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

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.

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.

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.

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 placebo at Kiena and reconciliations provide positive results at Eagle River. Fred will now take us through the operational results in more detail.

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 2 assets. Some achievements Eagle Q1 production significantly exceeded internal projections due to 2 main factors. First, the or lectin 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 reconciliation seen in Q1 of last year in Falcon continuing into Q1, with 2 stops together yielding close to 15,000 tonnes at 25 frac. As planned, we also processed the last of the remaining is 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 EVOL, we had successfully transitioned longhole drilling activities from contractors to self-perform and we're happy to report that bringing this productivity 100% under 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 pended as opposed to the lower-grade material in other zones such as S50. Also, our recovery efforts of diluted from previously mined areas yielded better-than-anticipated rates. On the development side, the team's relentless focus on the Kiena 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 mind 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 [ delegable ] 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 [ blockho ]. The Basel plant has been steadily operating in Q1, and the team of lice is already seeing opportunities to optimize the process. We'll be acting on those in the near future. Partly, still, 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 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 Scott.

Thanks, Fred. During the Q1 of 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 ASVs $197 per ounce. Operating cash flow was $5.1 million and a free cash outflow was $19.8 million. Eagle River Complex sold 24,000 ounces, generating a cash margin of $32.5 million with cash cost per ounce of $1.92 and AISC at 19. Kiena sold 6,000 ounces generated cash management of $1.9 million and cash cost per ounce of $22.67 in AISC $3048 per ounce. The cost per ounce are high due to processing grade for 5 and urine while the ramp to be keen in the deep [indiscernible] production increases growth major 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 AP. Funds used to be down the revolver by $8 million and is payable by $12 million. At March 31, 2020, the cash balance is $25.1 million to $46.7 million drawn on the call. Working capital efficiency has decreased $38 million at September 31, 2022 and $14.7 million at March 31 2023. Over to you, Mike.

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 tonne. 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 all sites 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 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 zone an additional 45 meters 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 gas per tonne goal over 10-year core. We are pleased with the recent drilling that continues to better define and expand the recent discoveries adjacent to the B Zone, namely the Footwall, South Limb and Hanging Wall Basalt. These zones have the potential to increase the number of ounces per vertical meter and to provide additional working faces during mining that will be using the same underground infrastructure utilized to access the A zone. The discovery of the Hanging Wall zones highlights the potential data ounces within the result 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 tonne over 3.3 more. 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 to. 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. 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 downplunge, 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 calcium. Most recently, surface and underground drilling from the 355-meter level exploration drift on the west side of the mine has to finally 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 dire. Access to this stone from the neighboring Falcon 7 zone will improve drilling, development and future mining of the zone. Surface toy has also returned a number of good values further to the west of the Salton in what are interpreted to be shoots having a similar periodicity to the high-grade shoots within the mine diary. 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 [ zoning ] has profit exploration along strike and to the east of the dire, particularly in the area of the previously mined 2 zone that has its own infrastructure. One drillhole returned beneath the 2-zone223 grams per tonne gold over 0.4 meters and will be one of the priorities for drilling in the future. Back to you, Warwick.

Thanks, Mike. In summary, during our Q4 call earlier this year, I highlighted these 4 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 kind 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 intention 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 this year and returning to free cash flow positive status in 2024. The key technical hires added last year is 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 Board car Center 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.

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

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 months, 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?

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.

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 2 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.

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?

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. We had indicated that our budget call for our arrival at 129 almost at Erin, 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 that. So what we really are doing is being the production from 129 level forward in 2024 and not into 2023 at this stage.

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, 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?

Yes, I'll hand over to Fred again. But what I would say from a ROC point of view, we are in the base, 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. I'd like to give a little bit more color on that, Chris?

While nothing much more to add, basically, it's very good going conditions in the Basel. 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 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.

Our next question comes from the line of Wayne Lam from RBC.

Great. 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?

Yes. I'd say the spending in Q1 is typically lower than what we would see to out 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 [indiscernible] is concerned, it contributes just over 45% of that amount.

Okay. Great. 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.

Yes, of course. In terms of the ramp itself, as we move deeper, like I mentioned, the ramp being in the belt, 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 costs the 4 of the A1,2 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.

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.

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 and you kind of complete the spend at Kiena?

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.