Wesdome Gold Mines Ltd

TSX:WDO

Earnings Call Transcript 2024-Q2

[Operator]

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

[Trish Moran, executive]

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&A and financial statements are available both on SEDAR+ and our corporate website, wesdome.com. With us on today's call is Anthea Bath, Wesdome's President and CEO; Fred Mercier-Langevin, our COO; Fernando Ragone, our CFO; Niel de Bruin, our Director of Geology; and Raj Gill, SVP, Corporate Development and Investor Relations. Following management's formal remarks, we will then open the call to questions. And now over to Anthea.

[Anthea Bath, executive]

Thank you, Trish, and good morning to everyone. The second quarter marked a breakthrough for Wesdome 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 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 lost time incidents. I'd like to thank the team at Wesdome for all the efforts in this regard. 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 topped $50 million as [indiscernible] the 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, the major driver of this quarter success was our milestone achievement of 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. 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 when compared with both quarter 1 of 2024 and quarter 2 of 2023. Over Eagle River, our cornerstone mine maintained a decade-long history of delivering high grades and consistent performance. With its prudent track record, Eagle remains a key part of Wesdome's future.

While the immediate future is secured to the great work of our teams, we are excited about the prospects for Wesdome. With both operations running well and positioned to meet the prospective 2024 targets, we are focused on positioning Wesdome for the medium to the long term. 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 earning minimum costs and focusing our efforts towards optimization of the current profile in them as well, we're making good progress on the development of the Presqu'ile exploration ramp, and we will -- which will serve to further advance Kiena's operations, exploration and strategic flexibility. 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 high prospective 74, 75 square kilometers of land package on the gold corridor in [indiscernible]. This is a prolific gold area and is known for its interesting geology, and we're still very early on in the exploration phase. The team at Kiena has checked many boxes over the past 12 months and we'll continue to work on delivering high-grade ore and improving profitability. Moving on to Eagle River with the strategic growth initiatives are borne 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, but we're now looking to increase that duration and increase output over the coming years. Our strategy to deliver this is straightforward. Furthermore, 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. 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 structure program, and the team has completed significant upfront technical work. For several years, Wesdome was focused on funding growth at Kiena to cash flow generated at Eagle River. Going forward, we are restoring the balance to set both sector for many more years of success. As well, the 2 producing mines -- as well as the 2 producing mines, we are working on company-wide strategic initiatives to drive value. This includes the Kiena's synergy 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.

[Frederic Mercier-Langevin, executive]

Thank you, Anthea. Good morning, everyone. As mentioned, Q2 was an outstanding quarter for us. On the back of the much anticipated ramp of 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 performances in company's history.

Gold production at Eagle River came in at 19,272 ounces in Q2. While quality grade was consistent with Q2 of last year, the number of funds processed was 90% lower due in part to the variation in stockpile. The number of such mines 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 at the 300 Zone upgraded depth. As part of our annual life-of-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 the leverage of fixed cost structure of the asset and fill the 1,200 tonnes per day mill. These options include the newly developed global resource model to evaluate the full potential of historical resource inventory across the product.

Year-to-date, Eagle River mine has produced 44,171 ounces of gold, an increase of 2% over the first 6 months of 2023, despite production no longer being supplemented by the sense that we will stockpile. Eagle River continues to be a consistent producer and as such, we expect it to achieve this 2024 production guidance. On the development side, high-priority faces towards the high-grade 300 Zone of depth continues to track ahead of schedule, setting us up to grow production back to historical highs in 2025. At Kiena, the second quarter was bolstered by the benefits of the much anticipated high-grade ore for Kiena D, specifically from the 129-level horizon where stoping activity started in mid-April. These results are the culmination of 2 years of dedication and hard work from our Kiena site.

Compared to the corresponding period in 2023, Q2 production tripled to 24,763 ounces, a quarterly record for Kiena. Ore process rose 11% to establish a new record quarterly since restart of operations with 57,699 tonnes. And finally, plant recovery improved to 99%. Year-to-date, the mine has produced 33,186 tonnes of gold, more than double what was achieved over the first 6 months of 2023. Rates at Kiena this quarter exceeded our expectations. In fact, rather than ramping up gradually throughout the year as anticipated, rates stepped up considerably in Q2 to 13.5 grams per tonne at the high end of our guidance. While we're happy with those encouraging early results, we still expect rates to fall within the guidance range for the quarter. 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. [indiscernible] underground development from the [indiscernible] commenced in mid-April, and the ramp is approaching 450 meters. The development through is now hitting its strength. This ramp remains a priority for us as it provides several benefits to the current operations, such as improved valuation and secondary transportation and egress. However, what makes western ramp so exciting is what it means for the future growth to Kiena. First, it will enable us to supplement Kiena Deep production starting in late 2025 by adding incremental feed from the Presqu'ile Zones. Second, the ramp will serve as a key exploration platform from which we will be able to grow the active zone in depth and probe the under export 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 in all of its prospective targets with a laying the surface for further supplement Kiena D production and extend the mine life.

