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Edited Transcript of WDO.TO earnings conference call or presentation 9-Aug-19 2:00pm GMT

Q2 2019 Wesdome Gold Mines Ltd Earnings Call

TORONTO Sep 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Wesdome Gold Mines Ltd earnings conference call or presentation Friday, August 9, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ben Au

Wesdome Gold Mines Ltd. - CFO

* Duncan Middlemiss

Wesdome Gold Mines Ltd. - President, CEO & Director

* Heather Anne Laxton

Wesdome Gold Mines Ltd. - Chief Governance Officer & Corporate Secretary

* 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

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Conference Call Participants

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* George Justice Topping

Industrial Alliance Securities Inc., Research Division - Equity Research Analyst

* Philip Ker

PI Financial Corp., Research Division - Precious Metals Analyst

* Ryan Walker

Echelon Wealth Partners Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to Wesdome Gold Mines Second Quarter Financial Results Conference Call. I will now turn the call over to Heather Laxton to begin today's call.

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Heather Anne Laxton, Wesdome Gold Mines Ltd. - Chief Governance Officer & Corporate Secretary [2]

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Thanks, operator. Good morning, and happy Friday, everyone. Thank you for joining us today.

Quickly here before we begin, we would 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 August 8, 2019. 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.

So here in the room this morning, we have Duncan Middlemiss, President and CEO.

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Duncan Middlemiss, Wesdome Gold Mines Ltd. - President, CEO & Director [3]

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Good morning.

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Heather Anne Laxton, Wesdome Gold Mines Ltd. - Chief Governance Officer & Corporate Secretary [4]

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Ben Au, Chief Financial Officer.

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Ben Au, Wesdome Gold Mines Ltd. - CFO [5]

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Hello. This is Ben Au.

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Heather Anne Laxton, Wesdome Gold Mines Ltd. - Chief Governance Officer & Corporate Secretary [6]

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Marc-Andre Pelletier, Chief Operating Officer.

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Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [7]

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Hello, this is Marc-Andre.

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Heather Anne Laxton, Wesdome Gold Mines Ltd. - Chief Governance Officer & Corporate Secretary [8]

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Mike Michaud, Vice President, Exploration.

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Michael Michaud, Wesdome Gold Mines Ltd. - VP of Exploration [9]

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Good morning.

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Heather Anne Laxton, Wesdome Gold Mines Ltd. - Chief Governance Officer & Corporate Secretary [10]

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And Lindsay Carpenter Dunlop, Vice President, Investor Relations.

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Lindsay Carpenter Dunlop, Wesdome Gold Mines Ltd. - VP of IR [11]

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Good morning, everyone.

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Heather Anne Laxton, Wesdome Gold Mines Ltd. - Chief Governance Officer & Corporate Secretary [12]

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And with that, it's over to Lindsay for a review of the agenda for today's call.

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Lindsay Carpenter Dunlop, Wesdome Gold Mines Ltd. - VP of IR [13]

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Thanks, Heather. Today, Duncan will begin with a Q2 overview, followed by Marc-Andre who will provide a more detailed operational review. Ben will then take us through a financial review. And then we will hand the call over to Mike, who will take us through an overview of exploration activity at both Eagle River and Kiena. Finally, Duncan will conclude with a summary and outlook before we open up the lines for the Q&A session. Duncan, please go ahead.

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Duncan Middlemiss, Wesdome Gold Mines Ltd. - President, CEO & Director [14]

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Great. Thanks, Lindsay. The second quarter was a very strong quarter, surpassing internal forecasts by almost 6,000 ounces due to the strong grade performance at the 303 lens underground at Eagle. As Marc-Andre will discuss in more detail momentarily, during the quarter, we commenced work on our tailings management facility at Eagle River, which comprised of improvements to the existing tailings dam in preparation for subsequent lifts. In addition, water management was addressed and improved to facilitate the rapid spring melt, ensuring a safe and compliant strategy.

