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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, and welcome to Wesdome Gold Mines Fourth Quarter and Full Year 2021 Financial Results Conference Call. I will now turn the call over to Heather Laxton to begin today.
Thank you, Howard, and good morning to everyone joining us on the phone and online this morning.
Before we begin, we'd like to take this opportunity 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 the detailed cautionary note contained in yesterday's press release and in the company's management discussion and analysis dated March 10, 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 the 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, President and CEO.
Good morning.
Scott Gilbert, CFO.
Good morning.
And Mike Michaud, Vice President, Exploration.
Good morning.
Also on the call today is Raj Gill, Vice President, Corporate Development.
Good morning.
We will begin today with an operational review from Duncan followed by a financial review from Scott. Then an exploration and reserve and resource update from Mike. And Duncan will then conclude with a summary and outlook.
Please go ahead, Duncan.
Great. Thanks, Lindsay. First and foremost, I'd like to thank our employees for making 2021 a record year for Wesdome in such a challenging environment. The increasing production at Eagle and the strong build-out of Kiena has been exceptional. And as a result, our annual production is up 37% over 2020.
In the fourth quarter, we produced a total of 41,600 ounces company-wide, 24,300 ounces at Eagle and 16,900 ounces at Kiena. Total production for the year was 123,843 ounces, including the 22,440 preproduction ounces from Kiena and 101,403 from Eagle.
Head grades at the Eagle River Underground mine averaged 13.8 grams per tonne and at Kiena 10.4 grams per tonne. In 2022, we will be increasing production slightly from the Eagle River mine to 95,000 to 105,000 ounces guidance.
At Mishi, the remaining stockpile is estimated to produce between 1,000 to 2,000 ounces.
Going forward, production will be entirely from the high-grade underground Eagle River mine. At Kiena, production ramp-up has been progressing, albeit with some COVID-related delays at the start of the year, impacting exploration, development and construction activities. The situation has definitely improved, and we are still on pace to place Kiena into commercial production towards the end of the second quarter.
As per our previously released 2021 guidance, we achieved both of our production and grade objectives at Eagle River and Kiena. Our unit cost declined 6% over those of 2020 with cash costs of $990 per ounce and all-in sustaining of $1,408 per ounce within our guidance range. U.S. costs were slightly above guidance due to exchange rate variation.
In 2022, we are guiding higher production at both Eagle and Kiena for a combined total of 160,000 to 180,000 ounces and a decrease in combined cash at all-in sustaining costs. Full cost reduction benefits will be demonstrated in the back half of this year as Kiena production ramps up to commercial production.
Additionally, this year, Eagle production is somewhat back-end loaded. So overall costs are expected to be higher in the first half of the year and declining in Q3 and Q4 as production increases.
I will now turn the call over to Scott for a review of the financial results.
Thanks, Duncan. With the inclusion of the Kiena precommercial ounces, the revenue, cash margin and operating cash flow have increased compared to 2020. In 2021, we generated $262.9 million of revenue compared to $215.5 million in 2020. $145.4 million of cash margin versus $119.3 million in 2020, and $131 million of operating cash flow compared to $102.3 million in 2020.
We spent $99.6 million to support the restart of the Kiena mine, which was fully funded internally. The cash cost for fiscal year 2021 decreased to $990 per ounce from $1,053 per ounce in 2020 due to the increase in ounces sold, which includes the Kiena pre-commercial ounces.
The AISC increased by 1% from $1,396 in 2020 to $1,408 in 2021. The ending cash balance was $56.8 million.
I will now turn the call over to Mike to discuss explorations and our reserve and resource updates.
Thanks, Scott. Well, despite the challenges that we incurred from the COVID, it was still a very exciting year on both projects. Firstly, at Eagle River, this marks the first time in the mine's history to reporting resources and reserves using the best practice 3D block model. The work was completed under the guidance of SRK Consulting and will be included in an updated 43-101 technical report to be issued within the next 45 days.
