Wesdome Gold Mines Q4 2023 Earnings Call Transcript

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March 13, 2024

There are 9 speakers on the call.

Operator

Good morning. Welcome to Westdome Gold Mines Q4 and Fiscal Year 20 23 Financial Results Conference Call. I will turn the call over to Lindsey Dunlop, VP, Investor Relations to begin today.

Speaker 1

Great. Thanks, operator, and good morning, everyone. Welcome to West Elm Goldline's 4th quarter and full year 2023 results conference call. Before we begin today, we'd like to take this opportunity to remind everyone that during this call, we'll discuss our business outlook and 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 MD and A dated March 12, 2024. Yesterday's release should be read in conjunction with the MD and A and financial statements, all of which can be found on SEDAR Plus and on our website. Following the prepared remarks, we will open the call for questions. All figures discussed on this call are in Canadian dollars unless otherwise noted. Now over to Andy Abas, President and CEO to begin today.

Speaker 1

Thanks, Lindsay, and good morning, everyone. Before I begin, I would like to say a big thank you to Lindsay, who will be leaving at the end of March. Lindsay has been a part of the staff of Westover for 10 years now. We're certainly going to miss you and wish you well. Speaking on the call with me today will be Ross Gill, SVP, Corporate Development and IR Fred Langevin, our COO and Mike Michaud, SVP, Exploration Resources.

Speaker 1

Also in the room, we have Fernando Rugoni, our recently appointed CFO, who took the reins from Jonathan Singh earlier this week. We welcome Fernando to the executive leadership team and thank Jonathan for agreeing to stay on in a leadership position in the business. Before I pass him over to Fred, I'd like to begin with a brief overview and outline while we're excited about what lies ahead for West Elm. Overall, despite significant changes in 2023, West Elm delivered on its 3 strategic imperatives. We achieved the midpoint of guidance on production in ASIC.

Speaker 1

We advanced development to the 129 level on Kiena ahead of schedule and we ended the year with positive net cash and a strengthened balance sheet. Last month, we also updated our year end mineral reserve resources, reporting a 12% net increase in corporate reserves of depletion, while keeping overall portfolio grade essentially unchanged. These achievements are a testament to capacity and the commitment of our operating and corporate team and I want to say a special thanks to all those who are listening today. With almost a third of annual production of 123,000 ounces coming in the Q4, we are hitting a new pace and are well positioned to deliver higher production and lower costs in 2024 2025. As we previously announced in January, Kiena is poised to deliver a step change increase in production on the back of high grade Kiena deep ore in process in Q2 this year.

Speaker 1

The site mining crews are optimizing their approach and so far development remains on track. At Eagle River, we are seeing more consistent performance on development rates and grade reconciliation. Our focus at Eagle River near term will be on reoptimizing the asset with a view to value and improve margin, which gives us optionality on cut off grade and subsequently the potential to increase reserves conversion from a resource base. In terms of exploration, it remains the cornerstone of our strategy and we see a number of ground foot exploration and development opportunities that we are confident will drive resource growth and reserve conversion and eventually utilize the spare mill capacity at both operations. More on that from Mike in a moment.

Speaker 1

Financially, we're in a far better position exiting 2023 than we have been before. Our liquidity ending the year was $153,000,000 and our net cash, that is our cash monitor borrowings, has climbed about $24,000,000 with robust free cash flow expected this year next. We're on track to close out the remaining $39,000,000 drawn on our revolver by the Q3. And with that, I'll pass over to Fred to walk through the operational details.

Speaker 2

Thank you, Anthea. Good morning, everyone. Consistent with our internal projections, we had a very strong finish this year on production at 2 sites and all key initiatives to setting up successful 2024 advanced after planned during the quarter. Starting with Eagle River, production in Q4 came in at 24,072 ounces. A higher production was mainly driven by higher grades as mill throughput remained consistent with previous quarters.

