Good morning everyone, welcome to the Wesdome Gold Mines first quarter 2023 financial results conference call. I will now hand the call over to Heather Laxton to begin today.
Great. Thank you, operator, and good morning everyone. Thank you for joining us. Before we begin, we'd like to take this opportunity to remind everyone that during this call we'll discuss our business outlook, and we'll 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 May 10th, 2023. 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.
Now it's over to Lindsay Dunlop, Vice President of Investor Relations.
Thanks, Heather. Speaking on the call today will be Board Chair and Interim CEO, Warwick Morley-Jepson, COO Frédéric Langevin, CFO Scott Gilbert, and VP Exploration, Michael Michaud. Also on the call today is Raj Gill, VP Corporate Development. Warwick, please go ahead.
Thank you, Lindsay. Good morning everyone. I am pleased to report that we have had a good start to the year, producing 28,368 oz of gold. Both cash costs and the all-in sustaining cost came in slightly below our annual guidance. We are well-positioned to meet our production and cost guidance for the year. The second quarter is off to a good start as well as the benefits of the mining cycle embed themselves with the use of the paste fill at Kiena and reconciliations provide positive results at Eagle River. Fred will now take us through the operational results in more detail.
Hi, everyone, and thank you for attending this morning. As Warwick mentioned, we're up to a good start to 2023, with both mines producing either in line or better than internal targets while diligently advancing initiatives that are key to unlocking the full potential of its assets. Starting at Eagle, Q1 production significantly exceeded internal projections due to two main factors. First, the ore left on process at the end of 2022 due to the weather issues causing the shutdown of hauling between the mine and the mill contributed to the grade announces overperformance. Over and above that, the underground mines performed above expectations. The main contributing factor to this overperformance being the positive reconciliation seen in Q1 of last year in Falcon continuing into Q1, with two stopes together yielding close to 15,000 T at 25 g/T .
As planned, we also processed the last of the remaining heap leach ore in Q1. Development performances exceeded targets in Q1, which puts us into a good position to deliver on our plans for the rest of the year. During Q1 at Eagle, we have successfully transitioned long hole drilling activities from contractors to self-perform, and we're happy to report that bringing this core activity 100% under our control is already yielding benefits both in efficiencies and on costs. At Kiena, mining in Q1 yielded better grades than expected, mainly due to the fact that we were able to source a higher proportion of material from the higher grade Kiena Deep, as opposed to the lower grade material in other zones such as S-50. Our recovery efforts of diluted ore from previously mined areas yielded better than anticipated grades.
On the development side, the team's relentless focus on the Kiena Deep ramp execution continued in Q1, with development performances exceeding internal targets against this quarter. At quarter end, the ramp was just shy of level 143 elevation. This positions the mine very well for a seamless transition into the new 129 mining horizon to ramp up production in 2024. It also provides drilling platforms for delineation to proceed sooner, validating ore grades and shapes and firming up our geological understanding in the area well ahead of mining. We also had great success in developing to and into the new A-2 zone on 118, 116 and 114 levels. We're on schedule to commence mining in this new zone in Q2, and development grades so far have outperformed the block model.
The paste fill plant has been steadily operating in Q1, and the team at site is already seeing opportunities to optimize the process. We'll be acting on those in the near future. At Presqu'île, we continue to engage with regulators to secure the authorizations to execute on the exploration ramp project. First excavation of the portal and subsequently of the ramp is expected to proceed in H2 after the required permits are secured. This improved ability to plan and execute at both sites is a direct result of our newly bolstered technical team. We're further leveraging this bench strength in other key areas, such as our annual internal life of mine process, which has been launched a few weeks ago and is expected to further increase our confidence in our assets.
We've made significant headway on the procurement side of things, locking down savings on key consumables such as fuel and ground support. Over to you, Scott.
Thanks, Fred. During Q1 2023, we sold 30,000 oz of gold, which generated revenue of CAD 76.7 million at a cash margin of CAD 34.4 million. The cash cost was CAD 1,407 per oz, and the AISC was CAD 1,977 per oz. The operating cash flow was CAD 5.1 million, and the free cash outflow was CAD 19.6 million. Eagle River Complex sold 24,000 oz, generating a cash margin of CAD 32.5 million, with cash cost per oz of CAD 1,192 and AISC at CAD 1,709 per oz. Kiena sold 6,000 oz, generating a cash margin of CAD 1.9 million and AISC of CAD 3,480 per oz. The cost per ounce are high due to processing lower grade ore from the S-50 environment zone while the ramps for Kiena Deep is developed.
