiring additional projects now, too, in that area to help feed even mill. So all in all, I would say a pretty good day for Kiena. So with that, I'll turn it over to you, Duncan.

Thanks, Mike. So we are now at the turning point where Wesdome gains traction on its vision of becoming Canada's next mid-tier gold producer. This is a significant milestone. I'd like to thank the Board for their confidence, management for their dedication and all of our employees, contractors and consultants who have helped us get to this point. I'll now pass it over to the operator for a Question-and-Answer Session.

[Operator Instructions] Our first question is from Don DeMarco from National Bank.

Maybe first off, I'll just start off with the bulk samples, you've fired up the mill. What did you learn about the mill from processing the bulk sample? And was that a factor in what I see is achieving Kiena production in Q3, which is sooner than potentially previously expected maybe in Q4. So was there something about the mill that was encouraging? Or what can you tell us?

Yes, I can answer that, Don. Really, the mill performed admirably. I would have to say it was put on care and maintenance correctly back in 2013 when Kiena went on care and maintenance. And we have been in there now for probably a year, getting it ready, doing some upgrades, ensuring that everything was going to perform as per stated. And of course, I think, we recovered 98.2% of our gold. So I haven't seen recoveries like that ever in my life. That's an incredible recovery. As you know, the PFS is 98.5% for the A Zone and 97% for even the S50, which is a 4 gram deposit. So the Kiena mill certainly is performing well. We expect it to continue to perform well. The infrastructure is in good shape. And we've been, I would say, tweaking it, modernizing it where we can and making sure that it's ready for a good robust operation. So...

And maybe to my next question, then Marc-Andre mentioned opportunities to extend the mine life and so on. What about levers to increase throughput from, say, increasing mining rates and getting the ore to the surface from the deeper parts of the mine. What we see from the PFS is that you've got 100,000 ounces in 2024. You got 115,000 in 2025. Are those increases on grade or is that grade and throughput or both? And how can we get those mining rates in production even higher if some of these resources like the Kiena Footwall and Kiena A continue to prove out as expected?

Well, yes, I think that's exactly it, Don. I mean, our exploration success is certainly going to drive this. We -- let's face it, with the COVID impacted resource conversion, we'll call it, from the inferred to the indicated. I mean, could you only imagine if we didn't have that sort of impediment in the way, I can only imagine what sort of measured and indicated resources we would have been able to have as a base case for the Pre-Feasibility Study. So we made the decision at that point that you know what, we got to get to on the road here in terms of getting Kiena going. So what I really like, as you know, the mine ramp -- the main ramp going down on the A Zone is around, I'd say, 1,100 or 15 meters below. Anything that Mike and the exploration team is going to be able to add -- and I mean, there are some additional adds already that we're seeing on. There's additions of A Zone proper along strike. But if anything, in the VC Zone or the B Zone, starts to become evident as we continue descending down towards the lower levels of the known deposit, I'll say, because everything seems to be open at depth. I think that, that just really adds to our gain. Additionally, the S50, although it is a lower grade zone that we have, it does seem to have a little bit of upside. So I think that there is going to be -- as you pointed out, it definitely will be a mix of volume, but with the A Zone potential additions, I think, that we'll see grade. So we do view this as a base case. I think it's just based on where we had for, I would say, limited drilling that we're able to do in 2020. So -- but it, certainly, does support, I'd say, higher throughput.

And maybe just as my final question then. The -- there hasn't been a call since your second round of results at the Kiena Footwall. But maybe you could just refresh, like how many rigs do you have testing the Footwall right now? And what are the next steps? When could we expect the next drilling update and potentially a resource at some point?

Yes. I'm going to pass that over to Mike, if that's okay, Don?

Yes.

Yes. Sorry, I'm just on Eagle River, Don. Can you repeat that? My phones kind of acting upon me?

Oh, yes, sure, Mike. I was just asking how many rigs you have drilling, testing the Kiena Footwall and when the next update might be out and potentially resource at some point as well?

Well, certainly, with the 7 drills that we have underground, right now we have platforms for 3 drills to test it, and 2 are going at the moment. And the beauty of deepening the ramp there to get ready for mining is provide some better platforms. And so we're going to be using the new platform to hopefully get holes into it faster than we have over the last several months. And we certainly mastered the use of the wedge there and some other drilling techniques, so I think that's worked pretty well. As far as the resource goes, it really depends on how -- because we're still haven't quite confirmed the geometry there yet. So once we get enough holes in that to do that, we'll be able to start building some solids and thinking about a resource estimate. In a perfect world, we would kind of wait until the end of year to kind of get on this annual reporting of resources and reserves, same as the Eagle River mine. But certainly, if there's something that we -- can be done earlier than that, we will. But, certainly, as the results come in, we're going to be releasing them. So we'll be -- have a better feel for this thing looks like as -- and we'll be releasing that information. So that's kind of our plan there for resources.