We also had a very good quarter on the exploration front with 2 updates at Eagle River, including the discovery of 2 potential new zones outside the mine diorite and the Kiena update with recent developments in our understanding of the A Zone up and down plunge, which Mike will talk about in more detail later in the call.

All in all, this was a strong quarter in terms of operational, exploration and financial results. Work completed within the quarter will set us up to deliver even better results in the future.

Let's now turn this over to Marc-Andre for some color on the operational results.

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Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [15]

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Thanks, Duncan. Production was very strong in the second quarter with 22,400 ounces of gold produced representing a 15% increase compared to Q1. Head grades at Eagle River went 23.4 grams per tonne, a 21% improvement over the first quarter. The outperformance on ounces and grade is primarily attributed to the 303 lens continuing to reconcile higher on both grades and tonnes.

Mill availability during the quarter was affected by planned maintenance and improvements. However, production tonnes were unaffected during the quarter, with Eagle River generating a 12,000-tonne stockpile at 20 grams per tonne at the end of the quarter. In addition, the new mining horizon in the 303 Zone is being developed between the 884- and 925-meter level. This work would benefit our 2020 production plan.

The spring thaw in 2019 was challenging at the Eagle River Complex, and the company proactively executed on our water management strategy in the spring with the decision to utilize the Mishi pit as temporary water storage. This allowed us to continue normal operations at the mill, processing higher grade Eagle River ore, while production from the pit is coming from the 14,000-tonne Mishi stockpiles.

In addition, the company initiated capital work on the tailings facility at the Eagle River Complex during the quarter. This work is required to increase our tailings capacity for the future and to facilitate an improvement in water management at the site going forward. The company decided to take advantage of the opportunity to perform maintenance work during the summer season and while cash flow is strong as a result of the favorable gold price environment.

I will now turn the call over to Ben for the review of the -- on the financials.

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Ben Au, Wesdome Gold Mines Ltd. - CFO [16]

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Thanks, Marc. In the second quarter, Eagle River generated $1.2 million in free cash flow. Of the $22.1 million mine profit this quarter, we invested $6.9 million back at the Eagle River mine and invested another $5.5 million towards the exploration and development at the Kiena Complex. The company continues to internally fund all its exploration and development activities. We ended the quarter with $27.4 million in cash and bolstered our balance sheet with $40 million revolving credit line announced in June.

Cost performance for the quarter continued to trend down, with all-in sustaining cost of $1,220 per ounce, $60 per ounce lower than our lowest point of our guidance of $1,280 to $1,350 per ounce. All-in sustaining cost is expected to increase in the second half of the year as a result of ongoing tailings projects. However, we expect to end the year with this cost metric to be within our guidance range.

I'll now turn the call over to Mike for a review of exploration activities.

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Michael Michaud, Wesdome Gold Mines Ltd. - VP of Exploration [17]

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Thanks, Ben. Exploration success continued through Q2 at both the Eagle River and Kiena Mine complexes. We are thus far on schedule this year to complete our 174,000 meters of definition and exploration drilling for both sites. At Eagle, we are pleased with our ongoing exploration efforts, in particular, the continued expansion of the 7 East and 311 West zones. Drilling of the 311 West Zone returned several intersections with wider-than-typical widths, including Hole 259 that returned 8.9 grams per tonne gold over 10.1 meters true width. We have now repositioned the underground drills to continue drilling the extensions of these zones and expect to include the results into the existing resource base at year-end.

Also, exploration drilling continues in the eastern half of the mine diorite to better define the parallel zones of mineralization where our previous hole returned 41.4 grams per tonne gold over 4.2 meters. This area remains a focus for exploration as any mineralization in this area could provide additional workplaces that would diversify production areas from the bottom of the ramp, and therefore aid in increasing underground tonnes from their current levels. A fifth underground drill is being added to assist with the exploration in this area.

Additionally, surface drilling continued to better define and extend the Falcon Zones that remained open down plunge and long strike and are proximal to existing underground workings. Hole 47 returned 53.8 grams per tonne gold over 1.9 meters downhole. The objective is to continue our resource definition efforts in this area that has high probability to be included in future mine production and ultimately, augment production rates in the medium term.