The unit cost will decrease as production increases throughout the remainder of the year. All of the equipment, infrastructure upgrades, and the ramp development at Kiena will be included in both capital for the remainder of 2023. Also during the quarter, CAD 20.1 million of net proceeds was raised under the ATM. The funds were used to pay down the revolver by CAD 8 million and the payables by CAD 12 million. At March 31st, 2023, the cash balance is CAD 25.1 million, with CAD 46.7 million drawn on the revolver. Working capital position has decreased, CAD 38 million at December 31st, 2022 to CAD 14.7 million at March 31st, 2023. Over to you, Mike.
Thanks, Scott. At December 31st, 2022, Wesdome's combined Proven and Probable Mineral Reserves remained just over 1 million oz at an average grade of almost 13 g/T . Additionally, we have a combined Measured and Indicated Mineral Resource exclusive of reserves of 350,000 oz and an Inferred Mineral Resource of 1.1 million oz. Resource and reserves estimates at both sites reflect the higher cut-off grades, reduced exploration budget in H2, a higher allocation towards definition infill drilling, including 25,000 m in the Falcon Zone at Eagle River, as well as a more stringent and robust approach to reconciliation, 3D modeling, and resource classification. In 2023, the company has budgeted 137,000 m of drilling to convert a portion of the existing large M&I and Inferred Resource base into reserves.
We also plan to add ounces at several of the new discoveries made in 2022. At Kiena, recent drilling at the Kiena Deep zone has continued to return good results and have extended the Kiena Deep A Zone an additional 125 m down plunge. The A Zone now extends continuously from 1,100 m to approximately 2,000 m below surface and remains open at depth. Highlights of the recent drilling include 76 g/T gold over 10-m core length. We are pleased with the recent drilling that continues to better define and expand the recent discoveries adjacent to the Kiena Deep A Zone, namely the footwall, sub-limb, and hanging wall basalt zones.
These zones have the potential to increase the number of ounces per vertical meter and to provide additional working faces during mining that will be using the same underground infrastructure utilized to access the A Zone. The discovery of the hanging wall basalt zones highlights the potential to add ounces within the basalt with a rock quality significantly better than in the A Zone. At Presqu'île, recent drilling has continued to highlight the higher grades and the continuity of the mineralization, including one hole that returned 24 g/T over a 3.3-m core length. Given the significant upside that the Presqu'île zone could represent for Kiena, the company is planning to commence an exploration ramp from surface later this year once we are in receipt of the necessary permits.
This exploration ramp, which is already included in this year's budget, will provide the ideal platform to complete further drilling to improve our confidence in the resource base, but also to test the mineralization at depth where it remains open down plunge. An added benefit of the exploration ramp is that it could be used to connect to Kiena's existing underground ramp network, providing access to surface for the existing operation. This could represent a significant milestone on the company's journey to unlock additional potential of Kiena, as it would provide a second as-access for conveyance of material and personnel, freeing time for additional ore hoisting via the shaft. Other gains, such as reduced ventilation costs and savings from added operational flexibility, are also expected. Studies are ongoing to pursue these options.
Presqu'île is just one example of a number of near mine, near surface resources that could be used to augment production at the mill. Surface exploration started last year to test some of these additional targets, namely the Shawkey and Dupasquier zones. Initial encouraging results have been returned. We plan to disseminate the results in the near term. At Eagle River, drilling has continued to extend the mineral resources down plunge, particularly at the high-grade 300 East Zone. This represents the longer-term mining areas. The focus is shifting to explore areas laterally along strike and near surface and within the volcanic rocks similar to that of the Falcon Zone.
Most recently, surface and underground drilling from the 355-m level exploration drift on the west side of the mine has defined the up plunge extent of the Falcon Seven Zone and has now extended the mineralization to surface. This could represent a new mining area with new infrastructure, which could provide improved logistics for mining. Additionally, surface drilling over the past year has returned encouraging results from what are interpreted to be parallel zones to Falcon Seven, including the Five Zone, which is similar to and believed to be an extension of the Mine Five Zone within the diatreme. Access to this zone from the neighboring Falcon Seven Zone will improve drilling, development, and future mining of this zone.
Surface drilling has also returned a number of good values further to the west of the Falcon Seven Zone in what are interpreted to be shoots having a similar periodicity to the high-grade shoots within the mine diatreme. These zones will be further explored from surface. Longer term, the 355-m level development could be extended further to the west to provide drilling platforms and for mining. Further, the discovery of the Falcon Seven zoning volcanic has prompted exploration along strike and to the east of the diatreme, particularly in the area of the previously mined Two Zone that has its own infrastructure. One drill hole returned beneath the Two Zone, 223 g/T gold over 0.4 m and will be one of the priorities for drilling in the future. Back to you, Warwick.
