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WDOFF Wesdome Gold Mines

Participants
Heather Laxton Chief Governance Officer and Corporate Secretary
Lindsay Dunlop Vice President of Investor Relations
Duncan Middlemiss President and Chief Executive Officer
Scott Gilbert Chief Financial Officer
Marc-Andre Pelletier Chief Operating Officer
Mike Michaud Vice President, Exploration
Raj Gill Vice President, Corporate Development
Don Demarco National Bank Financial
Andrew Mikitchook BMO Capital Markets
Call transcript
Operator

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

Heather Laxton

Great. Thanks, operator, and good morning, everyone. Thanks for joining us today.

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 11, 2021. 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 a recording of this call will be posted on the company’s website. And now, it’s over to Lindsay Dunlop, Vice President of Investor Relations.

Lindsay Dunlop

Thanks, Heather.

Here with us this morning we have Duncan Middlemiss, President and CEO.

Duncan Middlemiss

Good morning.

Lindsay Dunlop

Scott Gilbert, Chief Financial Officer.

Scott Gilbert

Hello everybody.

Lindsay Dunlop

Marc-Andre Pelletier, Chief Operating Officer.

Marc-Andre Pelletier

Hello, this is Marc.

Lindsay Dunlop

Mike Michaud, Vice President, Exploration.

Mike Michaud

Good morning.

Lindsay Dunlop

And Raj Gill, Vice President, Corporate Development.

Raj Gill

Good morning.

Lindsay Dunlop

Today, we will begin with an operational review from Marc-Andre, followed by a financial review from Scott. Then an exploration update from Mike. And finally, Duncan will conclude with a summary and outlook. Marc, please go ahead.

Marc-Andre Pelletier

Thanks, Lindsay.

We have strong gold production of 30,375 ounces at 39% improvement over Q1 driven by an 18% increase in both gold grades and in total tons mill during the quarter. Total H1 production of 52,900 ounces leads us in a very good position to achieve the upper half of our guidance of 92,000 to 105,000 ounces. The Eagle mine continues to benefit from previous ventilation work and other mine improvements with daily our tonnages averaging around 650 tons per day in the first half of the year. Production rate would be slightly below in the second half as we had to plant mill shut downs schedule in both Q3 and Q4.

For that reason, we anticipate slightly lower production in H2. The development in the newly discovered Falcon Zone is ongoing and we expect to start production activities there later in the third quarter. This zone will bring to Eagle another high green mining fund at a reserve grade nearly 20 grams per tonne. The Pre-Feasibility Study at Kiena was completed and published late in Q2. Highlights are on this slide and using conservative reserves and it is also estimates and gold by assumptions, this project demonstrates a 98% IRR.

Now there are lots of activities ongoing in preparation of the restart. The recruitment process is ongoing as planned with about 100 Wesdome employees hired to date. Production successfully started in the S-50 Zone late in the second quarter with the first production blast since the closure of the mine in 2013. Mining operations are resumed in July with no major issues. Mine development is now competed on the 112 meters level in the A Zone and production activities are ongoing.

We continue to provide production and exploration updates as they become available. Passing it on to Scott for the financial review.

Scott Gilbert

Thanks, Marc. Cash cost and AISC per ounce of gold sold in Q2 for $840 per ounce and $1,240 per ounce, a decrease of 24% and 17% respectively over Q1. H1 2021 cash cost of $930 per ounce and AISC of $1,356 per ounce are within guidance and we expect to be within our cost guidance range for the rest of the year.

During Q2, there were some one-time non-cash items which impacted net income. After announcing a restart of operations at Kiena on May 26, we recorded an impairment reversal charge of $58.6 million pre-tax or $36.3 million after-tax, as well, we had an after-tax gain on the disposal of the Moss Lake mineral properties of $34.5 million. Consequently, net income was $87.8 million or $0.63 per share. After giving effect to these one-time adjustments, the net income adjusted is $17 million or $0.12 per share. Free cash flow for the quarter was $9.1 million, total capital expenditures including Q2 2021 were $34.1 million – were $24.1 million spend at Kiena in preparation of the production restart.

Our ending cash balance was $67.8 million. Over to you, Mike.

Mike Michaud

Thanks, Scott. At Eagle River initial sale development is continuing at the Falcon 7 Zone and to date has confirmed the high grade nature of this zone and the continuity defined by the exploration drilling.

