Wesdome Gold Mines Ltd
TSX:WDO
Earnings Call Analysis
Q3-2023 Analysis
Wesdome Gold Mines Ltd
The company's Eagle River operation successfully maintained throughput at levels similar to Q3 of the previous year, despite a two-week shutdown for annual mill maintenance and the lack of the Mishi stockpile. With development surpassing budget targets and production grades meeting expectations, chiefly from the high-grade Falcon and 300 zones, the site is confidently projected to sustainably produce 80,000 to 90,000 ounces per year. A benchmarking exercise at Eagle River aims to further streamline productivity and cost efficiency, promising value enhancement for investors.
Kiena's Q3 production was marginally above the upper end of the guidance due to steady advancements in the A2 zone. The optimally functioning Pastefill Plant allowed returning a substantial portion of tailings underground, relieving pressure on tailings capacity. The foresight in ramp development at Kiena Deep positions the operation for a potential increase in high-grade stope production by Q2 of the following year. The strategic establishment of the new ramp and ongoing improvements serve as indicators of future operational and infrastructural robustness.
The third quarter saw production aligning with expectations, posting 27,760 ounces, totaling 87,119 year-to-date. A minor dip in sales was attributed to final diorite sales timings, with all-in sustaining costs rising to $2,711 (or $2,021 USD) due to planned maintenance and capital timing, yet improvements are anticipated in Q4. The company projects adherence to the $100 million capital budget. A healthy cash flow from operations of $45 million, paired with a strong liquidity position of $143 million, underscores the company’s financial resilience and its commitment to maintain a solid balance sheet with plans to pay down a $10 million draw on the revolving credit facility.
The discovery of a new gold zone at Eagle River within volcanic rocks yielded high-grade drill results, suggesting a promising new subparallel zone. This underpins potential for growth in gold resources near existing infrastructure. The exploration strategy increasingly focuses on the upper areas of the mine and remnant zones, which, if developed and optimized, could significantly contribute additional tonnage to Eagle River's mill, creating prospects for incremental production enhancements.
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Good morning. Welcome to Wesdome Gold Mines Q3 2023 Financial Results Conference Call. I will turn the call over to Lindsay Dunlop, VP, Investor Relations, to begin today.
Great. Thanks, operator, and good morning, everyone. Welcome to Wesdome Gold Mines Third Quarter 2023 Results Conference Call. Before we begin today, 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 8, 2023. Yesterday's release should be read in conjunction with the MD&A and financial statements, all of which can be found on SEDAR+ and on our website. Following the prepared remarks, we will open the call up for questions. All figures discussed on this call are in Canadian dollars unless otherwise noted. I will now turn the call over to Anthea Bath, President and CEO, to begin today.
Thanks, Lindsay, and good morning, everyone. With one full quarter of Wesdome completed, I continue to be impressed with the team's enthusiasm [indiscernible]. Speaking on the call today with me today will be our COO, Fred Langevin, Interim CFO, Jonathan Singh; and VP Exploration, Mike Michaud. Before we dig into the operational details, I'd like to begin with a brief overview. As we disclosed with our last quarter, Q3 was expected to be the lightest quarter from a production and cash flow perspective. While we completed planned shutdowns at Eagle River related to annual mill maintenance along with some other infrastructure upgrades. As well, we spent approximately $30 million in CapEx in the quarter, mostly related to the plant production ramp at Kiena. I'm very pleased to say that post Q3, access to the 129-meter level has been achieved. And Fred will walk through this in a bit more detail a little later. With 87,119 ounces produced at the end of quarter 3 and a production uptick expected in quarter 4, we are well positioned to meet the midpoint of annual guidance at 110,000 to 130,000 ounces at an all-in sustaining cost of USD $1,620 to USD 1,800 an ounce. With that, I'll pass the call over to Fred to walk through some operational details.
