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Good morning, and welcome to Wesdome Gold Mines Third Quarter Financial Results Conference Call. I will now hand the call over to Heather Laxton to begin today's call.
Great. Thanks, operator. Good morning, everyone. As we get underway here, we'd just like to remind everyone that during this call, we will 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 our detailed cautionary note contained in yesterday's press release and in the company's management discussion and analysis dated November 10, 2021. Both documents are available on our website and on SEDAR. Please note that all figures discussed on this 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 now it's over to Lindsay Dunlop, Vice President of Investor Relations.
Thanks, Heather. Speaking on the call today will be Duncan Middlemiss, President and CEO.
Good morning.
Scott Gilbert, CFO.
Good morning.
Marc-Andre Pelletier, COO.
Good morning.
Mike Michaud, Vice President, Exploration.
Good morning.
And also on the call is Raj Gill, VP Corporate Development.
Good morning.
We will begin today with an operational review from Marc-Andre, followed by a financial review from Scott. Then we will proceed with an exploration update from Mike. And finally, Duncan will conclude with a summary and outlook. Marc, please go ahead.
Thanks, Lindsay. The Eagle River mine performed very well during the quarter, producing over 23,000 ounces at 13.4 grams per tonne despite some significant downtime for annual mill maintenance and the installation of the new cone crusher. Year-to-date, the Eagle River Complex has produced 76,773 ounces, and we are very confident in hitting the mid- to high point of the 92,000 to 105,000 ounces guidance range. We are very excited to begin the production for the Falcon 7 Zone on 635-meter level. It provides a new high-grade mining horizon near 20 grams per tonne and creates more flexibility in the mining plan for the future. Mishi production came from the surface ore stockpile and will continue in the first half of 2022 until the depletion of the stockpile. At Kiena, the production restart is going well, with initial production from the mine's original structure, the lower-grade S50 zone yielding 5,511 ounces. We started mining the first stope in the A Zone in early Q4 and grade A Zone is reconciling with expectations. We expect to achieve yearly production guidance at Kiena of 15,000 to 25,000 ounces. We will continue to ramp up production rates in 2022, achieving full commercial production rates in Q2 2022. Several construction works are ongoing at the mine, such as improvement work at the Tailing Management area, construction of a new paste plant and the installation of a new water treatment facility. We are very happy with the progress we have made so far on those particular projects. Now over to Scott for a financial review.
Thanks, Marc. At Eagle River, the year-to-date cash cost of $983 per ounce and AISC of CAD 1,406 per ounce are within our guidance ranges. The AISC at Kiena of CAD 1,891 per ounce results from the low production levels as the mine is ramping up production. Due to a change in IFRS standards, all pre-commercial revenue and costs will be included in the income statement. Once commercial production is declared, AISC is expected to be in line with the cost of the PFS. Wesdome generated $35.3 million in cash margin in Q3 2021, which includes $34.2 million from Eagle River. Despite the high cash cost at Kiena, it also contributed $1.1 million of cash margin. Company-wide adjusted net income was $18.2 million or $0.13 per share. Free cash outflow was $9.1 million as we spent $41.1 million on capital, which include $27.5 million for the Kiena restart. The bulk of the Kiena CapEx spending will be finished in H1 2022. We ended the quarter with a cash balance of $69.5 million and are well positioned to fund all CapEx programs and exploration activities at both Eagle River and Kiena. The Kiena restart has been fully funded internally. Now over to you, Mike.
Thanks, Scott. At Eagle River, sill development is continuing at the Falcon Zone and to date has confirmed the high-grade nature of this zone and the continuity defined by the exploration drilling. In September, we released the initial set of sill results, including 62-meter level that yielded 54 grams per tonne over an average thickness of 2.1 meters over a strike length of 75 meters. This development will bring another high-grade mining front at a reserve rate of over 20 grams per tonne and production has already begun in Q4.The Falcon 7 Zone confirms the potential of the surrounding volcanic rocks to host sizable deposits and gold mineralization. As such, the company is continuing to develop and explore the neighboring 311 West Zone. To this end, we started the development on 355-meter level exploration drift located along the western margin of the mine to better explore the extension of the 311 Zone and also the Falcon Zones closer to surface. Also, surface drilling is ongoing with 2 drills both east and west of the mine to follow up on anomalous values returned from regional drilling program in 2020. At Kiena, drilling continued to focus on the A Zone and recently discovered Footwall Zone. Drilling has been slower than usual as a result of the industry-wide shortage of skilled drillers. However, we have since implemented measures in order to improve drilling performance going forward. The Footwall Zone is interpreted at several lenses of gold mineralization located within the 50-meter wide corridor adjacent to the footwall of the A2 Zone. The Footwall zone runs parallel to the A Zone and extends at least 300 meters and remains open laterally and down plunge. Recent drilling returned 20 grams over 9 meters of core length. Additionally, the recent drilling inside and outside of the current A Zone resource block model shows the potential to expand the current resource estimate, 1 hole returning 132 grams per tonne gold over 7-point meters of core length. As part of our efforts to increase exploration, we have also moved to diamond drill on to 33-meter level on the east side of the Kiena mine. This is to better explore a number of historic showings that remain underexplored. We are also pleased with initial surface exploration that returned over 1,500 grams per tonne over 0.5 meter from the Presqu’ìle zone. We have now extended the existing mineral resource in this area to a depth of over 300 meters from surface, and is now located only 400 meters away from existing mine infrastructure.The drilling in the Shawkey area discovered a new zone called Bourgo, which is perpendicular to the general northwest-southeast trend. It consists of quartz veins with a similar north trend in orientation of the nearby Kiena Deep A Zones. Any near-mine resource has the potential to add additional mill feed. Over to you, Duncan.