Thanks, Mike. In summary, during our Q4 call earlier this year, I highlighted these four primary focus areas that must be executed on this year. I'm happy to say that we continue to make excellent strides in the first quarter towards the ramp that gives us access to the Kiena Deep later this year and early next year. The ramp is now below 123 level, progressing ahead of this year's budget, and we should see production and cash flow benefits earlier in 2024 than initially expected. We have communicated our intentions to reduce our outstanding balance on our credit facility, and we have done exactly that, reducing the debt in Q1 from CAD 55 million down to CAD 47 million. Our plan is to continue an aggressive pay down throughout the course of the year through operating cash flow and disciplined use of the ATM.
From what we have seen at the operation so far, assuming gold prices stay strong, I see this year as a free cash flow inflection point. New fill this year and returning to free cash flow positive status in 2024. The key technical hires added last year and this are already showing their value, addressing several challenges and opportunities, and have yielded cost savings in the procurement process. We will be publishing our annual ESG report this summer, which will be available on our website. On the project of hiring of our permanent CEO, good progress has been made, and we hope to be in a position to update you on this in Q2. Lastly, our annual general meeting will be held this year on May 24th at 10:00 A.M. Eastern Time at the TMX Broadcast Center in Toronto.
We are pleased to be returning to an in-person format, and I do look forward to meeting you then. This concludes our call today. We will now open the lines for Q&A.
To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. One moment for questions.
Wayne, I believe the first question comes from yourself. Would you like to go ahead?
Don DeMarco. Our first question comes the line of Don DeMarco from National Bank Financial. Your line is open.
Okay. Thank you very much. Good morning, team, and hello, Warwick. Congratulations on a great quarter. Now, Eagle performed well in the quarter, and I was hearing that maybe one of the contributing factors is that over the last month, the grades were elevated. Does that suggest that there's gonna be momentum at Eagle into Q2? If so, like, I mean, is this, would we expect this kind of cost performance through the rest of the year, or is this just more of a one-off quarter?
I'm gonna give Fred some time to give you some of the detail there. One thing that I would like to point out that we did make reference to the ounces that were left on the ground as a result of our challenge that we had in transporting material from the mine to the mill at the end of 2022. Those grades were higher than what we had in our current guidance, and that was the start of a good beginning in Q1. Fred, would you like to give a little bit more color there?
Yeah, of course. Yeah. At Eagle, I mean, the very high-grade nature of the ore body makes for inherent variability. Really the great overperformance that we've seen in Q1 really was due to two specific stopes that we started to mine out in Q4 that continued strong performance. Those stopes are now behind us. They're mined out. We expect grades to normalize to budgeted levels for the rest of the year.
Okay, great. Thanks. Next question. you know, you're progressing ahead of schedule in reaching the 129 level. Are you at a point where you can kind of dial in the specific month that you expect you might reach the 129? I think it's maybe sometime in Q1, but do you know with that level of resolution what month you might hit it at this point?
Certainly, as I said, we are some couple of months ahead in that program. We started off at the beginning of the year, having achieved rates greater than what we have in our budget, and that has continued to be seen during the first quarter and now into the second quarter. We had indicated that our budget called for our arrival at 129 almost at year-end, and we see that coming forward at this time to in and around October. It is positive, but what we need to also appreciate that when we get to 129 level, we do need to develop that station. The station itself being one of the largest stations with the interlevels between as we mine up.
What we really are doing is bringing the production from 129 level forward in 2024, and not into 2023 at this stage.
Okay. You're gonna potentially hit the 129 in October, but it'll take some time to develop a station there. Maybe just finally also on progressing on towards the 129, the ramp. What are some of the factors that contributed to your outperformance on versus schedule? Is it regarding the labor or the rock that you're going through? How is it that you're ahead of schedule? What's going well, in other words, and do you expect it to continue?
Yeah. I'll hand over to Fred again. What I would say from a rock point of view, we are in the basalts, which is the more competent material that we have down in the area. From that point of view, it is consistent. I'd also, you know, just to reiterate the fact that we have got all the equipment and the teams where they need to be at a time where it was a challenge in 2022. Would you like to a little bit more color on that, Fred?
