Q2 2022 Wesdome Gold Mines Ltd Earnings Call

Good morning. Welcome to Westdown Gold Mine's second quarter 2022 Financial Results Conference call. I will now turn the call over to Heather Laxton to begin today.

Great, thanks operator and 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'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 August 10, 2022. Both documents are available on our website and on CR.

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. And now it's over to Lindsay Van Lough, Vice President of Industrial Relations.

Thanks Heather. Speaking on the call today will be Duncan Middlemas, President and CEO , Fred Langevin, Chief Operating Officer, Scott Gilbert, Chief Financial Officer and Mike Michaud, Vice President of Exploration.

The agenda today will be Fred leading off with a Q2 operations review and then Scott will discuss the related financial results. Mike will then follow with an exploration update at both Eagle River and Kena and finally a conclusion and outlook summary from Duncan. We will then open the call up for questions. Fred, please go ahead.APPART

Thank you, Lindsay. Hi, everyone.

Thank you for calling in this morning. Since I officially joined Westome on June 15th, I've spent a lot of time with the teams at both sites, and I'm glad to have the opportunity to provide an update on our G2 operating results.

At Eagle, the climb was for a lower grade cycle in the first half of the quarter with higher grades expected in the latter half, especially in June .

Early into the month when performing a routine rope change, it became apparent that the brand new voice stroke we had on hand had a manufacturing effect.

While we were able to source a replacement row, the time to do so coupled with the installation process and subsequent testing and validation resulted in two weeks of reduced productivity as we had to rely on trucking order to surface.

Secondly, we suffered a failure of one of our leach necks. The condition of this thing had been identified as problematic and was slated to be decommissioned and replaced later in 2022. We did not an

This did further impact another week of hybrid milling during quarter. However, as processing activities were suspended while we investigated the event.

Finally, a very high-grade stop in the Falcon Zone has come up with lower grades than expected, impacting golf productions.

As we continue to gain more experience in this new zone, great assumptions for the second half of the year in the area have been revised to be more conservative.

At Kina, the new equipment delivered in Q2 is performing well and the overall reliability of the fleet is steadily improving. Development performances have been tracking up in Q2 and are expected to ramp up to full capacity in HQ as long-awaited bolting equipment is delivered and improvements to the ventilation system in Kina D are put in place.

But at the moment, without the faithful plant, we're constrained from increasing mining rates much beyond what has been achieved in Q2.

While most components of the new facile plant have arrived and are being installed, certain electrical components have had delays in delivery.

For this reason, we're now looking at late Q4 for delivery and commissioning of the Facebook One Australian

Over to you Scott.

Thanks, Beth.

To equate the operational challenges of Eagle River regarding the hoist rope and the leach tank failure and the supply chain challenge of Aquina, we generated $61.9 million of revenue in Q2 2022.

and the sale 26,000 ounces of gold, which generated a cash margin of $21.9 million.

We invested $38.3 million in combined capital expenditures at Eagle River and Kiena in the quarter.

Despite the lower cash margins and higher capital expenditures, we ended the quarter with a cash balance of $23.5 million.

with the whole 45 million secured credit facility available.

Subsequent to the quarter end.

We drew $16 million US of the revolver as both operations are scheduled to be shut down for maintenance in July . Based on our most recent forecast, our cash position and revolver is sufficient to bring keen anti-commercial production.

Cash costs in AISD per ounce sold increased from Q2 2021, primarily due to the 30% decrease in ounce sold, along with inflationary pressures in plastic, streamables, and vapor.

sold increased from Q2 2021 primarily due to the 30% decrease in now sold along with inflationary pressures for costs of consumables and basing. Over to you Mike.

Thank you.

Thanks, Scott.

At Eagle River, underground drilling is ongoing to upgrade and expand many of the known mine zones at depth, including the 300 East, 711 and 8th zones.

Additionally, drilling at the Falcon 7 zone is ongoing with both underground and surface drilling to expand and better define the zone.

The ongoing definition and expansion during that Falcon 7 zone has increased our confidence of the gold grade distribution and continues to show the high grade nature of this zone.

Of significance, the ongoing drilling has also identified a number of thicker sections of the zone, as well as splayed and fold noses that have the potential to add significantly to the existing near mine resource base.

A new drift has now been established on the 355 meter level to drill the up-punch extension of this zone and provide access for mining.

The results of the ongoing surface drilling at the Falcon 7 zone, as well as at the central portion of the mine diorite where the 7 zone trend has been identified by drilling, will be released shortly.

At Kina, we continue to be pleased with the drilling results that have again expanded the high-grade A zones and football zones.

Most recently drilling at the A zone has discovered a new mineralized interval located 100 meters below the known limit of the A zone resource.

This hole returned 13 grams over 83 meters.

