Wesdome Gold Mines Q2 2024 Earnings Call Transcript

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August 15, 2024

There are 9 speakers on the call.

Operator

Good morning. Welcome to Wesdum Gold Mines' conference call to discuss the company's financial and operating results for the 3 6 Months ended June 30, 2024. As a reminder, this call is being recorded. Your host for today is Trish Moran, Westham's Vice President of Investor Relations. Ms.

Operator

Moran, please go ahead.

Speaker 1

Thank you, and good morning, everyone. Before we get started, I would like to point out that during today's call, we may make forward looking statements as defined under Canadian securities law. I ask that you review our slide presentation for cautionary language regarding forward looking statements and the risk factors pertaining to these statements. Please note that all figures discussed today on this call are in Canadian dollars unless otherwise noted. Our press release, MD and A and financial statements are available both on SEDAR Plus and our corporate website, westome.com.

Speaker 1

With us on today's call is Anthea Bass, Weststone's President and CEO Fred Mercier Langevin, our COO Fernando Rigone, our CFO Neil de Brin, our Director of Geology and Raj Gill, SVP, Corporate Development, Investor Relations. Following management's formal remarks, we will then open the call to questions. And now over to Anthea.

Speaker 2

Thank you, Trish, and good morning to everyone. The Q2 marked a breakthrough for West Elm with record setting results. Safety is a top priority for us and we continue to improve our safety culture through a structured approach with key initiatives developed and implemented across our offering sites. Our safety stats continue to improve and we had the best quarter in recent history on a year to date basis, there have been 0 last time incidents. I'd like to thank the team at West Elm for all the efforts in this regard.

Speaker 2

In addition to safety, Q2 also set a record for production, which significantly boosts our free cash flow position to its highest point in over 2 years. The strong performance led to an increase in our cash balance, which struck $50,000,000 as at 2 in the 3 year and enabled us to pay off our revolver, I'm pleased to say that we are now debt free and expect the balance sheet to continue to strengthen going forward. Of course, a major driver of this core success was our milestone achievement at Kiena. As planned in Q2, Kiena was able to commence mining and processing of the high grade ore from the Kiena Deep 129 level horizon. This is a significant milestone for Kiena.

Speaker 2

We're now mining as per the original anticipated plan, showcasing the step changing grade and therefore the increasing gold produced and the subsequent reduction in site all in sustaining costs we compared with both Q1 of 2024 and Q2 of 2023. Over Eagle River, our cornerstone mine maintained a decade long history of delivering high grades and consistent performance. With its proven track record, Eagle remains a key part of West Elm's future. While the immediate future is secured to the great work of our teams, we are excited about the prospects for West Elm. With both operations running well and positioned to meet the respective 2024 targets, we are focused on positioning West Elm for the medium to the long term.

Speaker 2

Given our strong balance sheet, we're able to be deliberate in how we think about driving value for the long term. Now that Kiena is set up for success in 2024 and well beyond the end of this decade, we are focused on further extending its growth profile. We have set in motion several initiatives, which we believe will add value in the near term to the Kiena mine and have more longer term initiatives planned out. Since Kiena Deep is contributing to production, we can now turn our attention to honing in on costs and focusing our efforts toward optimization of the current profile in the mill. As well, we're making good progress on the development of the Presque Isle exploration ramp and we will which will serve to further advance Kiena's operations, exploration and strategic flexibility.

Speaker 2

We will thus be able to leverage the 33 level. Kiena has an extensive portfolio of exploration targets, which is a key strategic imperative. We continue to prioritize the multiple opportunities across a highly prospective 74, 75 square kilometers land package on the gold corridor in Mold ore. This is a prolific gold area and is known for its interesting geology and we're still very early on in exploration phase. The team at Kiena has checked many boxes over the past 12 months and will continue to work on delivering high grade ore and improving profitability.

