Wesdome Gold Mines Ltd

TSX:WDO

Earnings Call Transcript 2024-Q1

[Operator]

Good morning. Welcome to Wesdome Gold Mines conference call to discuss the company's financial and operating results for the first quarter ended March 31st, 2024. As a reminder, this call is being recorded.Your host for today is Trish Moran, Wesdome Vice President of Investor Relations. Ms. Moran, please go ahead.

[Trish Moran, executive]

Thank you, and good morning, everyone. Before we get started, I'd like to point out that during today's call, we may make forward-looking statements as defined under Canadian securities laws. I ask that you view our slide presentation for cautionary language regarding forward-looking statements and the risk factors pertaining to these statements. Please note that all figures discussed on this call are in Canadian dollars, unless otherwise noted. Our press release, MD&A, and financial statements are available both on SEDAR+ and on our corporate website, wesdome.com.With us on today's webcast is Anthea Bath, Wesdome's President and CEO; Fred Langevin, our COO; Fernando Ragone, our CFO; Mike Michaud, SVP, Exploration and Resources; and Raj Gill, SVP, Corporate Development and Investor Relations. Following management's formal remarks, we will then open the call for questions.And now, over to Anthea.

[Anthea Bath, executive]

Thank you, Trish, and good morning to everyone. The first quarter was solid. Eagle River outperformed in terms of its production and costs, and Kiena's operating performance was in line with our expectations. Importantly, I'm pleased to report that subsequent to the quarter, we have started to process higher-grade Kiena Deep ore. Since mid-April, we have consistently seen daily average grades in the double-digit grams per tonne.We are on track to meet our full year production guidance of between 160,000 and 180,000 ounces. However, I would highlight that between 55% and 60% of our production is expected in the second half of the year. In January, we also launched one of the largest self-funded exploration programs in the company's history. We originally budgeted $30 million for exploration this year. But given what we are seeing at Kiena, we plan to add another $2 million to $3 million to drill up to another 10,000 up meters. Although still early in the year, exploration results are notably positive. With the new discovery at Kiena, the Wish area, and continued growth at both Falcon 311 and 6 central zones, the first quarter also marked a turning point. We hit a free cash flow inflection point, generating more than $90 million, a $39 million difference over the prior-year period.Underscoring our commitment to maximize shareholder value, we have established 3 near-term strategic imperatives. The first is to optimize our assets and address the underutilized capacity at our mills. As part of our process, we are completing a full asset review of our mines and undertaking initiatives to improve our planning methodologies and review the geological model to optimize mine planning.Next, we're going to de-risk our plans and, importantly, control costs. Planning is underway for rollout in the second half of the year, mainly to establish and prioritize initiatives based on rate of return and minimize risk, and implement continuous improvement initiatives in areas such as maintenance to improve our efficiency and increase our margins.Our third near-term objective is to strengthen our balance sheet. With this quarter's strong free cash flow, our cash balance increased to $48 million, while still reducing our debt by 25%. The plan is to fully repay our revolver later this year and to continue to improve our liquidity.And now over to Fred to review the quarter's operating highlights.

[Frederic Mercier-Langevin, executive]