Thank you, Anthea. Hi, everyone, and thank you for attending this morning. As Anthea noted, Q3 was a lighter quarter on production at 2 sites, in line with internal projections. That being said, the 2 operations continue to deliver on key initiatives in Q3 that position us very well for Q4 and beyond. Starting with Eagle River. Production in Q3 came in at 20,391 ounces as we performed our annual mill maintenance shutdown in July. Plant repairs were performed on the grinding, filtration and leach circuits which resulted in the mill being down for a period of 14 days. Throughput was maintained at similar levels in Q3 of last year, despite the fact that the mill did not have the Mishi stockpile to rely upon with the underground mine bridging the gap. Development performances in Q3 continued to exceed budget targets and production grades were consistent with expectations with the bulk of production coming from the high-grade Falcon and 300 zones. With productivity and grades now consistently achieving forecasted numbers at Eagle, we're very confident that the operation can reliably sustain 80,000 to 90,000 ounces per year. That being said, we are launching a thorough benchmarking exercise at Eagle River, both on productivity and on costs to try and improve our cost structure with a view to value. We will provide updates on this initiative in the coming quarters. At Kiena, Q3 production came in at 7,369 ounces. Grade continued to track slightly higher than the upper end of guidance as a result of continued positive reconciliation in the A2 zone, where we continue to successfully cycle stopes and [ Permian shift ] in Q3, demonstrating our ability to mine in some of the most challenging ground conditions down at Kiena. We continue to be excited with our Pastefill Plant, which not only is proving an invaluable tool in cycling stopes effectively, but also enables us to return up to 45% of our tailings underground, a much higher proportion than what the PFS called for, putting less strain on our tailings capacity. The ramp to Kiena Deep remained a key focus for the team in Q3 and we're happy to report that development performances continue to track ahead of schedule during the quarter. In fact, as of earlier this week, we've now reached 129 level access. We will now be focusing on developing the level of infrastructure required to support mining activities such as ventilation raises, escape ways and power distribution on Levels 127 and 129 with development into the ore -- in the A zone set to start in early Q1 of next year. As we establish production on the horizon, high-grade production from stoping is expected to ramp up to reach steady state by the end Q2. During Q3, we've been taking advantage of the ramp positioning to strategically target delineation holes into next year's production. The results received to date confirm the continuity, thickness and high grade of the A zone at depth, as per the reserve back model. Finally, we received the required authorizations to proceed with the excavation of the [ festive ] ramp. The contractor has been selected, and we are currently installing support infrastructure at surface to begin excavation [ of the quarter ]. In addition to providing an exploration platform for the Western side of Kiena, this 1,700-meter ramp is expected to yield significant debottlenecking of material handling in the mine and ventilation benefits as it will provide a second access to surface for Kiena. So overall, our liner production in Q3 of the 2 sites, combined with gold sales somewhat [indiscernible] production plus cash cost and all-in sustaining [indiscernible] outside of guidance range. That being said, year-to-date costs remain in line with expectations, and we're very confident that full year production from both mines as well as unit costs will fall within the guidance range that we provided in January. Over to you, Jonathan.
Thank you, Fred. I guess I'll start with just an overview of the results from the third quarter. Previously reported Q3 production of 27,760 ounces was largely in line with expectations and brought year-to-date production to 87,119 ounces. Sales in Q3 were 27,000 ounces and were slightly impacted by the timing of final diorite sales. All-in sustaining costs of $2,711 or USD 2,021 were up meaningfully over the first half results, but included the impact of a planned shutdown at Eagle River and the timing of capital spend. We do expect to see improvement on performance in the fourth quarter of 2023, however, and continue to see the midpoint of cost guidance. We also project to be within the $100 million capital budget set forth in January. Cash flow from operations was $45 million or $0.30 per share, including a $12.5 million tax refund and a $13 million of noncash working capital adjustments. As a result of cash flow during the quarter, total liquidity stands at $143 million as we were able to maintain our revolver draw of $39 million and increase our quarter-over-quarter cash position by $9.5 million to $31 million.
