Wesdome Gold Mines Q1 2023 Earnings Call Transcript

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May 11, 2023

There are 11 speakers on the call.

Operator

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

Speaker 1

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.

Speaker 1

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.

Speaker 1

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

Speaker 2

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 costs 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 a Good start as well as the benefits of the mining cycle embed themselves within the with the use of the paceful at Kiena and reconciliations provide positive results at Eagle River. Fred will now take us through the operational results in more detail.

Speaker 3

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 and while diligently advancing initiatives are key to unlocking the full potential of these assets. Starting at Eagle, Q1 production significantly exceeded internal projections due to two main factors. First, the ore left on process at the end of 2022 due to the weather which is causing the shutdown of hauling between the mine and the mill contributed to the grade analysis over performance. However and above that, The underground lines performed above expectations.

Speaker 3

The main contributing factor to this over performance being the positive reconciliation seen in Q1 of last year in Falcon continuing into Q1 with 2 stopes together yielding close to 15,000 tonnes at 25 grams per tonne. As planned, we also processed the last of the remaining Nishu in Q1. Development performance has exceeded targets in Q1, which puts us into a good position to deliver on our plan for

Speaker 2

the rest of the year.

Speaker 3

Finally during Q1, at Eagle, we have successfully transitioned long haul drilling activities from contractors to self 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 grades 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 materials in other zones such as S-fifty. Also our recovery efforts of diluted ore from previously mined areas yielded better than On the development side, the team's relentless focus on the Kiena Deepgram execution continued in Q1 with development performances ceding internal targets against this quarter. At quarter end, the ramp was just shy of level 143 elevation.

Speaker 3

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 ore grades and shapes and bringing up our geological understanding in the area well ahead of mining. We also had great success in developing 2 and into the new A2 zone of 118, 116 and 114 levels. We're on schedule to commence mining in this new zone in Q2 and development grades so far have outperformed the block model. The base oil plant has been steadily operating in Q1 and the team at sites is already seeing opportunities to optimize the process.

Speaker 3

We'll be acting on those in the near future. Finally, at Refill, we continue to engage with regulators and the authorization to execute on the exploration ramp project. First, excavation of the portal and subsequently of the ramp is expected to proceed in HQ after the required permits are secured. This improved ability to find and execute at both sites 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.

Speaker 3

Also, we've made significant headway on the procurement side of things, locking down statements on key consumables such as fuel and ground support.

Speaker 4

Over to Scott. Thanks, Fred. During Q1 2020, we sold 30,000 ounces of gold, which generated revenue of $76,700,000 and a cash margin of 34,400,000 Cash cost was $14.07 per ounce and the AISP was $19.77 per ounce. The operating cash flow was $5,100,000 and Free cash flow was $19,600,000 Eagle River Complex sold 24,000 ounces, generating cash margin of $32,500,000 with cash cost per ounce of $7.92 and AISC of $17.09 per ounce. GES sold $6,000 ounces generating cash margin of $1,900,000 Cash cost per ounce of $22.67 and AISB 30.48 per ounce.

Speaker 4

The cost per ounce Our high duty process is a lower grade oil from CAS50 in the front end zone, while the ramps we're keen to need to develop. Unit cost will decrease as production increases throughout the remainder of the year. All of the equipment, infrastructure upgrades and the ramp development at Kiena will be included in both capital for the remainder of 2023. Also during the quarter, dollars 20,100,000 of net proceeds was raised under the ATM. Funds were used to be down the revolver by 8,000,000 and the payables by $12,000,000 At March 31, 2023, the cash balance is $25,100,000 with $46,700,000 drawn on the call.

Speaker 4

Working capital efficiency has decreased $38,000,000 at December 31, 2022, to $14,700,000 at March 31, 2020. Over to you, Mike. Thanks, Scott.

Speaker 5

At December 31, 2022, Westcom's combined proven and probable mineral reserves remained just over 1,000,000 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 mineral resource of 1,100,000 ounces. Resource and reserves estimates of both sites reflect the higher cutoff rates, reduced exploration budget in H2, A higher allocation towards definition in infill drilling, including 25,000 meters in the Falcon Zone and Eagle River, as well as a more stringent and robust approach to reconciliation, 3 d modeling and resource classification. In 2023, the company has budgeted 137,000 meters of drilling to convert a portion of the existing large M and I and inferred resource base into reserves. We also plan to add ounces at several of the new discoveries made in 2020 At Kiena, recent drilling at the Kiena Deep Zone has continued to return good results and have extended the Kennedi A Zone an additional 125 meters down plunge.

Speaker 5

The A Zone now extends continuously from 1100 meters to approximately 2,000 meters below surface and remains open at depth. Highlights of the recent drilling include 76 We are pleased with the recent drilling that continues to better define and expand the recent discoveries adjacent to the Kiena Deep Basin, namely the Footwall, South Limb and Hanging Malt basalt zones. These zones have the potential to increase the number of ounces per vertical meter and provide additional working basis during mining that will be using the same underground infrastructure utilized to access the A Zone. The discovery of the Hanging Wall basalt zones highlights the potential that ounces within the basalt with a rock quality significantly better than in the A Zone. At Presque Isle, 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 a 3.3 unit core length.

