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Good morning, and welcome to Wesdome Gold Mines First Quarter 2022 Financial Results Earnings Call. Heather Laxton, Chief Governance Officer, will begin today.
Thanks, Daniel, and good morning, everyone. Thanks for joining us. As we get underway here, we'd like to quickly 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. Actual events or results could cause outcomes to differ materially due to a number of risks and uncertainties, including those mentioned in the detailed cautionary note contained in yesterday's press release and in the company's management discussion and analysis as dated May 11, 2022. Both documents are available on our website and on SEDAR. Please note that all figures discussed on the call are in Canadian dollars unless otherwise stated. The slides used for this presentation and a recording of this call will be posted on the company's website. And with that, it's over to Lindsay Dunlop, Vice President of Investor Relations.
Thanks, Heather. Speaking on the call today will be Duncan Middlemiss, CEO; Scott Gilbert, CFO; and Mike Michaud, VP, Exploration. Also on the call today is Raj Gill, VP, Corporate Development. Duncan will lead us off today with an operations update and then Scott will discuss the financial results. Mike will follow with an exploration update of both Eagle River and Kiena and finally a concluding and outlook summary from Duncan. We will then open the line up for the Q&A session. Please go ahead, Duncan.
Thanks, Lindsay. Good morning. First quarter combined production was 25,611 ounces, essentially in line with our budget of lower production in the first half of the year and significantly higher in the second half. Eagle ounces were on track and head grades started trending higher at the end of the quarter due to stope sequencing. Mike will give some additional details on how the Falcon Zone development and exploration work is going later in the call, but I can say, it's positive. The shortfall in this quarter's production was at Kiena. There were a few reasons for this. In January, where we had very poor mobile speed performance, specifically the scooptram and this persisted throughout the quarter. The scoop fleet at that point was entirely rented. By the end of the quarter, we had received our own 2 3.5-yard and 2 6-yard scooptrams. These are all currently in service and working as expected, reliably. In May, the mine also received 2 jumbos, which will be working shortly underground. In terms of the mobile fleet, we are in good shape. All of the received equipment was delayed from the original delivery dates due to supply chain issues. Workforce availability was also impacted in the quarter with high numbers of people affected by the pandemic as the Val d'Or area suffered a fairly intense outbreak. This has lessened significantly. However, we are maintaining our vigilance at both operations. In February, we had a significant underground crusher failure in which we repair time was lengthened again due to supply chain issue. The crusher has been repaired and it's working as expected. All of these items significantly impacted our production plan at Kiena. Moving into April, we had our most productive development month as the workforce is in place and the new mobile fleet is working well and this continues into May. Despite the challenges in the quarter, we generated $9 million in cash margin at Kiena, despite the cash cost of $1,364 per ounce of gold sold. The paste fill plant, a critical component of the Kiena project, has fallen slightly behind schedule. Originally planned for completion in June, it is looking more like August now as we have a key component that has been delayed, which ultimately pushes our plant commissioning back. We are anticipating having the plant fully functional in the third quarter. Subsequent to quarter end, I'm very pleased to report that we've hired a new Chief Operating Officer, Frederic Mercier-Langevin, who starts in June. Frederic comes from Agnico Eagle, where he was most recently the General Manager of the Meliadine mine. He also oversaw the Goldex mine as General Manager of the Lapa Mine, both located in Val d'or. His experience, especially at mines similar to Eagle and Kiena, will be valuable -- will be very valuable as we ramp up Kiena and continue to optimize Eagle. And on behalf of our employees and the Board of Directors, I would like to welcome him to the team. Now, I will pass this over to Scott for a review of the financials.
Thanks, Duncan. In Q1 2022, Wesdome generated $66.6 million of gold revenue from the sale of 28,000 ounces, which includes 9,200 pre-commercial Kiena ounces. The operating cash flow was $29.9 million. The total capital spend was $34.6 million, of which $29 million was growth capital. The ending cash balance was $52.5 million. Despite inflationary pressure and pandemic-related impacts, the overall aggregate cash cost at Eagle River remained consistent in Q1 2021. Eagle River cash cost per ounce sold increased by 10% to $1,262 compared to Q1, due to the lower ounces sold. As expected, combined total cash cost of $1,295 per ounce and all-in sustaining costs of $1,595 per ounce were higher than our full-year guidance as a result of expected lower production. Now over to you, Mike.
