Good morning. 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.
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'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 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 a 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.
Good morning.
Ben Au, Chief Financial Officer.
Hello, this is Ben Au.
Scott Gilbert, Vice President, Financial Systems and Cost Control.
Hello, everyone.
Marc-Andre Pelletier, Chief Operating Officer.
Hello, this is Marc-Andre.
Mike Michaud, Vice President, Exploration.
Good morning.
Lindsay Carpenter-Dunlop, Vice President, Investor Relations.
Good morning, everyone.
With that, it's over to Lindsay for a review of the agenda for today's call.
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.
Thanks, Lindsay. Q3 was a very strong quarter operationally, with almost 29,000 ounces of gold produced, a 29% increase over Q2. Head grades continue to be high at 23.4 grams per ton due to the continued excellent performance of the 303 lenses. 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 a Falcon concentrator, which will increase gravity recovery, additional exploration platform development, and a CAD 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 four years capacity at current mill feed grades.
Had we not accelerated some of these projects to better position us for the future, AISC cost would have been CAD 1,176 an ounce or $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.
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 72,000-80,000 ounces up to 88,000-93,000 ounces. We have kept cost guidance unchanged due to the tailings facility management project. 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.
Thanks, Duncan. Q3 benefited from both strong production and a high gold price, with realized price averaged at CAD 1,957 per ounce Canadian. We generated free cash flow of CAD 9.2 million, or CAD 0.07 per share, after meeting sustaining capital, all operational costs, advancement of the TMA project, and investment of CAD 5.9 million at Kiena. Cash position increased from CAD 27.4 million at the end of Q2 to CAD 38.6 million at the end of Q3. Year-to-date net earnings of CAD 0.21 per share have solidly increased over 2018's full year net earnings of CAD 0.09 per share. Q3 also saw us closing the CAD 45 million revolving line of credit facility, of which CAD 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.
Thanks, Scott. Wow, what an exciting quarter. Great exploration results at both Eagle River and Kiena. 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. It has now been extended another 300 meters down plunge to the 1,300-meter level. High-grade results included hole 104 that returned 92.8 grams per ton gold over 11.1 meters core length or 37 grams per ton 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, full of those areas. Elsewhere, we are continuing to aggressively explore the Eagle River deposit with six 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.
On surface, we continue 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. While 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 three times. We increased the inferred resources by 38%, and importantly, we increased the indicated resource grade from just under 10 grams per ton to over 18 grams per ton. 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. 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 studies supporting a potential restart, as we continue to drill and expand the current resource base during the remainder of 2019 and beyond. Meanwhile, five 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. 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. This will determine the next steps and timing of potentially restarting mine operations. Over to you, Duncan.
Great. Thanks, Mike. In summary, we're 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 matrix. The potential is huge here, kilometers. 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 at the tailings management area, which will add over four years of capacity when completed in 2020. 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 five drills turning. 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 will now hand over the call to the operator, who will open up the lines for the question and answer session. Thanks.
As a reminder, to ask a question, you will need to press *1 on your telephone. To withdraw your question, press the # key. Please stand by while we compile the Q&A roster. Our first question comes from Phil Ker with PI Financial. Your line is open.
Thanks, operator. Duncan, just a question on unit costs. Just correct me if I'm wrong, but it just slightly appears that the unit costs, mining cost per ton, have been going up, maybe ever since driving into the 303 Lens. Could you maybe just touch on what's causing that?
Yeah. What you see there, Phil, is really the reduction of Mishi, really is what it is. If you're looking at the cost per ton mill, that's certainly part of it. Obviously, the volume is down from that. Really, I've been saying for one year now, really the emphasis we are on right now is quality over quantity, for sure. We foresee Eagle River being able to generate 750 to 800 times 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. I'm sure that we'll be able to bring it down. Cost per ounce, that is the metric which we certainly have to be cognizant of.
Yeah, fair enough. Okay. With that said, what % of the ore from underground is actually coming from the 303 Lens at present time or last quarter?
I'd say, this is Marc.
Yeah.
It's about 50%, 50, 55% of the feed.
Is that ratio expected moving forward?
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.
Okay. That's good. 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 6-18 months?
The development on 79 meters is halfway done as we speak. We are talking about 550 meters. That will be done this year. Our team is actually looking at the design to develop a drift to allow us to better drill the down plunge of the Kiena Deep at depth. That is something that we are working on, and once the design is completed, that is something we plan to pursue early next year.
Okay. Sir, could you just clarify what level you've got ramp development down to at present and where that exploration drift is being planned?
Yeah. It's at the 1,000 meters level. What we're looking for is to provide access to the northeast of the Kennedy.
Okay. The exploration drift's at the 1,000-meter level. Where is the ramp at present?
The ramp is at 1,050.
Okay. All right. Very good. Thanks for that, guys.
Thanks.
Thank you. Once again, ladies and gentlemen, if you wish to ask a question at this time, please press star then one on your touch-tone telephone. Our next question comes from Ryan Walker with Echelon Wealth Partners. Your line is open. Ryan, your line is open. Please check your mute button.
Hi, guys. 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 a higher gold price for that?
We actually plan to process Mishi ore in Q4. In Q3, what we've done, and I'm sure you understand, is we prioritize higher-grade ore to the mill due to lower mill availability. That's what we've done in Q3. In Q4, with a higher mill availability expected, we will be processing some Mishi.
It was always our plan, Ryan, through the annual budget for 2019, that we'd be getting 3-4,000 ounces of Mishi. 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.
Okay, great. Congratulations, and yeah, it's been fantastic to follow. Cheers.
Great. Thanks, Ryan.
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.