Speaker 5

Given the significant upside that the Presque Isle could represent for Kiena, The company is planning to commence an exploration ramp from surface 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 the Kiena's existing underground ramp network, providing access to surface for the existing operation. This could represent a significant milestone on the company's journey to unlock additional potential of Hina as it would provide second access for conveyance of material and personnel, freeing time for additional ore hoisting via the shaft, Other gains such as reduced ventilation costs and savings from added operational flexibility are also expected. Studies are ongoing to pursue these options.

Speaker 5

Fresfield 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 to test some of these additional targets, namely the Shockey and Ducasse Homes. 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.

Speaker 5

However, the focus is shifting to explore areas laterally along strike and near surface and within the volcanic rocks similar to that of the Falcon Zone. Most recently, surface and underground drilling from the 55 meter level exploration drift on the west side of the mine has defined the 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 believes to be an extension of the Mine 5 Zone within the diary. Access to this zone from the neighboring Tuck in 7 zone will improve drilling, development and future mining of this zone.

Speaker 5

Surface drilling has also returned a number of good values further to the west of the South and Southern zone in what are interpreted to be shoots having a similar periodicity to the high grade shoots within the mine diary. These zones will be further explored from surface, but longer term, 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 Dariq, particularly in the area of the previously mined 2 zone that has its own infrastructure. 1 drill hole returned beneath the 2 zone 223 grams per tonne gold over 0.4 meters and will be one of the priorities for drilling in the future.

Speaker 2

Back to you, Wes. 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 Q1 towards the ramp that gives us access to the Keenan 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.

Speaker 2

We have communicated our intentions to reduce outstanding balance on our credit facility and we have done exactly that, reducing the debt in Q1 from $55,000,000 down to $47,000,000 and our plan is to continue 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. New fill this year and returning to free cash flow positive basis in 2024. The key technical hires added last year and 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 EST report this summer, which will be available on our website.

Speaker 2

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 a. M. Eastern Time at the TMX Broadcast Center in Toronto. We are pleased to be returning to an in person format, and I do look forward to meeting you then.

Speaker 2

This concludes our call today. We will now open the lines for Q and A. Wayne, I believe the first question comes from yourself. Would you like to go ahead?

Operator

Don DeMarco, our first question will come from the line of Don DeMarco from National Bank Financial. Your line is open.

Speaker 6

Okay. Thank you very much. Good morning, team and hello, Warrick. So congratulations on a great quarter. Now Eagle performed well in the quarter.

Speaker 6

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 more of a one off quarter?

Speaker 2

I'm going to give Fred some time to give you some of the 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 grades 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.

Speaker 3

Yes, of course. Yes, at Eagle, I mean, the very high grade nature of the ore body makes for inherent variability and really the greater work performance that we've seen in Q1 really was due to 2 specific stoves that We mined out in starting to mine out in Q4 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.

Speaker 6

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

Speaker 2

Yes. Certainly, as we 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 Q1 and now into the Q2. So we had indicated that our budget call for our arrival at 29 almost at year end 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 inter levels between as we mine up.

Speaker 2

So what we really are doing is bringing the production from 129 level forward in 2024 and not into 2023 at this stage.

Speaker 6

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 on towards 129 the 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 that you're ahead of schedule? What's going well in other words? And do you expect it to continue?

Speaker 2

Yes, I'll hand over to Fred again. But what I would say from a ROC point of view, we are in the basalt, which is the more confident 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 a challenge in 2022. I'd like to give a little bit more color on that Fred.

Speaker 3

Well, nothing much more to add. Basically, it's very good gun conditions in the Basel. I mean, there's no challenge developing there and it's very predictable in terms of behavior. In terms of behavior, also very good discipline on the operations side of things where the goal of getting towards the bottom of that ramp is absolute priority at site and everyone is well aware of that. And as Borb 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.

Speaker 3

And we're using that capacity with those extra bolters to exceed our internal targets.

Speaker 6

Okay. Thank you very much. Congratulations again on a strong quarter and good luck with Q2. That's all for me.

Speaker 2

Thanks very much, Tony.

Operator

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

Speaker 7

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?

Speaker 7

And then Are there any additional large equipment type purchases remaining or is the majority of spend all just related to the underground development?

Speaker 2

Yes. I'd say the spending in Q1 is typically lower than what we'd see throughout the year. The spends tend to increase as we get our That's 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 100 and $4,000,000 for the year for both sites.

Speaker 2

And as far as SINA is concerned, it contributes Just over 45% of that amount.

Speaker 7

Okay, great. Thanks. And then Just curious if you had any detail on how the ground conditions or the rock competency has Look, did you kind of move deeper into the mine?

Speaker 2

Brady, would you like to take this one?