Thanks, Scott. On the exploration side, it's been a great start to the year. Drill productivity is up over last year and improving. As you know, we have another aggressive year of exploration planned at both sites. Firstly, at Eagle River, where we have 6 underground and 2 surface drills operating. The Falcon 7 Zone has provided exciting results. Initial underground development has confirmed the high gold grades and good continuity of the zone, which is very important, given that this zone will play an integral role in production for the second half of the year and beyond. This zone not only provides additional high grade, but it's located away from other mining areas near the bottom of the ramping system. We are also pleased with the ongoing definition and expansion drilling at the Falcon 7 Zone that has increased our confidence of the gold grade distribution. These results, which have been recently released, continue to show the high grade nature of this zone, including 90 grams per tonne uncapped over 4.9 meter core length and 87 grams per tonne over 6.6 meters. Of significance, the ongoing drilling has also identified a number of thicker sections of the zone, mostly related to [ deletional jobs ] as well as splays and fold noses and limbs that have the potential to add significantly to the existing near-mine resource base. What makes the discovery in the mining of the Falcon 7 Zone so exciting is that historically gold at the Eagle River mine has been hosted in the mine diorite. However, the Falcon 7 Zone is hosted in volcanic rocks west of the diorite. Hence, this discovery highlights the prospectivity of the volcanic rocks beyond the existing footprint of the Eagle River Mine. The [indiscernible] in a mock sample that you see in this slide is for recent development in this area. As part of testing these volcanics, a 400-meter long drift is being established on the 355-meter level to provide platforms to test the number of targets. First, to drill out the upper 300 meters of the Falcon 7 Zone; second, to test the gold mineralization further along strike of the 7 Zone in the volcanic rocks; and third, to test for parallel zones where surface exploration has already returned encouraging results. This is a region of the mine that's historically been given very little attention. It's a similar situation at Kiena, where 700 underground drills and one surface drill, soon to expand to 2 are operating. Of course, the focus of our drilling remains proximal to the high-grade A Zone and expanding the mineralization down plunge. However, we are also now testing the lateral extension of the A Zone along the fold limbs. Additionally, we are exploring the Footwall Zone, both down plunge and laterally. All of these zones have potential to add ounces to the resource base and remain a priority for the drilling. As well, 2 drills are operating on 33 level to test historic zones further to the southeast along strike from the Kiena Mine, particularly at the Martin and VC Zones, where previous drilling has returned good results and remain underexplored and open along strike and at depth. Surface drilling is ongoing and will be accelerated again this summer once the ice is melted. The drilling has been focused on the Shawkey Zone and the recently discovered Presqu'ile Zone where encouraging results will return in late 2021. As well, our understanding of the geology in this area continues to improve with additional drilling and highlights the prospectivity of this region. We expect to release drilling results in the very near future, and have a regular flow of news over the course of the year. Over to you, Duncan.
Thanks, Mike. As expected, cash and all-in sustaining costs this quarter were higher than guidance due to planned lower production levels. Higher production levels are planned for the second half of the year, with Q2 production being higher than Q1 at both assets. The material uptick in production begins in the third quarter. Consequently, both cash and all-in sustaining costs will decrease significantly in the second half of this year. At this point, we are trending towards ending the year on the lower end of guidance range and the higher side of the cost range as a result of the delays at Kiena. We have worked through many of the same issues faced by our peers, with the pandemic affecting workforce availability, supply chain issues and a tight labor market. Based on where the world is, it is very fortunate that we started our Kiena project when we did in June of 2021, as we were able to purchase and receive much of our key equipment required for the build out of Kiena. Eagle River operations are much less impacted by the supply chain issues and will deliver within guidance as the vulnerability of existing operations is much less. This is also our final year of elevated growth CapEx spending. We will spend approximately $80 million this year as we complete the final projects related to the Kiena ramp up, mainly the paste fill plant, water treatment plant and tailings dam augmentation. Despite the higher spending and one quarter delay at Kiena, we expect to return to positive free cash flow status in the second half of the year. As a result of improved development rates at Kiena with our new equipment, drilling activities are also going very well. And we expect to deliver an update of our exploration progress from Kiena in the near term. I'm especially excited about our new [ field ] platform to optimally exploit the Footwall Zone. Footwall Zone was not contemplated in the pre-feasibility study. At Eagle, we are also very excited about the near to medium term as we continue our exploration efforts both inside and outside of the mine diorite. Short-term challenge at Eagle is to match the mine production with the mill production. We have been making progress on this front with the commissioning of our new underground booster fan installation, which has allowed us to increase our capacity for material handling and this will allow us to begin to close the gap. I will now open up the lines for questions.