Nothing much more to add. Basically, it's very good going conditions in the basalt. I mean, there's no challenge developing there, and it's very predictable in terms of behavior. Also very good discipline on the operations side of things, where the goal of getting towards the bottom of that ramp is the absolute priority at site, and everyone is well aware of that. As Warwick mentioned, I mean, we have additional equipment now that have secured our capacity to not only deliver on our development targets, but also exceed them to some extent. We're using that capacity with those extra bolters to exceed our internal targets.
Okay. Thank you very much. Congratulations again on a strong quarter. Good luck with Q2. That's all for me.
Thanks very much, Don.
One moment for our next question. Our next question comes the line of Wayne Lam from RBC. Your line is open.
Oh, great. Thank you. Morning, guys. Just a question on Kiena, just on the timing of capital spend. Given the progress that you've made, relative to schedule, should we expect the growth spend to be relatively front half weighted? Then are there any additional large equipment type purchases remaining, or is the majority of spend all just related to the underground development?
I'd say the spending in Q1 is typically lower than what we'd see throughout the year. The spends tend to increase as we get our ducks in a row going into Q2 and Q3. They're not going to increase significantly from where we are now. Our overall spend for the year remains as we have given guidance, just over CAD 104 million for the year for both sites. As far as Kiena is concerned, it contributes just over 45% of that amount.
Okay, great. Thanks. Just curious, if you had any detail, on how the ground conditions or the rock competency has looked as you kind of move deeper into the mine?
Fred, would you like to take this one?
Yes, of course. In terms of the ramp itself as we move deeper, like I mentioned, the ramp being in the basalt, there is no concern there with ground stability at all. The ground conditions are excellent and development proceeds at pace. In terms of when we get into the schist in the commodity, which typically holds the core of the A, A1, and E2 zones, I would say the development in the A2 zone has been promising. Where the ground conditions that we've encountered there on level 118, 116, and 114 are actually a bit better than what we had anticipated. That is contributing to the fact that we're gonna be able to mine that zone in early Q2 now.
I'd also just like to add to what Fred has said. One issue is what we anticipated, the other is our learnings from the experience that we're gaining through mining into the schist. That certainly is benefiting us, a great deal as well.
Okay, great. Thank you. Then maybe just last one from me. Just curious on the ATM, you guys had executed out the same amount on that facility, versus the free cash outflow this quarter. Can we anticipate a similar pace on that ATM as you kinda complete the spend at Kiena?
Yeah. Wayne, I'd just like to say that it's been our intention to get ourselves to a cash neutral position. The rate of execution has really been one that is defined by the disciplined approach to how we're dealing with it. Our assessments of where the gold price is and our control of costs through the execution of our mining operations. We're also keenly aware of the issues that have been raised by analysts and investors, as to the use of the ATM. We would like to execute it and make use of it on a continued disciplined basis.
Also driving to a position on which we can close it as soon as we can. If we see the opportunity to make use of it during the course of this quarter in a disciplined fashion, we certainly would do so.
Okay, great. Thanks for taking my questions.
Thanks, Wayne.
One moment for our next question. Our next question comes from the line of Andrew Mikitchook from BMO Capital Markets. Your line is open.
Good morning. Congratulations on the quarter. Thank you for the comments, all the comments and answers on the Kiena question. Coming back to Eagle, is there any guidance or commentary you can give us on how Q2 is going? Is generally the performance you've seen in Q1, are you generally seeing that extend into Q2?
Yeah. Fred's gonna give you some color there.
Yeah. Fred speaking here. Basically, right now Q2 is lining up to be, I would say, in a similar range as Q1. One thing that I would like to mention, though, is the overperformance in Q1, really is, at this point, we see this as a one-off. Where the ounces were heavily, more heavily skewed towards H2 for Eagle, now we see the ounces being a bit more, regular throughout the year.
Okay. Generally, are there any other, I guess, variations that we should expect in the year in terms of performance of the mine, in terms of scheduled downtime, scheduled moves in mining phases that would create variation in your expected, you know, performance for this year? Or is it looking like more stable than pre, you know, call it recent quarters?
Yeah. Fred again. Yeah, we don't expect significant shutdowns or downtimes to any of the mills or any of the big, bigger equipments, let's say, of the mines. That's true for both operations. Yeah, you can expect a steady stream of production from the two sites. Based on what we are seeing so far, it looks like the year is gonna be, I would say, there's gonna be very few variations.
Okay. The last question is just maybe for Mike. On one of those slides you put up had the boundary between the exploration license and the mine license. If I interpreted that correctly, does the Falcon Zone head for that boundary, or am I looking misinterpreting that?
