West Red Lake Gold Mines Ltd. (WRLG) Earnings Call Transcript & Summary

Thank you for standing by. This is the conference operator. Welcome to the West Red Lake Gold Mines Second Quarter 2026 Results Webcast. [Operator Instructions] The event is being recorded. [Operator Instructions] I would now like to turn the floor over to Shane Williams, Chief Executive Officer. Please go ahead.

Good morning, everyone. Thank you for joining us today to discuss the West Red Lake Gold second quarter results. Joining me on the call today is Harpreet Dhaliwal, Chief Financial Officer of the company; and Jaclyn Ruptash, our Vice President of Corporate Communications. So before I begin, I'd like to encourage listeners to review the cautionary language regarding forward-looking statements contained in our news release and MD&A issued yesterday and are available on SEDAR and on our website. So I just want to start today by stepping back a little and looking at where we've come over the first 6 months of commercial production at Madsen. A significant part of our focus earlier this year was on underground development and establishing and setting up additional mining areas to give us greater flexibility within the operation. In Q2, we started to see the benefits of that work come through in our operating results. So this quarter, we achieved a number of milestones. We mined approximately 75,000 tonnes of material during the quarter, and that was a 46% increase over Q1. The grade improved to 4.3 grams per tonne, resulting in 10,000 -- just over 10,000 tonnes of -- mined ounces, which was a large increase quarter-over-quarter. So gold production increased to 8,576 ounces, which was a 51% increase, and gold sales increased 34% to 8,200 ounces. So we're pleased with the progress the team have made during the quarter. And I think it's important to remind everybody that this improvement wasn't isolated to one part of the operation. We had higher mining rates underground, improved grades, higher mill throughput, all of which contributed to the higher gold production, all of which are part of an ongoing ramp-up of a high-grade underground mine. The mill averaged about 842 tonnes per day, which is near -- it's higher than current capacity during Q2, up 47% from Q1, while recoveries maintained at approximately 95%. We've been very pleased with the ramp-up of the mill. It's holding its recovery, which is design recovery. And also, we're getting the tonnage above its permitted capacity. At the same time, our mining rates allowed us to build a surface stockpile at the end of the quarter, which obviously gives us that important indicator of progress we've made. It provides operational flexibility between the mine and the mill, which is a key part of our strategy as we look into the rest of the year. So we're building flexibility on the ground. We've talked consistently through the importance of developing ahead of ourselves and establishing multiple mining fronts. That gives the operating team more optionality around mine sequencing. So Q2 demonstrated considerably higher operating levels than Q1. And importantly, that operational progress is translating into significant stronger financial performance. With that, I'll turn the call over to Harpreet to review the financial results for Q2.

Thank you, Shane, and good morning, everyone. As Shane outlined, the increase in production during Q2 translated directly into stronger financial performance, including a significant improvement in our unit costs. All-in sustaining costs decreased 30% quarter-over-quarter to USD 3,284 per ounce sold compared to roughly USD 4,700 per ounce in Q1, bringing our Q2 all-in sustaining costs within our 2026 guidance range of USD 2,800 to USD 3,600 per ounce. Cash costs also decreased 23% to USD 2,000 per ounce sold. Importantly, given the relatively high fixed cost base at Madsen, the increase in production and gold sales during the quarter allowed those costs to be spread across a greater number of ounces, contributing to the improvement in unit costs. The 8,260 ounces of gold that was sold in the quarter generated approximately $49 million in revenue, which is an increase of 17% quarter-over-quarter. Income from mine operations increased 31% to approximately $20 million, and our operating margin improved to 41% compared with 37% in Q1. We also saw significant improvement in our adjusted EBITDA and our adjusted net earnings. Adjusted EBITDA increased 54% to approximately $22 million compared with $14 million in Q1. Adjusted net earnings increased 98% to approximately $13 million or $0.03 per basic share compared with $6.4 million or $0.02 per basic share in the first quarter. Another result I would highlight is our free cash flow. During Q2, the company generated $9.7 million of positive free cash flow. We also invested $6.3 million of non-sustaining growth capital during the quarter, primarily related to continued advancement of the Fork access drift and the Madsen shaft refurbishment project. The company ended Q2 with approximately $31 million in cash and cash equivalents. And as the future cash generation from the operation grows, our approach will be to balance the reinvestment in Madsen with our ongoing debt repayment obligations. So from a balance sheet perspective, our focus is really on maintaining financial flexibility as operation continues to advance. With Madsen now in commercial production, capital management continues to be a priority for the company. I would say that overall, Q2 demonstrated the financial impact of the higher operating levels Shane discussed, with the higher gold sales contributing to stronger margins, lower unit costs and positive free cash flow. Additional details regarding our financial results can be found in our Q2 financial statements and MD&A. With that, I'll turn it back to Shane.

