Good morning, and welcome to Wesdome Gold Mines' fourth quarter and full year 2021 financial results conference call. I will now turn the call over to Heather Laxton to begin today.
Thank you, Howard, and good morning to everyone joining us on the phone and online this morning. 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 March 10th, 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, it's over to Lindsay Dunlop, Vice President of Investor Relations.
Thanks, Heather. Speaking on the call today will be Duncan Middlemiss, President and CEO.
Good morning.
Scott Gilbert, CFO.
Good morning.
Mike Michaud, Vice President, Exploration.
Good morning.
On the call today is Raj Gill, Vice President, Corporate Development.
Morning.
We will begin today with an operational review from Duncan, followed by a financial review from Scott, then an exploration and reserve and resource update from Mike, and Duncan will then conclude with a summary and outlook. Please go ahead, Duncan.
Great. Thanks, Lindsay. First and foremost, I'd like to thank our employees for making 2021 a record year for Wesdome in such a challenging environment. The increasing production at Eagle and the strong build of Kiena has been exceptional, and as a result, our annual production is up 37% over 2020. In the fourth quarter, we produced a total of 41,600 oz company-wide, 24,300 oz at Eagle and 16,900 oz at Kiena. Total production for the year was 123,843 oz, including the 22,440 pre-production oz from Kiena and 101,403 oz from Eagle. Head grades at the Eagle River underground mine average 13.8 g per ton, and at Kiena, 10.4 g per ton.
In 2022, we will be increasing production slightly from the Eagle River mine to 95,000 oz-105,000 oz guidance. At Mishi, the remaining stockpile is estimated to produce between 1,000 oz-2,000 oz. Going forward, production will be entirely from the high-grade underground Eagle River mine. At Kiena, the production ramp-up has been progressing, albeit with some COVID-related delays at the start of the year, impacting exploration, development, and construction activities. The situation has definitely improved, and we are still on pace to place Kiena into pre-commercial production towards the end of the second quarter. As per our previously released 2021 guidance, we achieved both of our production and grade objectives at Eagle River and Kiena.
Our unit cost declined 6% over those of 2020, with cash cost of CAD 990 per ounce and all-in sustaining of CAD 1,408 per ounce within our guidance range. U.S. costs were slightly above guidance due to exchange rate variations. In 2022, we are guiding higher production at both Eagle and Kiena for a combined total of 160,000 oz-180,000 oz at a decrease in combined cash and all-in sustaining costs. Full cost reduction benefits will be demonstrated in the back half of this year as Kiena production ramps up to commercial production. Additionally, this year's Eagle production is somewhat back-end loaded, so overall costs are expected to be higher in the first half of the year and declining in Q3 and Q4 as production increases.
I will now turn the call over to Scott for a review of the financial results.
Thanks, Duncan. With the inclusion of the Kiena pre-commercial ounces, the revenue, cash margin, and operating cash flow have increased compared to 2020. In 2021, we generated CAD 262.9 million of revenue compared to CAD 215.5 million in 2020, CAD 145.4 million of cash margin versus CAD 119.3 million in 2020, and CAD 131 million of operating cash flow compared to CAD 102.3 million in 2020. We spent CAD 99.6 million to support the restart of the Kiena mine, which was fully funded internally.
The cash cost for fiscal year 2021 decreased to CAD 990 per ounce from CAD 1,053 per ounce in 2020 due to the increase in ounces sold, which includes the Kiena pre-commercial ounces. The AISC increased by 1% from CAD 1,396 in 2020 to CAD 1,408 in 2021. The ending cash balance was CAD 56.8 million. I will now turn the call over to Mike to discuss exploration and our reserve and resource updates.
Thanks, Scott. Well, despite the challenges that we incurred from the COVID, it was still a very exciting year at both projects. Firstly, at Eagle River, this marks the first time in the mine's history to be reporting resources and reserves using the best practice 3D block model. The work was completed under the guidance of SRK Consulting and will be included in an updated 43-101 technical report to be issued within the next 45 days. Current proven and probable reserves total 1.1 million tons grading 15.3 g per ton gold for 525,000 oz of gold.