Great. Thanks, Mike. This is a very exciting time in the company's evolution from junior to intermediate gold producer. At Eagle River, we have our sights set on increasing our underground high-grade production in order to reach the mill capacity in the short term. So far this year, we have realized an average underground production rate of 650 tonnes per day of 13-plus gram material. In 2022, this will ramp up to just above 700 tonnes per day. The Falcon Zone, discovered just a few years ago outside the mine diorite now has its first stope in production, where the reserve rate is almost 20 grams per tonne. This area is not bottlenecked with production restrictions. And with additional Falcon stopes coming online throughout 2022, this will enhance our ability to gradually increase our annual mining rates. Beginning next year, with all production in Wawa coming from the high-grade underground mine, we can expect production of over 100,000 ounces per year. With our construction and development progress at Kiena, we can see a pathway to an additional 100,000 ounces plus per year. The execution of the plan laid out in our Kiena pre-feasibility study is going well, and we view this technical report as a base case with the Footwall discovery, not yet a part of the production scenario. I believe the derisking of the company, with an additional high-grade underground gold mine in the Tier 1 jurisdiction, is a remarkable event on our path to becoming Canada's next mid-tier gold producer. We have just now mined our first stope in the A Zone with very good results with regards to dilution control. The plan is to continue mining the A Zone with another 4 high-grade stopes to come prior to year-end. Our ramp-up with manpower and equipment is going well and especially in a challenging and competitive environment. As stated earlier, we fully expect our unit cost to reduce at Kiena as we assume the production profile laid out in our PFS published in June of 2021. As a reminder, projected costs from the Kiena PFS or cash cost per ounce of CAD 471 per ounce and all-in sustaining costs of $838 per ounce not including exploration. I also want to personally thank our friend and colleague, Marc-Andre Pelletier, who was elected to depart Wesdome for a CEO role. Marc joined the company in February of 2017, has done a great job in optimizing Eagle River to 100,000 ounces of annual production and overseeing the exploration, development, technical studies and now start up at Kiena amongst all of the additional duties he carried out over the past 5 years. I have personally worked with Marc off and on for nearly 13 years, and I can honestly say each day was enjoyed, as I always knew our operations were in capable hands. [indiscernible] I will now open the call up for questions.
[Operator Instructions] And our first question is from Don DeMarco of National Bank Finance.
First off, I'd like to congratulate Marc on his new role. It's -- you've done a great job at restarting the Kiena mill, increasing production at Eagle, and I wish you continued success. My question then is when we look at your cost guidance for the year, and I think it's $980 to $1,090, should we think of that as inclusive of the Kiena pre-commercial production? Or should we just wait until the -- or should we exclude it and wait until Kiena's into commercial production before wrapping it into our cost averages?
Yes, absolutely. Don, it's Duncan. No, absolutely, that is Eagle River ounces only. We were just -- the guidance we gave for Kiena after it became sort of firmer with the PFS progress during the year was 15,000 to 25,000 ounces. We feel very confident on that. We did not provide cost guidance. I mean this whole -- my favorite accounting standard is not IAS 16, I'll just let you know that. I mean the fact that we no longer credit preproduction with revenue from those ounces and have to disclose what that would be on an all-in sustaining cost is kind of misleading because obviously, we're not really at -- I mean we only sold 3,000 ounces also of Kiena. So actually what was remarkable is we still made money on them. So...
Yes. Actually, it's not bad. I mean that's actually not about AISC for your first quarter production and it was a low volume of ounces. So yes, we look forward to Q4 and Q1 and so on.
Yes. Stressing pre-commercial, too. We have not declared commercial production. We really feel we're going to do that in the second quarter of 2022, Don, when the Paste Fill plant gets commissioned, and we have sort of, I'd say, a steadier state in terms of production.
Okay. So for 2021, at Eagle, you're sort of approaching the top end of your production guidance. Next year, we can look forward to a higher throughput, 700 tonnes per day plus. Are there any indications what kind of throughput we might expect out of Kiena for the first year?
Yes, it's very much like the PFS.
Yes. Don, it's going to be between 450 to 500 tonnes per day. So very close, maybe slightly higher than the PFS.
