Earnings Call: Q2 2019

Aug 9, 2019

Earnings release

Good morning, and welcome to Weststone Gold Mine Second Quarter Financial Results Conference Call. I will now turn the call over to Heather Laxton Laxton 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. So here in the room this morning, we have Duncan Middleness, President and CEO. Good morning. Ben Alff, Chief Financial Officer. Hello, this is Ben Alff. Marc Andre Pelletier, Chief Operating Officer. Hello, this is Marc Andre. Mike Michaud, Vice President, Exploration. Good morning. And Lindsay Carpenter Dunlop, Vice President, Investor Relations. And 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, 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 and A session. Duncan, please go ahead. Great. Thanks, Lindsay. The Q2 was a very strong quarter, surpassing internal forecast 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 2 updates at Eagle River including the discovery of 2 potential new zones outside the mine diorite and a keen 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 went 23.4 grams per ton, a 21% improvement over the Q1. 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 planned 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 would benefit our 2020 production plan. The spring saw 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. In addition, 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, Mark. In the Q2, Eagle River generated $1,200,000 in free cash flow. Of the $22,100,000 mine profits this quarter, we invested $6,900,000 back at the Eagle River mine and invested another $5,500,000 towards the exploration and development of the Pena complex. The company continues to internally fund all its exploration and development activities. We ended the quarter with $27,400,000 in cash and bolster our balance sheet with $40,000,000 revolving credit line announced in June. Cost performance for the quarter continued to trend down with all in sustaining costs of $12.20 per ounce, $60 per ounce lower than our lowest point of our guidance of $12.80 to $13.50 per ounce. Foreign sustaining cost is expected to increase in 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 activity. Thanks, Ben. 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 Stones. 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 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 5th 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 downhole. 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, 4 drills continue to operate on the 10 50 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. 1 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 5th drill located on the 6 70 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 1 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 VC-one and VC-six zones. We are considering driving an exploration drift near the 7 90 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 DC 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 Q2 at Eagle were 23.4 grams per tonne and for the first half of the year, 20.9 grams per tonne. 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 twenty nineteen 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 twenty twenty 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 2 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. Our first question comes from George Topping with Industrial Alliance. Your line is now open. Great. Thank you, operator. Hello, everyone. So just look 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, it's Mike here. Yes. We certainly 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 will be sort of reflected in this updated resource estimate. So you can see from the drilling, like some of these infill holes, the 68 grams over 19 meters, I mean, this is really a pretty high grade zone. So, yes, we definitely, based on the new sort of interpretation, the new geologic domain that we've done to separate the different populations, we expect to see an increase in grade capping levels. Right. And then generally, the experiences, the closer the infill, the more confidence and therefore higher you're getting higher capping comfortable with higher capping? Yes. Yes. Great. And then just switching back to the Eagle. Could you be on the tailings dam expansion, but more detail on how long that will last you and what production assumptions have you assumed in your design of it? Yes. George, it's Duncan. So 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 5 years, I would say, and there's more lift to come after that. We're going to use the existing tailings management facility, so it's good that we have the same footprint. The tonnage assumed for that is all Eagle. So it's about 7 50 tons per day and that's the assumption based on that. Great. That's very helpful. And 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 woods. Is that the case? Hi, George. This is 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, so that could be an addition. Grades, Q3 should be close to what we've seen this year, but we expect the grade to go lower in Q4 at around 16, 17 grams per ton. Our next question comes from Ryan Walker with Echelon Partners. Your line is now open. Hi, guys. Congrats on a great quarter. So a couple of my questions answered already. Just as far as the tailings, so the $6,500,000 for this tailings program, that's in 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 and A, but we decided to use the Mishi pit for water management. So 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. So, yes, absolutely. Okay. And then just as far as production costs, you're up at 3.90 a tonne this quarter. Can we expect that level to kind of persist into the second half of the year? Yes. Ryan, it's Ben. We expect the 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. And our next question comes from Phil Cur 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 time line to complete that? And I believe it was maybe proposed on the $790,000,000 level, was that right? Correct. The $79,000,000 level is actually an incline ramp that would be basically right between the $67,000,000 level and the $105,000,000 In our budget this year, we have about $2,500,000 to develop that drift. It's about 3 months of development of 2 50, 275 meters total. And 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. So and at the same time, so it's about 3 months. So it will be complete by year end. And at the same time, we think that we're going to continue to drill the out plunge from 67 Millers. Okay. So even with this new proposal, this $2,500,000 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. Well, if there's no further questions, then we're happy to wrap up. Thanks for listening today to the West Elm Q2 financial and operational results conference call.