Earnings Call: Q2 2021

Aug 12, 2021

Good morning, and welcome to Weststone Gold Mines Second Quarter Financial Results Conference Call. I will now hand the call over to Heather Laxton 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 will discuss our business outlook and make forward looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could cause outcomes to differ materially due to a number of risks and uncertainties, including those mentioned in the detailed cautionary note contained in yesterday's press release and in the company's management discussion and analysis dated August 11, 2021. 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 All will be posted on the company's website. And now it's over to Lindsay Dunlop, Vice President of Investor Relations. Thanks, Heather. Here with us this morning, we have Duncan Middlemitt, President and CEO. Good morning. Scott Gilbert, Chief Financial Officer. Hello, everybody. Mark Andre Pelje, Chief Operating Officer. Hello, this is Mark. Mike Michaud, Vice President, Exploration. Good morning. And Raj Gill, Vice President, Corporate Development. Good morning. Today, we will begin with an operational review from Marc Andre followed by a financial review from Scott, Then an exploration update from Mike and finally Duncan will conclude with the summary and outlook. Mark, please go ahead. Thanks, Lindsay. We had strong gold production of 30,375 ounces, a 39% improvement Over Q1, driven by an 18% increase in both gold grades and in total tons mill during the quarter. Total H1 production of 52,900 ounces leaves us in a very good position To achieve the upper half of our guidance of 92,000 to 105,000 ounces. The Eagle Mine Continues to benefit from previous ventilation work and other mine improvements with daily ore tonnages Averaging around 6 50 tons per day in the first half of the year. Production rates will be slightly below in the second half as we have 2 planned mill shutdowns scheduled in both Q3 and Q4. For that reason, we anticipate slightly lower production in H2. The development in the newly discovered Falcon Zone is ongoing and we expect to start production activities there later in the Q3. This zone will bring to Eagle another high grade mining front at a reserve grade nearly 20 grams per ton. The pre feasibility study at Kiena was completed and published late in Q2. Highlights are on this slide. And using conservative reserves and resource estimates and gold price assumptions, This project demonstrates a 98% IRR. Now there are lots of The recruitment process is ongoing as planned With about 100 West Elm employees hired to date, production successfully started in the STP zone Late in the Q2, with the first production blast since the closure of the mine in 2013. Mining operations have resumed in July with no major issues. Mine development is now completed on the one 112 meters level in the A Zone and production activities are ongoing. We continue to provide Production and exploration updates as they become available. Passing it on to Scott for the financial review. Thanks, Mark. Cash cost and AISC per ounce of gold sold in Q2 were $8.40 an ounce And $12.40 per ounce, a decrease of 24% 17% respectively over Q1. H1 2021 cash costs of $9.30 per ounce and AISC of $13.56 per ounce are within guidance And we expect to be within our cost guidance range for the rest of the year. During Q2, there were some one time non cash items, Which impacted net income. After announcing the restart of operations at Kiena on May 26, we recorded an impairment reversal charge A $58,600,000 pre tax or $36,300,000 after tax. As well, We had an after tax gain on the disposal of the Moss Lake Mineral Properties of $34,500,000 Consequently, net income was $87,800,000.63 per share. After giving effect to these one time adjustments, the net income adjusted is 17 $1,000,000 or $0.12 per share. Free cash outflow for the quarter was 9,100,000 Toll capital expenditures incurred in Q2 2021 were $34,100,000 with $24,100,000 spent at Kiena in preparation of the production restart. Our ending cash balance was $67,800,000 Over to you, Mike. Thanks, Scott. At Eagle River, initial sill development is continuing at the Falcon 7 zone and to date has confirmed the high grade nature of this zone And the continuity defined by the exploration drilling. We continue to be very excited by development and drilling results at the Falcon Zone and expect to release results shortly. The company is also continuing to develop and explore the 311 West zone Along the western margin of the mine diorite. This zone has transitioned from the diorite into the adjacent mafic volcanics, Again highlighting the potential of the volcanic rocks to host gold mineralization similar to that observed at the neighboring Falcon 