The hole was slightly down plunged so that's not the true thickness and we're looking to identify that. The hole was slightly down plunged so that's not the true thickness and we're looking

This highlights the potential at depth. The company plans to develop a hanging wall exploration drift on the 116 level to establish more optimal gill play platforms.

Of course, the most exciting news for the quarter is the discovery of a new zone, namely the South Limb. Up to this point, the vast majority of the exploration drilling at the A Zone has focused on the North Limb along the sub-vertical contact between mafic and ultramafic rocks. However, recent drilling was designed to test the lateral extension of the A Zone along the South Limb of the pole. Although early days, initial drilling returned 51 g per tonne over 4.7 m core length.

entire property.

Meanwhile, on surface, we are drilling the press scale and dupus zone zones to better define and expand these areas to upgrade to reserves in the future.

Also drilling is ongoing at Schocki and the recently discovered Borjozones along the southeastern part of the property.

and we expect to release these results in the near future.

Over to you Duncan. Great, thanks Mike.

Well, the guidance reduction this year of both assets is disappointing. We believe the new conservative targets we have set forth are very achievable despite the step back experience earlier in the year.

With the support of Fred now and the COOC, we are quickly adapting to this challenging environment and making the necessary investments in human capital and processes.

For the second half of 2022, we are forecasting sequentially higher production.

Q3 will be lighter than Q4 due to the planned shutdowns for standard mill upgrades and the refurbishment of the Thich Nhat Hanh River.

As well, HINA was also shut down for the refurbishment of the hoist breaking system.

As well, the results from initial development in the Falcon Zone are showing slightly lower grades than expected.

which we are conservatively applying to our second half grade profile forecast.

Early indications are showing that the high grade is more variable than initially thought.

We are currently advancing plans to establish rigorous short-term block models and reconciliation procedures to improve near-term projections of high-grade zones.

Additional drilling and chip sampling within the ore development has already been implemented.

At TINA, the rate of mining high-grade stoves to the A zone will be slower than originally planned until the paid sale plan is completed, thereby impacting the second half production.

Additionally, the development deficit incurred earlier in the year has also impacted scope availability.

We will continue to provide updates on the progress of KINA as they become available.

We are taking proactive measures to mitigate cost overruns as a result of lower production and inflationary pressures, including deferment of capital expenditures wherever practical.

We remain enthusiastic about the upside at each of our minds and expect to ramp up exploration results in the coming months.

So stay tuned for that.

This concludes the formal portion of today's presentation. We will now open up the line for questions.

Thank you. As a reminder, ladies and gentlemen, if you want to ask a question, you'll need to press star 11 on your telephone. If you want to ask a question, you'll need to press star 11 on your telephone.

Please stand by while we compile the Q&A roster.

One moment for our first question.

Thank.

And our first question comes from Andrew McKittick with BMO. The line is now open.

Good morning. Thanks for the detailed rundown. I was just wondering if you could provide a little bit more.

since the where you're seeing inflationary pressures.

You know, that the two minds beyond.

Um, you know, kind of the.

cost divided over lower production, but actually in terms of consumables or labor, where are you seeing more impact and where are you coping better? We kind of have a sense of what the main drivers are.

Good morning Andrew, it's Scott. Thanks for the question. So we've done analysis and at both of our sites when we look at it we're actually very heavily dependent on labor costs and contractors. That's probably about 60% of our cost, 60 to 65%. We've also done analysis on diesel fuel, cyanide, propane, ground support.

And we're seeing probably approximately about 10%, but they don't have significant impact on our overall cost because of our small size. So it's one advantage of having a smaller line type.

and not the largest cost contributor on labor. Any commentary on how that's?

retention costs essentially at this point in time or is that a thing?

I think really what we're seeing in the industry, Andrew, because it's been such a demand and low supply for qualified people and everything else, yeah, we're definitely – the industry is very competitive in terms of attracting and retaining. And it's certainly – it's a labor market, I would say, right now as opposed to companies. So that's what we're faced with. So in order to get the proper resources in the door to execute, you have to pay the going rate.

Great. One last question. Looking beyond.

call it this year or even beginning of next year. Any?

Is that broad changes or long-term adjustments that you're seeing to how you have to mine Eagle or even Kiena once you're ramped up and have these new workplaces available to you? Is that essentially on a medium to long term still completely intact?

I think that's the way to look at it, medium to long term. I think really when we'd love to get our paste field plant up and running and see exactly how we'll be able to perform, what we're seeing right now is the slope cycle being impacted by us having to mechanically place the cemented rock fill into the open voids. That's a lot more arduous than what we had initially projected at this point, as opposed to a paste field delivery.