Current proven and probable reserves totaled 1.1 million tonnes grade, 15.3 grams per tonne gold for 525,000 ounces of gold. This represents a slight decrease from the previous year due to reduced drilling and also due to a much more conservative classification used by SRK Consulting. This included a much lower gold price than previous of USD 1,400 per ounce for Reserves and $1,500 for resources, which is more in line with our peers.
However, it's important to note that the reserve grade is now over 15 grams per tonne and this is due to the larger proportion of the higher-grade Falcon and 300 East zones. This higher grade reserve has the potential to increase the mine's margins. The 3D model will greatly improve our efficiency and annual resource reporting, reconciliation and life of mine planning.
This methodology is now similar to the approach at Kiena as we continue to standardize our 2 operations. At Kiena, additional drilling and silling in the A Zone led to an improved geological understanding of the deposit compared to the PFS and has been used to update the resources and reserves.
At Kiena, the reserves has increased by approximately 10% after depletion of 22,000 ounces of preproduction gold, increasing from 600,000 ounces in May PFS to 651,000 ounces at the end of December.
For resources at Eagle River, we now have a record inferred resource inventory of 255,000 ounces of gold, which gives us a strong foundation to convert to reserves this year with the planned drilling. At Kiena, successful infill and step-out drilling increased global resources by 11% from the 2021 PFS and for Kiena Deep, this totals approximately 50,000 ounce increase in M&I and 70,000 ounces in Inferred. Kiena Deep continues to show potential to expand and additional ounces are planned for conversion to reserves with the planned 2020 drilling, particularly at the newly discovered Footwall Zone where an initial inferred resource has been defined.
On the exploration side at Eagle, we have been focused on extending the high-grade 300 East and Falcon Zones and targeting parallel zones to that of the Falcon 7 Zone. The discovery of these parallel zones shows the potential of the surrounding volcanics to host more zones of gold mineralization, especially where host structures continue across the diorite-volcanic contact such as at the 311 West, 8 and 5 zones.
In addition, development of the 355-meter level is proceeding on schedule and will be completed in June, and this will provide for development and expiration of Falcon 7 Zone at higher elevations in the mine and also provide a platform to test for other parallel zones.
The North Contact Zone, which is a new discovery we made this year, is located along the northern contact of the Mine Diorite near the 1,000 meter level. It is now interpreted that the North Contact Zone has been previously intersected in 2016 with some near-surface widely spaced exploration drilling, again demonstrating the size potential of this zone and is located within the 150 meters from the mine infrastructure.
On surface drilling is continuing with 2 drills testing both east and west of the mine to follow up on anomalous sizes return from the regional drilling program in 2021 and also to follow up with the North Contact Zone.
at Kiena, we have continued to drill the Kiena Deep A Zone and also now on the 33 level. And really, the drilling of the A Zone has been able to confirm that this zone continues down plunge and is continuous solid high-grade mineralization.
In addition, the drilling confirmed that the Footwall is comprised of at least 3 subparallel zones and 1 crosscutting zone that has now been extended over 300 meters down plunge. This zone remains open laterally and down plunge and additional drilling platforms are now being established as the A Zone ramp progresses to provide for more optimal drilling.
The drilling also identified in the hanging wall to the A Zone in the mafic volcanics, new zones of mineralization grading around 5 to 6 grams per tonne gold over thickness is of 2 to 3 meters. As this has the potential to be mined as access development in the hanging wall due to their proximity to the A Zone stoping area.
On surface, a new zone called Bourgo was discovered earlier this year. And this appears to be perpendicular to the general northwest-southeast trend of the region. It consists of quartz veins with very low sulphide content hosted in komatiitic basalt units. The northern orientation is similar to that of the orientation of the nearby Kiena Deep A Zones. So as you can imagine, drilling is planned to further understand this area throughout the year.
Over to you, Duncan.
