Good morning. Welcome to Wesdome Gold Mines Third Quarter Financial Results Conference Call. I will now turn the call over to Heather Laxton, Chief Governance Officer, to begin today's call.
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 November 8th, 2018. 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.
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 overview of historical quarterly production at the Eagle River mine by Duncan Middlemiss, then a more detailed operational review by Marc-Andre Pelletier. This will be followed by a financial review by Ben Au, then an exploration review by Mike Michaud. Finally, Duncan will conclude with a summary and outlook. Duncan, please go ahead.
Thanks, Lindsay. Firstly, I would like to congratulate the team at Eagle River for delivering a superb third quarter. Total gold production was 19,795 ounces, with Eagle River head grades at 13.3 grams per tonne, resulting in the best production quarter the mine has had in over five years. We attribute these improvements to our commitment to exploration. Over the last two years, we have invested more than CAD 10 million into the exploration and development of the parallel zones. Subsequently, the 307 zones are now nearly 80% of our total Eagle River reserve base, with both zones boasting reserve grades above 13 grams per tonne, versus the historic 8 Zone at 10 grams per tonne. Eagle River mine reserves are 416,000 ounces, and this is the highest reserve inventory in Eagle's history.
We, as a team, believe that exploration is the research and development of our business, and remain committed to investing in exploration at both our cornerstone assets. I will now turn the call over to Marc-Andre to outline the operational details of the third quarter.
Thanks, Duncan. During Q3, we milled less overall tons because of planned and unplanned downtime at the mill. Planned shutdowns included projects such as relining both the coarse and fine ore bins and the installation and commissioning for our new mill control system. We also had some unplanned shutdowns due to severe thunderstorms with high amount of precipitation and associated power outages in and out around the Wawa area. Due to the reduced mill availability, the milling priority was on the higher-grade ore, higher margin Eagle underground ore. The 303 stope commenced production in September, and this zone is performing better than expected due to lower dilution. The eastern area of the 300 zone will be in production for the rest of the year and in 2019 as well.
Overall, Q3 Eagle River complex tons are lower than the previous year because of the reduction of processing Mishi based upon mill availability. Ultimately, the short to midterm strategy is to produce solely from Eagle River underground in order to maximize our profitability. Of course, this is contingent upon exploration success within the mine, which we are currently targeting the strike extension of the parallel zones to the east and up dip. We expect grades in the fourth quarter to be closer to reserve grades of 12.2 grams per tonne, lower than Q3 due to stope cycling. At Mishi, we expect mining rates to be higher than Q3, but lower than the previous year's average, as we enact our plan to increase the ratio of Eagle River underground ore to the mill, eventually filling the mill entirely with Eagle River.
I will now turn the call to Ben for the financial review.
Thanks, Marc-Andre. As a result of the improvement in our operations quarter, we are happy to report that this is the fourth consecutive quarter Wesdome has generated free cash flow, while concurrently funding a CAD 23 million exploration and development program at Kiena in Val-d'Or, Quebec. Cash position at the end of Q3 is CAD 31 million versus CAD 22 million at the beginning of the year. The improved financial performance is demonstrated with year-to-date net earnings of CAD 0.09 per share, which is a significant improvement over last year with net earnings of CAD 0.01 per share for the full year. Operating cash flow year-to-date were CAD 0.28 per share as compared to CAD 0.10 for the same period last year or CAD 0.20 for the full year. Just a reminder that all costs are reported here in Canadian dollars.
Cash and all-in sustaining costs on a per-ounce basis are trending downwards as production increased with higher mine grades. We surpassed the low end of our 2018 cost guidance of CAD 925 per ounce on cash costs and CAD 1,350 per ounce on AISC. The quarter cost matrix stood at CAD 815 per ounce on cash costs and CAD 1,160 on AISC. For year-to-date, cash costs are CAD 894 per ounce, and AISC are CAD 1,243 per ounce. We expect to finish the year with these cost matrix to be below or at the lowest end of our guidance range. The variance is due to timing of some sustaining CapEx projects in the fourth quarter. I'll now turn the call over to Mike for a review of exploration.
