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Edited Transcript of WDO.TO earnings conference call or presentation 11-Mar-20 2:00pm GMT

·19 mins read

Q4 2019 Wesdome Gold Mines Ltd Earnings Call TORONTO Mar 16, 2020 (Thomson StreetEvents) -- Edited Transcript of Wesdome Gold Mines Ltd earnings conference call or presentation Wednesday, March 11, 2020 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Ben Au Wesdome Gold Mines Ltd. - CFO * Duncan Middlemiss Wesdome Gold Mines Ltd. - President, CEO & Director * Lindsay Carpenter Dunlop Wesdome Gold Mines Ltd. - VP of IR * Marc-Andre Pelletier Wesdome Gold Mines Ltd. - COO * Michael Michaud Wesdome Gold Mines Ltd. - VP of Exploration * Scott Gilbert Wesdome Gold Mines Ltd. - CFO ================================================================================ Conference Call Participants ================================================================================ * Andrew Rostislav Mikitchook BMO Capital Markets Equity Research - Analyst * George Justice Topping Industrial Alliance Securities Inc., Research Division - Equity Research Analyst * Thomas Gallo Canaccord Genuity Corp., Research Division - Associate Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning. And welcome to the Wesdome Gold Mines 2019 Full Year and Fourth Quarter Financial Results. I will now give the call to Lindsay Carpenter Dunlop to begin today's call. -------------------------------------------------------------------------------- Lindsay Carpenter Dunlop, Wesdome Gold Mines Ltd. - VP of IR [2] -------------------------------------------------------------------------------- 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'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 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 the recording of this call will be posted to the company's website. Here with us this morning, we have Duncan Middlemiss, President and CEO. -------------------------------------------------------------------------------- Duncan Middlemiss, Wesdome Gold Mines Ltd. - President, CEO & Director [3] -------------------------------------------------------------------------------- Good morning. -------------------------------------------------------------------------------- Lindsay Carpenter Dunlop, Wesdome Gold Mines Ltd. - VP of IR [4] -------------------------------------------------------------------------------- Ben Au, Chief Financial Officer. -------------------------------------------------------------------------------- Ben Au, Wesdome Gold Mines Ltd. - CFO [5] -------------------------------------------------------------------------------- Hello. This is Ben Au. -------------------------------------------------------------------------------- Lindsay Carpenter Dunlop, Wesdome Gold Mines Ltd. - VP of IR [6] -------------------------------------------------------------------------------- Scott Gilbert, Vice President, Financial Systems and Cost Control. -------------------------------------------------------------------------------- Scott Gilbert, Wesdome Gold Mines Ltd. - CFO [7] -------------------------------------------------------------------------------- Hello, everyone. -------------------------------------------------------------------------------- Lindsay Carpenter Dunlop, Wesdome Gold Mines Ltd. - VP of IR [8] -------------------------------------------------------------------------------- Marc-Andre Pelletier, Chief Operating Officer. -------------------------------------------------------------------------------- Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [9] -------------------------------------------------------------------------------- Hello, this is Marc. -------------------------------------------------------------------------------- Lindsay Carpenter Dunlop, Wesdome Gold Mines Ltd. - VP of IR [10] -------------------------------------------------------------------------------- And Mike Michaud, VP of Exploration. -------------------------------------------------------------------------------- Michael Michaud, Wesdome Gold Mines Ltd. - VP of Exploration [11] -------------------------------------------------------------------------------- Good morning. -------------------------------------------------------------------------------- Lindsay Carpenter Dunlop, Wesdome Gold Mines Ltd. - VP of IR [12] -------------------------------------------------------------------------------- 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. We will begin with Marc-Andre, who will give us an operations update. Marc, please go ahead. -------------------------------------------------------------------------------- Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [13] -------------------------------------------------------------------------------- Thanks, Lindsay. 2019 gold production at Eagle increased by 32% despite 34% lower throughput rates due to a 98% improvement in grades. Recovered 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 3,000 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 will stop at the pit as we focus on increasing the mill feed from the higher-grade Eagle River Underground ore. I will now give the call to Duncan to discuss 2019 cost and a 2020 forecast in more detail. -------------------------------------------------------------------------------- Duncan Middlemiss, Wesdome Gold Mines Ltd. - President, CEO & Director [14] -------------------------------------------------------------------------------- Great. Thanks, Marc. We had a slight beat in operating cost per ounce for the year with costs averaging $825 per ounce or USD 621 per ounce 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 were 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 of 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 at 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 in preparation 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, Wesdome Gold Mines Ltd. - CFO [15] -------------------------------------------------------------------------------- Thanks, Duncan. As per the announcement this morning, I'm retiring from Wesdome at the end of the month. I've really enjoyed working with the team throughout these years. Scott and I have worked together for a long time in the past companies and I'm confident that he will continue to deliver in his new role going forward. -------------------------------------------------------------------------------- Scott Gilbert, Wesdome Gold Mines Ltd. - CFO [16] -------------------------------------------------------------------------------- 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. On to the 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 this operation funding all sustained capital exploration, corporate G&A and a $25.1 million exploration and development spend at Kiena. After meeting all these costs, the company still generated $6.6 million in free cash flow for the year and have ended the year with a healthy cash position of $35.7 million, which is sufficient to fund all of 2020's programs. I will now hand the call over to Mike. -------------------------------------------------------------------------------- Michael Michaud, Wesdome Gold Mines Ltd. - VP of Exploration [17] -------------------------------------------------------------------------------- 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 the high-grade 300 zone that has now been extended additional 300 meters down plunge to the 1,300 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 with our ongoing exploration efforts at the Eagle River mine at both the Falcon and 300 East Zones. The objective is to continue our resource definition efforts at Falcon using 2 surface drills. In addition, 1 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. The 4 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 the 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 in 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 time line and reduce initial capital investment. Initial drilling on 79 Level intersected a new zone of gold mineralization in a 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, Wesdome Gold Mines Ltd. - President, CEO & Director [18] -------------------------------------------------------------------------------- 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 are building for the future and in 2019 made many important strides towards our goal of becoming a mid-tier gold producer with 2 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 pre-feasibility 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 2 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. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from George Topping with Industrial Alliance. -------------------------------------------------------------------------------- George Justice Topping, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [2] -------------------------------------------------------------------------------- Duncan or Marc, can you give more details on the increasing tonnage throughput for the mill through 2020? Is it back end-loaded or how is it shaping up? -------------------------------------------------------------------------------- Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [3] -------------------------------------------------------------------------------- So as you know, we have done a lot of development last year to get ahead of the mining front. We made some changes in the mining sequence. We are testing a new mining method at the mine at the moment with (inaudible), and all those changes combined together allowed us to increase this year's production at 500 tonnes per day. -------------------------------------------------------------------------------- George Justice Topping, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [4] -------------------------------------------------------------------------------- Right. And Marc, do you think you'll keep that through the year or will you exit at a higher rate? Or is that the new design? -------------------------------------------------------------------------------- Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [5] -------------------------------------------------------------------------------- We actually expect to increase the production in the second half of this year. -------------------------------------------------------------------------------- George Justice Topping, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [6] -------------------------------------------------------------------------------- Okay. Can you -- do you have an idea of what cap you might have there? And what would constrain it? -------------------------------------------------------------------------------- Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [7] -------------------------------------------------------------------------------- The constraints, it's -- at Eagle mine, as you know, it's 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 Justice Topping, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [8] -------------------------------------------------------------------------------- Great. And just one last question on the Eagle Underground before I pass it over. The cost per tonne would obviously be less than in 2019. Is it mainly the economy of scale? Or are you getting what significantly wider stope with the world grade forecast? -------------------------------------------------------------------------------- Duncan Middlemiss, Wesdome Gold Mines Ltd. - President, CEO & Director [9] -------------------------------------------------------------------------------- I think really -- George, it's Duncan. Economies of scale, definitely. I mean we've already seen evidence of this over the past 3 years. We really have kind of a -- in the narrow vein, the mine environment, I mean, obviously, the -- almost the ore and waste is nearly equal here. And so absolutely is economy of scale. So when we do have wider zones, we certainly do