Thanks, Mike. This year is poised to be a very exciting year as Kiena ramps up production levels throughout the year, and Eagle River continues its strong delivery of ounces. With these 2 high-grade assets in production at the same time, we expect to generate significant earnings and free cash flow as well, we will be continuing our aggressive exploration programs to further organically grow production at each asset. At Eagle, the Falcon Zone is showing extreme promise as another source of high-grade ore, located away from the bottom of the ramp. This will enable us to diversify stoping locations in the mine and increase speed to the mill, which currently has excess capacity.
The 2022 plan is to average 700 tonnes per day. Exploration of the parallel Falcon Zones hold promise for us to further rely on this area for future production. As well, we are continuing to aggressively explore at Kiena, where there is also excess capacity at the mill and further opportunities for organic growth.
The Footwall Zone is a focus this year as well as expanding the A Zone. We are developing an important hanging wall drill platform, which will allow us to better define the A Zones and Footwall Zones throughout the year. This is a very exciting time in the company's evolution to an intermediate gold producer.
Again, I would like to thank all of our employees for their hard work and dedication. We are very proud of what the team has built so far, including putting a mine back into production in just 4 years from a new discovery and funded entirely from internally generated cash flow from Eagle River.
I'll open up the floor to questions.
[Operator Instructions] Our first question or comment comes from the line of Andrew Mikitchook from BMO Capital Markets.
Congratulations on the strong finish to 2021. Can you just expand a little bit on your comment where you said you're expecting a stronger second half at Eagle versus the first half is -- should we be thinking it's just tonnes as tonnes per day goes up, or is there some grade scheduling as well to take into account?
Yes. Well, I mean, Kiena, as we know, that's just going to increase throughout the year. And as we assume commercial production in really H2 Andrew, then we'll sort of hit our stride there at that one.
At Eagle, yes, it's definitely, I would say, little bit grade related. First quarter was always a little bit leaner, second quarter improves and in the third and fourth quarter successively better and better. But feel really confident in terms of our production guidance. And no issue there with Eagle at 95,000 to 105,000 ounces. So we're good on that.
Okay. Maybe just a quick second question. Can you give us some sense of how we should think about having a 15-gram per tonne reserve grade versus either a long term or at least a medium-term grade that you would expect to come to the head grade that would come to the mill at Eagle.
Well, certainly, we're in the Falcon Zone now, and that's been developing, and it's showing quite high grades and certainly 300 is that way as well. So -- we certainly look forward to mining those reserves.
Typically, at Eagle, what we often find as we're going, we drill off extensions to these zones and newer zones that are small in the area that we take as we're mining.
So we probably will probe in those zones in as well, but we're happy with the 15 grams per tonne because that really better represents where we are with this new resource and reserve model. We looked at the capping, we had a standard cap previously for the resource polygonal model. And now we've looked at that handled by SRK.
So I think we're comfortable. And as the year progresses, we're going to be doing more additional reconciliation to make sure we got exactly right. But the Falcon is looking good and the 300 is looking good. So I reckon pretty comfortable with that 15 grams per tonne, and we can achieve that.
Our next question or comment comes from the line of Barry Allan from Laurentian Bank.
Yes, 2021, a very good operational year. Really no surprises there. My focus really though, has been on the reserves and resources. And if I understand correctly, we had budgeted about $32 million in exploration expenditures for 2021.
But the actual ounces added in fiscal 2021 was rather modest for the level of expenditure. When you add in what you actually produced your boat, just a little less shy of 350,000 ounces that you added were $32 million expenditure. That's a very high funding cost.
I'm trying to get my head around that. Is it that you didn't actually spend all the money? Or is it SRK took a much stronger methodology in calculation reserves and resources? Or is it that you just didn't get the drilling done. Could you maybe clarify that for me a little bit, please?