Thanks, Ben. After completing the 3D modeling at Eagle River Mine in the third quarter, we commenced a 10,000-meter surface drilling program with two drills to test for the possible eastern extension of Zone 7 and 300 across the mine diorite. The A Zone, which has already produced a million ounces, is continuous over the mine diorite and is interpreted based on albeit limited data, but with encouraging results that the 307 Zones may also replicate across the mine diorite. This drilling program is testing for structure from surface to a depth of 400 meters, which will provide targets for follow-up underground drilling. Defining resources closer to surface and further to the east from our current mining areas has the potential to greatly improve mine production and economics of the mine in the near to mid-term.
In addition, we have added a fourth drill underground to test for parallel structures as well at deeper depths. At the Kiena Mine, we are very excited about the ongoing drilling at the A Zone, which continues to deliver high-grade results with the majority of holes encountering visible gold within shear-hosted quartz veins. In September, definition drilling of the A Zone identified a well-defined moderate plunge to the gold mineralization along the basalt-schist contact that extended over 500 meters along plunge. Using a limited number of historic holes, it is now interpreted that the A Zone could have a plunge that extends into the previously mined VC Zones, which is an additional 500 meters of plunge length. In fact, one drill hole in 2017 returned 255 grams gold per tonne over 5.6 meters, then interpreted to be the VC Zone.
We were initially perplexed, given these high grades in quartz veins were unlike the historic VC Zone mineralization. Now that we have more information, it appears that this intersection is most likely the up-plunge extension of the Kiena Deep A Zone. This is confirmed by four other historic holes that returned similar styles of gold mineralization and defined the basalt-schist contact. We still need to drill here, but this extension would have the potential to significantly add to the resource base, as it would extend the mineralization over 400 meters higher in elevation than our current drilling level. Additionally, the location of this mineralization would easily accessible to existing mine development and could be a vital enhancement to any restart scenario.
Although the drilling earlier in the year was designed to infill the previous results, the more recent drilling completed along the northern and southern extensions of the Kiena Deep A Zone has now extended the A Zone along strike in excess of 400 meters, and it continues to remain open, up and down plunge. Drill data for the upcoming resource estimate was cut off on October 12th, but we will continue to be drilling until December 31st and beyond. The area in yellow on this slide will be the approximate boundaries for the resource estimate that we will put out in December. However, we will continue to drill the up-plunge extension for the first six months of 2019 and release an updated resource estimate once we better define this area.
Given the exciting exploration ongoing at Eagle River and Kiena, we expect a good flow of news over the next several quarters. I will now turn the call back to Duncan.
Great. Thanks, Mike. In summary, 2018 has been a great year for both operations and exploration. We raised production guidance last quarter to 70,000-75,000 ounces, and with 54,400 ounces produced to the end of the third quarter, we are well on track to deliver our revised number. Head grades have been the best they have been in years, and the third quarter was the best production quarter the mine has had in many years. Additionally, we have had four consecutive quarters of free cash flow generation while funding the largest exploration program in the company's history at both Eagle River and Kiena. At Kiena, with continued exploration success, our goal is to reopen the mine with the Kiena Deep A Zone anchoring production.
The up-plunge extension is a potential game changer, as this would significantly reduce capital and time to get production restarted due to the existing mine development already in place above the 1,050-meter elevation. We would have faces at the top of the plunge at 670-meter level, a face at the bottom of the ramp at 1,050-meter level, and two faces minimum from lateral development bisecting the plunge above 1,050-meter level. This would provide for multiple access points and quickly open up several mining phases. All the while, concurrent ramp development below 1,050-meter level for the deeper A Zone material could occur. Our success to date in discovering high-grade mineralization in the Kiena Deep A Zone has been remarkable.
We plan to have a resource statement out in late fourth quarter with an adjusted representative top cut. We deem this resource to be viewed as a snapshot in time.
Current drill spacing is 25-meter by 25-meter centers within the resource area. After the resource estimate, we will complete an economic analysis and determine next steps while continuing infill drilling on 12.5 by 12 .5 meter centers, as well as zone extension drilling. Our strategic goal is to have two operating assets on our way to becoming an all Canadian mid-tier producer, a top-tier jurisdiction. We plan to achieve this by a restart at the Kiena Mine and by systematic investment into in-mine exploration at the Eagle River Underground Mine, where reserves currently stand at 12.2 grams per tonne. By utilizing our existing infrastructure to increase production, we ensure low CapEx and low risk path to increase production and cash flows. I will now turn the call back over to the Operator and open up the line for questions.