Speaker 3

Yes, of course. In terms of the ramp itself, as we move deeper, like I mentioned, the ramp being in the above, there is no concern there with ground stability at all. The growing conditions are excellent and development proceeds apace. In terms of when we get into the shift and the commodity, which typically holds hosted the core 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 level 118, 116 and 114 actually a bit better than what we had anticipated.

Speaker 3

And that is contributing to the fact that we're going to be able to mine that zone in early Q2 now.

Speaker 2

I'd also just flag to what Fred has said. The one issue is what we anticipated. The other is our learnings from the experience that we're gaining through mining into the schist. So that's certainly benefiting us a great deal as well.

Speaker 7

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

Speaker 2

Yes. Wade, I'd just like to say that it's been our intention to get ourselves to and 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 assessments of where the gold price is and our control of cost through the execution of our mining operations. So we're also 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 disciplined basis, but also driving to a position on which we can close it as soon as we can.

Speaker 2

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.

Operator

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

Speaker 8

Good morning. Congratulations on the quarter and thank you for the comments 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 In Q1, are you generally seeing that extend into Q2?

Speaker 2

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

Speaker 3

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 over performance in Q1 Really

Speaker 2

is at this point we see this as

Speaker 3

a one off and where the ounces were heavily more heavily skewed towards H2 for Eagle, Now we see the houses being a bit more regular throughout the year.

Speaker 8

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 and your expected performance for this year? Or is it looking like more stable than, call it, recent quarters?

Speaker 3

Yes, Fred again. Yes, we don't expect significant shutdowns or downpines to any of the mills Any of the bigger equipments, let's say, of the mines, and that's true for both operations. So yes, you could expect a steady stream of production from the 2 sites. Based on what we are seeing so far, it looks like the year is going to be, I would say, there

Speaker 8

Okay. And then 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 into misinterpreting that?

Speaker 5

Well, that's correct, 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 Newth Lake 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 permit if we ever got to the mining stage there. But for now, I'd remind you that we would do the Falcon and the immediate extension of that is on our lease area, our mining lease.

Speaker 8

Okay, that's great. Thank you very much for all the answers and I'll pass the microphone to the next person. Thank you.

Operator

Thanks, Andrew. One moment for our next question. Our next question comes from the line of John Schloty from Desjardins. Your line is now open.

Speaker 9

Yes. Thanks for taking my questions, guys. Most of them have been answered, but I've 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?

Speaker 4

Yes. It definitely is the level that we're going to be at. We've started to depreciate Kiena using UOP post since we declared commercial production on December 1, 2019. So that's where the significant increase is.

Speaker 9

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

Speaker 4

Yes, exactly. That would be majority of the assets will be depreciated on the European basis as opposed to state mine. So

Speaker 9

Okay. That makes sense. And last one for me, just looking at the resource trades, I know you're doing Some conversion drilling and just wondering if with the tighter drill spacing, do

Speaker 5

you expect some higher grades? Do you expect those resource grades to move closer to reserve grades with

Speaker 9

at Titan Spacing.

Speaker 2

Mark, did you want to take that?

Speaker 5

Yes, sorry. So was that at Eagle or at Kiena? I didn't catch that, sorry.

Speaker 9

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

Speaker 5

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 is in some of the surrounding zones where the grade is lower. So that's how that balances in the equation of the inferred and Some of it measured and indicated is lower grade overall. But certainly more drilling helps a lot here.

Speaker 5

We're finding and then we can Better identify these high grade shoots both at both projects really, I mean, they're both high grade mines. And typically with that, better defining the resources

Speaker 9

Okay. No interest. I appreciate that. That's it for me. Thanks guys.

Speaker 4

Thanks, Joe.

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.

Speaker 10

Congratulations on all the good work. Now that it's May 11 and the 2nd quarter is almost half over. Does it look like the June quarter production will be at least as much as the

Speaker 2

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 mining sequence that we saw in Q1, we have put some of those ounces into Q2 into H1. But, Jerry, we will see a consistent performance going forward.

Speaker 10

I saw in the release that you already raised CAD20 1,000,000 of equity. I guess that was through March Slightly over half of the CAD 47 in debt. Should we interpret from that That you might only need to raise another CAD10 million or CAD20 million of equity in view of the rising gold price Good production, the horizontal development being slightly ahead of budget, etcetera.

Speaker 2

Yes. I'd like to just emphasize that the $25,000,000 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 $47,000,000 in the revolver with the debt that we're carrying there at a rate of First on 10.7%. So now intentions are to have a pay down.

Speaker 2

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.

Speaker 10

I'm not smart enough to understand stocks morally. 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'd sell shares or You just sell a little bit every day.

Speaker 2

Very much a basis of what the market is doing on an ongoing basis. I mean, we do see significant fluctuation 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 a Half day basis, I mean, as to where we are relative to that pool 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 as we exercise in the use of it, John.

Speaker 10

Good. Thank you very much.

Operator

Thank you. That concludes our Q and A session for today. And as well as, this concludes today's conference call. Thank you for participating. You may now disconnect.

Operator

Everyone, have a great day.

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