We continue to be very excited by development and drilling results at the Falcon Zone and expect to release results shortly. The company is also continuing to develop and explore the 311 West Zone along the western margin of the mine diorite. The zone has transitioned from the diorite into the adjacent mafic volcanics, again highlighting the potential of the volcanic rocks to host gold mineralization, similar to that observed at the neighbouring Falcon 7 zone.

Although we experienced some challenges with staffing of drills, we have successfully expanded a number of our known zones, particularly the high grade 300 east zone.

In addition, surface drilling is ongoing both east and west of the mine to follow up on anomalous values returned from regional drilling completed in 2020, and also at targets recently identified by our structural analysis of the mine and the surrounding property. At Kiena, drilling continues to return exciting results. In March, we announced a very exciting new discovery on the Footwall of the A’s zone. In may, we released the second set of high grade dual results, which included one of our most impressive holes at Kiena returning 41 grams per ton gold over 51 meters. The Footwall Zone is a 50 meter wide corridor of parallel zones of gold mineralization adjacent to the Footwall of the A2 zone. The Footwall Zone extends over 300 meters along plunge and remains open laterally and down plunge. The discovery of the high grade Footwall Zone could have significant positive impacts on the resources, the ounces per vertical meter and also the overall project economics. This drilling highlights potential to add ounces, not only in this area, but illustrates the untested potential of the entire gold system around the Kiena mine. Also ongoing drilling continues to better defined and expand laterally, the Kiena Deep A Zone resource, which was used in their recent PFS study.

One of these expansion holes returned 122 grams per ton, over 7.5 meters of core length, which will be included in future resource updates.

We have a strong pipeline of targets to drill this year, both from underground and from surface, including the underexplored B zone, which is interpreted as the down plunge extension of the previously mined S-50 Zone. Surface parts drilling has commenced with two drills to test many underexplored targets along trend from the Kiena mine and results from all of this drilling will be released in the near future.

Finally, Wesdome recently purchased the Tarmac Gold Property from Globex Mining Enterprises. The purchase of these claims helped to consolidate our land package and provides additional exploration potential based on the existence, a number of historic drill intersections. Over to you, Duncan.

Duncan Middlemiss

Thanks, Mike. The results of the first half of the year have us well positioned to achieve our guidance at Eagle River on both production and costs.

We expect slightly lower production in the second half with Q4 seen higher production than Q3.

As we move towards 100% production from the Eagle River mine, annual production of 100,000 ounces is very achievable going forward. The Goldshore transaction involving our sale of the Moss Lake asset also closed during the quarter. And in addition to the $12.5 million in cash, the company received a 30% equity stake worth approximately $20 million pre-listing. Goldshore commenced trading on June 4 under the symbol GSHR.

The second half of the year will be a very exciting time for the company.

As we begin production at the Kiena mine, the mill has been started successfully and mining has begun from the S-50 zone. At the same time, development work is ongoing in the high grade A zone, and we should have our first production from this area next month.

Our Kiena guidance for the year is 15,000 to 25,000 ounces, not included in the 92,000 to 105,000 ounces of Eagle. And we will evaluate after Q3, whether there are opportunities to increase guidance estimates. We were fully funded for the construction and commercial restart at Kiena with a combined production of 107,000 to 127,000 ounces this year.

We’re well on our way to achieving our stated goal of becoming Canada’s next mid-tier gold producer, with two high grade underground mines in operation. This is a significant milestone, which both derisk the company from a single asset producer and allows us the opportunity to potentially double our annual production output. I would like to extend my thanks to all employees and stakeholders who have helped us to begin to realize this vision.

Another step forward as of today is our listing on the OTCQX market in the United States. We believe this will enhance our liquidity and visibility in the U.S. and broaden our shareholder base. Shares are now trading under the symbol WDOFF. I will now hand the call back over to the operator for the Q&A session. Thanks.

Operator

Thank you. [Operator Instructions] And our first question comes from Don Demarco with National Bank Financial.

Your line is open.

Don Demarco

Thank you, operator, and good morning, Duncan and team. Hope, everyone’s doing well. Congratulations on a surprise getting Kiena up and running sooner than expected. It’s great to see. Question about mill, what do you – what throughput are you running it at, maybe if you have can share any more information about mainly throughput. Is this low grade material from the S-50? And is this throwing off any production and whatever modest production there might be coming off? Would this be included in the 15,000 to 25,000 preliminary guidance?

Marc-Andre Pelletier

Good morning, Don. This is, Marc.

So as we mentioned during the call, I mean the mill we started successfully in the month of July. The throughput has been around 40 tons per hour.