7 zone. Although we experienced some challenges with staffing of drills, we have successfully expanded a number of our known zones, particularly the high grade 300 East Zone. In addition, surface drilling is ongoing both east And west of the mine to follow-up on anomalous values returned from regional drilling completed in 2020 And also at targets recently identified by our structural analysis of the mine and the surrounding property. At Kiena, Drilling continues to return exciting results. In March, we announced a very exciting new discovery on the footwall of the A Zone. In May, we released the 2nd set of high grade drill results, which included one of our most impressive holes at Kiena, We're turning 41 grams per ton gold over 51 meters. The footwall zone is a 50 meter wide corridor of parallel zones of gold mineralization Adjacent to the footwall of the A2 zone. The footwall zone extends over 300 meters along plunge and remains open laterally and down plunge. The discovery of the high grade footwall zone could have significant positive impacts on the resources, The ounces per vertical meter and also the overall project economics. This drilling highlights the potential to add ounces not only in this area, But illustrates the untested potential of the entire gold system around the Kiena mine. Also ongoing drilling continues to better define and And laterally the Kiena Deep A Zone resource, which was used in the recent PFS study. 1 of these Expansion holes returned 122 grams per tonne over 7.5 meters of core length, which will be included in future resource updates. We have a strong pipeline of targets to drill this year, both from underground and from surface, including the underexplored B zone, which is Interpreted as the down plunge extension of the previously mined S-fifty zone. Surface barge drilling has commenced with 2 drills To test many underexplored targets along trend from the Kiena mine and results from all of this drilling will be released in the near future. Finally, Westdome recently purchased the tarmac gold property from Goldex Mining Enterprises. The purchase of these claims helped to consolidate our land package and provides additional exploration potential based on the existence a number of historic drill intersections. Over to you, Duncan. Thanks, Mike. The results of the first half of the year have us well positioned to achieve our guidance at Eagle River on both production and costs. We expect slightly lower production in the second half with Q4 seeing higher production than Q3. As we move towards 100% production From the Eagle River Mine, annual production of 100,000 ounces is very achievable going forward. The Goldshore transaction Involving our sale of the Moss Lake asset also closed during the quarter. And in addition to the $12,500,000 in cash, The company received a 30 percent equity stake worth approximately $20,000,000 pre listing. Goldshore commenced trading on June 4 under the symbol GSHR. The second half of the year will be a very exciting time for the company as we begin production at the Kiena mine. The mill has been started successfully and mining has begun from the S-fifty zone. At the same time, development work is ongoing in the high grade A zone And we should have our first production from this area next month. Our Kiena guidance for the year is 15,000 to 25,000 ounces, Not included in the 92,000 to 105,000 ounces of Eagle. And we will evaluate after Q3 whether there are opportunities to increase guidance estimates. We are fully funded for the construction and commercial restart at Kiena. With a combined production of 107,000 to 127,000 ounces this year, We are well on our way to achieving our stated goal of becoming Canada's next mid tier gold producer with 2 high grade underground mines in operation. This is a significant milestone which both derisks the company from a single asset producer and allows us the opportunity to potentially double our annual production output. I would like to extend my thanks to all employees and stakeholders who have helped us to begin to realize this vision. Another step forward as of today is our listing on the OTCQX market in the United States. We believe this I will now hand the call back over to the operator for the Q and A session. Thanks. Thank you. And our first question comes from Don DeMarco with National Bank Finance. Your line is open. Thank you, operator, and good morning, Duncan and team. Hope everyone is doing well. Congratulations on surprise getting keen up and running sooner than expected. It's great to see. Question for Phil, What are you what throughput are you running it at? Just maybe if you can share any more information about maybe throughput. Is this low grade material from the S-fifty? And is this throwing off any