Yes, certainly. It's never just one thing. Typically, on our drilling, we probably averaged around 75% of the budgeted meters and we budgeted Eagle Underground was even less and that's really due because of the COVID and then, of course, the competition for drillers. That was certainly part of it.
This year was also a year where we put in a lot of money into surface exploration and we barged drilling at Kiena and we're using the helicopter drill at Eagle. So that certainly is expensive drilling and really but we want go out there in these first couple of years, particularly at Kiena where it's covered by a lake is just to collect good geologic data. Had some pretty good hits. But really, it's just building a good geologic model.
We're just doing a structural model now at Kiena, and we completed a structure model at Eagle this past year. So that's helping us guide the exploration going forward. But we felt it was important to get out there and just collect geologic data. So that's why where that ounce helps down a little bit.
I think we're happy with the infill drilling that we've been doing in the new mine extension drilling, that was fine, but stepping out to do exploration that were still in its infancy that's why we're expecting some high cost per ounce that we've seen in the past, certainly where you're concentrated on the new Falcon Zone, the 300 Zone, the Kiena Deep A Zone. I mean that was really great drilling where we just sit there and drill off the zones, and we're finding ounces there probably for $20 to $25 an ounce.
We're probably double that or even a little bit more now for the in-mine exploration and then the regional exploration is really just that more conceptual testing at this stage.
I think, Barry, I think additionally, too, I mean, we only added 75,000 ounces into the Footwall zone. And really, that's a function of not being able to get the drilling there. That's why the hanging wall exploration platform is going to be important. It's situated around the 1,200 meter level at Kiena. And it's just going to make the drilling a lot more perpendicular, allow us to really penetrate and get good intercepts into that.
So quite sure that those ounce -- the outcome in the Footwall is going to rise definitely, dramatically in 2022. And further, I'd say upside on the A Zone is really starting to get a little bit of expansion there also. So I think, yes, it's going to be kind of a -- didn't probably claim a lot of ounces this year, but more to come.
Yes. And just to add one final point there, it is a fairly conservative new model that we have, as consultants kind of do. And they don't have the 25 years of mining deposit like we do at Eagle. And I think that had something to do with.
And also, the CIM definitions for resource reporting this year requires the use of MRO for underground ounces.
So that means anything that's isolated, that won't pass initial shape for economics has kicked out where previously, these might be zones that were included that are now that's been removed.
Okay. Good. And I understand that 2022 is going to look a lot like last year in the sense of the amount of money expended at each mine in exploration?
Yes. So it's roughly $14 million planned at Eagle and about $17 million planned at Kiena. Just to get back to your earlier point, yes, because obviously, our drilling volumes were down to 75% essentially, our plan -- our planned expenditures were probably at about 75%. So we spent about $25 million last year, not $33 million as per plan.
So we tried hard but we couldn't get the people.
Our next question or comment comes from the line of Ryan Walker from Echelon Capital.
Just a quick one here. There's some mention in the press release and the MD&A just -- I don't know if it's just down to freezing, but the Footwall Zone at Kiena, the inferred resource has been identified. So there's not actual split out of the calculation of that zone, is there?
I don't believe there is 1 in the MD&A, but it is about 75,000 ounces. And it's inferred. And really, that was just because we expect this zone to grow laterally. We essentially had about 3 sort of strings of wedge tools for it. So when you're drilling like that, you don't get a chance to really develop any strike length or plunge length.
So what we wanted to do, at least get it into the resources for this year. And as this year continues on and now the development of the hanging wall drift that will be completed later this year. We're going to be able to drill that with a lot more holes, expand it and then convert it to indicate and bring that into reserves at the end of in 2022. So it's still looking pretty good, and the grade is really good. And I mean we're confident now we understand it, but still it's not just a matter of doing that all.
Okay. Great. And sorry -- 75,000 or -- what kind grade are you talking there?
It's over 11.
Our next question or comment comes from the line of John Tumazos from John Tumazos Very Independent.