Speaker 2

The 300 zone was the main contributor to gold production in Q4 and this zone continues to provide excellent rates that reconcile positively. For the full year 2024, Eagle has produced total of 87,007 199 ounces of gold, firmly above midpoint of guidance range with very stable production quarter over quarter. Development performances in Q4 once again exceeded budgeted targets, which positions us very well for 2024 production. On the back of this strong execution at Eagle, we continue to benchmark the operation both on productivities and on cost to try and improve our cost structure to offset the cost pressures of increasing debt. We expect to start seeing benefits of this program in 2024.

Speaker 2

Athena production in Q4 came in at 12,144 ounces. Grade continued to track higher than upper end of guidance during the quarter due to a combination of continued strong grade performance from the A2 zone, where we are able to continue successfully cycling stope located entirely in shift and the contribution of high grade preproduction ore development into the A zone on the way to level 129. For the full year 2023, Kiena has produced total of 35,536 ounces, slightly above midpoint of guidance range. The ramp to K and D remains a key focus for the team in Q4, culminating in us reaching 129 level access in October. Since then, we've been focusing on developing the level infrastructure required to initiate mining activities such as ventilation raises, escape ways and power distribution on levels 1.7 and 129 with development into the ore in the A Zone now ongoing.

Speaker 2

With focus in Q1 remaining firmly on infrastructure development, StarLeagold production levels are expected to be consistent with the 2023 run rate average. As we complete infrastructure and still development, store production is expected to ramp up to reach steady state by the end of Q2 with grades in line with 2P levels. Finally, after receiving the required authorizations to proceed with the excavation of the breakeven portal in Q4, we've made headway installing support infrastructure at surface to begin excavation of the portal, which was and the ground support phase of the portal is ongoing. As soon as this phase is completed, development of the underground workings will commence. The 1.7 kilometer exploration ramp is being tracked closely internally as it will be key in establishing ventilation, secondary transportation and all edge access for the existing operations, but also allowing us to leverage the 32 level infrastructure to supplement the key to deep production starting with the Presque Isle.

Speaker 2

So overall, as expected and conveyed in our last update, strong execution at the 2 sites in Q4 led to all full year cash cost and all in sustaining default well within guidance range provided in January 2023. Over to you, Jonathan.

Speaker 3

Thank you, Fred. I will start with an overview of the Q4 and full year results. Previously reported Q4 production of 36,216 ounces was largely in line with expectations and brought full year production to 123,336 ounces. Sales in the Q4 were 37,620 ounces, slightly ahead of production due to the timing of final Dory sales. All in sustaining costs of $2,082 or US1529 were down slightly from the same period in 2022, primarily due to higher sales volumes.

Speaker 3

As Anthea mentioned, we expect the trend of higher output driving lower costs to continue for 2024 with guidance set at 160,000 to 180,000 ounces at a U. S. Equivalent of $13.25 to $14.75 an ounce. Our net income and adjusted net income for the Q4 for 2023 of $2,400,000 or $0.02 per share. We do note that the quarter included a one time non cash deferred tax impact of CAD8.6 million or CAD0.06 per share, but was still $5,900,000 higher than the corresponding period in 2022.

Speaker 3

Cash flow from operations for the Q4 were 37,200,000 dollars or $0.25 per share and $101,400,000 or $0.69 per share for the full year. As a result of cash flow during the quarter and the year, total liquidity stands at $153,000,000 up from $143,000,000 at the end of 3rd quarter and from $129,000,000 at the end of 2022. Balance sheet strength remains a priority for us and we expect higher grade edema to drive cost lower and supporting strong cash flows, especially in Q2 and at current gold prices allowing us to pay down the remaining balance of a revolving credit facility by the Q3 as well as fund a range of opportunities to reinvest in the organization. Mike will now take us through

Speaker 4

the exploration review. Thanks, John. At December 31, 2023, West Elm's combined proven and probable mineral reserves totaled 1,100,000 ounces from 2,800,000 tonnes grading 12.7 grams per tonne gold. Combined measured and indicated resources exclusive of reserves were 327,000 ounces and combined inferred mineral resources were 808,000 ounces. Reserves continue to be based on US1400 dollars an ounce gold and resources are now based on US1700 dollars per ounce.

