Good morning, and welcome to Wesdome Gold Mines' First Quarter 2022 Financial Results Earnings Call. Heather Laxton, Chief Governance Officer, will begin today.
Thanks, Daniel, and good morning, everyone. Thanks for joining us. As we get underway here, we'd like to quickly 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 May 11, 2022. 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. With that, over to Lindsay Dunlop, Vice President of Investor Relations.
Thanks, Heather. Speaking on the call today will be Duncan Middlemiss, CEO, Scott Gilbert, CFO, and Michael Michaud, VP Exploration. Also on the call today is Raj Gill, VP Corporate Development. Duncan will lead us off today with an operations update, and then Scott will discuss the financial results. Mike will follow with an exploration update of both Eagle River and Kiena. Finally, a conclusion and outlook summary from Duncan. We will then open the line up for the Q&A session. Please go ahead, Duncan.
Thanks, Lindsay. Good morning. First quarter combined production was 25,611 ounces, essentially in line with our budget of lower production in the first half of the year and significantly higher in the second half. Eagle ounces were on track and head grades started trending higher at the end of the quarter due to stope sequencing. Mike will give some additional details on how the Falcon zone development and exploration work is going later in the call, but I can say it's positive. The shortfall in this quarter's production was at Kiena. There were a few reasons for this. In January, where we had very poor mobile fleet performance, specifically the scoop trams, and this persisted throughout the quarter. The scoop fleet at that point was entirely rented.
By the end of the quarter, we had received our own two 3.5-yard and two six-yard scoop trams. These are all currently in service and working as expected, reliably. In May, the mine also received two jumbos, which will be working shortly underground. In terms of the mobile fleet, we are in good shape. All of the received equipment was delayed from the original delivery dates due to supply chain issues. Workforce availability was also impacted in the quarter with high numbers of people affected by the pandemic, as the Val-d'Or area suffered a fairly intense outbreak. This has lessened significantly. However, we are maintaining our vigilance at both operations. In February, we had a significant underground crusher failure in which repair time was lengthened again due to supply chain issues. The crusher has been repaired and is working as expected.
All of these items significantly impacted our production plan at Kiena. Moving into April, we had our most productive development month as the workforce is in place and the new mobile fleet is working well, and this continues into May. Despite the challenges in the quarter, we generated CAD 9 million in cash margin at Kiena, despite the cash cost of CAD 1,364 per ounce of gold sold. The paste fill plant, a critical component of the Kiena project, has fallen slightly behind schedule. Originally planned for completion in June, it is looking more like August now as we have a key component that has been delayed, which ultimately pushes our plant commissioning back. We are anticipating having the plant fully functional in the third quarter.
Subsequent to quarter end, I'm very pleased to report that we have hired a new Chief Operating Officer, Frederic Mercier-Langevin, who starts in June. Frederic comes from Agnico Eagle, where he was most recently the general manager at the Canadian Malartic Mine. He also oversaw the Goldex Mine as general manager in the Lapa Mine, both located in Val-d'Or. His experience, especially at mines similar to Eagle and Kiena, will be very valuable as we ramp up Kiena and continue to optimize Eagle. On behalf of our employees and the board of directors, I would like to welcome him to the team. Now, I will pass this over to Scott for a review of the financials.
Thanks, Duncan. In Q1 2022, Wesdome generated CAD 66.6 million of gold revenue from the sale of 28,000 ounces, which includes 9,200 pre-commercial Kiena ounces. The operating cash flow was CAD 29.9 million. The total capital spend was CAD 34.6 million, of which CAD 29 million was growth capital. The ending cash balance was CAD 52.5 million. Despite inflationary pressure and pandemic-related impacts, the overall aggregate cash cost of Eagle River remained consistent with Q1 2021. Eagle River cash cost per ounce sold increased by 10% to CAD 1,262 compared to Q1 due to the lower ounces sold. As expected, combined total cash cost of CAD 1,295 per ounce and all-in sustaining costs of CAD 1,695 per ounce were higher than our full year guidance as a result of expected lower production. Now over to you, Mike.