Congratulations on all the progress. What would be your expectation for escalation mining and milling cost per ton this year at Eagle and at -- initial costs at Kiena. Yesterday, I listened to a company based in Mexico, Endeavor that had 17% more tonnes and 17% higher cost per tonne last year. I think Canada has got less inflation than Mexico, but we all got the same bugs.
John, yes, absolutely. I mean we look at our cost escalation across the board to be probably 5%. Some things have taken off, obviously, hydrocarbons and anything related to hydrocarbons are impacting it.
However, I mean, we counter that so John, obviously, we're getting better volumes, so our unit costs are starting to decline naturally. Of course, we're blessed with good grades. One thing I will mention is very fortunate that we're able to kind of enact the Kiena PFS build-out when we did because essentially, I would say not that we're immune to any sort of supply chain delays or escalations of materials, but it's certainly good to be building rig now as opposed to contemplating to build rig now because I think I'd be a little baffled as to what we put the escalation into and the contingency.
So we're very fortunate. I mean it's a relatively small build-out. And like I say, I think there's lots of levers for us left to use here. Like obviously, Kiena coming on and the volumes, especially allowances starting to grow. But I think that the synergies between the mines is definitely starting to come. Our continuous improvement programs are continuing to battle down inflation as much as we can to get more efficient.
So I think we have a few levers in there to pull in order to combat it.
It looked like in this initial development or is the Kiena cost per tonne were in the high 300s. By the end of this year, when it's running in a fully normal basis, is USD 150 or USD 200 mining cost per tonne, a reasonable target?
U.S. -- next year, definitely be about $120 million. I mean the PFS obviously has got some pretty grade all-in sustaining costs in that and unit cost per ton definitely is around the -- if you look at the PFS, I think it was about CAD 188. But yes, definitely, if you're talking U.S., I would be happy with that.
Remember, the PFS, the whole sort of the development of the A Zone as we're ramping down on it, we don't actually get to the heart say around 1,400 until 2024. And so really, our production volumes based on the PFS production schedule is about 65,000 to 70,000 ounces this year and both the same next year.
Of course, that doesn't incorporate any of the upside that we've been able to kind of discover. The Footwall Zone, I mean we don't really know how far it comes up. Right now, we've got it kind of tagged in place from, say, 1,400 to 1,700 meters. The ramp is currently at 1,200 meters. So I would say in 2 years, we've got certainly a very good chance to definitely increase our base case, which I deem the PFS to be.
Exploration success continues. And I think there's lots of opportunities around Kiena to pull in additional resources and reserves. So I can see better optimization of the PFS going forward.
Is Eagle or Kiena unionized?
No.
Well, that's good. Do you think your workers measure inflation at the gas pump price or the T-bone steak price? Or what are the parameters you think are important when you are...
No. I think CPI Canada probably right now is running what, 7%. Yes, gas is obviously because of this issue we have over in Ukraine, definitely been exacerbated a lot of fluctuation in that. But we have been projecting food price increases anywhere from 5% to 10% this year. So -- we certainly try to keep pace with our pay escalations for our employees to make sure that their quality of life doesn't suffer either. So...
Our next question comment comes from the line of Don DeMarco from National Bank Finance.
I guess just disconnected for a bit there, but -- so apologize if this was touched on. But just regarding -- so your valuation is -- stock has just rocketed. And -- with the valuation where it's at, maybe the M&A opportunities come to bear a little bit more. I think in the past, at one point, you said that once Kiena is up and restarted, you look at M&A a little bit more closely. Are there any changes on your thinking there? And if the company was to do M&A, what magnitude, would it be just co-hold type stuff? Or is there something potentially more significant that would be considered?
We run the gamut really. I mean, we look at the whole -- like spoken hub scenario because we do have excess mill capacity, both at Kiena. We know that Eagle could be expandable. So definitely, if there was a small satellite deposit or something like that, that would definitely be on our radar.