Speaker 4

Gold contained improving and profitable reserves at KEMIC increased 21%, driven by a maiden reserve at Prestea of 66,000 ounces grade and 7.6 grams per tonne gold, along with replacement and additions in Kennedee. At Eagle River, mine ounces were successfully replaced with reserves. We after we applied more conservative estimation parameters and optimized interpolation techniques. There remains a large resource of measured and indicated also inferred resources at Eagle River having the opportunity to be converted to reserves in the future. Reserves and resource estimates at both sites reflect reduced exploration spend in 2023.

Speaker 4

Drilling was therefore focused improving geometric understanding of ore bodies and conversion of inferred resources to measured in the indicated categories. However, in 2024, the drilling program has been increased substantially compared to 2023 to approximately $30,000,000 or 185,000 meters for a balanced program of underground delineation and exploration as well as surface drilling. It was a very exciting quarter at Eagle River as further drilling on several high grade intersections in October have developed into a new zone namely the Falcon 311 zone that occurs within volcanic rocks immediately west of the mine diary. Additionally, gold mineralization was identified along the eastern margin of the mine diary near the historic 6 zone confirming our theory that volcanic rocks along the trend are a host for gold mineralization. Recent drilling returned 123 grams per tonne gold over 1.7 meter bore length.

Speaker 4

Meanwhile, underground drilling of the 300 East zone has continued to confirm the consistency of the high grade mineralization that now extends to the 1600 meter level and remains open down plunge. Deeper step out drilling is planned to provide initial indication of mineralization below this zone to optimize future drilling and development as well as to convert the large inferred resource space to indicated and subsequently into reserves. As part of the 2024 increased exploration program, test is also planned at the neighboring zones such as 6 Zone, 711 and 811 zones. These zones have the potential to also extend to 1600 vertical meters below surface and beyond. On surface, drilling is planned to test a number of targets generated using artificial intelligence on our existing databases as well as several known zones such as the Forehead Berch veins.

Speaker 4

However, year to date warm weather conditions may require this drilling to be reallocated to exploration targets immediately east of the mine diorite near Tussle. In October 23, the company announced the discovery of the Falcon 311 zone. Subsequent drilling has now delineated the zone to extend at least 200 meters along punch and nearly 100 meters along strike and interpreted to extend 900 meters to surface similar to that of the neighboring Falcon 7 Zone. Recent drilling returned 270 grams per tonne over 2.3 meter quarter length including one section that returned 12.61 grams per tonne gold over half a meter. Obviously, this area remains a group priority for 2024.

Speaker 4

Despite the reduced drilling at Kiena, it was an exciting year and we are able to add over 120,000 ounces of reserves between Presque Isle and Kennady. Within Kennady, drilling has been focused on better delineating the Kiena Deep A Zones to derisk 2024 Mine production, particularly given the high grades in the reserve model. At Kiena Deep drilling was focused on the Southland in 2023 and has confirmed the continuity in high grade of the zone. Also underground exploration has been completed to extend the deeper portion of the Kiena Deep Zones as well as the football zones. This drilling be increased in the future once more optimal drill platforms are established.

Speaker 4

At Presque Isle drilling has confirmed not only the continuity of gold mineralization and the validity of the geologic model, but also the potential for down plunge extensions towards the east, which will be further tested from surface and from underground drill platforms from the exploration ramp. Of course, the Presque Isle is just one of several zones having the potential to offer supplementary source of low feed near surface or in the upper mine area for the spare and sowed capacity at the Kiena Mill. To this end, recent drilling results from the Shaki and DuPont zones in 2023 have returned encouraging results. Both of these zones are accessible from the existing 33 level development that extends across the property. It is an important year for exploration at Kiena and we have developed a balanced and integrated approach to optimize the exploration spending with a combination of delineation, extension, in mine exploration and conceptual regional targets.