Thank you, Anthea. Good morning, everyone. Gold production at Eagle River came in at 24,899 ounces, an increase of 24% year-over-year, driven by the highest average quarterly grade achieved since Q2 2020.Two of our high-grade stopes, 589 Falcon and [ N90 300 ], which commenced production in 2023, carried on producing well into the first quarter, yielding more tonnes than originally anticipated. As a result, the lower-grade cycle originally anticipated in Q1 is now pushed into Q2, and Eagle River remains on track to achieve its 2024 guidance.Processed tonnes were 5% lower compared to Q1 of last year, when processing from the Mishi stockpile contributed about 6,100 tonnes to total throughput. When isolating for Mishi, contribution to processing from the underground mine was actually 7% higher than Q1 of 2023, partly offsetting the loss of Mishi as a source of [ our investment ].Metallurgical recovery was up [ 47% ] as a result of the higher recoveries typically achieved on the underground feed compared to those realized when processing Mishi ore. And on the development side of things, high-priority phases towards the high-grade 300 Zone at depth tracked ahead of schedule in Q1, setting us up for continued strong execution in the future.At Kiena, Q1 production came in at 8,423 ounces, a 7% increase over Q1 of last year, mainly driven by a 7% increase in tonnes mined. Grades came in at 5.9 grams per tonne, as we continued to source a significant percentage of production from the lower-grade Martin Zone, while the focus of our teams in Kiena Deep remains squarely on infrastructure development to set up the 129L horizon for production.As anticipated, today in Q2, Kiena grade is trending higher, as the Martin Zone ore is now depleted, and the much-anticipated higher grades from Kiena Deep are reporting to the mill. Development in ore is arguably the most reliable source of data for any mine to inform future stoping. Development in ore, which is ongoing on Levels 127 and 129, is validating expected grades. With high-grade production from stoping of the 129 horizon ramping up to reach steady-state, grades from Kiena will step up meaningfully in Q2 and continue to trend upwards over the balance of the year.At Presqu'ile, following the completion of portal excavation in Q1, ground support installation was initiated, and underground development from the portal commenced in mid-April. This important exploration project is being tracked closely internally, as it will be a key platform from which we will be able to drill Presqu'ile at depth in 2025, and we will be able to probe the underexplored western side of Kiena with access to zones such as the S196 and Northwest zones.On top of the exploration potential that the ramp provides, it also presents several opportunities to the existing operations, such as ventilation, secondary transportation and egress, and haulage access. But more importantly, it will also allow us to leverage the 33-level infrastructure to supplement Kiena Deep production, starting with the Presqu'ile Zone.So, overall, it was a solid quarter underpinned by disciplined execution and focus on long-term objectives that drove operating results in line with expectations, and the completion of key milestones, which will translate into a solid platform from which to grow. As we move up the learning curve of mining and shift at Kiena, and continue to improve planning processes to manage freight variability at both of our assets, I'd like to acknowledge the hard work of our teams at the 2 sites.And now, over to Fernando, who will take you through this quarter's financial results.

[Fernando Ragone, executive]

Thank you, Fred, and good morning, everyone. Year-over-year, first quarter revenue increased by 32% to $101 million, driven mainly by a 19% increase on ounces of gold sold. We saw during the period 35,700 ounces of gold, which was coupled with an 11% higher average realized gold price.On a per-ounce basis, cash costs and all-in sustaining costs were $1,517 and $2,226 respectively. This quarter's cash costs and all-in sustaining costs reflect an increase compared to Q1 2023. Our absolute costs were generally in line with our expectations. However, lower grade at Kiena, as a result of our mining sequencing, impacted the denominator and caused an increased cash cost.Looking ahead to the rest of 2024, as grade increases this year at Kiena, costs per ounces are expected to decrease as we leverage our fixed cost base. Net income was $10.7 million, or $0.07 per share, compared to a small loss in Q1 2023.Our free cash flow hit an inflection point this quarter. When we look at year-over-year, operating cash flows increased to $46.5 million, which is $40 million higher than Q1 2023. This represents $0.31 per share.Free cash flows improved to $19.5 million, from a negative $20 million. This quarter, free cash flow reflects almost $30 million in sustaining and gross capital spending during the quarter. Accordingly, our balance sheet continues to strengthen.When we look at the quarter since December 31, we reduced our revolving credit facility by $10 million, increasing the amount available for drawdown to $121 million. Our cash position improved by 17% to $48 million. This represents an increase in total liquidity of 11% to $170 million. Based on our latest forecast, we expect to repay the remaining $29 million in our revolving credit facility by Q3 this year.When we look at the full year, we remain on track to meet our 2024 guidance. As mentioned earlier, Eagle River's low-grade cycle was pushed forward into Q2. Therefore, its first quarter results should not be annualized and full year 2024 grade is expected to come within the guidance range. Conversely, Kiena's production and grades are expected to ramp up in Q2 and continue to build up throughout the year.And to summarize, our full year consolidated production profile is expected to be back-ended weighted, with approximately 55% to 60% of production targeted for the second half of this year. On the cost side, as output increases at Kiena commencing in Q2, we anticipate costs will trend lower as the year progresses, consistent with full year guidance. Moreover, with the achievement of our guidance, we expect to have significant liquidity, which will allow us to repay our revolving credit facility and enjoy strong debt-free balance sheet by the [ end of the year ].With that, over to you, Mike, for an update on exploration.