Thank you. Ladies and gentlemen, at this time, if you have a question, please press star then one on your touchtone phone. If your question has been answered or you wish to remove yourself from the queue, you may press the pound key. 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 of Industrial Alliance. Your line is open.
Great. Thank you, Operator. Hello, everyone. Duncan, would you think of perhaps putting Mishi on care and maintenance, without filling the mill at Eagle? I noticed the profitability is about the same with or without it.
Wow. I think really we all recognize it. We've been viewing Mishi more as a bit of an operational benefit for the mill. That's certainly having a good look right now at the real contribution of Mishi. Eagle River is where the margins are created, and by milling that, at 13.3 grams per tonne, certainly provides with excellent production results. I think that's fairly evident, and it's something that's under review right now.
I see. Good. Maybe for Michael, you mentioned in the text and on the call that there's three drills testing along strike into the east of the 300 zone. Do you have strong evidence that you're going to be successful there? It's quite a good commitment in terms of drill logistics.
Yeah. I think when we put together the three-dimensional model, we were able to map some of the structures from existing drill holes. That's given us some confidence that the structures actually continue east from seven and 300 zone. Also some of those drill intersections did have some good values. We're not completely drilling in the dark here. We do have some previous drilling we're going on and a good model. We're pretty confident we're going to hit the structures. From that, we sort of have to identify where the best high-grade shoots are and then focus the drilling on those. We feel pretty confident about the program for this year and all of next year.
Great. Okay. Thank you. Maybe between the two of you, the top cut at Kiena, have you got any guidance on where you think the resource consultants are going to come out with that?
For the top cut, George? No. Obviously, this is being done by independent third party, so it'd be premature for me to say anything. I think I'll steer clear of that, and we'll wait for the resource statement to come out in mid-December.
Got it. Thank you.
Thank you. Our next question comes from David Balestieri of The Quad Group. Your line is open.
Hey, guys. That question was just asked on the top cut. I thought you can give us a little bit of color there, what you thought it would be. The only other question I had was, do you guys anticipate a commissioning updated resource report before the end of 2019? For Kiena.
For Kiena, yeah. No, we do. We deem the December 2018 resource statement really as a snapshot in time. As Mike mentioned earlier, really, we cut the drilling off for this resource statement, October the 12th. Certainly, essentially, we know that this zone has got some legs to it, so we haven't defined it all entirely. We're not stopping drilling here at all. We're actually in the process of mobilizing one of the drills up to the 670-meter level so that we can test the top of the projected plunge line closer to that intercept of 255 grams over 5.6 meters. Yeah, it'll be ongoing. I think probably at some point in 2019, it'll be appropriate to do another resource statement.
Okay. Thank you very much.
Yeah.
Thank you. Our next question comes from Barry Allan of Laurentian Bank Securities. Your line is open.
Yes, good morning. Marc-Andre, I was getting some feedback over the phone when you were going through your guidance for the fourth quarter at Eagle. If we could just maybe flesh that out a little bit. As what I heard, sequencing in the mine, the average grade will probably come down more to the reserve grade from Eagle. I also noted that there seemed to be some buildup of ore stockpiles. I'm assuming that must be Mishi ore that's sitting in front of the mill, and that the question that I really have, how much ore do you think you can get through in the fourth quarter, and would that include some Mishi ore, or is it strictly going to be all Eagle?
Okay. Good morning, Barry. As Duncan mentioned, we're in very good position to meet our mid-range guidance. We're talking about 72,000 ounces. Mainly, we're going to push for the high-grade ore for sure in the Q4. As it is, we see processing Mishi for about 15,000-20,000 tonnes in the fourth quarter.
Okay.
We are going to process more tons.
Yep. Okay.
We started the quarter with the stockpile at Mishi. We have about 10,000 tonne stockpiles. Eagle, I think we have 7,000 tons. Very good shape for the fourth quarter.