Speaker 2

Moving on to Eagle River with the strategic growth initiatives of ore from a rich resource base having provided 30 years of mining of some of the highest grades in Canada, it continues to maintain its position as a high grade producer today. The Eagle River mine has always had 3 to 5 years of mine life ahead of it, and we now looking to increase that duration and increase output over the coming years. Our strategy to deliver this is straightforward. Fill the mill, ongoing mine plan optimization, improving our cost profile and more drilling. Optimization remains a key priority at Eagle, where costs have escalated over the last number of years, impacting our resource conversion and the value of our asset.

Speaker 2

We have identified initiatives that are at various stages of execution and anticipate that results will yield value over the next year. We're in the process of examining productivity drivers, cost inputs and our maintenance practices for value. Based on our history of discoveries, we're very excited about exploration activities. It's a large structured program and the team has completed significant upfront technical work. For several years, Western has focused on funding growth at Kiena for transfer generated Eagle River.

Speaker 2

Going forward, we're restoring the balance to set those up for many more years of success. As well, the 2 producing mines, we're working on company wide strategic initiatives to drive value. This includes achieving synergies and supply chain efficiencies and constructing global resource model. More about this in the coming quarters. Now over to Fred to review the quarter's operating highlights.

Speaker 3

Thank you, Andrea. Good morning, everyone. As mentioned, Q2 was an outstanding quarter for us. On the back of the much anticipated ramp up at Kiena, we established a new record for quarterly gold production with 44,035 ounces produced. This is even more impressive considering that this was achieved in tandem with one of the best quarterly health and safety performances in company's history.

Speaker 3

Gold production at Eagle River came in at 19,272 ounces in Q2. While quality grade rates consistent with Q2 of last year, the number of funds processed was 90% lower due in part to variations in stockpile. The number of funds mined during this period was 12% lower compared to Q2 of last year, primarily due to the shift in the focus of development and mining activities to the 300 zone at greater depth. As part of our annual LIFO mine planning cycle this year, we're taking a step back to evaluate our options at Eagle at an asset level. There are several potential opportunities we identified that could serve to leverage the fixed cost structure of the asset and fill the 1200 tonnes per day mill.

Speaker 3

These options include a newly developed global resource model to evaluate the full potential of historical resource inventory across the province. Year to date, Eagle River Mine has produced 44,171 ounces of gold, an increase of 2% over the 1st 6 months of 2023, despite production no longer being supplemented by the sensitive Nishi stockpile. Eagle River continues to be a consistent producer and as such we expect it to achieve its 2024 production guidance. On the development side, high priority phases towards the High Grade 300 zone at that continues to track ahead of schedule, setting us up to grow production back to historical highs in 2025. At Kiena, the Q2 was bolstered by the benefits of the much anticipated high grade ore for Kiena Deep, specifically from the 129 level horizon where stoping activity started mid April.

Speaker 3

These results are the culmination of 2 years of dedication and hard work from our team at Cite. Compared to the corresponding period in 2023, Q2 production tripled to 24,763 ounces, a quarterly record for Hema. Ore processed rose 11% to establish a new record quarterly since restart of operations with 57,699 plus grossed. And finally, plant recovery improved to 99%. Year to date, the mine has produced 33,186 ounces of gold, more than double what was achieved over the 1st 6 months of 2023.

Speaker 3

Great heat in this quarter exceeded our expectations. In fact, rather than ramping up gradually throughout the year as anticipated, grades set up considerably in Q2 to 13.5 grams per tonne, the high end of our guidance. While we're happy with those encouraging early results, we still expect grades to fall within the guidance range for the full year. On the development front, as the 129 level horizon is now in production, we have resumed development of the ramp towards the 136 level horizon and expect to reach the 136 level access by year end. This new horizon is expected to come online in Q3 of 2025 and provides additional flexibility for production.

Speaker 3

At Brechtil's underground development from the floor will commence in mid April and the ramp is approaching 450 meters. The development crew is now hitting its stride. This ramp remains a priority for us as it provides several benefits to the current operations such as improved ventilation in secondary transportation and egress. However, what makes the Gretel ramp so exciting is what it means for the future growth of Kiena. 1st, it will enable us to supplement KienaD production starting in late 2025 by adding incremental feed from the Kestrel zone.