Thanks, Scott. On the exploration side, it's been a great start to the year. Drill productivity is up over last year and improving. As you know, we have another aggressive year of exploration planned at both sites. Firstly, at Eagle River, where we have six underground and two surface drills operating, the Falcon 7 zone has provided exciting results. Initial underground development has confirmed the high gold grades and good continuity of the zone, which is very important given that this zone will play an integral role in production for the second half of the year and beyond. This zone not only provides additional high grade, but it's located away from other mining areas near the bottom of the ramping system. We are also pleased with the ongoing definition and expansion drilling at the Falcon 7 zone that has increased our confidence of the gold grade distribution.
These results, which have been recently released, continue to show the high grade nature of this zone, including 90 grams per ton uncut over 4.9-meter core length and 87 grams per ton over 6.6 meters. Of significance, the ongoing drilling has also identified a number of thicker sections of the zone, mostly related to dilational jogs as well as splayed and fold noses and limbs that have the potential to add significantly to the existing near mine resource base. What makes the discovery of and the mining of the Falcon zone so exciting is that historically, gold at the Eagle River Mine has been hosted in the mine diorite. However, the Falcon 7 zone is hosted in volcanic rocks west of the diorite. Hence, this discovery highlights the prospectivity of the volcanic rocks beyond the existing footprint of the Eagle River Mine.
The image of VG in a muck sample that you see in this slide is from recent development in this area. As part of testing these volcanics, a 400-meter-long drift is being established on the 355-meter level to provide platforms to test a number of targets. First, to drill out the upper 300 meters of the Falcon 7 zone. Second, to test for gold mineralization further along strike of the seven zone in the volcanic rocks. Third, to test for parallel zones where surface exploration has already returned encouraging results. This is a region of the mine that historically been given very little attention. It's a similar situation at Kiena, where seven underground drills and one surface drill, soon to expand to two, are operating.
Of course, the focus of our drilling remains proximal to the high-grade A Zone and expanding the mineralization down plunge. However, we are also now testing the lateral extension of the A Zone along the fold limbs. Additionally, we are exploring the Footwall Zone both down plunge and laterally. All of these zones have potential to add ounces to the resource base and remain a priority for the drilling. As well, two drills are operating on 33 level to test historic zones further to the southeast along strike from the Kiena Mine, particularly at the Martin and Wish Zone, where previous drilling has returned good results and remain underexplored and open along strike and at depth. Surface drilling is ongoing and will be accelerated again this summer once the ice has melted.
The drilling has been focused on the Shaki zone and the recently discovered Burgo zone, where encouraging results were returned in late 2021. As well, our understanding of the geology in this area continues to improve with additional drilling and highlights the prospectivity of this region. We expect to release drilling results in the very near future and have a regular flow of news over the course of the year. Over to you, Duncan.
Thanks, Mike. As expected, cash and all-in sustaining costs this quarter were higher than guidance due to planned lower production levels. Higher production levels are planned for the second half of the year, with Q2 production being higher than Q1 at both assets. The material uptick in production begins in the third quarter. Consequently, both cash and all-in sustaining costs will decrease significantly in the second half of this year. At this point, we are trending towards ending the year on the lower end of guidance range and the higher side of the cost range as a result of the delays at Kiena. We have worked through many of the same issues faced by our peers with the pandemic affecting workforce availability, supply chain issues, and a tight labor market.
Based on where the world is, it is very fortunate that we started our Kiena project when we did in June of 2021, as we were able to purchase and receive much of our key equipment required for the build out of Kiena. Eagle River operations are much less impacted by the supply chain issues and will deliver within guidance as the vulnerability of existing operations is much less. This is also our final year of elevated growth CapEx spending. We will spend approximately CAD 80 million this year as we complete the final projects related to the Kiena ramp up, namely the paste fill plant, water treatment plant, and tailings dam augmentation. Despite the higher spending and one quarter delay at Kiena, we expect to return to positive free cash flow status in the second half of the year.
As a result of improved development rates at Kiena with our new equipment, drilling activities are also going very well, and we expect to deliver an update of our exploration progress from Kiena in the near term. I am especially excited about our new drill platform to optimally explore the Footwall Zone. Footwall Zone was not contemplated in the pre-feasibility study. At Eagle, we are also very excited about the near to medium term as we continue our exploration efforts both inside and outside of the mine diorite. The short term challenge at Eagle is to match the mine production with the mill production. We have been making progress on this front with the commissioning of our new underground booster fan installation, which has allowed us to increase our capacity for material handling, and this will allow us to begin to close the gap.
I will now open up the lines for questions.
To ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Ralph Profiti with Eight Capital. Your line is now open.
Thanks, Operator. Thanks for taking my question, Duncan. Two of them, please. One on Eagle and one on Kiena, please. Just wondering, when we think about the Falcon zone and the company's target of 100,000 ounces a year, what do you think? What's your current thinking on the ideal mining rate coming out of Falcon to maintain that production level?
I think really Falcon, Ralph, is. It's really a higher grade, lower volume zone. I think really the mining rates, you know, in terms of tons, would be probably around 300 generally. The ounce contributions from Falcon is gonna be, you know, heftier than that would recommend. I think that when you look at our reserves at Eagle, we really do have some very high grade reserves and some kind of medium grade reserves, right? When you're in Falcon, you definitely, you know, feel that effect. It's something like that, the 303 zone that we had previously within the drift. I would think it'd be the 300-350 range.
We're really just getting out there to fully develop it now and understand it. Again, I sort of look at this year as a year of establishing proper drill platforms in order to really fully explore what we have. That's exactly what's going on at Eagle right now. We've got a drift higher up in the mine, that's 355, and we're looking at the upper part of Falcon with that drill platform, so.
Okay. Yeah, that's very helpful. Switching to Kiena, it looks like things are getting back on track. Are there any areas of reconciliation that are not meeting expectations and thinking about sort of some of the, you know, some of the April numbers and the May numbers so far?
I'd say it's early right now, Ralph, just because of where we are in terms of you know, our productivity. Right now, we're getting the development process back on track with the new equipment and actually having our own people at the pace, which is great. I would say there's really no news on that front, and we're not you know, expecting any big surprises, I don't think.
Okay. Yep. Well said. Appreciate the help. Thank you.
Thank you. Our next question comes from Don DeMarco with National Bank. Your line is now open.
Thank you, operator, and good morning, everyone. I guess, Duncan, first off, I'd just like to welcome Frederick to the team and back to Val-d'Or too, so congratulations on that.
Yeah. That's yes. Go ahead.
At any rate, I saw that the Eagle cost, the AISC was higher than Kiena. You know, we would have hoped maybe Eagle provide some offset to the volatility at Kiena. You know, there was a COVID outbreak in Val-d'Or, unplanned crusher maintenance and so on. But with this, and given that you noted that Eagle's on track to hit guidance, should we expect a pretty quick rebound with costs going lower at Eagle? What were the drivers of those elevated costs in Q1 at Eagle specifically?
Actually, Don, I'll tell you, Eagle really, if I budget, it was just below quarter, and Eagle actually performed very well, right, within, with the planned costs. So no, Eagle, I'm very comfortable with how we're tracking at Eagle. I think, you know, the costs are in line. The production is set up well for the remaining nine months of the year. So, I would expect us to, you know, fully be within guidance, the midpoint of guidance on Eagle in terms of production and also our cost expectations, so.
Okay. I guess Q1 at Eagle was the high costs are really just related to the low production base. But it wasn't.
Yeah.
Mm-hmm.
Yeah. It's still sequencing, Don, really. I know we just sort of touched on it last question, but really, the Eagle reserves from what we see, I mean, Falcon is a really, you know, sort of chunky piece of the reserve. When you're in Falcon or, like, the 303, it's certainly, you know, you really feel it, right, in terms of the ounce production. You know, we have other good grade material all around, but it's really a function of stope sequencing really that kind of affects that. A few things that are, you know, we're driving towards, and I alluded to it at the end of my commentary, it's just really the.
You know, we've got this new booster fan installation in the mine, and we've actually increased our available ventilation. We're able to add another truck. It's really kind of a big deal for us because, you know, for every, you know, ton of ore that we take out, we have to take another ton of waste, right, being in the narrow vein environment. We're quite excited about that. We haven't, you know, quite seen the full impact of that, but I think that, as we move forward, with that new capability, I think that, Eagle's going to, you know, hopefully close the gap into matching the mill and the mine together.
Okay. That's good. One question on Kiena. So we see that, you know, the equipment's in place. That's encouraging. The next milestone that we look forward to is to have the paste backfill plant up and running.
Yeah.
Can you just confirm your expected timing for that paste backfill plant? And also, does it involve a little bit of a ramp-up, or as soon as you have it up, is it pretty much would there be expected step change in production at that point? Step change in mining rate?