Thanks, Harpreet. So looking ahead, our focus for the balance of 2026 is really on continuing the progress we've made while building greater flexibility across the operation. So a big part of that and focus of us is the underground development. So we're continuing to develop ahead of our current mining areas and build production inventory. We're also advancing development and technical work across the 904 complex and the satellite Fork deposit, both of which we'll expect it to be a key part of our 2027 production. Importantly, both of those are also non-remnant areas, which will allow us to obviously -- which will derisk the operation. So at Fork, we're advancing the access drift. We're now 50% complete of that access drift and the 904 underground complex development and drilling continues as we establish additional access to these large non-remnant areas. And I was on site last week, and I also viewed this 904 area, and it's a very exciting area of the project as we see lots of open headings, lots of stopes, and it really opens up the potential of the ore body and our ability to ramp up much higher. So there's a lot happening underground. We're mining today. We're developing ahead of ourselves, drilling and preparing additional areas that become part of the future production inventory. So alongside that, we're also investing in infrastructure. As you saw, the shaft refurbishment is a key part of that. As mining and development move deeper, so the shaft becomes an increasingly important part of the operation. So it's intended as we move deeper, it improves the efficiency of moving ore and waste to the mine and also contributing to lower operating costs. Obviously, the cost of shafting the material versus trucking is a much lower cost. So the equipment for the shaft, as we talked about, we laid out a Phase 2, a Phase 1 and a Phase 2. Most of that equipment is on site and the refurbishment is ongoing towards the next phase. And so that will allow us to increase hoisting capacity to about 700 tonnes a day. At the mill, we're also focused on increasing capacity. We have reached our throughput quicker than we expected. And so for the second half of the year, we're also making -- working towards increasing processing rates to approximately 1,000 tonnes per day. We're seeing good progress on the mine, the ability to ramp up. And so we're looking in the last half of the year, ramping the production up to 1,000 tonnes per day through the mill. So we've demonstrated the mill can operate at these and potentially higher rates, looking at closer to 1,300 tonnes a day. As we look to -- we're looking to add another crusher to support this higher throughput rate. And we're working through the permitting process required to support sustained processing rates on the longer term. That said, as we operate at high operating levels, naturally, there are risks needed to manage across the operation. We're working on multiple mining fronts at higher mining rates and moving more material to the mine and mill. There are a number of factors that can influence this performance from one period to another. As we go underground, we are experiencing variable ground conditions in some areas, and this has resulted in higher dilution than we typically target as we target and we hit more oversized material and more dilution. The larger material is difficult to handle through the existing crushing circuit, hence why we've made some adjustments to underground sequencing as we move through these areas. This is also part of the reason we're looking at adding another crusher. It's expected to improve the handling of oversized material and increase throughput, making the crushing circuit more efficient and support higher throughput through the mill. One of the key areas that is also happening in the market today is labor shortage. So we are experiencing some labor constraints in the industry, particularly for experienced underground miners. That's another consideration with activity level increase. This is something that's happening in the industry as a whole as we continue to work through. That's where it becomes key to having a large stockpile on surface. It gives us more flexibility between the mine and the mill and helps maintain a steady source of mill feed, processing material from the stockpile while also replenishing it with newly mined ore, and we're maintaining the inventory as we work through different operating conditions. So as we look to the balance of the year, the focus is really on execution and greater consistency at these operating levels from development and sequencing underground to how efficiently we move and process material through the mill. As we do that, we're positioning Madsen to support our broader growth strategy with Madsen as the operating and processing hub and additional ore source feed being advanced around it. So Rowan is a key part of that opportunity. We filed the technical report, and we also supported the updated Rowan resource, which included a 70% increase in indicated resources while maintaining that high grade of approximately 13 grams per tonne that we've seen consistently at this deposit. So that work gives us greater confidence in Rowan as we evaluate alongside Madsen as part of our proposed updated pre-feasibility study, which the team are working on and coming to a conclusion. And it also provides an additional source of feed for the Madsen mill. So we've made progress through the first 6 months of commercial production. It provides a solid foundation for the work ahead, both at Madsen and our broader Red Lake portfolio and strategy. So we also expect to continue news flow through the remainder of '26, including assays from our recently completed drilling at Starratt-Olsen satellite deposit, assays from ongoing drilling in the 904 complex, further progress at Fork as we advance the decline and also key for us is the updated pre-feasibility study, where we're looking to combine Madsen and Rowan in a single operating entity, and we do expect that to be released in mid- to late September, and we're still tracking towards that time line. With that, operator, I think we can open the line for questions.

[Operator Instructions] The first question is, given the first half production at around 14,000 ounces, how are you thinking about full year guidance?

Thank you. Yes, we expect full year production to be within our 2026 guidance. So the production profile in the first half of the year was set up to be weighted towards the second half. And I think when you look at our step-by-step we saw from Q1 to Q2, as you can see, progress has been made operationally. As we hit more mining areas available, mining rates have increased, and we've established a surface stockpile, which give us flexibility between the mine and the mill. So for us, the focus for the second half of the year is really on building that consistency as we move through the balance of the year.

For the next question, can you provide the company's strategy to manage its current debt and how you're thinking about the balance sheet as you move through the rest of the year?

Sure. I can do this. I'll take this one. Well, as you know, we did end Q2 with $31 million in cash, and we generated around $9 million of positive free cash flow. So overall, we're definitely in a much different position today than we were when we originally put these debt facilities in place. During the first half of the year, we did start making principal repayments towards the Nebari loan. But it's also important to remember that we -- when we did put these existing debt structures in place, it was designed as short-term back-end loaded financing and it is really meant to provide capital needed to restart Madsen and bring that mine into commercial production. And on top of that, separately, the Gold-Linked Notes were also part of our early financing strategy and the payments were structured to increase over time, really alongside the ramp-up of the ounces from the operation. So saying that, now that we're on the other side of the transition from development to production, we really are actively looking at options to lower our cost of capital, which really, at the end of the day, is a prudent capital management measure. And saying that, obviously, the current gold price definitely helps us, and we're generating cash from operation. And also just to note, we do also have the $0.68 warrants that are outstanding and that expire this November. So that's really here just in a couple of months. And that could provide an additional source of capital if exercised. And really, to put it in context for the warrant holders, is if they were to exercise at, let's say, today's price around $0.95, that would give these warrant holders an additional 40% return on top of the return they made on the share portion of that equity financing from that period. So overall, yes, capital management is definitely a key for us. It's something we have a big focus on, and we'll continue to focus on for the rest -- for the second half of the year. So I think with that, we can move on to the next question.