The gold market has seen an unprecedented sell-off in the last few days and the precious metal complex is fighting for its survival. I am the first to admit that this sell off in gold has taken me by surprise and the way miners are trading feels very much like as the dark days of 2008.
Where would Wesdome be left in such a "worst case-scenario" ?
I think WDO management already anticipated very good with announcing the Kiena closure when gold was still trading at 1550+ level and they are one of the leading examples of the industry by closing an operation to guard profitability. Taking the decision late Feb/early March to mothball Kiena was a difficult one, but a good month further in time it seems it was a well timed decision.
In their latest company presentation (see link below), they estimate new average mining cost for the Eagle River Complex at around $1200 per ounce. This is still well above the current price of gold and back in line with the industry average.
It is very important to stress that WDO has little to no debt (7mio long term debt), has 13 million worth in bullion ($0.13 per share) good enough to weather more weaknesses in the gold price and survive an industry shake out in a worst case scenario. Current business is self sustaining, and besides upping the mill to fine tune output, WDO has no need for cash for capital investments to keep producing 50k ounces of gold on an annual basis.
Where is WDO left in a less than "worst case-scenario"?
Their Eagle River was able to return back to higher gradings in the previous quarter, back in line with an historic average and the Mishi Mine has very good prospect better than originally planned. Both mines should be able to shown some organic growth over the coming quarters and into 2014. Management is expecting in "normal" markets and operational cash flow of around $15mio. Would the price of gold be able to recover from the experienced sell off, with Kiena WDO owns an excellent leverage for higher gold prices.
So somewhat summarized. WDO was quick to restructure operations earlier this year, has a solid balance to weather any storm, the existing operations are sound and should achieve some growth going further and with Kiena WDO still would be able to profit on longer term from higher gold prices. As an add-on I also want to stress that WDO is only active in safe Canada (no global worries), is trading on very cheap multiples (both absolute as versus other miners) and has a proven track record of 25years!
From a technical point of view. While the longer term trend is still negative, so far WDO did not post a new low contrary to most other miners and this could be read as a sign of relative strength. I expect the price of the stock to bottom out around the mid fifties, and as said earlier a bounce up to $72c could be achieved very quickly.
Disclaimer: I am long WDO.
Disclosure: I am long OTCPK:WDOFF.