Wesdome Gold Mines Ltd. (WDOFF) CEO Duncan Middlemiss on Q4 2019 Results - Earnings Call Transcript

Wesdome Gold Mines Ltd. (OTCQX:WDOFF) Q4 2019 Earnings Conference Call March 10, 2020 10:00 AM ET

Company Participants

Lindsay Carpenter Dunlop - VP of Investor Relations

Duncan Middlemiss - President & CEO

Ben Au - Chief Financial Officer

Scott Gilbert - VP, Financial Systems & Cost Control

Marc-Andre Pelletier - COO

Mike Michaud - VP of Exploration

Conference Call Participants

George Topping - Industrial Alliance

Andrew Mikitchook - BMO Capital Markets

Tom Gallo - Canaccord Genuity

Operator

Good morning, and welcome to Wesdome Gold Mines 2019 Full Year and Fourth Quarter Financial Results. I will now give the call over to Lindsay Carpenter Dunlop to begin today's call.

Lindsay Carpenter Dunlop

Great. Thanks operator and good morning, everyone. Thank you for joining us today. Before we begin, we'd like to take the 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, 2020. 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 for this presentation and a recording of this call will be posted on the company's website. Here with us this morning, we have Duncan Middlemiss, President and CEO.

Duncan Middlemiss

Good morning.

Lindsay Carpenter Dunlop

Ben Au, Chief Financial Officer.

Ben Au

Hello, this is Ben Au.

Lindsay Carpenter Dunlop

Scott Gilbert, Vice President, Financial Systems & Cost Control.

Scott Gilbert

Hello, everyone.

Lindsay Carpenter Dunlop

Marc-Andre Pelletier, Chief Operating Officer.

Marc-Andre Pelletier

Hello, this is Marc.

Lindsay Carpenter Dunlop

And Mike Michaud, VP of Exploration.

Mike Michaud

Good morning.

Lindsay Carpenter Dunlop

So as you can see some key highlights of 2019 are here on this slide and we will talk about them in greater detail throughout this call. And we'll begin with Marc-Andre, who will give us an operations update. Mark, please go ahead.

Marc-Andre Pelletier

Thanks Lindsay. 2019 gold production at Eagle increased by 32% despite 34% lower throughput rates, due to a 8% improvement in grades. The covered grade for the year was 23.1 grams per tonne. And this increase is largely due to the mining of the 303 Lens, which contributed for more tonnes at higher grades than budgeted.

In 2020, we will increase underground throughput to 500 to 550 tonnes per calendar day. Grades are expected to average between 15 and 17 grams per tonne. Mishi production was about 3000 ounces, which was in line with our forecast and a similar profile as to what we will produce from here in 2020. After that, production was top at the pit as we focus on increasing the main feed from the higher grade Eagle River underground ore.

I will now give the call to Duncan to discuss 2019 costs and 2020 forecast in more details.

Duncan Middlemiss

Great. Thanks Mark. We had a slight beat in operating costs per ounce for the year with cost averaging $825 per ounce or $621 per ounce U.S., due to higher grades as a result of effectively mining the top portion of the 303 Lens with very little dilution.

All in-sustaining costs are also a slight beat in U.S. dollars and would have come in lower, but we took the decision to accelerate the tailings capacity project with the open pit contractor being available for the summer construction season.

We made great progress here and we'll complete the job this coming summer at a projected cost of $2 million. During 2019, we spent $8.3 million to construct stage 4 the tailings facility and when completed will give an extra 4 to 5 years of capacity.

For 2020, we have guided 90,000 to 100,000 ounces, similar cost profile. All in-sustaining costs are expected to remain on the higher side as we do increased levels of development work and other underground and mill improvements. Essentially preparing the Eagle River mine for the future.

With our reserve and resource addition this year. I believe we are on a long-term path, which will be facilitated by investing in the assets. The work we have done over the past few years and preparations to fill the mill entirely with Eagle River underground ore is starting to come to fruition.

Mike will talk about Eagle River exploration success a bit later. But we are confident we are going to close the gap between the mine and the mill in the next 18 months. And this should drive down our costs.

I will now turn the call over to Ben and Scott for a review of the 2019 financials.

Ben Au

Thanks, Duncan. That's for the announcement this morning. I'm returning from Wesdome at the end of the month. I've really enjoyed with the team throughout these years. Scott and I have worked together for a long time in the past companies. And I'm confident he will continue to deliver be in his new role going forward.

Scott Gilbert

Thanks, Ben. And thank you for working with us to facilitate this seamless transition. We will all miss working with you, but your retirement is well deserved, and we hope you enjoy it. I did financials. With the benefit of better than budgeted gold prices and gold grades, 2019 was an excellent year for financial performance.

Operating cash flows increased by 54% over 2018, net income by 175% and free cash flow generation by 134%. Per share metrics have also significantly improved over 2018 with cash flow per share results of $0.52 per share compared to $0.34 in 2018 and net income per share of $0.30 compared to $0.11 in 2018.

The Eagle River underground mine continues to be a strong cash flow generator, with its operation funding all sustained capital exploration, corporate G&A and a CAD 25.1 million exploration and development spend at Kiena.