Yeah. Yeah. No, definitely. I mean, let's face it, the availability of paste still is gonna be such a benefit to the mine in terms of our cycle times on stopes. So really what we're seeing is, there's one component which has been delayed. It's the MCC, which is the motor control center. So really, you know, the item for that, and we do expect delivery early in August. We're going to install it. But the commissioning of the plant, you're correct. I mean, that is something which is, you know, gonna take a period of a couple of weeks for sure, maybe a month, who knows? The underground distribution facilities are all in place, essentially, so I think we're in good shape on that one.
Really the critical path, I think, is the installation of the MCC, the motor control center. That's where you're able to, you know, automate the process, right?
Okay. Okay, great.
Okay.
Well, good luck rebounding in the next quarters and as the Kiena CapEx starts to ease and free cash flow increases. Thank you.
Yeah, thanks.
Thank you. Our next question comes from Michael Fairbairn with Canaccord. Your line is now open.
Hi, and thanks for taking my question. Just one for me on Kiena, kind of a two-parter. Just wondering if commercial production at Kiena is now expected to be pushed back until after the commissioning of the paste fill plant. Also wondering how this is gonna impact the cost profile at Kiena in Q2.
Yeah. Okay. Yeah, I think really I've said it before too, Michael, it's really the paste fill plant commissioning is the key event for you know declaring commercial production at Kiena. Yes, definitely, I think it would be after we have that plant fully commissioned. In terms of really what we have for you know costs you know it's definitely gonna be decreasing after that because volumes will be increasing at Kiena. I think that that's the guidance I would give you right now, that we're definitely expecting you know far better costs than what we've seen in the first quarter.
Okay. Fantastic. Thank you.
Again, if you have a question at this time, please press the star and 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. Our next question comes from Ryan Walker with Echelon Wealth Partners. Your line is now open.
Hi, good morning. Thanks for taking my, our calls here. Just Kiena, if you could maybe just give us an update on the CapEx remaining there and how susceptible that is to inflation going forward.
All right. I'll let Scott answer that, our Chief Financial Officer, Ryan.
Yeah, Ryan, in Q1, we spent about CAD 29 million on the growth capital. We're gonna be about CAD 72 million for the first half of the year, and then it's gonna trail off down to about another CAD 30 million-CAD 40 million in the second half of the year.
Sorry, I kind of cut out there on Q2. Could you maybe repeat that, please?
For the first half of the year, we're gonna be roughly about CAD 62 million.
Okay.
The second half of the year, about CAD 40 million.
Great. Thank you. I mean, is that, again, are those numbers kind of firm, or are they susceptible to a bit of inflation during that time?
We actually just completed a Q3 forecast, and these are our most up-to-date numbers.
Okay, great. A couple of other ones have been answered, but I'm wondering if you could just kind of quantify the COVID impact on the workforce. Was it Q1? Was it, you know, 30 guys out sick and now we're down to 12 or 15? Could you maybe just kind of give us some numbers there?
Yeah, absolutely. Really the outbreak was pretty severe, I would say, sort of mid-January into February. We actually had, you know, and when I talk about employees, it's employees and contractors. We had about 150 people affected. Either they were, you know, directly infected or they were contacts with others. It was a little difficult to juggle the manpower at that point. We're beyond that now and hopefully we can stay out of the COVID family box. You know, we maintain our rigor, I would say, in terms of our protocols and what we do for COVID prevention, so at both mines.
Unfortunately, this is just a lot more transmissible strain and everybody's really getting it. We didn't actually have a case of COVID at either one of the sites until the end of December of 2021. We had really performed well, and then all of a sudden, Omicron kind of hit us.
Yeah. No, that is a good track record. That's unfortunate. The 150, what would that represent of the total workforce on a percentage basis?
Well, with contractors included, I mean, it's sort of variable, but we're probably running around 400-450. Almost one-third of the contingent.
Wow.
I would say would have been affected over a period of time, so.
All right. What are kind of the, I guess, active cases now, or are you down to a more manageable level now?
No, they're pretty low. I think, yeah, I think we've got four active cases right now at Kiena. Probably similar at Eagle. You know, Eagle sort of suffered the same woes, maybe not to that degree. You know, it's been a challenge, but we're working through it.
Okay, great. Well, thank you very much. Appreciate it.
Yeah, thanks, Ryan.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.