Subsequent to quarter end, we did draw down $10 million of our revolving credit facility, which we plan to pay down by the end of the year. Our balance sheet strength remains a priority for us, and we expect higher grades at Kiena to drive costs lower and support strong cash flows in coming quarters, especially at current gold prices, allowing us to pay down the remaining balance of our revolving credit facility as well as fund a range of opportunities to reinvest in the organization. Mike will now take us through an exploration review.
Thanks, John. For exploration, it was a very exciting quarter at Eagle River. Although it's early days, it looks like we have discovered another gold zone at the Eagle River mine that occurs within the volcanic rocks immediately west of the mine diorite. Initial surface drilling returned high-grade hits within 200 meters from surface, with 1 hole returning 64.4 grams per tonne of [ gold ] over 0.4 meter core length. Meanwhile, underground drilling 750 meters down the interpreted plunge of this new zone has also intersected a similar style of mineralization, a return of 33.4 grams per tonne of [ gold ] over 0.4 meter core length. The gold mineralization occurs within an intermediate volcanic clastic similar to the host rock of the Falcon 7 zone, which is known to be a more brittle and a better host for gold mineralization than the [indiscernible].
The drilling suggests the potential of a new subparallel zone with results consistent with those seen in early drilling of the Falcon 7 zone in 2019. Not only is this new zone near existing mine infrastructure, but demonstrates the potential for high-grade mineralization in a rock type that has seen limited drilling to date. Additionally, gold mineralization has also been discovered further to the west near the historic 9 zone. Gold occurs within steeply plunging shoots that have a similar [indiscernible] to the gold mineralization in the mine diorite.
All of the surface drilling is part of a renewed strategy focused on the upper areas of the mine, which also includes an assessment of remnant mine areas. Developing and optimizing the strategic plan around these potential resources could add incremental tonnes for processing at Eagle Rivers mill, which has spare installed capacity. Since the recent announcement of the new discovery, drilling has been ongoing along the interpreted plunge at the zone. Most recently, an underground drill hole returned 12 meters of alteration [indiscernible] mineralization, as you can see on the slide. All the [ assets ] are pending, we are excited to continue drilling in this area as 12 meters thickness is well beyond the typical thickness of the mine.
Elsewhere within the Eagle River mine, underground drilling continues to confirm the continuity and high grades of the 300 East Zone in depth and with wider which returned locally could represent an area similar to the previously mined 303 [ lens ]. The continuity of the mineralization down plunge at 300 East also suggests that the other parallel zones namely the 8 and 7 zones have the same potential to continue at depth. The company has commenced directional drilling to aid in the extensions of the known zones to have wider step outside depth to provide an indication for future mining. At Kiena, recent surface and underground drilling was focused on better defining our known resources. On surface, drilling was focused at the Presqu'ile Zones, which is located 1.3 kilometers northwest of the Kiena mine. The surface drilling has confirmed the continuity of the gold mineralization with 1 hole returning 32 grams per tonne of gold over 3 meters core length.
However, as importantly, the drilling has confirmed the down-plunge potential depth. And this is going to be an area that we're going to continue to explore with the development of the ramp. The recent drill results support the decision to proceed with the exploration ramp from surface to test the down plunge extension on the deposit. The activation of the ramp is now proceeding with the recent receipt of required permits. Of course, the Presqu'ile Zones is just one of several zones having the potential to offer a supplementary source of mill feed near surface or in the upper areas of the mine with a spare installed capacity at the Kiena mill. Recent drilling results from the Shawkey and Dubuisson zones earlier this year, including 2.3 grams per tonne gold over 72 meters indicates this potential. Both of these zones are accessible from the existing 33 level development that extends across the property. With so many styles of gold mineralization observed east to Kiena mine, we are confident that as our exploration continues we will be able to identify more zones of gold mineralization. Within the Kiena mine, drilling has been focused on better delineating Kiena Deep A zones to derisk the 2024 mine production, particularly given the high grades in the reserve model. To date, the delineation is in agreement with the previously drilled wider space exploration [ holes ]. One delineation hole returned 4,190 grams per tonne of gold or just over 4 kilograms per tonne of gold over 0.8 meters. You can see this in the attached slide. Obviously, these types of intercepts provide confidence in the forecast for next year. Over to you, Anthea.