production and whatever mass Production that might be coming off, would this be included in the 15 ks to 25 ks preliminary guidance? Good morning, Don. This is Marc. So as we mentioned during the call, I mean, the mill we started very successfully in the month of July, The throughput has been around 40 tons per hour. So we did have a few days over 1,000 tonne per day actually. So the mill restarted It's been going very well. The mill is on the four-three schedule. It was basically stated in the PFS. So we're processing 4 days and we're doing maintenance work on the 3 last days of the week. So that's basically what we For meeting time for the remainder of the year. About the S-fifty, I mean, as per the PFS, the grade was A bit lower than Liaison, about 4 grams or 5 grams per ton. The intent was to test the mill and ensure The process is working as it's supposed to be before we start feeding the mill with higher grade ore Later in the quarter. Okay. Okay, great. Thanks for that. Now, in terms of the spending at Kiena, I see year to date CapEx spend at Kiena is a total somewhere around $36,000,000 $37,000,000 versus a Full year budget of spend at Kiena of about $68,000,000 Can I take anything away from this that maybe you're ahead Sven, are you comfortable with where you're at versus the full year estimate? We just did the reforecast for the year and we actually plan to spend more and more money Compared to what we had in the PFS, it's about $10,000,000 and it's mainly equipment and the construction of the new paste plant. So we actually plan to spend more money done. Okay. Would we expect that the spending at Kiena is probably going to take you're going to probably continue with the heavy spend into August and then it will taper off in September and thereafter? Or how should we allocate our quarterly spend through Q3 and Q4? We're fairly even on that, Don. Actually, we're probably like as Marc Andre said, we've already spent about $37,000,000 We're going to Spend a total actually of about $189,000,000 $79,000,000 $79,000,000 sorry, dollars 79,000,000 Okay. So Really, we think it's going to be fairly balanced in Q3, Q4, so the remainder of that. Okay, guys. Thanks so much. That's all for me. Appreciate it, and We'll look forward to more results from the Football Zone and continued success at Kiena. Thanks. Yes. Good stuff. Thanks, Doug. Thank you. Our next question comes from Andrew Mikitchook with BMO Capital Markets. Your line is open. Hi, guys. Really well done on the quarter and the trajectory for the balance of the year, I think. I just had a question as to how we should expect the Kiena restart to work from an accounting perspective? Or are we Should we expect a standard pre commercial period and at some point, Scott takes over and Discloses costs for Kiena or is there some other permutation here considering this is a Andrew, there's been a change in the IFRS standard. So Therefore, any of our revenue going forward will be included in the income statement. There will not be any offset against the Capitalized exploration asset. My second question is, I guess, for Mike in terms of drilling some of this stuff like the Deep A and some of the other targets around Kiena. How much effort in terms of exploration drifts and other infrastructure What do you need in terms of time to get that set up to properly drill something like the footwall or some of the other targets underneath the other historical zones at Kiena. Yes. We have that in the budget. I mean, where we're drilling the footwall zone from most of the drilling can be done from our current Platforms, but as the ramp continues to depth, we're going to be generating other platforms that will be closer and at better angles And certainly for the more historic zones to the east of Kiena, what you want to get to up on 33 level, we are continuing to Slash out the areas because there's an old track drift, right? And we're slashing that out so we can get the drills down those areas and start testing that. So We are continuing right now with the development sort of as we need for the drills. Just a last question, I'm not sure if it's Marc Andre or who, but at what point would the Current infrastructure plan for Deep A essentially provide access to what's known of the footwall at this point in time? Okay. Is it several years? Is it next year or what's the time frame? Yes. So as it is, the newly footfall discovery is about mid elevation of the A Zone. So considering the current life of mine, it's about in 3 years. Andrew. Okay, Great. That runs the other questions. Thank you. I'll let others follow-up. Thanks, Andrew. Congratulations. To be clear, I don't think we really found the up plunge of that either. So that's Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.