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Good morning, and welcome to the Wesdome Gold Mines Q3 2022 Financial Results Earnings Call. Heather Laxton, Chief Governance Officer, will begin today.
Thank you, operator, and good morning, everyone. Thanks for joining us today. Before we begin, we'd like to take this opportunity to 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 dated November 9, 2022. 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 with that, it's over to Lindsay Dunlop, Vice President, Investor Relations.
Thanks, Heather. Speaking on the call today will be CEO, Duncan Middlemiss; COO, Fred Langevin; CFO, Scott Gilbert; and Mike Michaud, VP Exploration. Also on the call today is Raj Gill, VP, Corporate Development.
Fred will begin today with a review of operations.
Hi, everyone, and thank you for calling in this morning. At Eagle this quarter, the planned thickener refurbishment shutdown was successfully completed and scheduled in July. Production grades were in line with revised guidance, but production then fell slightly short of internal expectations due to delays in production in September as a result of a COVID spike in the workforce, which forced us to extract underground crews on 2 occasions. Also, production lasting issues delayed ore extraction to some extent. We expect significantly higher gold production in Q4 with no shutdowns planned during the quarter and COVID numbers trending over. Finally, we have significantly increased our confidence level in the Falcon Zone as a result of additional diminution drilling, and experience with field development and actual production results. With this additional information and improved reconciliation processes, we have a much better understanding what's coming from this zone going forward.
Kiena, which was also in shut down in July for refurbishment of the hoist, the team has made significant headway towards achieving commercial production. Most importantly, at the paste plant all electrical components for the controls were delivered and installed. Pre-commissioning activities have started, and we expect the plant to be fully operational choice. This is very good news as it will provide the mine with improved capabilities to deal with the challenging ground conditions encountered in Kiena Deep. Additionally, it will free up equipment currently being used to backfill stopes to focus on developing the ground to access the wider part of the Kiena Deep A Zone. We continue to be challenged with mobile equipment delivery especially our critical bolting equipment, but in Q3, we have been able to source rental equipment, and we expect those to be commissioned in Q4, derisking any further supply chain issues on that front.
Over to you, Scott.
Thanks, Fred. Both cash and AISC costs have increased in Q3 2022 compared to Q3 2021 due to an 8% decrease in ounces sold, inclusion of the high Kiena pre-commercial ounces and inflationary pressures. At Eagle River, the cash cost increased by 49% to CAD 1,473 per ounce, and AISC by 57% to $2,259 per ounce, primarily due to a 30% decrease in ounces sold. We are still experiencing inflationary pressures, but the price of diesel decreased by approximately 7% from the average price in Q2 2022, and the other consumable prices were fairly consistent with Q2 2022.
During the quarter, the company generated $12.9 million of operating cash flow. Despite Eagle River being shutdown for 15 days and Kiena for 24 days for scheduled maintenance. The capital expense totaled $33.8 million with $22.8 million being spent at [indiscernible]. In Q4, we expect capital spending to remain consistent with Q3 2022 as we complete the remaining projects before we declare commercial production at the Kiena. We expect costs to trend lower in 2023 as production goes up and major capital projects related to putting Kiena into commercial production are complete. As of today, we have drawn $54 million of the secured $80 million revolving credit facility. Over to you, Mike.
Thanks, Scott. Well, at Eagle River, we are now about a year into mining on the Falcon Zone. And given some initial challenges of forecasting, we have since remedied this situation with the addition of 95 definition drills and several hundred meters of development on various levels. Further to this infill drilling, in October, we released the results of exploration drilling at Falcon that was completed from surface and from the new 355-meter level development that now extends 400 meters west of the mine into the volcanic rocks.
This drilling has extended the zone up plunge to surface. In addition, a number of drill holes have intersected mineralization in subparallel zones in the hanging wall of Falcon Zone, possibly the mine 5 and 311 Wesdome, including a recent hole that returned 40.3 grams per tonne gold over 1.5 meters. The 355-meter level development is not only an important level for drill platforms to test these hanging wall targets, but also for future mining.
Based on the success along the western boundary [indiscernible], we have now started to test the eastern boundary within the volcanic rocks to the east and directly beneath the previously mined 2 Zone Initial drilling returned 233 grams per tonne gold of 0.4 meters. This area remains a focus given that this could represent a separate future mining front. Elsewhere, drilling within the central portion of the mine diorite has discovered a new lens of gold mineralization. Recent highlights include 27 grams per tonne over 4.6 meters and 40.4 grams per tonne over 3 meters core length. This new lens will now be drilled and accessed from underground adjacent infrastructure along the previous mine 8 Zone located only 100 meters to the south.