Speaker 3

2nd, the ramp will serve as a key exploration platform from which we will be able to platform from which we will be able to throw the effective zone at depth and probe the under explored western side of Kiena with access to zones such as the S196 and Northwest zones. And third, it will provide the 4 kilometer, 33 level infrastructure and all of its respective targets with the link to surface to further supplement community production and extend the mine life. To enhance the multifunctional nature of this ramp, we continue to optimize this design for flexibility to maximize its ability to create value for us in the future. So overall, it was a strong quarter. Our teams at site continue to deliver on objectives to set new records for West Elm and establish a new chapter for the company.

Speaker 3

Now since this is my last conference call with Westdome, I'd like to take this opportunity to extend my most heartfelt and sincere thanks to everyone who contributed to making my time here so special, starting with our people in operations, our head office team, the management team as well as the Board of Directors. Today, as I reflect on my journey with the company, I'm immensely proud of what has been accomplished over the past 2 years. Our collective efforts have led Westgold to record levels in both production and health and safety, setting a strong foundation for future success. These achievements are a direct result of the unwavering dedication and resilience of our employees, the strength of our partnership, excellence of our assets and the strategic guidance of our leadership. And now over to Neil, who will update you on our exploration program.

Speaker 4

Thank you, Fred, and good morning. Across the company, we have made significant progress with our exploration activities year to date, completing almost 80,000 meters at our Eagle River by and Hina property. We are planning to support 185,000 meters by the end of this year. Let me give you an update on our exploration program. Turning to First Eagle River and starting with the recently discovered South and 3 lunar zone.

Speaker 4

This zone is similar to the South and 7 zone in that credit in the bookings demonstrated potential for growth organization in the underexplored organic waste of the mine and over some exciting possibilities for the story of future zones. What is particularly encouraging about the drilling results on drought and failure and we see extending for growth. Therefore, drilling will continue with additional 20 years of planning, but we are focusing on extending the zone up and down at lunch and targeting certain sectors in the zone for resource conversion. Exploring the individual cancer major progress is accompanying the fraction mapping, geochemical, sampling and completed our service. A gene physical survey, GRAN24, is anticipated to provide stability and traceability imaging is to identify new drill process or potential new mineralization shifts.

Speaker 4

The potential zone is another key priority for other Eagle River. It is ideally located towards the eastern part of the market with 150 meters of a 30 mile infrastructure and has a relatively shallow depth of 600 to 750 meters. The zone continues to drill down by its ongoing drilling, preferring the dead potential and the regionalization. Additionally, reserve proximity related to line development that surface creates a significant growth and softening growth opportunity in the future. To date, over 10,280 meters and 39 gold have been completed, returning significant gold values of a minimal width of R58.2 grams over 2.8 meters and R59.7 grams over 2.6 meters.

Speaker 4

B. This shallow piece to us in Zohrut represent the lead pipe of throughput in the mine and remains the focus area for us at Zohrutin. We should move 28 year old plan for the second half of the year to better define resource and continue to expand as their own zone down plunge. Turning now to the 300P zone. We successfully produced analysis from high grade mineralization and throughput.

Speaker 4

Our exploration objective here is to continue to upgrade resources and grow the zone for future mining. The recently completed 12 by metal drill platform capacity has been lower innovation with previous This is facilitating our infotirling as well as our ability to draw various areas down much that were either partially or fully inacceptable. Year to date, we have drilled 8,050 meters across 20 8 goals at 3rd. In for drilling continues to confirm consistency of our hydroelectricity, currently extends to the 6 100 meter level. Recent results include 32.5 grams over 6.6 meters and 25.7 grams at 3.6 meters.