Thanks, Mike. As you've heard, we remain on track for a strong fourth quarter, and we're excited about the future of the business. As we highlighted on our recent investor and analyst tour of both operations we see 4 main near-term objectives for success. Firstly, we need to continue executing on Kiena ramp development, which is now at the 129-meter level. Concurrent delineation drilling has improved our understanding of the resource giving us a high degree of confidence in our near-term plan. Secondly, I continue to see opportunities for organic growth by utilizing the strength or capacity of our mills and refocusing the strategy to reoptimizing our mine plan from First principles. Combined with an exploration strategy focused on developing near-mine potential, we are more effectively leveraging our fixed cost to sustainably improve our unit economics. Thirdly, the leadership team is coming together nicely with the genuine [ cohesion ] developing between all levels of organization. Lastly, looking ahead, we expect a marked increase in cash flow in 2024, particularly at current gold prices. Preliminary budget plan suggests we're well positioned to achieve a net cash position in the coming months -- in the coming quarters, but also invest significantly in increasing our developed ore inventory through capital development, aggressively advance in our pipeline of near-mine exploration opportunities and make overdue infrastructure upgrades to maximize the long-term value of these assets. Consequently, I'm expecting the capital budget for next year to be consistent with this year's levels. We look forward to providing the market for 2 years of production and cost guidance at each asset in January. This initiative is part of our ongoing commitment to maintaining clear and forward-looking communication with our stakeholders. Thanks for listening today. And with that, I'll turn the line back to operator for any questions.
[Operator Instructions] Our next question comes from Arun Lamba with TD Securities.
Thanks for the update and congrats on the good quarter. You mentioned you're going to give 2-year guidance in January. And you mentioned the higher grades at Kiena are going to kind of kick in sometime in the first half of 2024. But can you just remind us like what the mine and mill is kind of capable at Kiena? Just trying to get a rough guidance on what potentially you can do next year? I know you're catching up on development this year. And when I look at the last feasibility study, there's a little bit of a ramp-up in terms of tonnes processed in the first couple of years versus later in the mine plan. So any color just to remind us on what the mine and mill can do there would be appreciated.
Thank you for the question. I think just first of all, we should talk about permitted capacity on the mill and the potential of the mill, I think the mill's capacity and potential is about 2,040 tonnes per day. In the current plan, we're running more likely around 750 to 850, if I'm not mistaken, [indiscernible] Yes, so we're way below the current capacity of the mill and the permitted capacity of the mill, yes.
Our next question comes from Don DeMarco with National Bank.
Congratulation on the quarter. Just a couple of questions here. First one is, so you broke through on the 129-level. The ramp is there. It seems like this is earlier than targeted at the end of November. So does this shift your schedule forward for Kiena Deep production in any way?
Well, I'm done, thank you, nice to hear your voice. I think in terms of the internal updated plan, definitely, we are a quarter ahead of our internal plans, but obviously different from what you perceive in the PFS. But from an internal perspective, we are a quarter ahead. And yes, it certainly will result in an uptick next year ahead of our previously perceived plan.
Our next question comes from Ryan Walker with Echelon.
So I just wanted to go back to the debt. So you said subsequent to quarter's end, you drew down another $10 million. What's kind of a net movement going to be in Q4 there? Do you still plan aggressive payback during the quarter?
Sorry, Ryan, could you repeat that?
Yes. So just on the drawdown from the facility, you subsequent to quarter's end, you drew down another $10 million. So I'm just wondering, during the balance of the quarter, are the repayments still planned, fairly aggressive on the repayment front, still plan to do that in Q4?
We planned, Ryan, to pay back the $10 million that we drew down by the end of the year.
