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Edited Transcript of WDO.TO earnings conference call or presentation 7-Nov-19 3:00pm GMT

Q3 2019 Wesdome Gold Mines Ltd Earnings Call

TORONTO Dec 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Wesdome Gold Mines Ltd earnings conference call or presentation Thursday, November 7, 2019 at 3:00:00pm 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

* Scott Gilbert

Wesdome Gold Mines Ltd. - VP of Financial Systems & Cost Control

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Conference Call Participants

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* 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' Third Quarter 2019 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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Great. Thanks, operator. Good morning, everyone. Thanks for joining us today.

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 November 6, 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.

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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Scott Gilbert, Vice President, Financial Systems and Cost

Control.

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Scott Gilbert, Wesdome Gold Mines Ltd. - VP of Financial Systems & Cost Control [7]

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Hello, everyone.

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

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Marc-Andre Pelletier, Chief Operating Officer.

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

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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 [10]

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Mike Michaud, Vice President, Exploration.

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Michael Michaud, Wesdome Gold Mines Ltd. - VP of Exploration [11]

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Good morning.

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

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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 [13]

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Good morning, everyone.

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Heather Anne Laxton, Wesdome Gold Mines Ltd. - Chief Governance Officer & Corporate Secretary [14]

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And with that, 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 [15]

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Thanks, Heather.

We will begin today with an operational review given by Marc, followed by Duncan detailing our 2019 guidance increase. We will then have Scott take us through a financial review, and after that, Mike will update us on exploration activities at Eagle River and Kiena. Finally, Duncan will conclude with the summary and outlook.

Marc, please go ahead.

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Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [16]

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Thanks, Lindsay.

Q3 was a very strong quarter operationally with almost 29,000 ounces of gold produced, a 29% increase over Q2. Head grades continued to be high at 23.4 grams per tonne due to the continued excellent performance of the 303 lenses.

While cash cost per ounce remained consistent over Q2, the AISC increased because we have taken this opportunity of high production and favorable gold prices to accelerate work at Eagle River to better position us for the future. These projects include commissioning of the Falcon concentrator, which will increase gravity recovery; additional exploration platform development; and $4 million spent on the tailings management area capital project during the quarter. TMA work included installation and dam construction in preparation of vertical raise at the tailings management facility. This investment into the tailings will provide an additional 4 years capacity at current mill feed grades. Had we not accelerated some of these projects to better position us for the future, AISC costs would have been CAD 1,176 an ounce or USD 890 per ounce, well below the low end of our guidance range.

I will now give the call to Duncan for an overview of the 2019 guidance.

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Duncan Middlemiss, Wesdome Gold Mines Ltd. - President, CEO & Director [17]

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Great. Thanks, Marc. As a result of the 303 lens reconciling higher on grade and with a total of 70,356 ounces produced at the end of the third quarter, we have raised our full year production guidance from 72,000 to 80,000 ounces up to 88,000 to 93,000 ounces. We have kept cost guidance unchanged due to the tailings facility management project, but we expect to finish the year on the low end of these ranges.

I'll turn the call over to Scott now for a more detailed review of financials.

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Scott Gilbert, Wesdome Gold Mines Ltd. - VP of Financial Systems & Cost Control [18]

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Thanks, Duncan. Q3 benefited from both strong production and a high gold price with realized price averaged at CAD 1,957 per ounce. We generated free cash flow of $9.2 million or $0.07 per share after meeting sustaining capital, all operational costs, advancement of the TMA project and investments of $5.9 million at Kiena. Cash position increased from $27.4 million at the end of Q2 to $38.6 million at the end of Q3.

Year-to-date net earnings of $0.21 per share have solidly increased over 2018's full year net earnings of $0.09 per share.

Q3 also saw us closing with $45 million revolving line of credit facility, of which $5 million has been drawn to replace equipment lease obligations. This facility has further strengthened our balance sheet, liquidity and access to capital.

I will now turn the call over to Mike to review the exploration highlights.

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Michael Michaud, Wesdome Gold Mines Ltd. - VP of Exploration [19]

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Thanks, Scott. Wow, what an exciting quarter. Great exploration results at both Eagle River and Kiena. And of course, the release of the updated mineral resource estimate at Kiena that has confirmed the high-grade nature of this deposit.