After meeting all these costs, the company still generated CAD 6.6 million in free cash flow for the year and have ended the year with a healthy cash position of CAD 35.7 million, which is sufficient to fund all of 2020 programs.

I will now hand the call over to Mike.

Mike Michaud

Thanks, Scott. It was a fantastic year of drilling at Eagle River. That net of depletion increased total ounces in the reserves by 36% and increased the reserve grade by 20%. Of note the largest increase in the reserves came from a high grade 300 zone that has now been extended additional 300 meters down plunge to the 1300 meter level. The 300 zone now accounts for 72% of the reserves, compared to only 50% in 2018.

In addition, the measured and indicated mineral resources increased this year 258% which is a direct result of our ongoing multiyear exploration focus at and around the Eagle River mine. We have focused much of our exploration efforts over the last couple of years on exploring for new working areas, both outside the mine diorite and in diversified production locations away from the bottom of the ramp.

We plan to focus drilling this year on upgrading these ounces to the reserve category, as well as further step out exploration outside the mine diorite. We're very pleased our ongoing exploration efforts of the Eagle River mine at both the Falcon and 300 East zones.

The objective is to continue our resource definition efforts at Falcon using two surface drills. In addition, one underground drill will be used to test the down-plunge extension additional 400 to 500 meters, where it is interpreted to intersect the 7 Zone.

This is significant, as the extension of this zone is proximal to separate mine infrastructure and has the potential to be included in future mine production and ultimately augment production rates in the medium term. Before remaining underground drills will be used for definition to test for extensions of known zones and to test for parallel zones of mineralization in the eastern portion of the mine diorite.

Equally at Kiena, we also had another exciting year for exploration where we continued to convert inferred ounces to indicated and now have extended A Zone in excess of 830 meters down plunge. We are happy with the September resource estimate, which has increased the A Zone to 405,000 ounces in the measured and indicated category at 18.6 grams per tonne, and an additional 332,000 ounces in the inferred category at 15.2 grams per tonne.

A total of 41,000 meters and a 136 new drill holes have now been drilled since the latest resource estimate in September, which is expected to be updated later in 2020. The PEA is expected in Q2 but does not include this additional drilling.

Once we complete the resource update, we plan to complete the pre-feasibility study to convert these ounces to reserves and outline a mine restart scenario by the end of 2020. In order to test the up-plunge extension of the A Zone, a new exploration ramp was completed on 79 level to not only provide optimal drill platforms, but would also serve as a haulage drift for any future production from this area, as it accesses the main shaft level dump pocket.

Any additional resources found in this area could greatly enhance the project restart timeline and reduce initial capital investment. Initial drilling on 79 level intersected the new zone of gold mineralization in the previously untested area along strike from the S50 Zone and will be followed up after the up-plunge drilling. Discovery costs at both assets in 2019 are less than $20 per ounce.

Back to you Duncan.

Duncan Middlemiss

Great, thanks, Mike. So just to recap, 2019 was a very strong year. The mining of the 303 Lens and extra cash generated allowed us to get ahead on some key projects like the tailings expansion, drilling and development at Kiena and the future of the Eagle River mine with great exploration platforms.

We're building for the future and the 2019 made many important strides towards our goal of becoming a mid-tier gold producer with two high grade operating mines in stable jurisdictions. In 2020, Eagle River will produce between 90,000 to 100,000 ounces at around 16 grams per tonne. This is the first piece of the puzzle towards mid-tier status.

With the elevated level of exploration last year and this year, we are getting close to increasing workplaces underground to further increase mine production at this time. At Kiena the PEA is on track to be completed in the second quarter.

And this year we are focused on finishing a prefeasibility study that would set out a restart plan by the end of the year. In 2020, we plan to drill nearly 240,000 meters between the two assets. This is the most aggressive program in the company's history. So we should have a number of catalysts in order to help us through the year.

I will now hand the call back over to the operator who will open up the lines for the question and answer session. Thank you.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from George Topping with Industrial Alliance. Your line is open.

George Topping

Good. Thanks, operator. Duncan or Marc, can you give more details on the increasing tonnage throughput for the mills through 2020? Is it backend loaded or how's it shaping up?

Marc-Andre Pelletier

Good morning, George. So as you know, we've done a lot of development last year to get ahead of the mining fund. We made some changes in the mining sequence. We are testing a new mining method at the mine at the moment with [indiscernible] And all those changes combined together allowed us to increase this year production at the 500 tonnes per day.

George Topping

But you keep that through the year or will you exit at a higher rate or is that the new design?

Marc-Andre Pelletier

We actually expect to increase the production in the second half of this year.

George Topping

Okay, can you -- do you have an idea of what cap you might have there and what's the constraints.

Marc-Andre Pelletier

The constraints. At Eagle mine as you know it is basically a trade-off of moving waste or moving ore. So we have truck haulage capacity. So it varies on what we're moving basically, depending on the development sequence. We also have ventilation restrictions to follow. So that's basically the challenges we have to face at the mine.