Okay. And then just on the capital budget, so around about the same $100 million-ish this year into next year. Is that ex any kind of savings identified during this cost initiative program? And is that kind of a number we should be sticking with into the foreseeable future?
Yes. Absolutely, it's net any savings, but I think I can give you a bit of an understanding what it really is. It's really focused on deferred development or development. We're trying to keep pushing on the ramp. And secondly, obviously, looking at scale development as well. And lastly, I think it's important to note that it's about exploration and growing the exploration budget too. So I think it's really important to understand that we're going to keep pushing these 3 initiatives that help build the mine in the longer term. So you can assume that, that will continue for next year.
Our next question comes from John Sclodnick with Desjardins.
I guess I'll just follow up on Ryan's question with that CapEx and I'm not sure if I'm getting ahead here, but I wonder if you are able to break out kind of how you see that flat CapEx year-over-year broken out between maybe assets and sustaining versus growth or exploration?
I look at them together, John, and sort of -- you must get the guys to break out better for me. But from -- if you look at it together, I think what you'll see is that number continue next year. And like I said, I'll repeat it again, it really is around pushing development and ensuring that we keep pushing that ramp down because what we want to do is get to the next level in that mine. And obviously, continues our development and get ahead of ourselves inside Eagle as well. And secondly, we really want to push our exploration and ensure that we're getting those programs really strong to drive the business in a more longer term. And obviously, Presqu'ile is included in that capital as well for next year, which will obviously continue the year after as well.
Okay. Yes, that makes sense. I guess one more just on depreciation. It's been a bit elevated in the last 3 quarters. And just curious kind of how you see that going forward in a run rate into Q4 and into 2024 in terms of a per ounce number, if you have that handy?
So I'll ask [ Ross ] to actually cover that. [ Ross ]?
Sure. John, you basically modeled it on units of cost -- units of production on a dollar per tonne basis, we used to be reserved for that. And even in Kiena ramping up, that's why you're seeing that margin increase. So that's just the way our model is going.
Our next question comes from Wayne Lam with RBC.
Just wondering at Presqu'ile, what's the kind of magnitude of CapEx spend for the [ brand ] and what's kind of the time line of events you're kind of contemplating there in terms of the development of the ramp in mining in [ existing ] 133 level. Just curious if you're able to provide a bit more context around that?
Sure. And Wayne, I'll hand over to Fred on this one, if that's okay.
Yes. Presqu'ile, right now, we're still working out the detailed numbers that we take for the budget exercise. But I guess, in terms of scale for the ramp, about 1,700 meters, like I stated in the statement earlier, factor in development cost of about $6,000 and so on. That's going to be in the schedule right now that we see is development this year and a little bit into next year -- well, in '24, sorry, and then a little bit in '25 as well in terms of [ schedule ].
Okay. Great. And then just in relation to that, CapEx commentary. Should we also be thinking about a catch-up in exploration spend as well next year?
Yes, you can absolutely assume that that's included inside the capital spend, too.
Our next question comes from Jeremy Hoy with Canaccord Genuity.
So Wayne actually covered a few of the things I wanted to ask. I guess just a clarification for me then. The mill in Kiena is permitted to 2,040 tonnes per day. Can you remind us of what type of capital would be required in addition to get to that level? Or can it do that in its current state?
Yes. Jeremy, it's very little capital that's required to do that. It actually is -- I would almost call it nonrelevant -- actually capital to do this. [indiscernible]. It's merely about connection. Fred, you want to just comment?
Yes, I'll just provide a little bit more flavor here. The mill has the installed capacity, is just that we're currently not using the secondary crusher at surface. This is really the infrastructure that will bump up the tonnage to 3,000 plus. And right now, we're bypassing this infrastructure. It's been dormant, I would say, for a few years. So ultimately, the CapEx is only to, I'm not updated with the electrics -- change of the conveyor belt in the way we go. So minimal.
Thank you. There are no further questions at this time. Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.