At the Kiena Complex, 4 drills continued to operate on the 1050-meter level exploration ramp, completing the infill and immediate plunge extension drilling of the Kiena Deep A Zone in preparation for an updated resource estimate expected in the second half of this year. The ongoing definition drilling has continued to confirm the overall continuity of the geometry and the high-grade gold mineralization of the Kiena Deep A Zone. This zone now extends over 700 meters along plunge, which is substantially larger than defined at the time of the previous resource estimate. One infill drill hole returned 68.2 grams per tonne gold over 19-meter core length, illustrating the impressively high-grade nature of the A Zone deposit.

Meanwhile, a fifth drill located on the 670-meter level continues to return high-grade intersections along the interpreted up plunge extension of the Kiena Deep A Zone towards the VC zone area with 1 hole returning 41.1 grams per tonne gold over 5.1 meters. It is now interpreted that the A Zone is folded as it extends up plunge to intersect the VC 1 and VC 6 zones. We are considering driving an exploration drift near the 790-meter level to better drill this area that could also be used for future development and production of the Kiena Deep A Zone and the VC zones. Obviously, given the continued high-grade results realized from the almost 50,000 meters of drilling completed since our first A Zone resource estimate in December 2018, we are looking forward to the resource estimate update. In addition, we have commenced the preliminary economic assessment, which will be based on this updated resource estimate.

Now over to Duncan for his summary.

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Duncan Middlemiss, Wesdome Gold Mines Ltd. - President, CEO & Director [18]

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Great. Thanks, Mike. We started out the year guiding the market to first half production of 31,000 to 35,000 ounces. The results of our first half were much stronger than anticipated due to exemplary grades within the 303 Zone, and to a lesser degree, 711 and 311 zones, all positive. We currently have achieved the first half production of 41,400 ounces, soundly surpassing our own H1 expectations.

Grades achieved within the second quarter at Eagle were 23.4 grams per tonne, and for the first half of the year, 20.9 grams per tonne.

In the second half of the year, we are guiding our gold production at 38,000 to 42,000 ounces, but July's strong production performance suggests there may be some upside here. As it is, we foresee exceeding the top end of our guidance.

Looking ahead, our near-term catalysts for the company are as follows: the Kiena resource update due out mid-second half of 2019; continued strong production and cash generation from Eagle; continuation of enhanced exploration programs throughout the second half at both Eagle and Kiena; infrastructure and process improvements at the Eagle River mine and mill; and a completed Kiena PEA in the first half of 2020, outlining our next steps.

In summary, we are building for the future. I think we are all seeing the potential at Eagle and Kiena, and our focus remains having 2 operating assets within the company as the objective.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from George Topping with Industrial Alliance.

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George Justice Topping, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [2]

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See, I'm looking at the Kiena drilling. I'm just wondering is there any updates to the top cut that would be applied in the resource update that's coming out probably Q4 [that needs an] additional drilling?

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Michael Michaud, Wesdome Gold Mines Ltd. - VP of Exploration [3]

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George, it's Mike here. Yes, we've certainly, as you know, this is -- certainly an important aspect of any resource estimate. We are looking at it very closely at this time. We certainly expect to see an increase in the capping levels for certain zones, and that will be sort of reflected in this updated resource estimate. So you can see from the drilling like some of these infill holes, the 68 grams over 19 meters, I mean, this is really a pretty high-grade zone. So yes, we've definitely, based on the new sort of interpretation and the new geologic domaining that we've done to separate the different populations, we expect to see an increase in the grade capping levels.

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George Justice Topping, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [4]

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All right. And then generally, the experience is the closer the infill, the more confident and therefore higher -- getting higher capping, comfortable with higher capping grade?

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Michael Michaud, Wesdome Gold Mines Ltd. - VP of Exploration [5]

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Yes, yes. Yes.