see a driving down of the cost. It's really volume. So this has 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 it, 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, the level of our developed 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 time. I know Marc-Andre is 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 [10] -------------------------------------------------------------------------------- Our next question comes from Andrew Mikitchook with BMO Capital Markets. -------------------------------------------------------------------------------- Andrew Rostislav Mikitchook, BMO Capital Markets Equity Research - Analyst [11] -------------------------------------------------------------------------------- Marc-Andre, maybe if I could just get your comments further on Eagle in terms of what you've seen in the first 2 months -- almost 2.5 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 kind of 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, Wesdome Gold Mines Ltd. - COO [12] -------------------------------------------------------------------------------- So as you know, grade varies depending on mine sequences and which we've shown you a new mine at a certain time in the plan. So what we see really in this year is we see a consistent grade around 16 grams through the year. So really we're going to mine some -- it's a mix of higher-grade ore from the 300 and some lower-grade ore from the other zones. So it's a quite balanced plan. So we expect a steady grade through the year. -------------------------------------------------------------------------------- Andrew Rostislav Mikitchook, BMO Capital Markets Equity Research - Analyst [13] -------------------------------------------------------------------------------- Okay. And then just to confirm, I think the previous answer -- an answer to a previous question was that you're kind of holding at about 500 tonnes per day. What kind of throughput could you potentially exit out at this point in time? -------------------------------------------------------------------------------- Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [14] -------------------------------------------------------------------------------- This year or next year? -------------------------------------------------------------------------------- Andrew Rostislav Mikitchook, BMO Capital Markets Equity Research - Analyst [15] -------------------------------------------------------------------------------- This year. Like by the end of the year? -------------------------------------------------------------------------------- Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [16] -------------------------------------------------------------------------------- Yes. Yes. So we would like to be at 550 tonnes per day at the end of the year, for sure. -------------------------------------------------------------------------------- Andrew Rostislav Mikitchook, BMO Capital Markets Equity Research - Analyst [17] -------------------------------------------------------------------------------- Okay. And Duncan, maybe just one last comment. I think in the -- one of your 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, Wesdome Gold Mines Ltd. - President, CEO & Director [18] -------------------------------------------------------------------------------- Andrew, when we did the budget, I think our Ouija board was broken because we budgeted at CAD 1,885, 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 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 it's obviously a very aggressive exploration plan. I mean, 240,000 meters, 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. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Our next question comes from Tom Gallo with Canaccord Genuity. -------------------------------------------------------------------------------- Thomas Gallo, Canaccord Genuity Corp., Research Division - Associate Analyst [20] -------------------------------------------------------------------------------- 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 that will add nearly 4 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 that 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, Wesdome Gold Mines Ltd. - President, CEO & Director [21] -------------------------------------------------------------------------------- Yes. 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 is 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 4 years. But I'd love Marc-Andre to make it less. -------------------------------------------------------------------------------- Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [22] -------------------------------------------------------------------------------- And Tom, we're also working on the next stage -- on the design of the next stage. -------------------------------------------------------------------------------- Thomas Gallo, Canaccord Genuity Corp., Research Division - Associate Analyst [23] -------------------------------------------------------------------------------- That would be stage 5, I guess, for... -------------------------------------------------------------------------------- Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [24] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Thomas Gallo, Canaccord Genuity Corp., Research Division - Associate Analyst [25] -------------------------------------------------------------------------------- And so that's like estimated about $10 million 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, Wesdome Gold Mines Ltd. - COO [26] -------------------------------------------------------------------------------- No, we don't. Because what we've done last year, Tom, is we've done a lot of dam solidification in order to do stage 4 and stage 5. So a lot of money was spent, actually, last year for the future of the mine. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- Thank you. And I'm 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.