Additionally -- to hold an interesting project and companies, yes, that's definitely part of it, too. I think we'd like to participate on the way up and feel that we're involved in what's going on. Our screen hasn't changed, Don. We're very Canadian focused.
We love the Abitibi, but we love Canada. That's definitely where we are looking. And I think for us, we want to stay nimble and just really understand what the opportunities are out there. You got anything to add there, Raj?
Yes. I think we're being pretty disciplined. Everything has to compare to what we have organically and be compelling on a kind of ROI basis. And so we're being reasonably conservative on that front for now.
Okay. And follow-up to the last caller's question on Kiena cost. The guidance didn't provide mine by mine, AISC, for example. Should we be modeling like 900 AISC for Kiena for 2022? Or was Q4 maybe just kind of a one-off low-cost quarter for Kiena?
We're going to be releasing more numbers on a go-forward basis. Every quarter, we will report on the AISC right now. Kiena is obviously a little bit lower than Eagle River with regards to that number.
With Q4 numbers or 2021 numbers for AISC Eagle River was $1,456. Kiena is below that. In 2022, most of the capital spend is all going to be considered growth capital. So it's going to be definitely lower.
Our next question or comment is a follow-up from Mr. Andrew Mikitchook from BMO Capital Markets.
Just a quick follow-up for Mike. Are you positioned in terms of drill budget or maybe even drilling locations to follow up on Kiena on things like Shawkey and Presqu’ile which had kind of a single hole really encouraging stuff, but will require more drilling.
And in the best case scenario, could something like that enter reverse by the end of this year? Or is that kind of a multiyear thing?
Yes. No, we're certainly in a position this year. Last year, we ran the barges. The barges are still sitting there. So we're just waiting for breakup to get that started again. Part of that initial program is to test our Tarmac project that we acquired last year, where there's a historic resource. We're also looking at testing some of the Shawkey zones where we've had some good success here, the Dubuisson Zone. Anything that we can access from 33 level, we're trying to target this year as well because we want to get that into a mine plan. And as we develop 33 level and rehab that for the drilling, that means we'll also be able to use it for hauling much over to the shaft.
So that's certainly a focus for this year. We just built a regional exploration office, built -- we bought one and we just modified it. But we'll host all the sort of mine and regional exploration geologies and cortex there. So it'll be more efficient but also makes more room on the island for -- as we populate the Kiena mine.
So I think we're really gearing up well. We have some good people. We've had some initial success there. And I think we have a good plan this year to start putting ounces on the book so that we can start to evaluate plans to bring them into production.
Because it's coming down 33 levels, separate from the Kiena Deep A, that's just going to augment the production we have. And it's going to make it a lot easier on 33 because it's tracked and ventilation will be separated and electricity and everything else. So it's certainly a focus for this year.
Maybe I could just add, Andrew, I look at kind of the evolution of things at West Zone. This year, we're really concentrating on optimizing drill platforms. So as I mentioned before, we've got a hanging wall drift going out on around the 1,200-meter level to get more perpendicular drilling into the A Zone and then the Footwall Zone to better define.
Mike is also really looking at this 33 level. So it's a great platform. It's about a 5-kilometer long drift that really runs in the corridor between the Marbenite and the Norbenite. And the nice thing about that is, it's not weather-related. It's very constant climate where we are there.
We're going to have 2 drills there pretty well all year. Follow-up zones, I mean, we've got the Martin zone, the [ Wesdome Zone ], the [ west ] Zone and continues all the way down to the sort of southeastern part of our property there. So it's a really exciting exploration platform. Over at Eagle River, I mean we're doing platform to better assess the Falcon zones of the west there. So on the 355-meter level. It's extending out West, that's in progress right now.
And really that's going to give us great access to do good drilling on some of these parallel Falcon zones and North Contact Zone. So it's great to have platforms develop that will better assess what we have.
I'm showing no additional questions in the queue at this time. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.