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George Justice Topping, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [6]

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Great. And then just switching back to the Eagle, could you be -- on the tailings dam expansion, got more detail on how long that will last you? And what production assumptions have you assumed in your design of it?

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Duncan Middlemiss, Wesdome Gold Mines Ltd. - President, CEO & Director [7]

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Yes. George, it's Duncan. So really what's going on is here is we're really augmenting the base of our tailings dam in preparation to do a subsequent lift. The subsequent lift would get us through probably nearly 5 years, I would say, and there's more in this to come after that exists. We're going to use the existing tailings management facilities, so it is good that we have the same footprint. The tonnage assumed for that is all Eagle. So it's about 750 tonnes per day, and that's the assumption based on that.

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George Justice Topping, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [8]

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Great. That's very helpful. And for the rest of the year, as we should look for a better margin, the tonnes increasing at Eagle mine grade coming down and cost per tonne dropping as well. Did you take quite of what's -- that's the case?

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Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [9]

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George, this is Marc. What we see in H2 for Eagle is basically you're correct, an increase on tonnes. We plan to process the 12,000 tonnes stockpile in H2. So that could be an addition. Grades, Q3 should be close to what we have seen this year, but we expect the grade to go lower in Q4 at around 16, 17 grams per tonne.

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Operator [10]

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(Operator Instructions) Our next question comes from Ryan Walker with Echelon Partners.

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Ryan Walker, Echelon Wealth Partners Inc., Research Division - Analyst [11]

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Congrats on a great quarter. So a couple of other questions answered already. Just the -- first, the tailings, so the $6.5 million for this tailings program, that's in addition to previous CapEx guidance?

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Duncan Middlemiss, Wesdome Gold Mines Ltd. - President, CEO & Director [12]

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We do have a portion that was the plan for the tailings, Ryan, but we decided to go this year. Really, it was a good opportunity for us with the -- I don't know if you read through the MD&A, but we've decided to use the Mishi pit for water management. So we had capacity on site with our open pit contractor. And it was kind of a win-win scenario for us to really deploy them on the tailings work that we foresaw. So yes, absolutely.

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Ryan Walker, Echelon Wealth Partners Inc., Research Division - Analyst [13]

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Okay. And then just as far as production costs, you're up at $390 a tonne this quarter. Can we expect that level to kind of persist into the second half of the year?

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Ben Au, Wesdome Gold Mines Ltd. - CFO [14]

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Yes. Ryan, it's Ben. We expect the -- since most of the production comes from the Eagle River, so I would assume that, that would be the expected production cost going forward.

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Operator [15]

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And our next question comes from Phil Ker with PI Financial.

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Philip Ker, PI Financial Corp., Research Division - Precious Metals Analyst [16]

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Kind of sticking with the theme here on capital and expenses. Just as you guys are investigating that potential underground exploration drift, could you give us a sense of costs, length, location and time line to complete that? And I believe it was maybe proposed on the 7 90 level. Was that right?

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Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [17]

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Correct. The 79 level is actually an incline ramp that we basically hide between the 67 level and the 105. In our budget this year, we have about $2.5 million to develop that drift. It's about 3 months of development, about 250, 275 meters total. And we basically fine-tuning the design of that drift. And once we got the go-ahead, we think that we would be able to begin in September. So -- and at the same time -- so it's about 3 months, so it will be complete by year-end. And at the same time, we think that we're going to continue to drill the up plunge from 67 level.

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Philip Ker, PI Financial Corp., Research Division - Precious Metals Analyst [18]

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Okay. So even with this new proposal, this $2.5 million was already baked into your budget and capital allocation to Kiena for the year?

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Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [19]

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Exactly.

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Operator [20]

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That concludes today's question-and-answer session.

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Duncan Middlemiss, Wesdome Gold Mines Ltd. - President, CEO & Director [21]

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All right. Well, if there's no further questions, then we're happy to wrap up. Thanks for listening today to the Wesdome Q2 Financial and Operational Results Conference Call.