[Michael Michaud, executive]

Thanks, Fernando. 2024 is a big year for our exploration program. With a budget of $30 million and growing, we will be drilling more than 185,000 meters across surface and underground, as well as delineation drilling at both Eagle River and Kiena. And while it's still early in the year, our drilling campaigns are already showing encouraging results.Let's start with the Falcon 311 Zone at Eagle River, a discovery made last fall in an historically underexplored area. Falcon 311 is the second zone we have identified in the volcanic rocks west of the mine diorite. The first was the Falcon 7 Zone in 2019.Given the similar nature of the 2 zones, our team was able to use this information gained previously from Falcon 7 Zone to quickly identify and define this new discovery, and will be used to define new discoveries in the future.Since last fall, we have drilled over 20 holes and outlined the Falcon 311 Zone to extend at least 200 meters along plunge, 100 meters along strike. It is interpreted to extend 900 meters to surface, similar to that of the neighboring Falcon 7 Zone.Falcon 311 is a high priority in this year's exploration program, and follow-up drilling is ongoing. The 311 Zone has the potential to provide additional mining horizons laterally, and benefit from existing mine infrastructure. Stay tuned for new results, which are likely to be released as soon as next quarter.Meanwhile, also at Eagle River, we continue underground drilling of the 300 East Zone to confirm the consistency of the high-grade mineralization that currently extends to the 1,600 meter level and remains open down plunge.Our mid-year plan at the 300 East Zone is twofold. First, we are going to upgrade the large inferred resource base to indicate it; and secondly, to test -- to have step-down drilling to provide an initial indication of mineralization below this zone that remains untested. In addition, we have established a new drilling platform in the 1201 elevation to optimize the drilling in this area, and the first hole has since been started.Given the milder temperatures 5,000 meters from the surface, drilling was reallocated to testing more targets within the mine footprint, and also provide more time for more structural surface mapping, IP, and 3D modeling this summer.Moving now to the historic 6 Zone, we previously put out initial results in December, with 1 underground hole returning 122.5 grams per tonne gold, over 1.7 meter core length from the volcanic rocks along straight from the mine diorite, thus indicating the potential of these rocks to hold similar mineralization to that of the Falcon 7 Zone and 311 zones west of the mine diorite.An initial 10,000 meters of drilling is ongoing in the area between the 6 Zone and the previously mined 2 Zone approximately 1 kilometer to the East. Drilling to date has returned encouraging results, having intersected the mine structure, alteration, quartz veining, and traced amounts of visible gold, all along strike from the main mine mineralization. In total, we're spending up to $15 million to drill about 125,000 meters from underground and surface at Eagle River this year.Turning now to Kiena. We are also seeing early returns from the drilling, including the expansion and definition of existing zones at Kiena Deep and identification of potentially significant gold mineralization in historically underexplored areas like the Wish area from the 33 level.As a reminder, 33 level is a track drift level at 330 meters below surface, and extends from the Kiena mine shaft eastwards almost 4 kilometers and ends up near the eastern boundary of the property. Since the completion of the PFS in 2021, drilling has continued to expand the Kiena Deep Zone to depth, now extending to 1,800 meter level. Since that time, drilling has discovered several zones in the Footwall, Hanging Wall, and along the South Limb of the folded Kiena Deep A Zone.However, drilling of these new discoveries has been hampered by the location of available drill platforms until now. With the ongoing deepening of the main ramp at Kiena Deep, a drilling platform has been established on 127 level to test these new zones. The recent drilling from this platform has returned positive results, including 55.6 grams per tonne gold over 3.5 meter core length at the Footwall Zone, and over 1 ounce per tonne, 30.3 grams per tonne gold over 5.8 meter core length at the South Limb.Given the steep plunge of the Kiena Deep, the development of drill platforms is critical to expand and better define additional resources. As such, we expect to continue to establish exploration platforms with the deepening of the main Kiena ramp. Growth in resource inventory in these areas has the potential to increase the ounces per vertical meter, and thereby, provide opportunities for operational flexibility and increasing production from each level.The next step at Kiena is to follow up on the prospective areas proximal to the Martin and Shawkey zones, and Wish area from the 33 level track drift currently being rehabilitated to facilitate more optimal drill platforms. This is an area with numerous gold showings and drill intersections, with a limited number of holes.Earlier indications are that there exist several different signs of mineralization, indicating this is a gold-rich system, and gold is being deposited in various geologic traps. The plan for this area is to methodically drill and update the 3D geologic model to better define the potential of the mineralization, and to prioritize the ongoing drilling.One part of this prospective area, as you recall, is the Wish area, which is our newest discovery. It's located about 1 kilometer east of the Kiena mine, and within 100 meters of existing mine development. Drilling of the Wish area has intersected narrow, high-grade gold mineralization quartz veining in a favorable geologic setting [ known as post-gold ] mineralization, including the presence of more competent mafic volcanic rocks close to a geologic contact with ultramafic rocks, alteration, quartz veining, and is adjacent to existing mine infrastructure.One recently reported drill hole from Wish area returned 36.4 grams per tonne over 1.5-meter core length and is on strike from historical that returned 65.5 grams per tonne gold over 1-meter core length. This mineralization is interpreted to extend along the mafic, ultramafic contact for over 300 meters along strike. And as such additional drilling and added budget is warranted to follow-up on this initial success.The follow-up drilling is designed to focus on extrapolating this contact and related gold mineralization at depth, and to provide an initial assessment of the size and potential continuity of the mineralization.Down the road, as we optimize the asset, this would allow us to leverage currently being developed Presqu'ile ramp to add incremental ounces from deposits in the upper level of the mine from 33 Level also to create an upper and lower mine scenario and provide lower development costs.Surface exploration is expected to commence in June to drill test the depth potential of the highly prospective Presqu'ile Zone from surface where the higher grade resources remain opened up plunge. Surface drilling is also planned using a barge drill to test the Dubuisson Zone to confirm the new geologic interpretation and to convert the existing large inferred resource-based indicators.During Q2, we plan to drill nearly 26,000 meters at Kiena, including more than 3,000 meters of surface drilling. We expect the next batch of assay results from Wish followed by Kiena Deep in the second half of the year.Over to you, Anthea.