[Operator Instructions] Our first question comes from Ralph Profiti with Eight Capital.
Duncan, 2 of them, please. One on Eagle and one on Kiena, please. Just wondering when we think about the Falcon Zone and the company's target of 100,000 ounces a year, what do you think -- what's your current thinking on the ideal mining rate coming out of Falcon to maintain that production level?
Really, Falcon, Ralph, it's really a higher grade lower volume zone. So, I think really the mining rates in terms of tons would be probably at around the, I'd say, 300 generally. But the ounce contribution from Falcon is going to be heftier than that, I would recommend. I think that when you look at our reserves at Eagle, we really do have some very high-grade reserves and some kind of medium-grade reserves, right? And so when you're in Falcon, you definitely feel that effect. It's something like that 303 Zone that we had previously within the diorite. So, yes, I would think of these as 300 to 350 range. We're really just getting out there to fully develop it now and understand. And again, I sort of look at this year as a year of establishing proper drill platforms in order to really fully explore what we haven't. That's exactly what's going on at Eagle right now. We've got a drift higher up in the mine at 355 and we're looking at the upper part of Falcon with that drill platform. So...
Okay. Yes. That's very helpful. Switching to Kiena, it looks like things are getting back on track. Are there any areas of reconciliation that are not meeting expectations and thinking about sort of kind of the -- some of the April numbers and the main numbers so far?
I think it's early rebound, Ralph, just because of where we are in terms of our productivity. Right now, we're getting the developments and process back on track with the new equipment and actually having our own people at the [ phase ], which is great. So, I would say there is really no news on that front and we're not expecting anything surprises, I don't think.
Our next question comes from Don DeMarco with National Bank.
And I guess, Duncan, first off, I'd just like to welcome, Frederic, to the team and back to Val d'Or, too. So congratulations on that.
Yes. Thanks. Yes. Go ahead.
Yes. So at any rate -- yes, I saw that the Eagle cost, the AISC was higher than Kiena. We would have hoped maybe Eagle will provide some offset to the volatility at Kiena. There was a COVID outbreak in Val d'Or, unplanned crusher maintenance and so on. But with this and given that you noted that Eagle is on track to hit guidance, should we expect a pretty quick rebound with costs going lower at Eagle and what were the drivers of those elevated costs in Q1 at Eagle specifically?
Actually, I'll tell you, Eagle really, by budget, it was just the low quarter and Eagle actually performed very well with the planned cost. So Eagle -- very comfortable with how we are tracking at Eagle. I think the costs are in line. The production is set up well for the remaining 9 months of the year. So, I would expect us to fully be within guidance, the midpoint of guidance on Eagle in terms of production and also our cost expectations.
Okay. So I guess, Q1 at Eagle was -- the high costs are really just related to the lower production base? But it wasn't...
Yes. It's still sequencing, Don, really. And just sort of touching on last question, but really the Eagle reserves from what we see, I mean, Falcon is a really sort of chunky piece of the reserve. So when you're in Falcon or like the 303, it certainly -- you really feel it right in terms of the ounce production. We have other good grade material all around, but it's really a function of stope sequencing really that kind of affects that. So a few things that are -- we're driving towards. And I alluded to it at the end of my commentary, it's really the -- we've got this new booster fan installation in the mine and we've actually increased our available ventilation. We're able to add another truck. It's really kind of a big deal for us because for every tonne of ore that we dig, we'd have to dig it on the tonne of waste, right, being in the narrow vein environment. So, we're quite excited about that. We haven't quite seen the full impact of that, but I think that as we move forward with that new capability, I think that Eagle point to hopefully close the gap and to matching the mill and the mine together.