So overall, a good quarter of exploration at the Eagle River. At Kiena, we also had good exploration success in Q3, in particular, at the Presqu'ile Zone, which is located only 2 kilometers west of Kiena mine. Recent drill highlights include 24.3 grams per tonne over 3.3 meters and 30 grams per tonne over 9.4 meter core length, and the mineralization remains open at depth. Given the significant upside that the Presqu'ile Zone could represent for Kiena, the company has commenced the plan to develop an exploration ramp from surface, Already, the initial soil investigation and geotechnical drilling has been completed to determine the optimal coral locations, and the permit application has been submitted. Also, the exploration ramp could be easily connected to Kiena's existing underground ramp network, providing access to surface for the existing operation that comes with many benefits, including improved ventilation, less reliance on the shaft for the transportation of [nanomaterials] access to higher-level ore bodies, et cetera.
In the underground, exploration drilling continued to return exciting results with the Footwall Zone discovery last year and more recently, the discovery of the South Limb, both having the potential to increase the number of ounces per vertical meter and to provide additional working phases during mining. Encouraged by these results, we continue to explore within the basalt in this area, which we expect to report these results later this month. Over to you, Duncan.
Thanks, Mike. Staying at Kiena for a moment. The slide you're seeing depicts the current development in place that gives us access to the upper portion of the Eagle, which is narrower than the portion below the 1,250-meter elevation. The first 2 years of the PFS production scenario were built on the mining of the upper portion of the Eagle. The increase in the PFS mining rates were starting in 2024 as we develop the reserves down towards the wider area of the Eagle. Currently, the operation is behind in the planned advance of the ramp base, mostly attributable to challenges in the supply chain. As it stands, we will be developing into the wider part of this zone, in yellow, towards the end of 2023. Ramp development will be able to advance much more quickly once the final pieces of our long-awaited mobile fleet provided in Q4, Q1, namely our mechanized bolters, and we have been able to source some short-term bolter rentals to augment this.
Additionally, once the big plant is operational, this will eliminate the use the need to use cemented rockfill, which will free up additional resources such as scoops, trucks and workforce. We are finalizing our 2023 budget now, and we'll release production and cost guidance in early January. 2023 production at Kiena will be lower than the PFS schedule reflecting the delays incurred to date, however, 2024 is more in line with the PFS.
On a positive note, Fred and his team were able to develop more meters in October than at any previous point, and we are continuing to build on this success. 2022 is off to one of our better years. A downward revision in guidance, and currently trucking near the lower end in part the performance, we are proud. As implied by our guidance, we are expecting a big fourth quarter.
Moving forward, the 2 major issues we have faced this year has been the Falcon grade reconciliation and Kiena supply chain issues. The variability of the Falcon Zone has negatively impacted our ability to accurately forecast production. Our block model in the Falcon, which has formed our budget for 2022 was largely drill indicated. Now that we have drilled an additional 95 holes and completed substantial ore development within the zone, we feel our predictability is increasing. The Falcon Zone can best be described as a high-grade new zone, and so far, we have experienced both positive and negative reconciliations. As our additional information gets incorporated, we are confident our forecast will improve. We will take into account the high variable nature of this zone when issuing 2023 guidance at Eagle River. At Kiena, we finally have the majority of our components critical to mining with the exception of our mechanized bolters, which we expect in the next few months.
Even with new equipment, breakdowns occur in sourcing parts is still an issue. However, this is improving. We're in the pre-commissioning phase at the paste fill plant and look towards the full commissioning of this critical piece of infrastructure as the final preproduction item, which needs to be in place. We are still on track to finalize the fill plant commissioning for December. Global conditions have certainly made the development of Kiena a process much more difficult than I have ever experienced. I'm confident we're better put now to continue the path to become an all-Canadian mid-tier gold producer with the assets, the team, the jurisdiction and the exploration potential we all see.
I will now open up the call for questions.
[Operator Instructions]
And our first question comes from Ralph Profiti of Eight Capital.
Two questions for me, Duncan. Firstly, I'm seeing improved reconciliation and predictability at Eagle and the Falcon Zone. And just wondering, when I think about these new 95 definition drill holes, what's that in terms of like tonnes or meters, right? Well, I'm trying to get a sense of is how much trying to quantify how much development is needed ahead of the plan in order to reduce great variability going forward?
Yes. So Ralph, really the issue with Falcon, I would say is because it's kind of located about 300 meters to the west of the diorite. We did have a little bit of development in the upper part. That was the [ 622 to 635 ] stope that we took out in Q4, which over-reconciled to be quite frank. It's really performed well. However, sort of the heart of the zone in which we sort of go from [ 700 to 772 ]was largely not developed within the ore. We had the access to it, and it wasn't coming online until Q2. Frankly, Eagle, Q1 performed as it was supposed to, it was only upon reaching the sort of the heart of the Falcon Zone that we ended up with a grade reconciliation problems that we then recognized.
So I would think that we'd like to be up to 6 months ahead in terms of development, which will give us a much better, I would say, forecasting accuracy. In terms of actual meters, I think the zone is typically about 75 meters wide. So in terms of field development, we definitely want to have at least 4 levels in there, so 300 meters of predevelopment just on the ore or so itself. So we're actually getting at that point now. There was a bit of a lag of developing the Falcon Zone just because it was periphery to the -- where we had all the infrastructure within the diorite.