Speaker 4

At the 300 millimeter remains key for future production at People River, an additional 25 holes across 35 meters of plant digging down at the clearing. Our understanding of the structural control of the 300 zone activities continues to improve. Several other zones we may ultimately, as additional drill will be carried out for the purpose of taking the outbound extension of the historic Arizona zone as well as zones of the demand plan between 711, 811 and 2,008,100 places. At Kiena Deep, drilling continues to expand and define existing high grade zones. Zones.

Speaker 4

Here the footfall zones at south of areas from the 103 and 127 meter filled platforms. The footfall zone is comprised 3 subaerial zones and is located within 30 meters of the A2 zone as an extended over 300 meters and remain open laterally and down plunge. These zones include beneficial phenomena and potential to test the light with several modern Furthermore, during results from the structurally told the Alkma of the Asian opportunity policy, underscoring the high grade nature of innovative data is also paying 70.7 grams over 5 meters. Keeping up these remains to grow, we view this high grade measure, its growth potential and opportunity to both large, soft conversion and iron grade ounce of the vertical meter, acceleration drilling extension for continuation in the second half of the year. Drilling continues to start with several areas in the under explored rich area after initial reconnaissance from those anticipated barrel higher capitalization at the contact of asphalt and shale oil related price.

Speaker 4

In the Q3, we will be spot churning for main surface exploration for this to reintegrate the Sonzo, confirming the zelotic expectation and converting the large inferred Our system of drilling campaign will also focus on testing the continuity of the Northwest Zone and the historical drill Zone called Duchenne, a daily dependent sign of COVID-nineteen. This fall, we anticipate to maintain a gold program on surface to take potential of our highly expected, low plus exchange sulfur, with a higher grade resource through the end of the quarter. Follow-up drilling from underground will further define the resource of the disposal zones as well as further integration. Thank you. That concludes my remarks.

Speaker 4

And now, Oliver, who will take you through this quarter's financial results.

Speaker 5

Thank you, Neil, and good morning, everyone. It was a strong Q2 compared to Q2 2023 as ounces of gold increased by 25% and the average realized price of gold increased 21% to CNY3192 or US2333 dollars These factors drove growth of 51% in revenue, an increase in cash margin by 2.5 times, growth in operating income to BRL 45,000,000 from a loss of BRL 6,000,000, a more than 200% increase in EBITDA to BRL 68,000,000 and a net income of BRL 29,000,000 up significantly from a net loss of $1,000,000 a year ago. On a per ounce of gold sold basis, we saw across the board improvements with a decrease of 29% in cost of sales, with a decrease of 26% in cash costs and a decrease of 12% in all in sustaining costs. With this quarter's strong financial performance, we generated significant cash flow. Year over year operating cash flow tripled, dollars 57,000,000 or $0.38 per share.

Speaker 5

While this was our 4th consecutive quarter of positive free cash flows, it represented a major breakthrough. During the quarter, we repaid $29,000,000 on our revolving credit facility, fully paying off our bank debt. Free cash flow of $28,000,000 was strong, given after paying over $25,000,000 in capital expenditures. Accordingly, our balance sheet is considerably stronger heading into the second half of this year. With 0 debt and a growing cash balance, we ended the quarter with $200,000,000 in Avaya liquidity and a positive working capital of 31,000,000 dollars If we compare this to where we were at year end when we had nearly $40,000,000 in debt and a negative working capital, we have come a long way in only 6 months.

Speaker 5

If current gold prices stay in the current range, we expect our balance sheet to continue to improve throughout the remainder of this year. In fact, with gold prices at record level, about $2,500 versus our budget of 18.75 there is an upside to our cash flows, which give us the flexibility to potentially accelerate exploration and development activities previously slated for 2025. For average US100 dollars price increase in gold prices, our annualized operating cash flow increased by between US15 $20,000,000 Overall, it was a strong quarter and a strong first half of the year. And now over to you, Antje, to wrap things up.