First, at Eagle River, we have made some really good progress at the 303 lens that was initially defined from the 750 to the 1,000 meter level but has now been an -- extended another 300 meters down plunge to the 1,300 meter level. High-grade results included hole 104 that returned 92.8 grams per tonne gold over 11.1 meters core length or 37 grams per tonne over 6.4 meters true width, really fantastic hole.

Our continued development of the 303 lens has demonstrated the good continuity of the gold mineralization up and down and has provided above-average mine grades over 2019 and planned well into 2020. This recent expansion of the 303 lens has provided an opportunity to mine these high grades well into the future with additional mine development. We expect to include the results into the existing resource and reserve base at year-end. Additionally, the 303 lens has provided a new exploration target model for elsewhere in the mine diorite and the surrounding volcanic rocks for higher-grade, wider zone in those areas.

Elsewhere, we are continuing to aggressively explore the Eagle River deposit with 6 drills, with one on surface, to extend the known 7 East and 311 West zones; as well as testing for parallel zones of mineralization in the eastern portion of the mine diorite. And on surface, we continued to test the recently discovered Falcon zones where there exists good potential to define higher-grade and wider zones of gold mineralization near mine infrastructure.

Well, at Kiena, we're pleased with the updated mineral resource estimate. Compared to the December 2018 resource estimate, we increased the Kiena Deep A Zone indicated resource by 3x. We're increasing inferred resources by 38%. And importantly, we increased the indicated resource grade from just under 10 grams per tonne to over 18 grams per tonne. As well, we increased the proportion of indicated resources to over 50% in the A Zone, which was 30% previously in the A Zone. Our work has continued to grow and better define the high-grade Kiena Deep A Zones, and we are confident that the mineral resource will increase as a result of the ongoing drilling of this high-grade area that remains open both up and down plunge.

These updated results provide us the opportunity to commence our technical study supporting a potential restart as we continue to drill and expand the current resource base during the remainder of 2019 and beyond. Meanwhile, 5 drills remain in operation on the A Zone and focused on the up and down plunge potential of the Kiena Deep A Zone that is not currently in the mineral resource estimate. As well, we continue the infill drilling to convert inferred to indicated resources.

The development of the 79-meter level exploration drift is underway and will provide an improved drill platform to test the down-plunge extensions of the VC1 and VC6 zones and the transition to the A Zone further down along the same structure. Additional drills are expected to arrive once the development is completed before the end of the year. Work is ongoing on the PEA, expected in the first half of 2020, and this will determine the next steps and timing of potentially restarting mine operations.

Over to you, Duncan.

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Duncan Middlemiss, Wesdome Gold Mines Ltd. - President, CEO & Director [20]

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Great. Thanks, Mike. In summary, we are building for the future. We're almost halfway to our goal of becoming Canada's mid-tier producer. At the Eagle River mine, we are all seeing the near-term potential of becoming a "100,000 ounce per year" producer. With the new 303 down-plunge exploration results, we have added 300 meters of high-grade mineralization, which bodes well for the future grade profile. Our surface exploration program of the Falcon zone has also been very successful, demonstrating mineralization in the surrounding (inaudible). The potential is huge here, kilometers. Additionally, the infrastructure improvements at Eagle are setting us up for the long term with the installation of the Falcon gravity concentrator at the mill, plus the work done up on tailings management area, which will add over 4 years of capacity when completed in 2020. However, the majority of this work will be completed in 2019, weather permitting.

At Kiena, the recent mineral resource estimate has certainly demonstrated high grades in the A Zone and likely more to come with 5 drills churning. The 790-meter exploration platform will help us better assess the up plunge potential, which we all see as a very advantageous area in a restart scenario. Work is ongoing in support of the Kiena preliminary economic assessment, which will be completed in the first half of 2020. This PEA will define next steps for Kiena.

Our progress so far in 2019 has been positive, production, exploration, infrastructure improvement all coming together; also an increasing bank balance, which I think is fantastic in terms of what we've been able to accomplish and get going here. I'd like to thank all of our employees for their contributions.

I'll now hand over the call to the operator, who will open up the lines for the question-and-answer session. Thanks.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Phil Ker with PI Financial.