To enhance the multifunctional nature of this ramp, we continue to optimize this design for flexibility and to maximize its ability to create value for us in the future. So overall, it was a strong quarter where our teams at site continue to deliver on objectives to set new records for Wesdome and establish a new chapter for the company. Now since this will be my last conference call with Wesdome, 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 and 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 Wesdome 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 Niel, who will update you on our exploration program.

[Niel de Bruin, executive]

Thank you, Fred, and good morning. Across the company, we have made significant progress on our [indiscernible] exploration activity here today, completing almost 80,000 meters at our Eagle River mine and Kiena [indiscernible]. We are planning to support 185,000 meters by the end of this year. [indiscernible] update on our exploration program.

Turning towards Eagle River and starting with the recent [indiscernible] reserve. This is similar to the [indiscernible] demonstrates the potential for globalization [indiscernible] demand and opens out exciting possibilities for the scurry of future [indiscernible]. What is particularly encouraging about the drilling results [indiscernible] is the substantial potential with [indiscernible] extending over a potential 800 meters and reserve up and down market's ability to grow [indiscernible]. So finally, the top 3 little zones remain top priority for us need [indiscernible] . Therefore, drilling will continue with additional [indiscernible] for year-end, focusing on extending this up and down much and [indiscernible] certain sectors in zones [indiscernible] though is not a key priority for us at Eagle River. It is ideally [indiscernible] with 150 meters of existing mine infrastructure and has a relatively challenged depth of 600 to 750 meters. The zone continues to drill down whilst ongoing drilling preferring the depth potential and initialization. In addition, the zone proximity related to mine [indiscernible] significant growth and [indiscernible] growth opportunity across the mine in the future.

To date, over 10,280 meters with 39 holes have been completed in terms of [indiscernible] meters and 59.7 grams [indiscernible]. This shallow east facing [indiscernible] represented opportunity of the mine and the main focus area for us [indiscernible] in the second half of the year to better find resource and continue to expand as their own [indiscernible].

Turning now to the 300 E zone. We specifically produce [indiscernible] and throughput. Our exploration of [indiscernible] continue to upgrade resources and grow the zone for future mine. The recently completed [indiscernible]. This has been lower [indiscernible] from the previous levels. [indiscernible] as well as our ability to drill [indiscernible] that were either partially or fully [indiscernible]. Year-to-date, we have drilled 8,050 meters [indiscernible] drilling continues to confirm consistency of [indiscernible] These results included 32.5 [indiscernible] 6.6 meters and 25.7 [indiscernible] of 3.6 meter. At 300 meter remains key for future production at Eagle River, an additional 25 holes across 15,000 meters of [indiscernible]. Our understanding of the structural control of the [indiscernible] continues to improve. Several other zones remain [indiscernible] as additional drill will be carried after the purpose of [indiscernible] as well as zones within the mine plant [indiscernible] drilling continues to expand and divide existing high-grade zones [indiscernible], from the 13 and [indiscernible]. The Footwall Zones which is comprised of 3 separate zones [indiscernible]. These zones will drill with an [indiscernible] zone will be in a more [indiscernible]. Furthermore, drilling is also structurally [indiscernible] underscoring the high per [indiscernible] high grade management, explore potential and the opportunities for both large [indiscernible] in the second half of the year. Drilling continues to start in several areas in under explored rich area of the initial reconnaissance [indiscernible]. In the third quarter, we will be [indiscernible] the geologic expectation and converting [indiscernible]. This fall, we anticipate maintaining a gold program on surface with the potential [indiscernible]. Till date, in 2024, we have completed 28,000 meters at Kiena [indiscernible] and upwards of 40,000 meters in the third quarter, including more than 20,000 meters of surface drilling [indiscernible].

And now over to Fernando, who will take you through the financial results.