This represents a slight decrease from the previous year due to reduced drilling and also due to a much more conservative classification used by SRK Consulting. This included a much lower gold price than previous of $1,400 per ounce for reserves and $1,500 for resources, which is more in line with our peers. However, it is important to note that the reserve grade is now over 15 g per ton, and this is due to the larger proportion of the higher grade Falcon and 300 East zones. This higher grade reserve has the potential to increase the mine's margins. The 3D model will greatly improve our efficiency in annual resource reporting, reconciliation, and life of mine planning. This methodology is now similar to the approach at Kiena as we continue to standardize our two operations.
At Kiena, additional drilling and sealing in the A Zone led to an improved geological understanding of the deposit compared to the PFS, and has been used to update the resources and reserves. At Kiena, the reserves has increased by approximately 10% after depletion of 22,000 oz of pre-production gold, increasing from 600,000 oz in May PFS to 651,000 oz at the end of December. For resources at Eagle River, we now have a record inferred resource inventory of 255,000 oz of gold, which gives us a strong foundation to convert to reserves this year with the planned drilling. At Kiena, successful infill and step out drilling increased global resources by 11% from the 2021 PFS. For Kiena Deep, this totals approximately 50,000 oz increase in M&I and 70,000 oz in inferred.
Kiena Deep continues to show potential to expand, and additional ounces are planned for conversion to reserves with the planned 2022 drilling, particularly at the newly discovered Footwall Zone, where an initial inferred resource has been defined. On the exploration side at Eagle, we have been focused on extending the high grade 300 East and Falcon zones and targeting parallel zones to that of the Falcon 7 Zone. The discovery of these parallel zones shows the potential of the surrounding volcanics to host more zones of gold mineralization, especially where host structures continue across the direct volcanic contact, such as at the 311 West, 8, and 5 zones.
In addition, development of the 355 m level is proceeding on schedule and will be completed in June, and this will provide for development and exploration of Falcon 7 Zone at higher elevations in the mine, and also provide a platform to test for other parallel zones. The North Contact Zone, which is a new discovery we made this year, is located along the northern contact of the mined diorite near the 1,000 m level. It is now interpreted that the North Contact Zone has been previously intersected in 2016 with some near surface, widely spaced exploration drilling. Again, demonstrating the size potential of this zone, and is located within 150 m from the mine infrastructure.
On surface, drilling is continuing with two drills testing both east and west of the mine to follow up on anomalous values returned from the regional drilling program in 2021, and also to follow up with the North Contact Zone. At Kiena, we've continued to drill the Kiena Deep A Zone and also now on the 33 level. Really the drilling at the A Zone has been able to confirm that this zone continues down plunge and is continuous zone of high-grade mineralization. In addition, the drilling confirmed that the Footwall is comprised of at least three sub-parallel zones and one cross-cutting zone that has now been extended over 300 m down plunge. This zone remains open laterally and down plunge, and additional drilling platforms are now being established as the A Zone ramp progresses to provide for more optimal drilling.
The drilling also identified in the hanging wall to the A Zone in the mafic volcanics new zones of mineralization grading around 5 g-6 g per ton gold over thicknesses of 2 m-3 m. This has the potential to be mined as access development in the hanging wall due to their proximity to the A Zone stoping area. On surface, a new zone called Bordeaux was discovered earlier this year, and this appears to be perpendicular to the general northwest-southeast trend of the region. It consists of quartz veins with very low sulfide content hosted in komatiite basalt units. The northern orientation is similar to that of the orientation of the nearby Kiena Deep A Zones. As you can imagine, drilling is planned to further understand this area throughout the year. Over to you, Duncan.
Thanks, Mike. This year is poised to be a very exciting year as Kiena ramps up production levels throughout the year and Eagle River continues its strong delivery of ounces. With these two high-grade assets in production at the same time, we expect to generate significant earnings and free cash flow. As well, we will be continuing our aggressive exploration programs to further organically grow production at each asset. At Eagle, the Falcon Zone is showing extreme promise as another source of high-grade ore located away from the bottom of the ramp. This will enable us to diversify stoping locations in the mine and increase feed to the mill, which currently has excess capacity. The 2022 plan is to average 700 tons per day. Exploration of the parallel Falcon zones hold promise for us to further rely on this area for future production.