So we did have a few days over a 1,000 tons per day actually.

So in May, we started going better well than mill is on the four, three schedule. It was basically stated in the PFS.

So we processing for these and we’re doing maintenance work on the three last days of the week.

So that’s basically what we plan for meaning time for other remainder of the year. About the S-50, I mean, that’s for the PFS degrees was a bit lower than years own, about 4 or 5 grams per ton, the [indiscernible] was to test a mill and ensure the process is working as it’s supposed to be before we stop feeding the mill with higher grade or later in the quarter. Yes.

Don Demarco

Okay.

Okay, great. Thanks for that.

Now in terms of the spending at Kiena, I see year-to-date CapEx spend at Kiena is a total somewhere around $36 million, $37 million versus a full year budget of spend at Kiena of about $68 million. Can I take anything away from this that maybe you’re ahead of spend? Are you comfortable with where you’re at versus the full year estimate?

Marc-Andre Pelletier

We just did the reforecast for the year, and we actually planned to spend more and more money compared to what we had in the PFS. It’s about $10 million and it’s mainly equipment and the construction of the new base plant.

So we actually plan to spend more money, Don.

Don Demarco

Okay.

Okay. Would we expect that the spending at Kiena is probably going to take – you’re going to probably continue with the heavy spend into August and then it will taper off in September and thereafter or how should we allocate our quarterly spend through Q3 and Q4?

Duncan Middlemiss

We’re fairly even on that Don, actually, we’re probably like, as Marc-Andre said, we’ve already spent about 37.

We’re going to spend a total actually of about underneath 79 – sorry, 79.

So really we think it’s going to be fairly balanced in Q3, Q4 so the remainder of that.

Don Demarco

Okay.

Okay guys, thanks so much. That’s all for me. Appreciate it. And we look forward to more results from the Footwall Zone and continued success at Kiena. Thanks.

Duncan Middlemiss

Yes. Good stuff. Thanks, Don.

Operator

Thank you. [Operator Instructions] Our next question comes from Andrew Mikitchook with BMO Capital Markets.

Your line is open.

Andrew Mikitchook

Hi guys, really well done on the quarter and the trajectory for the balance of the year I think. I just had a question as to how we should expect the Kiena restart to work from an accounting perspective or we – should we expect a standard pre-commercial period and at some point Scott takes over and disclose this cost for Kiena or is there some other permutation here considering this is a restart of an asset on care and maintenance.

Duncan Middlemiss

Andrew, there’s been a change in the IFRS standard.

So therefore any of our revenue going forward will be included in the income statement. There will not be any offset against the capitalized exploration asset.

Andrew Mikitchook

Okay. And my second question is, I guess for Mike in terms of drilling some of this stuff like the Deep A and some of the other targets around Kiena, how much effort in terms of exploration drifts, and other infrastructure access do you need in terms of time to get that set up to properly drill something like the Footwall or some of the other targets underneath those other historical zones like Kiena?

Mike Michaud

Yes.

We have that in the budget. I mean, where we’re drilling the Footwall Zone from most of the drilling can be done from our current platforms. But as the ramp continues to depth, we’re going to be generating other platforms that will be closer and at better angles. And certainly for the more historic zones to the east of Kiena, we want to get to up on 33 level.

We are continuing to slash out the areas, because there’s an old tractor, right. And we’re slashing that out so we can get the drills down those areas and start testing that.

So we are continuing right now with the development sort of as we need for the drills.

Andrew Mikitchook

Just the last question, Marc-Andre or who, but at what point would the current plan infrastructure plan for Deep A essentially provide access to what’s known over the Footwall at this point in time.

Okay. Is it several years? Is it next year or what the timer?

Marc-Andre Pelletier

Yes.

So that as it is there is a newly a Footwall discovery is up, it is about mid elevation of the A Zone.

So continuing the current life of mine it’s about in three years, Andrew.

Andrew Mikitchook

Okay, great. That’s – had questions. Thank you. I’ll let others to follow.

Duncan Middlemiss

Thanks, Andrew.

Andrew Mikitchook

Congratulations.

Duncan Middlemiss

To be clear, I don’t think we really found the upfronts without either, so that’s going to be a real moving target, hopefully sooner.

Andrew Mikitchook

Sooner is better. Got it.

Duncan Middlemiss

Yes, absolutely.

Operator

Thank you. This concludes today’s conference call. Thank you for participating.

You may now disconnect.