Speaker 4

Other exciting targets to be tested this year is the Wish zone, which is proximal to the Shockey zone and adjacent to the 33 level development. In this area limited drilling has intersected high grade gold along a Mafic ultra mafic contact. We expect to release these drill results in the coming weeks. And further to the east at DuPont, drilling will be focused on refining the 3 d geologic model and converting inferred resources to indicate the category. Over to you, Andrea.

Speaker 1

Thanks, Mike. As you can tell, we're excited about the future of the business. We're also focused on delivering on our commitments to our owners. This year, we have guided to produce 160,000 to 180,000 ounces, essentially evenly split between the two sites and an AISC roughly US2.58 dollars an ounce below our 2023 level. This year, operational delivery at Kiena is the strategic imperative.

Speaker 1

The team has been learning from development performance year to date with excitement growing at development ore from 127 level is showing plenty of visible goals, similar to what is shown on the slide. To wrap up, West Stone is a compelling story with a compelling future. And all Canadian production growth platform with a long track record of finding and producing ounces efficiently, significantly underexplored properties with higher returns in our drill bit, low capital intensity with underutilized asset structure and a balance sheet that will continue to get stronger and stronger. Capital efficient organic growth is raising this industry. Western has the assets, the people and the opportunity to build this business, provide superior returns over the longer run.

Speaker 1

Thanks for listening today. And with that, I'll turn to the operator for any questions. Thank

Operator

Our first question comes from the line of Ralph Profiti from 8 Capital.

Speaker 5

Thanks, operator. Good morning, Anthony and team. Two questions. Firstly, on Kiena. Maybe you can help me trying to understand where are you in respect of development ahead of the mine plan?

Speaker 5

Is this sort of a 6 month phenomenon? And what's sort of the steady state development versus mining? And are we there yet?

Speaker 1

Sure. Preet, would you like to take that one?

Speaker 2

Yes, of course. Thanks for the question, Ralph. Well, to give a bit more, I guess, context as to where we are at Kiena, really establishing the 129 level of rise and there's a critical part. So what we need to do is develop the infrastructure there, which we started. And also as we do that concurrently, we develop towards the ore zone.

Speaker 2

So that's been ongoing. And at this point, we're at the ore in 127 and on 129. So we need to complete development of the infrastructure that will support mining and at the same time continue development in the ore and then we can start stoping in Q2.

Speaker 1

And to just to add to that, the mining horizon allows us between 1.5 years and 2 years of mining potential to exit.

Speaker 5

Okay. Okay. Yes, that's better for clarity. I appreciate that. And maybe switching just to Falcon 311.

Speaker 5

I noticed that borehole IP will be looked at here. I'm just trying to understand how this can help us delineate a little bit better. Is this for mineralogy outlook? Or is perhaps testing new targets? And is Warhol IP going to help us test a plunge towards surface or at depth or sort of a combination of all of the above?

Speaker 4

Thanks Ralph. Mike here. The yes, certainly the Falcon 3 11 zone has more sulfide content up to about 5% or so in some areas than say within the mined diorite. So we're looking at surface IP combined with borehole IP. Since we have both, we can actually merge them together, the good three d picture of what's going on to help us target the extent of that zone.

Speaker 4

But also further to the west, we've been able to do a lot of mapping on surface and define where this favorable horizon is, but picking out where the gold actually occurs along that horizon is important. And we think overall IP and surface IP is going to be able to detect these sulfides and sort of help with targeting the drill

Speaker 2

holes.

Speaker 5

Yes. Very helpful answers. Thanks very much.

Speaker 1

Thanks, Paul.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Wayne Lam from RBC.