[Anthea Bath, executive]

Thank you, Mike. It is coming up to the 1-year mark since I joined Wesdome. What initially drew me to the company was the jurisdiction, the quality of the asset, and the considerable upside potential. Wesdome also has a low-risk profile and a deep history in Canadian mining. We have 2 of the highest grade operations in Canada, and the timing couldn't be better with a record-setting gold price environment.Fast forward, and I'm now even more excited about what I see now. We are well-positioned to achieve higher production and free cash flow in 2024. And whilst we are focusing on achieving this year's guidance and our near-term milestone, we are driven by a longer-term strategy to maximize value.Operator, you may now open the line for questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Don DeMarco from National Bank Financial.

[Don DeMarco, analyst]

Well, it looks like you're not going to have any problem delivering free cash flow this year if you're already positive free cash flow in Q1. Congratulations. First question, though, when in the quarter did you start mining Kiena Deep? And how do you expect throughput to progress through the year?

[Anthea Bath, executive]

Thanks, Don, and thanks for the question. I mean, Kiena Deep, we've really started mining in the middle of April. And we really, like I mentioned earlier, we already start to see the grades coming through in the mill. I think if you look at the year, you can consider sort of a slight increase over the year, as I said before, in quarter 2, quarter 3, quarter 4 site upgrade from Kiena.

[Don DeMarco, analyst]

Okay. So maybe I missed it then. So in terms of tonnes per day, it started in April. So you maybe have half a quarter. I mean, it's just ramping up slowly, I guess, right? But is it -- do we expect to see a little bit of an uptick in grade then, the head grade in Q2? Or is it still too early for that?

[Anthea Bath, executive]

I think you can definitely expect to see an upgrading in the grade, Don. Absolutely. That's the whole idea. So I think, as I mentioned before, Q1, we weren't in the zone. We're now in the zone and we've been mining from that zone and seeing the grades come through from the middle of April. We've seen double-digit grades coming through. And I think you should start seeing those numbers reflected in the grades of the next quarter.

[Don DeMarco, analyst]

Okay. And how many stopes do you have active in Kiena Deep right now then?

[Frederic Mercier-Langevin, executive]

Fred speaking here, Don. In Kiena Deep, at any given time, we have between, I'd say, 3 stopes, either in development phase or extraction phase, or drilling phase, prep phase, if you will. So -- but in mucking really, there's only 1 stope at any given time right now.

[Don DeMarco, analyst]

Okay, great. And maybe over to Mike then. Regarding Mike, you mentioned the drill platform at 127. When was that activated? And what advantage does it provide in terms of drilling Kiena Deep?

[Michael Michaud, executive]

Thanks, Don. I would say that we've been drilling from there for approximately 2 months. The advantage it gives us is to start to better define and expand our known zones at depth that we drilled several years ago, like the Footwall Zone. We're expanding the South Limb now. We hope to get into the Hanging Wall Zone that returned some good values last year. And although I don't know that the platform is close enough or optimal enough at this stage to do a lot of delineation drilling in that area, it certainly is adding ounces to the inferred category.So we probably will continue with that this year. And then as the platforms become more optimal with depth and the platforms become more numerous, I would say, then we'll start to be able to do the delineation drilling and convert some of those inferred ounces into indicated. So the results so far have been quite positive. And it's exciting to get back to these zones that we were only able to drill a few holes into before and they seem to be holding together and looking good. So we're excited to keep going there.