You think you will get through pretty most of those stockpiles during the quarter?
Yeah.
Yeah. Okay. Maybe, Duncan, when you were talking about the upper zones at Kiena, I think I started to hear some suggestion that maybe the upfront development capital that you initially kind of ballparked in the CAD 50 million range to get down and do enough development to actually open the deposits up for production, may not be required upfront provided you are successful in defining the upper extension of the A Zone. Is that approximately correct?
Yeah. I think really what we see, Barry, infrastructure's there. You've already got ventilation established, the escapeway and everything else above the 1,050. Like I say, you can get four faces over to that plunge very quickly. We're sort of looking at come over on 880-meter level and bisect sort of the plunge line, and you could get a ramp up and a ramp down, and obviously you'd have four kind of ramps going into it. Really, we see the potential timeframe for developing out, if it comes to fruition, of course. We need to.
Yes.
It really dissipates the timeframe to production. I think it lessens the upfront capital requirements. Really, if it does come true that we do have ore above 1,050, it would certainly just almost allow you to fund the single-phase down ramp below the 1,050, and you can kind of, instead of that being your priority, you keep the heat on it for sure, but it certainly is a much nicer way to develop the ore body.
Okay. Just finally, the spending round at Kiena, I think you've finished all your drifting as of the end of October. Are you kind of in a hold period now until you actually get this resource out and decide what you want to do next?
No. We're not stopping drilling at Kiena.
No, I mean, just on the drifting. Just on drifting underground.
On the drifting. We don't have any drifting planned right now, Barry. Like I say, that could change fairly quickly if Mike is successful in another five holes in the plunge, I think we're pretty convinced then we'd probably get a bisecting drift over in order to sort of help with the diamond drill platform initially. Obviously, if things work out, it would be a great access point to the midpoint of that plunge line above 1050 to 670. It's not that far away either. It's only about-
240 meters.
240 meters, yeah. That's really...
Six weeks
Yeah, six weeks of development.
Yep. Okay. I appreciate it. Thanks, guys.
Okay. Thanks, Barry.
Thank you. Again, ladies and gentlemen, to ask a question, please press star then one on your touchtone phone. Our next question comes from Phillip Kerr of PI Financial. Your line is open.
Thanks, Operator. Duncan, just a quick question on the unit costs at Eagle River. It appears that they came up a little bit here during the quarter, despite getting into some of these higher grade stopes. Could you just elaborate on what was the result of those rising costs?
You're talking cost per ton?
That's correct.
Yeah. Okay. Obviously, cost per ounce was down significantly. Yeah. Cost per ton. Eagle River Mine, that was the majority of the tons processed and it's no secret it's a narrow vein underground gold mine. Our costs are anywhere from CAD 280-CAD 300 a ton. However, I always concentrate on cost per ounce, so I think that that's the focus for us. Obviously, Mishi wasn't really processed throughout the quarter due to the mill availability and we made some good improvements in the mill, Phil, just to let you know. We've installed a brand new control system in July and did some, I'd say rebuilding of our coarse ore bin and our fine ore bin. I think right now we're in good shape in terms of our mill facilities. That's good.
Yeah, I think really what you're seeing there is probably just the non-processing of the Mishi tons. I think that's really what it is. Again, you see where the margin's coming from here. There's no doubt it's Eagle River, right?
Okay. Yeah, I think just the MD&A noted maybe slight increase of G&A on a cost per tonne basis with just increased administration and personnel on the technical teams, I guess.
Yeah.
Yeah, Phillip, it's Ben. The increase in G&A is a function of an increase in headcounts for the technical team here in the corporate office.
Okay.
We expect CAD 1.5 million going forward on a quarterly basis.
Just as we move forward with the depletion of ore coming from Mishi and increase of underground mining activity, we can maybe expect that number you said, Duncan, was around CAD 280-CAD 300 a ton. Is that correct?
Yeah. Exactly. Yeah.
Okay. Okay. That's it. Thanks, guys.
Yeah.
Thank you. Ladies and gentlemen, this concludes the program. You may all disconnect. Everyone have a wonderful day.
Great.