Okay. That's good. And one question on Kiena. So, we see that equipment is in place, that's encouraging. And the next milestone that we look forward to is to have the paste backfill plant up and running.
Yes.
Can you talk -- can just confirm that your expected timing for that waste backfill plant? And also, does it involve a little bit of a ramp-up or as soon as you have it up, is it pretty much -- should we -- would it be expected to step change in production at that point, that change in mine?
Yes. I know, definitely. I mean, let's face the -- the availability of paste that was going to be such a benefit for the mine in terms of our cycle times on stope. So really what we're seeing is, there is one component, which has been delayed. It's the MCC, which is the motor control center. So really the item for that and we do expect that it will be early in August we're going to install it. But the commissioning of the plant, you're correct, I mean, that is something which is going to take a period of a couple of weeks for sure, maybe a month. The underground distribution facilities are all in place essentially. So, I think we're in good shape on that one. And so really the critical path, I think, is the installation of the MCC, the motor control center. And that's where you're able to automate the process, right?
Okay. Great. Well, good luck, rebounding in the next quarters and as the Kiena CapEx starts to ease and free cash flow increases.
Yes. Our next question comes from Michael Fairbairn with Canaccord.
Just one from me on Kiena, kind of a 2-parter. Just wondering if commercial production at Kiena is now expected to be pushed back until after the commissioning of the paste fill plant and also wondering how this is going to impact the cost profile at Kiena in Q2?
Yes. I think really, I've said it before too, Michael, that really the paste fill plant commissioning is the key event for declaring commercial production at Kiena. So, yes, definitely, I think it would be after we have that plant fully commissioned. In terms of really what we have for costs, it's definitely going to be decreasing after that because volumes will be increasing at Kiena. So, I think that that's the guidance that we give you right now that we are definitely expecting far better cost than what we've seen in the first quarter.
[Operator Instructions] Our next question comes from Ryan Walker with Echelon Partners.
Just, Kiena, if you could maybe just give us an update on the CapEx remaining there and how susceptible that is to inflation going forward?
All right. I'll let Scott answer that, our Chief Financial Officer, Ryan.
Yes. Ryan, in Q1, we spent about $29 million on the growth capital. We're going to be about $62 million for the first half of the year and then it's going to trail-off down to about another $30 million, $40 million in the second half of the year.
So, sorry, I kind of got cut out there on Q2. Could you maybe repeat that, please?
Sorry. For the first half of the year, we're going to be roughly about $62 million and the second half of the year about $40 million.
Great. And I mean, is that -- again, are those numbers kind of firm? Or are they susceptible to a bit of inflation during that time?
We actually just completed a 3+9 forecast and these are most up-to-date numbers.
Okay. Great. And a couple of my other ones have been answered. But I'm wondering if you could just kind of quantify the COVID impact on the workforce. Was it Q1? Was it 30 guys out sick and now we're down to 12 or 15? Could you maybe just kind of give us some numbers there?
Yes. Absolutely. So really the outbreak was pretty severe, I would say, sort of mid-January into February. We actually had it -- when I talk about employees, it's employees and contractors. We had about 150 people affected, either they were directly infected or they were at contact with others. So it was a little difficult to juggle the manpower at that point, but we're beyond that now and hopefully, we could stay out of the COVID penalty box. But we maintain our rigor, I would say, in terms of our protocols than what we do for COVID prevention at both mines. And unfortunately, this is just a lot more transmissible strain and everybody is really getting it. We didn't actually have a case of COVID at either one of the sites until the end of December of 2021. So, we have really performed well and then all of a sudden Omicron kind of hit us.
Yes. No, that is a good track record. That's unfortunate. So the 150, what would that represent of the total workforce on a percentage basis?
Well, with contractors included, I mean, it's sort of variable, but we're probably running around 400, 450, so along with one-third of the contingent, I would say, would have been affected over a period of time. So...
All right. And what are the kind of the, I guess, active cases now? Or are you down to a more meaningful level now?
No, they are pretty low. I think -- yes, I think we've got 4 active cases right now at Kiena, probably similar at Eagle. Eagle sort of suffered the same woes, maybe not to that degree, but it's been a challenge, but we are working through it.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.