At Eagle River, I think that really what we've outlined, really, I think the identification of variability within the high grade. Just to be clear, we're quite satisfied with the Falcon Zone. We just see some variability in it. We've had two production experiences there. One's been really positive, one's been less positive, but still very high-grade zone. And so really, I think the more data that we can generate in the zone, the better predictability we're going to get.

from Wayne Lamb with RBC Capital Markets. Your line is now open.

Thanks. Morning, guys. I'm just wondering if you might be able to provide a bit more detail on the grade variability on the Falcon zone and how that might impact mine planning on a go-forward basis. Just curious what proportion of ore you guys expect from the Falcon on a run rate basis.

Mike, can you show here? I mean, really, the Falcon Zone, it's a new zone, it's been the volcanics. We had quite a bit of drilling into the zone when we estimated the initial resources that it had.

and we're happy with that global estimate. And as we started developing it, we...

released this development in the latter part of last year of 622 and 635 level, we certainly were getting more gold, higher grade out of that development than we thought from the drilling.

So now we've got a different level and went after a really high grade area that was in our plant about 49 grams We ended up getting around 30 something grams. So still pretty good material but less than we had.

And I think the variability of zones is just a little bit more than we were expecting. So really what we've done is we now we're getting more development in of course, and that's the best way to do our forecasting, but we've also drilled 80 holes into this Falcon Zone since the resource estimate data cut off last year. So that really has shown and released those results sometime I think in earlier this year other than May.

That data shows that the grade is there, it's high grade. It's just that information just helps us better understand where the high grade is and where the low grade is. And I think what we're finding is when we went in we mined this higher grade area, it came back a little bit lower, but then in the area we thought we had waste, we went into that, we just developed through it, and now we're mining that because it was higher than the low grade hole. So with that variability, we know we need development done in front of us, certainly to do our forecasting and our budgeting.

and also info drilling that helps but we certainly still believe in the total ounces coming out of the zone and we certainly believe on the extension of the zone that we're trying to drill off right now. So I think we're still pretty comfortable with everything that's helping. We'll be right back.

Yeah. Okay, got it. Thank you. And then maybe Akina, just looking at the guidance on the grade, it looks like the second half implies a bit of lower grade relative to the first half. So just wondering if that's correct or if that's just a function of deferral of some of the higher grade ore into 2023. And then just curious on

your definition of commercial production there. Is it going to be, call it 80% capacity of 850 tons per day? Or just wondering what run rate you need to achieve to declare commercial there?

So, really, the grade function, what you see there, really, Wayne, is the function of, I think, the development deficit and the pay-to-fill delay, I would say. So, really, we're not taking as much of the A zone as initially predicted.

For us, the commercial production really stems around the paid-for-ill plant because at that point-

We feel confident that we'll be able to, you know, you know, cycle scopes in the 80 zone and bring it up to rate. So it's not really an 80%. If you look at the PFS that we put out in 2021, really the first two years, you know, they're ramp up years, quite frankly. I mean, as we ramp down on this zone from 1100 level on down, you know, we don't feel like enough reserves to get it up. 2024 is certainly the year where Kena hits 100,000 ounces of production.

So really it's a lot of, I would say, development dependency and end-to-end page really for us.

the funding capacity. We got it. Thanks and maybe just the last one for me. Um just curious on the funding capacity as you guys have drawn almost half the facility. Um post quarter. Just wonder if there's any additional additional reviewing necessary

We're definitely looking at it, but we've just completed our 6.6 forecast screen and we're going to periodically be drawing on the revolver over the remainder of the year, but we seem to be well positioned with the cash balance and the revolver.

Okay, perfect. Thanks guys.

Thank you.

One moment for our next question.

And our next question comes from Don DeMarco with National Bank. Your line is now open.

Thank you operator and good morning team. Some of my questions have already been answered, but just looking at the CapEx spend for the balance of the year. It was

At Kina in particular, do you expect it to tail off a little into Q3 and Q4?

or has it maybe increased versus guidance?

given the various supply chain delays and so on.

Good morning, Don. It's Scott. So looking at it based on our 6.6 forecast, capital spending would be maybe a touch higher than the first half, but basically consistent, a little bit higher in 2.3 and then it tails off a little bit, as you can see.

Okay guys, that's all for me. Thanks so much.

Thank you. One moment for our next question.

And our next question comes from Ryan Walker with Echelon Partners. Your line is now open.

the call. So appreciate the additional color on the Falcons on that's what I was mostly waiting for. Can I maybe just verify the pace planet? Kena So, uh, did you say that that will be up and running in late to four or the electrical situation in the room.

Yeah, this is Fred. Yeah, we expect that Leighton Q4, the basal plant, will be fully commissioned and working.

OK, great. Thanks very much. That's it for me.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Everyone have a wonderful day.

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