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Philip Ker, PI Financial Corp., Research Division - Precious Metals Analyst [2]

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Duncan, just a question on unit costs. Just correct me if I'm wrong, but it just slightly appears that the unit costs, mining costs per tonne have been going up maybe ever since driving into the 303 lens. Could you maybe just touch on what's causing that?

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

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Yes. So what you see there, Phil, is really the reduction at Mishi is really is what it is. So if you're looking at the cost per tonne milled, that's certainly part of it. Obviously, the volume is down from that. Really, I've been saying for a year now really the emphasis we are on right now is quality over quantity, for sure. And we foresee Eagle River being able to generate 750 to 800 tonnes per day to fill the mill, as we say, in the not-so-distant future. I think that the exploration results we're seeing in mine and just outside of the mine are very positive. And I'm sure that we'll be able to bring it down. Cost per ounce flowed out is the metric which we certainly have to be cognizant of.

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Philip Ker, PI Financial Corp., Research Division - Precious Metals Analyst [4]

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Yes, fair enough. Okay. So that said, what percentage of the ore from underground is actually coming from the 303 lens at present time over last quarter?

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Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [5]

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Actually -- this is Marc. It was about 50%, 55% per feet.

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Philip Ker, PI Financial Corp., Research Division - Precious Metals Analyst [6]

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And is that ratio expected moving forward?

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

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We are in the budget process, so it's a bit premature to talk about that, but it's going to be lower, for sure, maybe in the 20%, 25% range.

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Philip Ker, PI Financial Corp., Research Division - Precious Metals Analyst [8]

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Okay. Okay. That's good. And just touching on development. Obviously, the 300-meter extension down plunge is clearly positive moving forward. Can you just elaborate on what development has been done and maybe what you foresee needing to be completed in the next kind of 6 to 18 months?

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

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So the development on 79 meters is halfway done as we speak. So we talk about 550 meters. So that will be done this year. Our team is actually looking at design to develop a drift to allow us to better drill the down plunge of the Kiena deep at depth. So that's something that we are working on. And I mean once the design is completed, that's something we plan to pursue early next year.

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Philip Ker, PI Financial Corp., Research Division - Precious Metals Analyst [10]

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Okay. And sorry, could you just clarify what level you've got ramp development down to at present and where that exploration drift is being planned?

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Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [11]

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Yes. It's at a 1,000 meters level. But what we're looking for is to provide access to the northeast of the Kiena deep.

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Philip Ker, PI Financial Corp., Research Division - Precious Metals Analyst [12]

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Okay. So the exploration drift is at the 1,000 meter level. Where is the ramp at present?

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Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [13]

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The ramp is at 1,050.

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Operator [14]

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

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Ryan Walker, Echelon Wealth Partners Inc., Research Division - Analyst [15]

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Just wondering if you could provide a little coverage -- or sorry, color, rather, on the decision to run through the Mishi stockpile material. Is that to give more time to develop in 303 or just to capture higher gold price for that?

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Marc-Andre Pelletier, Wesdome Gold Mines Ltd. - COO [16]

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We actually plan to process Mishi ore in Q4. We -- in Q3, what we have done, and I'm sure you understand, is we prioritized higher-grade ore to the mill due to lower mill availability. So that's what we've done in Q3. In Q4 with a higher mill availability expected, so we will be processing some Mishi.

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Duncan Middlemiss, Wesdome Gold Mines Ltd. - President, CEO & Director [17]

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It was always our plan, Ryan, through the annual budget for 2019 that we'll be getting 3,000 to 4,000 ounces of Mishi. So essentially, we're enacting that plan and setting ourselves up. Also, the wintertime is upon us and just we have the Mishi stockpile sitting there, so much better in the later December period.

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Ryan Walker, Echelon Wealth Partners Inc., Research Division - Analyst [18]

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Okay. Great. And congratulations, and yes, it's been fantastic to follow. Cheers.

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Duncan Middlemiss, Wesdome Gold Mines Ltd. - President, CEO & Director [19]

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Great. Thanks, Ryan.

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Operator [20]

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Thank you. This concludes the Q&A session. Thank you for participating on today's call. This concludes the conference. Everyone have a wonderful day.