Speaker 2

Thank you, Fernando. It was a strong first half of the year, and we remain on track to meet our 2024 production and cost guidance. As a reminder, production is expected to be back end weighted approximately 55% to 60% of production targeted in the second half. Before we go to Q and A, I'd like to extend our heartfelt thanks to Charles Maine, who retired yesterday as a Board member and our Audit Committee Chair. As indicated, he's retiring from the industry.

Speaker 2

Since joining us in 2017, Chuck has bought decades of expertise in industry, accounting, tax and finance. His deep knowledge and strategic insights have been instrumental in guiding this company through a period of significant growth and transformation. We deeply appreciate his dedication and the pivotal role he has played in our continued success and we wish him all the best in his retirement. We also regret to say goodbye to Fred, who will be leaving at the end of September. During his tenure as Chief Operating Officer, Fred has demonstrated exceptional leadership leading to significant improvements in safety performance and new operational commitments.

Speaker 2

Fred has built a strong team and I'm confident that our 2 site general managers along with our recently appointed SVP Technical Services will maintain seamless operations in the interim while we conduct the search for our new COO. On behalf of the Board and everyone at West Elm, I'd like to express my gratitude to Chuck and Fred for their many contributions to Wesdome and we wish each of you all the best for your future. Operator, you can now open the line for questions.

Operator

Thank you. We will now begin the question and answer session. The first question comes from Ralph Profiti with 8 Capital.

Speaker 6

Thanks, operator. Good morning, everyone. Anthea, can you help me understand as we look at the mine plan in Kiena in 2025, where those ore sources are coming from? It seems as though there will be some spillover into from that 129 level and the 136 level coming in, in Q3 and perhaps some Presquilla towards the end of 2025. I'm just wondering as you think about sort of operational flexibility, will you be looking at mining from multiple levels now that development is in a much better position in the mine plan?

Speaker 2

Thank you, Ralph. And yes, that's absolutely correct. If you look at the plan for 2025, it's exactly that. They'll be mining from 129, 136 as well as the skill towards the latter part of the year. It provides the business now with much more flexibility than we had in 2024 as you rightly point out.

Speaker 6

And are we seeing similar grades at 136 versus 129?

Speaker 2

Yes, we are.

Speaker 6

That's excellent to hear. Okay. 2nd follow-up question, please, on how you're thinking about the exploration and evaluation budget at Kiena, right? Only 7,000,000 dollars was earmarked in 2024, but that's a multifaceted step up effort at Kiena. It seems like there's significant room for upsize.

Speaker 2

Yes. And so our budget at Kiena is a little bit higher than that, which includes all types of drilling. So I think it's closer to 15, if I'm not mistaken. So yes, there's absolutely opportunities for continued exploration in Kiena. And we keep working with the team on prioritizing where we should actually spend more money actually.

Speaker 2

So right now, we have a strong plan in place. I challenge my team all the time to see if we can find opportunities to drive more success at EO sorry, Kiena.

Speaker 6

Great. That's helpful. Thank you. And thank you to Fred and Charles and best wishes to them.

Operator

Thank you. Our next question will come from the line of Wayne Lam with RBC.

Speaker 7

Hey, good morning guys. Thanks for taking my question. I guess first question at Eagle River, just wondering as mining shifts away from the Falcon Zone and more towards the 300 Zone at depth, do you anticipate any change in the mining costs? And then maybe just curious on the optimization on costs there. Is there any more of a definitive timeline on how things are going with the study or when that might be when the results might be released?

Speaker 2

Okay. Thank you, Wael and it's nice to hear you. Yes, regarding mining in Eagle, I'll just try and give a bit of an idea. Yes, we're moving there's a lot of mining coming obviously from the 300 Zone. It's deeper obviously than the Falcon itself.

Speaker 2

However, we continue to work on our optimization efforts to try and drive the cost optimization opportunities inside Eagle. So yes, regarding your second question, I didn't quite get that.

Speaker 7

Just on the cost optimization study that's ongoing?