That's correct, Andrew. Right now the Falcon Zone and what we consider to be a, you know, a recent extension of that zone, is within the lease boundary. After that, further to the west towards Newt Lake and Nine Zone, that would be on our regular exploration claims. That's an area that we, you know, we have permits typically to drill on that area and would require a separate permit if we ever got to the mining stage there. For now, any mining that we would do with Falcon and the immediate extension of that is on our lease area, our mining lease.
Okay. That's great. Thank you very much for all the answers. I'll pass the microphone to the next person. Thank you.
Thanks, Andrew.
One moment for our next question. Our next question is from the line of John Sclodnick from Desjardins. Your line is now open.
Yeah, thank you for taking my questions, guys. Most of them have been answered, but I've got one boring one left for you. Just on depreciation, it was higher this quarter than in the past. Just wondering if this is kind of a new run rate we should look at going forward?
Yeah. It definitely is the level that we're gonna be at. We've, you know, started to depreciate Kiena, using EOP approach since we declared commercial production, December 1st, 2022. That's where the significant increase is.
Okay. We can look at kind of the per ounce depreciation this quarter and kind of apply that, roughly, going forward, I guess.
Yeah, exactly. That would be. The majority of the assets are being depreciated on the EOP basis as opposed to straight-line. If you look at your production profile by that, so that'll bring you to that estimate.
Okay. No, it makes sense. Last one for me, just looking at the resource grades, I know you're doing some conversion drilling. Just wondering if with the tighter drill spacing, do you expect some higher grades? Do you expect those resource grades to move closer to reserve grades with the tighter spacing?
Mike, could you insight that?
Yeah. Sorry. Was that at Eagle or at Kiena? I didn't catch that, sorry.
I guess both. More I guess, at Kiena, though, is a bit more pronounced.
Yeah. Certainly, you know, Kiena is, you know, the definitely the high grade part of all the mineralization on the property. You know, that's what's really in our reserve base. A lot of the Inferred is in some of the surrounding zones where the grade is lower. That's how that balances into the equation and the Inferred and some of the Measured and Indicated is lower grade overall, but.
You know, certainly more drilling helps a lot here. We're finding and then we can, you know, better identify these high-grade shoots at both projects, really. I mean, they're both high-grade mines. You know, typically with that, the better defining the resources and reserves, we do get a bump in grade typically as we get, you know, closer to the reserve status.
Okay. No, interesting. Appreciate that. That's it for me. Thanks, guys.
Thanks, Joe.
One moment for our next question. Our next question is from the line of John Tumazos from John Tumazos Very Independent Research. Your line is open.
Congratulations on all the good work. Now that it's May 11 and the second quarter is almost half over, does it look like the June quarter production will be at least as much as the first quarter production?
If I could answer that question, John. The answer is very much in line with that. You know, we are in a good position going into the year, satisfying the guidance that we've provided. We believe that our performance will continue. We did say previously that we were back-end weighted because of the mining sequence that we saw in Q1. We have brought some of those ounces into H1, but generally, we'll see a consistent performance going forward.
I saw in the release that you already raised CAD 20 million of equity. I guess that was through March 31. The cash balance is CAD 25 or slightly over half of the CAD 47 in debt. Should we interpret from that you might only need to raise another CAD 10 million or CAD 20 million of equity in view of the rising gold price, the good production, the horizontal development being slightly ahead of budget, et cetera?
Yeah. I'd like to, you know, just emphasize that the CAD 25 million that we have in cash is generally what we need from a continued working capital point of view. We need to have that in place on a continuous basis. We really look at the CAD 47 million in the revolver with the debt that we're carrying there at a rate of close on 10.7%. Our intentions are to have that paid down. I'd say the numbers that you quoted there would be at least what we choose to do during the quarter. It could well be higher if we see the opportunity.
I'm not smart enough to understand stocks morally. Today we're down 10%. Is your policy opportunistic with the ATM, where then when there's a lousy day like today when we're down 9% or 10%, you wouldn't sell shares, and on a good day when you're up 10%, that's the day you'd sell shares? Or do you just sell a little bit every day?
It's very much, a basis of what the market is doing on a ongoing basis. I mean, we do see significant fluctuation during the day, as you know. So we provide a floor and guidance to those that are doing it for us. We are all involved, almost on a half day basis, I mean, as to where we are relative to that floor and what the market is doing and how we wish to make use or not make use of the tool. You know, that's part of the discipline that we exercise, in the use of it, John.
Good. Thank you very much.
Thank you. That concludes our Q&A session for today as well as, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.