Yes. Got you. Yes, good answer. I appreciate that. And then if I can switch over to Kiena, just thinking about whether or not ground conditions are still only challenged within the Footwall zones, and whether or not this ground support is really can only -- it's only required to be remedied through sort of bolting equipment and bolting strategies as opposed to other ground support remedies that may be needed. .
Yes. Yes. No, good question, on -- so as identified in the PFS Study, we always recognize the shift in the Canadian rock types, during Footwall A Zone. So just to put it in perspective, we've got a great confidence in the hanging wall if you go. And if you go to the Footwall, it becomes into the shift in the [indiscernible]. So quite frankly, we didn't really have the tools in order to address this directly.
I mean -- we all see that stand up time of stope is a critical event. So when you substitute the CRF for paste fill, that extends the whole filling cycle substantially. So I see that the paste fill coming online is going to significantly reduce the exposure time that the openings out. Additionally, to not really have a mechanized bolter, it's been really problematic, I would say, we were expecting our bolters to arrive in February and March. The way we're going, we might get in the February, March of 2023, okay? It's just been really aggravating. So Fred's done a good job of sourcing rental bolters. We're going to get those online, but we can foresee that certainly that's going to be helpful.
Additionally, I would have to say just our experience with the shift in the [indiscernible] has been beneficial for our understanding of how best to deal with it. I mean, Fred, certainly quite experienced with this site to sort of converging shift, I would call it, it's very prevalent in the Abitibi [indiscernible], Lapa mine at where Fred worked before, and Kiena has it. We're not the only ones for sure. And so I think his experience has really aided us in really controlling this much better.
And our next question comes from Don DeMarco of National Bank.
My first question is -- so it sounds like you're going to declare commercial production at Kiena after the paste backfill plant is commissioned sometime probably in December. Does this imply that there isn't much growth CapEx remaining at Kiena in 2023?
Yes, it does, Don. We -- I mean we're -- I think our forecast for this year is somewhere over $100 million. We're not going to be doing anything close to that. Just to add again, I'll caution people on the supply chain hangover, sometimes you think you're going to have expenditures in December that might go in into January. Yes.
Okay. Sounds good. And Duncan, looking at Eagle, I mean -- at Kiena, obviously, we've seen the cost increase quarter-over-quarter, and we're looking forward to the paste backfill plant to largely remedying that. I mean there may be some ground conditions and other things to also address, but that paste backfill plant should be an inflection point. But at Eagle, it sounds encouraging that there's a turnaround that might actually happen at the same time as Kiena in terms of cost reduction. But how much of the cost escalation that we've seen at Eagle due to grade volatility or so on versus, say, inflation? And maybe if we look at 3 to 6 or 9 months, what kind of -- can you give us a sense of the magnitude of cost improvement that we might expect at Eagle?
Thanks, Don. Really, I mean, we're still doing the budgeting exercise. So it's not finalized. So I don't really want to get to beacon of that. What we see at Eagle is it's really -- I'd say it's an H2 thing, honestly, is what I'm seeing right now. The cost inflation -- we're really most exposed to wage inflation, I think. And so really, when we look at the cost breakdown of Eagle because really it's a small development in terms of mine and really -- I think 65% of our costs are likely our own wagers and contractors, right?
So we've seen an escalation of that 5% to 7%, I'm going to say. And that's what we're most exposed to. In terms of consumable, we're really not that exposed. These are smaller mines. We don't get it with a huge cost increases because diesel went up or things like that. A lot of our cost components not that. We did, I would say, in terms of building out Kiena, especially, in that period, just for example, like steel all of a sudden shot up 35%, that certainly affected our paste fill plant build and everything else. However, I think that we're starting to see hopefully a little bit of retrenchment of inflation. So in terms of volume, ounce sold on, I think the really -- that's really the main driver for us.
Okay. Just good luck with the restart, and ramp up thereafter.
And our next question comes from Michael Fairbairn of Canaccord.
I just wanted to ask about the balance sheet. I just wanted to confirm that I heard correctly that you've drawn down $54 million on your credit facility now, of the $80 million total?
That's correct. That is correct. We've drawn down.
And kind of following up on that, just wondering how you see your cash flow progressing over the next few months here? Do you see yourselves drawing down further on the credit facility? And the other side after you achieved commercial production at Kiena, how quickly do you think you'll be able to start paying that down? .
For the remainder of this year, we're going to be pretty consistent. I think around the $54 million draw depending on production for the remainder of Q4. But we have positive expectations for the remainder of Q4, and therefore, we should be able to drive the revolver down somewhat. And then I think it all depends on how we're ramping up with Kiena for next year. But probably, I would probably be using the revolver in and out during the first half of the year of next year.
This concludes today's conference call. Thank you for participating, and you may now disconnect.