Good morning, welcome to Wesdome Gold Mines' second quarter financial results conference call. I will now turn the call over to Heather Lachapelle to begin today's call.
Thanks, operator. Good morning and happy Friday, everyone. Thank you for joining us today. Quickly here, 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 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 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.
Marc-Andre Pelletier, Chief Operating Officer.
Hello, this is Marc-Andre.
Michael 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. Today, Duncan will begin with the 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 activities 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.
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 two updates at Eagle River, including the discovery of two potential new zones outside the mine diorite and a 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.
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 were 23.4 grams per ton, 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 tons. Mill availability during the quarter was affected by plant maintenance and improvements. However, production tons were unaffected during the quarter, with Eagle River generating a 12,000-ton stockpile at 20 grams per ton at the end of the quarter. In addition, a new mining horizon in the 303 Zone is being developed between the 884 and 925-meter level. This work will 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 a 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-ton Mishi stockpiles. 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 on the financials.
Thanks, Marc. In the second quarter, Eagle River generated CAD 1.2 million in free cash flow. Of the CAD 22.1 million mine profits this quarter, we invested CAD 6.9 million back at the Eagle River mine and invested another CAD 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 CAD 27.4 million in cash and bolster our balance sheet with CAD 40 million revolving credit line announced in June. Cost performance for the quarter continued to trend down with All-In Sustaining Costs of CAD 1,220 per ounce, CAD 60 per ounce lower than our lowest point of our guidance of CAD 1,280-CAD 1,350 per ounce.
Mining sustaining costs 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.
Thanks, Ben Au. 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 ton 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 a previous hole returned 41.4 grams per ton 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 tons from their current level. 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 remain open down plunge and long strike and are proximal to existing underground workings. Hole 47 returned 53.8 grams per ton gold over 1.9 meters down hole. 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, four drills continue to operate on the 1,050-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 ton 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 one hole returning 31.1 grams per ton gold over 5.1 meters. It is now interpreted that the A Zone is folded as it extends up plunge to intersect the VC1 and VC6 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 a Preliminary Economic Assessment, which will be based on this updated resource estimate. Now over to Duncan for his summary.
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 ton, and for the first half of the year, 20.9 grams per ton. 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 two 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.
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, that's star then one to ask a question. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question comes from George Topping with Industrial Alliance. Your line is now open.
Great. Thank you, operator. Hello, everyone. Hi. 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?
Hi, George. Mike here.
Additional drilling. Yep.
Yeah. As you know, this has been 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'll be sort of reflected in this updated resource estimate. You can see from the drilling, like some of these infill holes, the 68 grams over 19 meters, this is really a pretty high-grade zone. Yeah, we definitely, based on the new sort of interpretation, the new geologic domaining that we've done to separate the different populations, we expect to see an increase in the grade capping levels.
Right. Generally, the experience is, the closer the infill, the more confidence and therefore, you're getting comfortable with higher capping. Great.
Yeah.
Great. Then just switching back to the Eagle. On the tailings dam expansion, a bit more detail on how long that will last you and what production assumptions have you assumed in your design of it?
Yeah. George, it's Duncan. Really what's going on this year 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 five years, I would say, and there's more lifts to come after that exist. We're going to use the existing tailings management facilities, it's good that we have the same footprint. The tonnage assumed for that is all Eagle, it's about 750 tons per day, that's the assumption based on that.
Great. That's very helpful. For the rest of the year, we should look for, I would imagine, the tons increasing at Eagle, mine grade coming down, and cost per ton dropping as well as you take wider widths. That's the case?
Hi, George. This is Marc.
Hi, Marc.
What we see in H2 for Eagle is basically, you're correct, an increase on tons. We plan to process the 12,000 ton stockpile in H2. That could be an addition. Grades, Q3 should be close to what we've seen this year. We expect the grade to go lower in Q4 at around 16, 17 grams per ton.
That's all right.
Thank you. As a reminder, ladies and gentlemen, press star then one to ask a question. Our next question comes from Ryan Walker with ECHELON Partners. Your line is now open.
Hi, guys. Congrats on a great quarter. A couple of my questions answered already. Just as far as the tailings, this CAD 6.5 million for this tailings program, that's an addition to previous CapEx guidance?
We do have a portion that was planned 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 decided to use the Mishi pit for water management. 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. Yeah, absolutely.
Okay. Just as far as production costs, they're up at CAD 390 a ton this quarter. Can we expect that level to kind of persist into the second half of the year?
Yeah. Ryan, it's Ben. Since most of the production comes from Eagle River, so I would assume that that would be the expected production costs going forward.
Okay. Thank you. That's it for me. Thanks, guys.
Okay.
Thank you. Our next question comes from Philip Ker with PI Financial. Your line is now open.
Thanks, operator. 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 cost, length, location, and timeline to complete that? I believe it was maybe proposed on the 790 level. Is that right?
Correct. The 79 level is actually an inclined ramp that's basically right between the 67 level and the 105. In our budget this year, we have about CAD 2.5 million to develop that drift. It's about three months of development, about 250, 275 meters total. We basically fine-tuning the design of that drift, and once we got the go-ahead, we think that we'll be able to begin in September. It's about three months, so it will be complete by year-end. At the same time, we think that we're going to continue to drill the up-plunge from 67 level.
Okay. Even with this new proposal, this CAD 2.5 million was already baked into your budget and capital allocation to Kiena for the year?
Exactly.
Okay. That's it for me, guys. Thank you very much.
That concludes today's question and answer session.
All right. If there's no further questions, we're happy to wrap up. Thanks for listening today to the Wesdome Q2 Financial and Operational Results Conference call.