And congratulations again, guys, and good luck on the restart and ramp up the calls.

Our next question is from Andrew Mikitchook from BMO Capital Markets.

I was wondering if you could at least give us some broad brush strokes of guidance of how to reconcile the 2021 guidance of capital that was put out at the beginning of the year for Kiena versus the CAD 68 million in today's PFS. I'm assuming there must be some overlap in there. I mean, I think it'd be perhaps people don't start double counting those numbers.

Yes. Good point. Okay. I'll pass that over to Scott Gilbert, our CFO, Andrew. Sorry, Scott, you're on mute.

Sorry about that, guys. Andrew, the -- originally, we were at CAD 35 million and the move-up to CAD 68 million is mainly due to the paste plant of about CAD 20 million and then the tailings management.

But if you go back to your January press release, as you're talking -- I think you guys presented a capital budget for Kiena of CAD 60 million to CAD 67 million for 2021. How does -- what portion of that is kind of included into this CAD 68 million?

Sorry, could you repeat that?

Your 2021 guidance that came out in January?

Yes.

Number of CAD 60 million to CAD 67 million of capital budgeted for Kiena?

Yes.

How much of that is overlapping with the CAD 68 million that came out today?

I'm not quite sure I understand. So, basically, we're still on schedule for that CAD 68 million and of that, we've got about CAD 48 million to CAD 50 million, which is in equipment that will be spent between July and December.

So maybe Mike…

Yes, sorry, go ahead.

Go ahead, Duncan.

No, just to reconcile that. So the CAD 60 million to CAD 67 million was the capital spend really in support of the project that we had guided. What Scott is talking about is the CAD 48 million to CAD 50 million, which is really what we would consider corporately as growth capital, more like the preproduction. As you know, the PFS doesn't have the preproduction sagged out, everything is in sustaining. And so, essentially, how we're viewing it internally here is that we probably have about CAD 50 million of what I would deem to be preproduction capital, which would be classified as growth and then remainder would be in sustaining. So in terms of our CAD 60 million to CAD 67 million, we're on pace for that overall. Project wise, I'd say that CAD 48 million would probably be growth out of that, and the remainder would be sustaining. Does that help?

Yes. But those numbers are kind of reconciled. They're in the same ballpark. It's not like people should be modeling both about CAD 60 million to CAD 67 million…

Yes, yes, that's…

So there shouldn't be any misunderstandings there, right?

No. And thanks for clarifying that. That is correct.

And just a quick question for Mike. I know you already addressed this, having more drill adds as the ramp goes down. Is -- I think the answer is it's not an ideal angle, but is it a workable angle as to where the ramp is to drill back down on to the Footwall Zone? Or should something else be planned for next year?

Yes. I mean, for now, it's certainly workable. I would think as we go further down, we will be developing more platforms that help with the angle. Certainly, the wedging is helping a little bit with some of the angles too, and we'll see where the zone is going. I mean the Footwall Zone -- I mean, everything looks like it's possibly folding and maybe coming around to something more flat. So at least for the area that we know the footwall zone is right now, we can probably add it quickly, get it from the drilling that we're doing and the new platform that we're putting in right now. And anything depends where it goes from here, if it folds, it goes deeper, then, yes, probably more platforms will be required there.

And just the last question. Any broad commentary even on the concept of a true thickness across that really long intercept from last week or the week before?

Yes. That's a tough one to kind of nail down, because it seems like there's multiple zones and then probably at Deep holes that they all come together. So it's really one hard one to nail down. But the average thickness of the Kiena Deep A Zone, A1 and A2, is around 4.5 meters or so. And I know that as good as our drillers are, it can never drill a 50 meter long hole in ore in a 4.5 meter wide zone. So I suspect it's going to be wider than that and I think that's why we want to get more holes into this thing as quick as we can so we can figure out what we have. But maybe if I was going to guess or something -- and there maybe multiple zones, it's just hard thing. But, I mean, if this is one where we had the big hit at depth there its 10 meters wide or something, I don't know that would be fantastic, and that's only 20% of the intersected ore length. So I think that would be a really good start for us down there.

[Operator Instructions] There are no further questions at this time. Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.