As well, we are continuing to aggressively explore at Kiena, where there is also excess capacity at the mill and further opportunities for organic growth.
The Footwall Zone is the focus this year, as well as expanding the A Zone. We are developing an important hanging wall drill platform, which will allow us to better define the A Zones and Footwall Zones throughout the year. This is a very exciting time in the company's evolution to an intermediate gold producer. Again, I would like to thank all of our employees for their hard work and dedication. We are very proud of what the team has built so far, including putting a mine back into production in just four years from a new discovery, and funded entirely from internally generated cash flow from Eagle River. I'll open up the floor to questions.
Our first question or comment comes from the line of Andrew Mikitchook from BMO Capital Markets. Your line is open.
Hi. Thanks for hosting the call and congratulations on a strong finish to 2021. Can you just expand a little bit on your comment where you said that you're expecting a stronger second half at Eagle versus the first half? Should we be thinking it's just tons, as tons per day goes up? Or is there some grade scheduling as well to take into account?
Yeah. Well, I mean, Kiena, as we know, that's just gonna increase throughout the year and, you know, as we assume commercial production in really, you know, H2, Andrew, then we'll sort of hit our stride there at that one. At Eagle, yeah, it's definitely, I would say, a little bit grade related. The first quarter was always a little bit leaner. Second quarter improves, and then the third and fourth quarter successively better and better. I feel really confident in terms of our production guidance. No issue there with Eagle at 95,000 oz-105,000 oz . We're good on that.
Okay, maybe just a quick second question. Can you give us some sense of how we should think about having a 15 g per ton reserve grade versus, you know, either a long-term or at least a medium-term grade that you would expect to come to the head grade that would come to the mill at Eagle?
Well, certainly, you know, we're in the Falcon 7 Zone now, and that's been developing, and it's showing quite high grades, and certainly, 300 is that way as well. You know, we certainly look forward to mining those reserves. You know, typically, at Eagle, what you know, we've often find as we're going, we drill off, you know, extensions to these zones and newer zones that are small in the area that we take as we're mining. We probably will throw in those zones in as well, but we're happy with the 15 g per ton because, you know, that really better represents where we are, you know, with this new resource and reserve model. You know, we looked at the capping. You know, we had a standard cap previously for the resource in the polygonal model.
You know, now we've looked at that, had it vetted by SRK. I think we're comfortable. You know, as the year progresses, we're gonna be doing some more additional reconciliation to make sure we got it exactly right. The Falcon is looking good, and the 300's looking good, so you know, I'm working pretty comfortable with that 15 g per ton, if we can achieve that.
Okay. I will let others ask questions. Thank you very much for your time.
Great. Thanks, Andrew.
Thank you. Our next question or comment comes from the line of Barry Allan from Laurentian Bank. Your line is open.
Yes. Good morning. Yeah, 2021, a very good operational year. Really no surprises there. My focus, really, though, has been on the reserves and resources. If I understand correctly, we had budgeted about CAD 32 million in exploration expenditures for 2021. The actual ounces added in fiscal 2021 was rather modest for the level of expenditure. You know, when you add in what you actually produced, you're about just less shy of 350,000 oz that you added for a CAD 32 million expenditure. That's a very high funding cost. I'm trying to get my head around that.
Is it that you didn't actually spend all the money, or is it SRK took a much stronger methodology, in calculation reserves and resources, or is it that you just didn't get the drilling done? Could you maybe clarify that for me a little bit, please?
Yeah, certainly. You know, it's never just one thing. Typically, on our drilling, we probably averaged around 75% of the budgeted meters. But Eagle underground was even less, and that's really due because of the COVID. Of course, you know, the competition for drillers. That was certainly part of it. You know, this year was also a year where we put in a lot of money into surface exploration. You know, we're barge drilling at Kiena, and we're using a helicopter drill at Eagle. That certainly, you know, is expensive drilling. You know, really what we wanted was out there on these first couple of years, particularly at Kiena, where it's covered by a lake, is just to collect good geologic data.