Speaker 2

Yes. So yes, that work is well underway and I think you'll see it start reaping rewards over the year. There's a lot of work we've done in setting up the benefits of what that cost program looks like. So I think we would be able to talk a little bit more about that in the coming year.

Speaker 7

Okay, great. Thanks. And then maybe moving to Kiena, obviously the Q1 in terms of mining the higher grades from the 129 zone pretty spectacular. And the grades this quarter were already at the top end of guidance and lower end of cost. Just wondering as you continue to ramp up through the second half, do you anticipate potential upside to guidance on grades or costs?

Speaker 2

I think we if you look at the year itself, I think we're still guiding towards the range as we said. But obviously, quarter 1 was lower as you know in terms of our grades. So you can work out the implications for the second half. So I think essentially our plan towards what we guided in terms of our current grade profile.

Speaker 7

Okay, great. Thanks. And then maybe just last one. Just in terms of the management changes, this will be the 3rd change in COO over the past few years and the exploration role seems to have turned over as well. Just wondering in terms of continuity of the team or stability in terms of the operations, maybe if you might be able to speak to some of the changes at the top?

Speaker 2

Yes, I mean, change we always like to keep stable and we always like to ensure we have a strong team. I think we will continue to work on Essent ensuring that that stability remains in West Elm and fill those positions as efficiently as we can and ensure that the teams are maintained. But the transition plan that we have in place is strong. And I think Westom is well positioned with what we had in place right now to assure the plans we have going forward.

Speaker 7

Okay, perfect. Thanks for taking my questions.

Operator

Our next question will come from the line of Don DeMarco with National Bank Financial.

Speaker 8

Thank you, operator, and good morning, Andy. First off, Fred and Chuck, I just want to say thank you for all your contributions and wish you the best in your future endeavors. So perhaps this is directed to Fred first. You're more than a quarter into Keen and Deep. How are the grades and the widths reconciling with expectations?

Speaker 8

Is it sort of on track or better than expected, more optimistic? Or how would you assess this at this stage?

Speaker 3

Hi, Don. First of all, thanks for the kind words here. I mean, as far as our experience in Keenan Deep so far, the grades are comparing favorably to our short term models. So we're happy to see that. In terms of productivity, things are lining up with our assumptions.

Speaker 3

So yes, so far so good.

Speaker 8

Okay. Okay. Well, we'll look forward to the back half of the year with that and certainly then just shifting, staying at Keenan, but looking at Presque Isle, on the ramp, the ramp is advancing. Do you expect to connect it with the mine, actually use it for ore haulage and even the timing of potential first ore? I mean, of course, you do need to sort of do the drilling and upgrade reserves and so on.

Speaker 8

But maybe if you could give us a timeline in the upcoming milestones you might expect for this project?

Speaker 2

Okay. So we plan to break through in November next year, Don, and then hit into level 33. In terms of the ore, I think you can plan towards second half of next year for Skil ore coming through. You can look at the key milestones being that this year we'll be pulling about 1500 meters in the ramp. I mean, in terms of the work ore developing into the ramp right now, gets us close to the Preskill ore body where we can start looking at drilling from underground.

Speaker 2

We plan on moving between 215 and 400 tons per day in late 2025. So I think that will give you a bit of an indication of more or less our thinking around Preskill alone.

Speaker 8

Okay. Thank you. And then just maybe as a final question, we saw this week the deal between Goldfields and Cisco Mining and this is sort of right in your backyard in Quebec. Does this just be interested to get your thoughts on this acquisition and does it maybe change your strategy for M and A or evaluating companies in any way?

Speaker 2

I think we consistently removing our M and A and we consistently reviewing different opportunities. Does it change our way we think? Not really. We'll keep being disciplined in our approach. Yes, we wish them well.

Speaker 8

Okay. Okay, great. Well, that's all for me. So thank you and good luck with Q3.

Speaker 2

Thank you so much.

Operator

Thank you. There are no further questions at this time. This concludes this morning's call. If you have any further questions, please contact Trish Moran at investwesdom.com. Thank you for participating today.

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