[Fernando Ragone, executive]

Thank you, Niel, and good morning, everyone. It was a strong second quarter compared to Q2 2023, as ounces of gold increased by 25%, and the average realized price of gold increased 21% to CAD 3,192 or USD 2,333. These factors drove growth of 51% in revenue, an increase in cash margin by 2.5x growth in operating income to $45 million from a loss of $6 million, a more than 200% increase in EBITDA to $68 million and a net income of 28 -- $29 million, up significantly from a net loss of $1 million 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 increase of 26% in cash cost 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 to $57 million or $0.38 per share. While this was our fourth consecutive quarter of positive free cash flow is represented in [indiscernible]. During the quarter, we repaid $29 million on our revolving credit facility, fully paying off our bank debt. Free cash flow of $28 million was strong, even after paying over $25 million 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 million in available liquidity and a positive working capital of $31 million. If you compare this to where we were at year-end when we had nearly $40 million in debt and the negative working capital, we have come a long way in only 6 months.

This current gold prices sustain 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 USD 2,500, versus our budget of around $1,875, 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 every USD 100 price increase in gold prices, our annualized operating cash flow increased by between USD 15 million and USD 20 million. Overall, it was a strong quarter and a strong first half of the year.

And now over to you, Anthea, to wrap things up.

[Anthea Bath, executive]

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 with approximately 55% to 60% of production targeted in the second half.

Before we go to Q&A, I'd like to extend our heartfelt thanks to Charles Main, who retired yesterday as a Board member and our Audit Committee Chair. As indicated, he is retiring from the industry. 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 for 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. 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 a new COO. On behalf of the Board and everyone at Wesdome, I'd like to express our 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]

[Operator Instructions] The first question comes from Ralph Profiti with Eight Capital.

[Ralph Profiti, analyst]

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 Presqu'ile 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?

[Anthea Bath, executive]

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

[Ralph Profiti, analyst]

And are we seeing similar grades at 136 versus 129?

[Anthea Bath, executive]

Yes, we are.

[Ralph Profiti, analyst]

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

[Anthea Bath, executive]

Yes. So our budget at Kiena is a little bit higher than that, which includes all surface drilling. So I think it's closer to $15 million, if I'm not mistaken. So yes, there's absolutely opportunities for continued exploration in Kiena. We keep working with the team on prioritizing where we should actually spend more money actually. So right now, we have a strong plan in place. Our challenge is my team all the time to see if we can find opportunities to drive more success at Kiena.

[Operator]

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

[Wayne Lam, analyst]

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 time line on how things are going with the study or when that might be -- when the results might be released?

[Anthea Bath, executive]

Wayne, it's Anthea. Yes, regarding mining in Eagle, I just trying to get 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. 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.

[Wayne Lam, analyst]

Just on the cost optimization study that's ongoing.

[Anthea Bath, executive]

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'll be able to talk a little bit more about that in the coming year.

[Wayne Lam, analyst]

Okay. Great. And then maybe moving to Kiena. Obviously, the first quarter 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 lowering the cost. Just wondering as you continue to ramp up through the second half, do you anticipate potential upside to guidance on grades or costs?

[Anthea Bath, executive]

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.

[Wayne Lam, analyst]

Okay. Great. And then maybe just last one. Just in terms of the management changes, this will be the third change in COO over the past few years and the exploration rule 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?

[Anthea Bath, executive]

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 ensuring that, that stability remains in Wesdome and for 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 Wesdome is well positioned with what we have in place right now to assure the plans we have going forward.

[Operator]

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

[Don DeMarco, analyst]

First off, Fred and Chuck, I just want to say thank you for all your contributions and wish you the best in your endeavors. So perhaps this is directed to Fred first. You're more than a quarter into Kiena Deep, how are the grades and the [ WIPs ] reconciling with expectations? Is it sort of on track? Or better than expected, more optimistic? Or how would you assess this at this stage?

[Frederic Mercier-Langevin, executive]

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

[Don DeMarco, analyst]

Okay. Okay. Well, we look forward to the back half of the year with that and certainly -- then just shifting -- staying at Kiena, but looking at Presqu'ile on the ramp, the ramp is advancing, what do you expect to connect it with the mine to 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 to reserves and so on. But maybe if you could give us a time line and the upcoming milestones you might expect for this project?

[Anthea Bath, executive]

Okay. So we plan to break through in November next year, Don, and into level 33. In terms of the ore, I think you can plan towards second half of next year Presqu'ile ore coming through. You can look at the key milestones being that this year, we'll be pulling about 1,500 meters in the ramp in terms of the work or developing into the ramp right now gets us close to Presqu'ile orebody where we can start looking at drilling from underground. We plan them moving between 215, 400 tonnes per day in late 2025. So I think that will give a bit of an indication of more or less our thinking around Presqu'ile Zones.

[Don DeMarco, analyst]

Okay. And then just maybe as a final question. We saw this week the deal between Gold Fields and Osisko Mining and 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&A or evaluating companies in any way?

[Anthea Bath, executive]

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

[Operator]

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 [e-mail]. Thank you for participating today.