Speaker 6

Thanks. Good morning, guys. Just curious on the resource update. Good to see the overall reserve additions. I was just wondering if you might be able to provide a bit more detail on the change in parameters around the estimate for the resource.

Speaker 6

And then was there any greater dilution assumptions used? And just curious if keeping the gold price assumption unchanged, what the delta might have been versus last year's estimate?

Speaker 1

Great. Thanks. I'm going to hand it to Mike. I think he can help.

Speaker 4

Yes. Certainly, the resource side, what we're trying to do in the company is certainly standardize our approach to resource estimation. And as part of that, Eagle River was on paper sort of polygonal model just several years ago when we converted it to 3 d and we continue to improve there as we mine these zones particularly in the volcanic center somewhat new to us. So what we're really looking at is standardization. We're looking at maybe introducing slightly more conservative capping levels at the Eagle River, just to kind of be more in line with managing risk that we've already had in place at Kiena.

Speaker 4

And that was a big part of it. We're also starting as you know we've implemented fairly comprehensive reconciliation. It's early days. We're still working on it. But some indications in some areas where we wanted to just manage risk a little bit better.

Speaker 4

I mean, these are very high grade zones. Sometimes when you get over several kilograms of gold per tonne in an assays, how hard do you cap that? I mean, when we go mining, we see these big areas of visible gold. But I think in our estimation and our forecasting budget, we want to manage that risk a little bit. So we've decided to lower the capping values a little bit in some of those zones there.

Speaker 4

So that was the impact. As far as the lowering of the cutoff grade, we didn't change it for reserves, so that stayed the same. It did have a little bit of an impact at Eagle River so far. Typically, in some of our high grade zones, the boundary is quite sharp. Although we are noticing that there's some other areas of the mine that we're looking at with some lower grade values that maybe if we could some more favorable cutoff grade scenarios might be able to bring them to mine plan as well.

Speaker 4

But I would say this is a big year. For optimizing the work we're doing at Eagle River and determining the best way to mine all of this resource out.

Speaker 1

And I think it's important to also note that there's a significant unconverted resource. And I think that's really going to be the focus and of the team over this year.

Speaker 6

Okay, great. Thanks. And then maybe just curious if you might be able to provide a bit more detail on how the cost optimization evaluation has been progressing at Eagle River. And just curious if you anticipate any level of increase in costs as you move further down into the 300 Zone versus the Falcon Zone closer to service?

Speaker 1

Yes. I mean, the cost optimization program we launched about 3 months ago or 4 months ago on the operation and it's going really well at the moment. I think we're getting to a point where we're getting a sense of the baseline understanding and trying to understand where the cost drivers are for the organization, which we're going to leverage. I would say that we're quite excited about what we're seeing in terms of opportunity and we're going to keep pushing that program very strongly. Implications not only on cost are significant, but on the opportunities to convert are significant as well.

Speaker 1

We're leveraging this alongside our work on mine method and mine logic as well, which is quite exciting too. I think if you look at the overall plan, I don't think you should anticipate an increasing cost or going down. I think what you should probably anticipate is that you'll see West Dove looking at cost structure overall and driving a more logical approach to execution at a cost level.

Speaker 6

Okay. Sounds good. And then maybe just last question for me, as a follow-up on the ramp up at Kiena. Just curious in terms of tonnage, if we should kind of assume a ramp up to where you exit the year, let's say, 700 to 7 50 tons per day? And then maybe just on the grade profile, if we assume lower grades through Q1 and maybe part of Q2, should we assume that grades kind of reached the upper end of guidance maybe around the 14 gram level by the end of the quarter as you get into the heart of the 129 level?

Speaker 1

That's a good assumption, Wayne. I think quarter 1, you can certainly assume that that's a ramp up. But I think as Fred said, what he's working on is preparing for mining. So it's really important that we note that there's a lot of work being done on ensuring that we're ready to do that and there's a lot of infrastructure work that his team are looking at in quarter 1. So that's a good assumption.