[Don DeMarco, analyst]

Okay. And when -- what would we expect in terms of next updates and drilling at Kiena Deep? What timing and -- in terms of results from the 127 platform or other drilling of Kiena Deep? When would we expect that?

[Michael Michaud, executive]

Yes. I would think that we'd like to get more results out in Q2. Certainly, we're going to have results all year. This is a big drilling program underground this year. 33 certainly been exciting. I mean we went in there with a small program to do some exploratory drilling. We've had some really great hits around the Wish area. We're increasing drilling there. So we'll have a lot of results to come out of there over the next few quarters, also at Kiena Deep. And then, of course, the surface drilling is going to start end of May and June. That's going to include surface drilling from land at Presqu'ile and also barge drilling at Dubuisson. So again, a lot of news flow in this sort of more in the second half of this year as we start to ramp up the drilling.

[Don DeMarco, analyst]

Okay. And just final question, maybe back to Fred. Looking at [ Eagle ASIC ] it's well below the guidance midpoint. Is there anything unexpected driving this outperformance? Or should we expect cost to increase through the year?

[Frederic Mercier-Langevin, executive]

Well, really, at Eagle, what drove the overperformance on the cost side of things really was predicated on the ounces that we're able to source in Q1 and the higher grades. So as we, I guess, get closer to the guidance range over the year, we expect costs to align with guidance.

[Don DeMarco, analyst]

Okay. Okay. Well, congratulations again, and good luck continuing with Kiena Deep in the rest of Q2.

[Anthea Bath, executive]

Thanks, Don.

[Operator]

And our next question coming from the line of Andrew Mikitchook from BMO Capital Markets.

[Andrew Mikitchook, analyst]

Just a very quick follow-up question to some degree, similar to the one that was previously asked. I just want to be crystal clear on this great expectation from Kiena with I think the wording was that some double-digit grades had already been sourced and processed since mid-April from Kiena Deep. And I just want to underline the word some. Does that, to be clear, like we shouldn't expect, or you're frankly not -- are you guiding the market to expect Q2 to potentially be at double digits? Or is it kind of on its way to double digits, please?

[Anthea Bath, executive]

Yes. Yes. So I'm sorry if it wasn't clear enough and thanks for the question again. So just for clarity, you can expect to see in Q2 that we'll hit the average grade that we said in our guidance.

[Andrew Mikitchook, analyst]

Okay. I think it's very clear for everything else in the quarter and then the releases. I'll pass the microphone on.

[Anthea Bath, executive]

Thank you, Andrew.

[Operator]

[Operator Instructions] And our next question coming from the line of Phil Ker with Ventum Financial. Your line is open.

[Philip Ker, analyst]

Team, just with the increase in cash flow and clearly a surge in the gold price here over the kind of first half of the year, you were able to decide to more aggressively pay down your credit facility. With that said or with those initiatives expected to be completed, are there other projects being evaluated that excess cash could be deployed to and what are those?

[Anthea Bath, executive]

Phil, thanks for the question. Yes, I mean, absolutely. I think what we -- we're quite excited about the cash position to be moving into. And I think just to, first of all, say that the largest focus that we have, obviously, is on execution of what we're doing and continuing to work on the opportunities that are available to us today.I mentioned a couple of strategic imperatives we're working on, which include obviously, optimizing and understanding our assets, which is probably going to give us more clarity around what we should be thinking about into the future strategically.So I think to answer that question right now, I would say, it'd be hard. But what I'd like to say is that we certainly are getting excited about what we're seeing at Kiena. And I've said to Mike that I'd like to push him on driving a couple of more exploration opportunities if we can, do it correctly. We're really funny about making sure when we're spending capital, we're spending it effectively and efficiently. I think we have an idea of how we can probably add, as I mentioned in my comments, a couple of [indiscernible] of drilling to that. So we'll do some of that.But at this stage, I think we're considering strategic options. The team is working together to figure out all the options available to us. And I'm sure as time goes by, we'll start sharing those.

[Operator]

[Operator Instructions] And there are no further questions in the queue at this time. This concludes this morning's call. Please contact Trish Moran at [e-mail]. Thank you for participating today.