George Topping

Great. And just one last question on Eagle underground, before I pass it over. The cost per tonne with ores will be less than in 2019. Is it mainly the economy of scale or are you getting what significantly wider stock grades with the lower grades forecast?

Duncan Middlemiss

I think really, George it is Duncan. Economy of scale definitely. And we've already seen evidence of this over the past three years. We really have kind of a narrow being the mine environment. I mean, obviously the almost the ore and waste is nearly equal here.

And so absolutely it's economies of scale. So when we do have wider zones, we certainly do see a driving down the cost. And it's really volume. So this is, been the whole goal for the last little while here in order to increase our tonnage underground.

We can really see that, now we're kind of preparing for as Marc Andre alluded to the fact that last year we did some short term pain for some long term gain. And that was changing the sequence around starting to mine from the bottom up, advancing ramp development.

So really as the level of our developer reserves this year versus last year is much greater. So I think that we are feeling a lot more confident about being able to deliver the times. I know Marc Andre's very focused on getting the mine up to at least 550 tonnes this year.

And Mike is very focused on getting another workplace within the mine away from the bottom of the ramp that is a bottleneck for us. So I can definitely see with some more volume George, where it's going to directly impact positively our cost per tonne.

Operator

Thank you. Our next question comes from Andrew Mikitchook with the BMO Capital Markets. Your line is open.

Andrew Mikitchook

Hi, Marc Andre. Maybe if I could just get you to comment further on Eagle. In terms of what you've seen in the first two months, almost two and a half months of operations. The grade range that we saw you guys exit Q4 at last year, is that -- with the throughput increasing has that very quickly dropped down into the range that was guided for the average for the year or has the year at least started at higher grades?

Marc-Andre Pelletier

Good morning, Andrew. So as grade varies depending on mine sequences and which zone you mine at a certain time in the plan. So what we see really in this year is we have consistent grade around 16 grams through the year. So really with that mine some -- it's a mix of a higher grade ore from the 300 and some lower grade ore from the other zone. So it's a quite balanced plan. So we expect a steady grade through the year.

Andrew Mikitchook

Okay, and then just to confirm, I think the answer previous question was that you're kind of holding it about 500 tonnes per day. What kind of throughput? Could you potentially exit at, at this point in time?

Marc-Andre Pelletier

This year or next year?

Andrew Mikitchook

This year. Like by the end of the year.

Marc-Andre Pelletier

Yeah, well, we would like to be about 550 tonnes per day by the end of the year for sure.

Andrew Mikitchook

Okay. And Duncan, maybe just the one last comment. I think in the prepared remarks, you suggested you had sufficient treasury for the 2020 budget. At what gold price was that forecast? And with the strength in the gold that we're seeing now, would that leave you room to accelerate activities this year?

Duncan Middlemiss

Andrew when we did the budget, I think our VG board was broken because we budgeted at CAD 1885 and of course, we're about CAD 400 north of that. So based on a production of say we'll call it 100,000 ounces. I mean, that's going to add 40 million bucks to the treasury. So we're pretty excited about that prospect. And I think that we feel a lot better about getting done what we need to get done.

And so obviously very aggressive exploration plan. I mean, 240,000 meters is an all-time high for this company. And obviously we have big plans for Kiena and big plans for Eagle and really sort of see it. So I think we really have the capabilities also combined with the $45 million revolver, which is now in place. And so I think that we're in pretty good shape.

Andrew Mikitchook

Okay, well, thank you much for your answers. I'll let other people jump in.

Operator

Thank you. Our next question comes from Tom Gallo with Canaccord Genuity. Your line is open.

Tom Gallo

Hi there. First of all, Ben, congratulations on the retirement. Scott, congratulations on the new role. Just quickly, either Duncan or Marc Andre. On the tailings facility some verbiage in the MD&A stage 4 is underway. I guess construction will continue into 2020.

Looking like it says as that will add nearly four years of tailings capacity at the current production rate. What do you mean by current production rate? Is that what you did last year is at the 500 tonnes a day? Just trying to get a sense of sort of how much is there on the tails with this stage 4?

Duncan Middlemiss

Yeah. So essentially, Tom, we've got almost 800,000 tonnes of new capacity which is coming in. So it really depends on how quickly we get up to our stated goal of matching the mine in the mill in the short to midterm.

So that's what we see right now. It's probably in that range. I mean, obviously, Mishi starting to whittle down in terms of its contribution. So if we just focus on the high grade underground ore then I think that we easily have four years. But I'd love Marc Andre to make it less.

Marc-Andre Pelletier

And Tom we are also working on the next stage on the design of the next stage.

Tom Gallo

And that would be stage five, I guess for.

Marc-Andre Pelletier

Yes.

Tom Gallo

And so that's like, estimated about 10 million bucks per, what 800,000 tonnes? Is that kind of a good way to go about it, or is there -- do you foresee a higher capital spend for the next stage?

Marc-Andre Pelletier

No, we don't, because what we've done last year, Tom, is we've done a lot of the solidification in order to do stage four and stage five. So, a lot of money was spent, actually last year for the future of the mine.

Tom Gallo

Okay, okay. Very good. Thank you.

Operator

Thank you. And I am currently showing no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.