Speaker 1

And then it does ramp up. And I think it's a good assumption regarding the numbers that you mentioned.

Speaker 6

Okay, perfect. Thanks for taking my questions.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Ryan Walker from Echelon Capital Markets.

Speaker 7

Good morning, everyone, and congrats on a strong finish to the year. So just sticking with Tina, you mentioned in the press release here briefly that you're successfully addressing the challenges of mining in a schist. Now that you're in there physically, I mean, is it more challenging than you would have thought? Are you seeing perhaps you're needing to use more ground support or maybe anticipating a higher degree of dilution during mining than you might have previously? Can you kind of just give us a status update in that regard?

Speaker 1

Great question. Let me hand over to Fred. I think he's got such a experience in mining this. I think he can tell you himself.

Speaker 2

Yes, Ryan. Thanks for the question. I'd say mining in ships right now is going really well. I mean, in terms of support, the support scheme that we have are successful in addressing the challenges we've faced with. In terms of development assumptions, we also use development assumptions that were derived, I would say, from past life mining in similar conditions.

Speaker 2

And right now what we're seeing is our pharmacist in terms of development have actually been slightly higher than what you're assuming in our internal modeling. So things are looking up on that side.

Speaker 7

Okay, great. That's very helpful. Thank you. That's it for me. Thanks.

Operator

Our next question comes from the line of John Tumazos from John Tumazos Very Independent Research LLC.

Speaker 8

Thank you very much. For a couple of years, the company was short of funds completing the Kiana project. How much catch up is needed for machinery replacement, underground development and we had about 165,000 ounce fall in total resources as we infill the past resource categories to add the reserves. And do you think 1 year is enough to catch up on those fronts?

Speaker 1

Hi, John. Great question. You asked there's 2 questions there. Let me start first with the capital requirements to do what we need to do. I think our capital requirements are well as fine.

Speaker 1

And I don't think we have a concern on adding more capital or requiring more equipment and those sort of things. So I think we can safely assume that West Elm well resourced at those levels to do what we need to do. And I think we're well on the way now to leverage like you said, those issues from the past to actually move forward. I think on the resource itself, it's a really great question. And I think it's a function, a little bit of the reduction in drilling that was done in 2023 as you see as most of us know.

Speaker 1

To catch it back, my strong suspicion, if you look at the conversion, the drill bit, and I'm going to turn to Mike in a moment, I think I would be very surprised if you can't do a great job with the amount of money we put into exploration for us to get the resource back to which SCC that goes we'd like to see internally be targeting these things. And we wouldn't be putting the money there if we didn't believe that. So let me ask Mike just to add if he's got anything you might feel on that.

Speaker 4

Yes. I would just add like this year given the limits of drilling that we did add 120,000 ounces of reserves. So had to take that from the sources to get that. But I would say we're doubling, I would say, that the amount of drilling this year. And it is designed, like I said, it's a balanced and really integrated approach to not only better define some of our known zones, but to add resources in areas and also look at some conceptual targets.

Speaker 4

I mean, we want to have this balanced approach going forward. So we're always looking for a home run on exploration, but we're also looking to replace what we mine out. That's our goal there. So we've been pretty happy with the drilling that we've had to continue to increase the reserves.

Speaker 8

In terms of the press deals on, how many years or how much work is needed for it to reach production?

Speaker 1

So we actually mentioned that before. We will be developing in that area by my favorite part, but are we developing into Presquilla? End of next year, we'll be producing from Presque Isle, but we're going to be start development into Presque Isle during the beginning of next year, right? So I think we John, I think the resource itself will sorry not resource, the actual program of actually mining that is well understood and we have a plan. We'll be developing in the year and we'll be producing from the from the skilled itself by the end of the year.

Speaker 5

Thank you.

Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

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