Okay. Good to hear. And so we're looking at the CapEx spend on Kiena. And now that you're into first production, should we throttle back our CapEx spend in Q4? Do you think you're through most of the CapEx budget in the Kiena restart?
No, I don't think so, no. We'll have -- we'll still have good capital outlay, I'd say, in Q1 and Q2. Of course, probably say, we're organically funded. I mean we've got $69 million in the bank and a line of credit, which I don't believe we'll ever touch, so that's fine.
Right, right. And the cash balance is actually up quarter-over-quarter, okay, great.
And our next question is from Ralph Profiti of Eight Capital.
Okay. Great. And best wishes and luck to Marc-Andre in the future. Duncan, I want to ask you about this 311 West and I'm taking a look at it. And I'm just wondering how should we be thinking about it? Is this part of the story where we can start to connect the 7 Zone and the Falcon Zone? Or are we testing targets into the volcanics? And how far west are we going to be testing targets?
It's Mike here. The 311 parallels the 7 Zone in the diorite and then the Falcon 7 zone, of course, we know now that, it joins with the [ old ] 7 Zone in the mine. So right now, we've been having some pretty good success extending the 311 zone through the diorite into the volcanics. And we're testing this. We think it's going to be parallel to the 7 -- the Falcon 7 Zone as well. So this is why we're putting in that 355-meter level development in. First, it's going to be so we can drill off this new 311 [ also called ] Falcon 311 Zone right now and also the 7 Zone and then we can use that development for mining later.And -- but what I like about it is because now we have 2 zones in the volcanics in that area that are up, are higher elevations in the mine, that really debottled things at the bottom part of the mine. But also that development, which is going to go about 500 meters west of the diorite puts us out into the volcanic so we can drill more targets from there. And certainly, we see the 8 zone extending out there, we see the 5 zone extending out there. And we had some pretty good hits out there with the surface drilling already. We still have a lot more drilling to do, but I think that area looks really good to us. So we're going to definitely spend a lot of effort out there this year.
Okay. Great. Yes. That's exactly what I was looking for, okay. And should we -- second question, should we expect the Footwall Zone in the year-end resource update? And would it be most correct to assume that you'll probably only be able to get 300 meters of down plunge extent into that estimate?
Yes. That's -- we certainly -- our goal is to get all of that 300 meters of Footwall Zone into a resource, I would say, just because of the slower drilling that's been done there, a, because we've had a shortage of some drillers, which we've kind of fixed in that problem now. But it's also -- because it steepens at a bad angle, these long hauls has slowed down the number of drill intersections as well.We certainly are planning to put in a new exploration drift into the footwall, so we'll be able to drill it off and drill off its extension next year. But for the end of this year, we're going to certainly try to get all those ounces in, albeit inferred. We may not get them all, but we're certainly -- that's our goal. I mean we like the zone. We keep drilling into it and hitting gold there. So we're pretty happy to see how it's -- how big it's going to get, and then how we can then incorporate into the mine plan. But a lot of that sort of the confident grades and tonnes there probably won't come until maybe next year after we've got the new waste development in the hanging wall, so we can drill it off properly.
Yes. That's excellent, okay.
Yes. I think one of the issues we have here is because the ramp as it extends down deeper, we're going to get better and better drill platforms. And so really, just alluding to what Mike said, I mean, it's definitely sort of a down-dip drilling at a non-ideal angle. You definitely want to get a lot more perpendicular to the zone to truly understand its characteristics. So I think that, that footwall just a little long way to help us with that.
And our next question is from Ryan Walker of Echelon Partners.
Just back to the drilling. So you had fairly aggressive or very aggressive programs planned for both mines, where would you say you are in the grand scheme of thing relative to the initial goals? And then I guess, what's in the hopper essentially for results yet to come out there in the lab, and we've heard from everyone [indiscernible] that lab delays are pretty extensive right now?
Yes. We're certainly -- we've done well with surface drilling, I would say, over the last few months at -- both Eagle and Kiena. That's why we're able to extend Presqu'ile in that new Bourgo Zone. So we're happy about that. Underground at Eagle, the drilling is coming back online. I would say that the aggressive plan we had for exploration this year when the drilling meter started to fall short because of the COVID and whatnot, we kind of pulled in our horns and said, let's get our -- let's replace our ounces first that we're going to mine out this year. So we kind of cut back a little bit on the underground exploration at Eagle. Certainly, on the Kiena side, it's been a bit of a challenge. We've certainly made some changes, and we're going to continue to drill off that Footwall zone there.
Okay. Great. And then just in terms of -- is there stuff in the lab now that we'll see over the next several weeks in the interim?
Yes. We've had some results back from the Kiena footwall zone. So we might be making a release on that later, maybe before Christmas. Certainly, we have some hits to Eagle that we want to probably get out there within the next few weeks here as well. But yes, we do have some results coming. And I think with the slow part we went through in the summer with the drilling problems, I think that, that's getting corrected now. So we'll have more steadier news flow as we go forward here.
And there are no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.
Thank you.