We've had some pretty good hits, but really it's just building a good geologic model. We're just doing a structural model now at Kiena, and we completed a structural model at Eagle this past year. That's helping us guide the exploration going forward. We felt it was important to get out there and just collect geologic data. That's probably why that ounce count's down a little bit. You know, I think we're happy with the infill drilling that we've been doing and the near mine extension drilling. That was fine. Stepping out to do exploration, you know, that we're still in its infancy, you know, that's why we're expecting some higher cost per ounce than we've seen in the past. Certainly, where we were concentrated on the New Falcon Zone, the 300 Zone, the Kiena Deep A Zone.
I mean, that was really great drilling, you know, where we just sit there and drill off the zones, and we're finding ounces there probably for CAD 20-CAD 25 an ounce. We're probably, you know, double that or even a little bit more now for the in-mine exploration. The regional exploration is really just that. It's more conceptual at this stage.
Okay.
Yeah, I think, Barry, and I think additionally too, I mean, we only added 75,000 oz into the Footwall Zone, and really, that's the function of not being able to get the drilling there. That's why this hanging wall exploration platform is gonna be important. It's situated around the 1,200 m level at Kiena. It's just going to, you know, make the drilling a lot more perpendicular, allow us to to really penetrate and get good intercepts into that. I'm quite sure that the ounce count in the Footwall is going to rise definitely dramatically in 2022. You know, further, I'd say upside on the A Zones is really starting to, you know, get a little bit of expansion there also.
I think, yeah, it's gonna be, you know, kind of a, didn't probably claim a lot of ounces this year, but more to come.
Yeah. You know, just to add one final point there. It is a fairly conservative new model that we have, you know, as consultants kind of do. You know, they don't have the 25 years of mining deposit like we do at Eagle. I think that had something to it. Also the CIM definitions for resource reporting this year requires the use of MRO for underground ounces. So that means anything that's isolated that won't pass, you know, initial shape for economics is kicked out where, you know, previously these might be zones that were included that are now have been removed.
Okay, good. I understand that 2022 is gonna look a lot like last year in the sense of the amount of money expended at each mine in exploration.
Yeah. It's roughly CAD 14 million planned at Eagle and about CAD 17 million planned at Kiena. Just to get back to your earlier point, yeah, because you know, obviously, our drilling volumes were down to 75%. Essentially our planned expenditures were probably at about 75%. We spent about CAD 25 million last year, not CAD 32 million.
Okay.
As per planned.
Okay.
We tried hard, but we couldn't get the people, so.
Yeah. Okay. Thanks very much, gentlemen. Appreciate it.
Good, Barry. Thanks.
Thank you. Our next question or comment comes from the line of Ryan Walker from Echelon Capital. Your line is open.
Morning, everyone. Thanks for the call. Just a quick one here. There was some mention in the press release in the NDA. I don't know if it's just down to phrasing, but the Footwall Zone at Kiena, an inferred resource has been identified. There's not an actual split out of or calculation of that zone, is there?
I don't believe there is one in the MD&A, but it is about 75,000 oz, and it's inferred. Really that was just because, you know, we expect this zone to grow laterally. We essentially had, you know, about three sort of strings of wedged holes through it. When you're drilling like that, you don't get a chance to really develop any strike length or plunge length. What we wanted to do, at least get it into the resources for this year. You know, as this year continues on and the development of the hanging wall drift that will be completed later this year, you know, we're gonna be able to drill that with a lot more holes, expand it, and then convert it to indicated and bring that into reserves at the end of, you know, 2022.
It's still looking pretty good, and the grade is really good. I mean, we're confident now we understand it, but so now it's just a matter of drilling it off.
Okay, great. Sorry, 75,000 oz. What kind of grade are you talking there?
It's over 11.
Great. Okay. That's it for me. Thank you.
Thank you. Our next question or comment comes from the line of John Tumazos from John Tumazos Very Independent Research. Your line is open.
Good morning. Congratulations on all the progress. What would be your expectation for escalation in mining and milling costs per ton this year at Eagle and at initial costs at Kiena? Yesterday, I listened to a company based in Mexico, Endeavour, that had 17% more tons and 17% higher cost per ton last year. I think Canada's got less inflation than Mexico, but we all got the same bugs.
Hi, John. Yeah, no, absolutely. I mean, we look at, you know, our cost escalation across the board to be of probably 5%. You know, some things have taken off, obviously hydrocarbons and anything related to hydrocarbons are impacting us. However, I mean, we counter that, John, obviously, we're getting better volumes, so our unit costs are starting to decline naturally. Of course, we're blessed with good grades. One thing I will mention is very fortunate that, you know, we were able to kind of enact the Kiena.
PFS build out when we did, because essentially, I would say, not that we're immune to any sorts of supply chain delays or escalations of materials, but it's certainly good to be building right now as opposed to, you know, contemplating to build right now. Because I think I'd be a little baffled as to, you know, what we put the escalation into and the contingency. We're very fortunate. I mean, it's a relatively small build-out. Like I say, I think, you know, there's lots of levers for us left to use here, like, obviously, Kiena coming on and the volumes of, you know, especially the ounces starting to grow. I think that the synergies between the mines, you know, is definitely starting to come.
Our continuous improvement programs are continuing to, you know, to battle down inflation as much as we can to get more efficient. I think we have a few levers in there to pull in order to combat it.
It looked like, in this initial development, or as the Kiena cost per ton were in the high 300s. By the end of this year, when it's running in a fully normal basis, is $150 or $200 U.S. mining cost per ton a reasonable target?
U.S.?
CAD 120 Canadian.
Yeah.
Next year.
Yeah. Next year definitely be about CAD 120. I mean, the PFS obviously has got some pretty great all-in sustaining costs and that. Unit cost per ton definitely is around the if you look at the PFS, I think it was about CAD 188. But yeah, definitely if you're talking U.S., I'd be happy with that. Remember, it's the PFS, you know, the whole sort of the development of the A zone as we're ramping down on it, we don't actually get to the heart, you know, say, around CAD 1,400 until 2024. So really, our production volumes based on the you know, the PFS production schedule is about 65,000 oz-70,000 oz this year and about the same next year.
Of course, that doesn't incorporate any of the upside that we've been able to kind of, you know, discover, the Footwall Zone. I mean, we don't really know how far it comes up. Right now, we've got it kind of tagged in place from, say, 1,400 m-1,700 m. The ramp is currently at 1,200 m. I would say in two years, we've got certainly a very good chance to, you know, definitely increase our our base case, which I deem the the PFS to be. Exploration success continues, and I think there's lots of opportunities around Kiena to to pull in additional resources and and reserves, so I can, you know, see better optimization of of the PFS going forward.
Is Eagle or Kiena unionized?
No.
Well, that's good. Do you think your workers measure inflation at the gas pump price or the T-bone steak price, or what other barometers you think are important?
Well, I think yeah, CPI in Canada probably right now is running 7%. Gas is obviously because of this issue we have over in the Ukraine, it's definitely been exacerbated, a lot of fluctuation in that. You know, we have been projecting food price increases anywhere from 5%-10% this year. We've certainly tried to keep pace with our pay escalations for our employees to make sure that you know, their quality of life doesn't suffer either, so.
Thank you.
Thanks, John.
Thank you. Our next question or comment comes from the line of Don DeMarco from National Bank Financial. Your line is open.
Oh, hi. Thank you, operator. Good morning, gentlemen. Hi, Duncan. I guess just disconnected for a bit there, but I so apologize if this was touched on. Just regarding, I see your valuation is and the stock has just rocketed. With the valuation where it's at, you know, maybe the M&A opportunities come to bear a little bit more. I think in the past, at one point you said that once Kiena's up and restarted, you'd look at M&A a little bit more closely. Are there any changes on your thinking there? If the company was to do M&A, what magnitude? Would it be just toe hold type stuff, or is there something potentially more significant that would be considered?
We run the gamut, really. I mean, we look at the whole, like, the spoke and hub scenario because we do have excess mill capacity both at Kiena. We know that Eagle could be expandable. So definitely, you know, if there was a small satellite deposit or something like that would definitely be on our radar. Additionally, you know, toe hold in interesting projects and companies. Yeah, that's definitely part of it too. I think, we like to participate on the way up and feel that we're involved in what's going on. Our screen hasn't changed, Don. We're very Canadian-focused. We love the Abitibi, but we love Canada. That's definitely where we are looking.
I think for us, we wanna stay nimble and just really understand what the opportunities are out there. You got anything to add, Raj?
Yeah. I think we're being pretty disciplined. Everything has to compare to what we have organically and be compelling on a kind of ROI basis. We're being, you know, reasonably conservative on that front for now.
Okay. Okay, thanks, guys.
Thanks.
In follow-up to the last caller's question on Kiena costs for, the guidance didn't provide mine by mine AISC, for example. Should we be modeling like 900 AISC for Kiena for 2022 or was Q4 maybe just kind of a one-off low cost quarter for Kiena?
We're gonna be releasing more numbers on a go-forward basis. Every quarter, we'll report on the AISC right now. Kiena is obviously a little bit lower than Eagle River with regards to that number. You know, with Q4 numbers or 2021 numbers for AISC, Eagle River was CAD 1,456. Kiena is below that. In 2022, most of the capital spend is all gonna be considered growth capital, so it's gonna be definitely lower.
Okay. Okay.
Yeah.
Okay, guys. Well, congratulations on a good year, and good luck in 2022.
Great. Thanks, Don.
Thanks, Scott.
Thank you. Our next question and comment is a follow-up from Mr. Andrew Mikitchook from BMO Capital Markets. Your line is open.
Thank you. Just a quick follow-up for Mike. Are you positioned in terms of drill budget or maybe even drilling locations to follow up on at Kiena on things like Shawkey and Presqu'île, which, you know, had kind of almost single hole, really encouraging stuff, but it will require more drilling. You know, in a best case scenario, could something like that enter the resource by the end of this year, or is that kind of a multiyear thing?
Yeah, no, we're certainly in a position this year. You know, last year, we ran the barges. The barges are still sitting there, so we're just waiting for breakup to get that started again. You know, part of that initial program is to test our Tarmac project that we acquired last year, where there's a historic resource. We're also looking at testing some of, you know, the Shawkey Zones where we've had some good success here, the Dubuisson Zone. You know, anything that we can access from 33 level, we're trying to target this year as well, because we wanna get that into a mine plan. As we develop 33 level and rehab that for the drilling, that means we'll also be able to use it for hauling muck over to the shaft.
That's certainly a focus for this year. We just bought a regional exploration office, and now we're just modifying it. We'll host all the sort of mine and regional exploration geologists and cortex there. It'll be more efficient, but also makes more room on the island for, you know, as we populate the Kiena Mine. I think we're really gearing up well. We have some good people. We've had some initial success there, and I think we have a good plan this year to start putting ounces on the books so that we can start to evaluate plans to bring them into production. You know, because it's coming down 33 level, separate from the Kiena Deep A, that's just gonna augment the production we have.
It's gonna make it a lot easier on 33 because it's tracked, and ventilation will be separated and electricity and everything else. It's certainly a focus for this year.
Maybe I can just add. You know, Andrew, I look at you know, kind of the evolution of things at Wesdome, and this year, we're really concentrating on optimizing drill platforms. As I mentioned before, we've got a hanging wall drift going out on around the 1,200-m level to you know, get more perpendicular drilling into the A Zone and in the Footwall Zone to better define. Mike's also you know, really looking at this 33 level. It’s a great platform. It's about a 5-km-long drift that really runs in the corridor between the Marbenite and the Norbenite. The nice thing about that is it’s not weather related. It's very constant climate where we are there. We're gonna have two drills there pretty well all year.
Follow-up zones, I mean, we've got the Martin Zone, the Wisik Zone, the Wish Zone, and you know, continues all the way down to the sort of southeastern part of our property there. It's a really exciting exploration platform. Over at Eagle River, I mean, we're doing a platform to better assess the Falcon Zones out to the west there. So on the 355-meter level, it's extending out west. That's in progress right now. Really, that's gonna give us great access to do good drilling on some of these parallel Falcon Zones and the North Contact Zone. So you know, it's great to have platforms developed that'll better assess what we have.
Okay. Well, thank you very much for those additional comments.
Thank you. I'm showing no additional questions in the queue at this time. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.