Wesdome Gold Mines Ltd.

Good morning, everyone, and welcome to West Dome Gold Mines' fourth quarter and year-end 2020 Financial Results Conference Call. I will now give it over to Heather Laxton to begin today.

Great. Thanks, Operator, and good morning, everyone. Thanks for joining us today. Before we begin, we'd like to take this opportunity to remind everyone that during this call, we'll discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could cause outcomes to differ materially due to a number of risks and uncertainties, including those mentioned in the detailed cautionary note contained in yesterday's press release and in the company's management discussion and analysis dated March 10, 2021. Both documents are available on our website and on CDAR. 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. And now it's over to Lindsay Dunlop, Vice President of Investor Relations.

Thanks, Heather. Here with us this morning, we have Duncan Middlemuth, President and CEO. Good morning. Scott Gilbert, Chief Financial Officer.

Hello, everybody.

Marc-Andre Pelche, Chief Operating Officer.

Hello, this is Marc-Andre.

Mike Michaud, Vice President Exploration.

Good morning.

Raj Gill, Vice President Corporate Development. Good morning. We will begin today with Duncan's discussion on 2020 achievements versus guidance and 2021 forecast, followed by a more detailed operational review from Marc-Andre. We will then move to a financial review from Scott, followed by an exploration update from Mike. Finally, Duncan will conclude with a summary and outlook. Duncan, please go ahead.

Great. Thanks, Lindsay. 2020 was not without its challenges as we navigated our way through safely operating Eagle River and advancing Kena during the COVID-19 pandemic. I'm very proud that we were able to do this without one incident of COVID at any of our offices or sites. Our team's response and implementation of the rigorous health and safety measures is to be commended. The social distancing aspect of the COVID safety protocol definitely had an impact on efficiencies and costs and the ability to generate drilled meters, which we'll talk about later in the call. With regards to production, we came in at the low end of guidance at 90,278 ounces. We did front-end load production because at the time, the circumstances surrounding the pandemic were very uncertain, and we felt it was prudent to push production in the event there was a mandated shutdown in Ontario. In the second half of the year, Eagle River generated about 10,000 ounces less than the first half, and that negatively impacted our costs, and consequently, we did come in higher than guidance on both cash and all-in sustaining costs. Additionally, we identified almost $3 million in direct health and safety costs related to COVID-19. Meanwhile, understanding that operational efficiencies certainly took a hit, and those rolled up into our costs also. Looking ahead to 2021, we are guiding 92 to 105,000 ounces at the Eagle River Complex. As you can see on the slide, we are factoring in slightly higher costs. We are also guiding an additional 15 to 25,000 ounces of Kena production based on a Q2 restart decision, and we'll talk about that later in the call. I will now hand it over to Marc-André, who will provide a more detailed review of operations.

Thanks, Duncan. Daily production throughput at the Eagle Mine has significantly increased compared to 2019, mainly due to mine efficiencies and ventilation improvements. The main fresh air fan upgrade is now completed and will allow us to increase the production up to 600 tons per day in 2021. 2020 average mine grade of 14 grams per ton were in line with the reserve grade, but was lower than our guidance of 15 grams per ton. Grades were negatively impacted due to geotechnical challenges affecting the grade performance in one of the key stoves mined in Q4. We have made some modifications in our stove design to address that issue. As well, The mail availability was low, at 76% for the quarter. The mail experienced unplanned mechanical downtime associated with the concoction in December. This year, we expect grades to average between 13 and 15 grams per ton at Eagle. gram per ton stockpile available for milling. The company was able to replace the depletion of mined reserves in 2020 and increase them by 5% or 31,000 ounces despite much less meters drilled due to evolving pandemic. Those reserves are now close to 590,000 ounces. The bulk of the reserves increases mainly came from the Falcon 7 zone with over 86,000 ounces at a grade near 20 grams per ton. Development toward the newly discovered Falcon zone is underway and will continue all year. Those results represent a great achievement and clearly demonstrates the potential for adding more profitable ounces at Eagle close to the existing mine infrastructures in a very near future. Now over to Scott for a financial review.

Thanks, Marc. Despite the challenges in 2020, we generated $215 million in gold sales at an average price of $2,360 per ounce, $119 million in mine operating profit and a free cash flow of 29 million, net of 68.4 million spent on sustaining growth capital projects. Net income and adjusted net income increased by 1.2 and 1.3 times over 2019. We ended the year with a cash balance of $63.5 million, which is more than sufficient to restart the Keenum mine later this year and execute on major exploration programs on both assets, which is budgeted at $16 million per site. Now over to Mike for an exploration update.

Thanks, Scott. As Marc-André mentioned, the drilling at Eagle River was less than planned, but we are pleased to have replaced what we mined and even added some. We have a much larger program planned for this year, over 120,000 meters of exploration, and we're currently ramping up now to achieve this. We are in the midst of completing a lithostructural review of the mine area and the surrounding region as well by a well-respected consulting firm. The results will help us better understand the controls on gold mineralization and help with our exploration targeting. Our goal is to now find mineralized zones within the mine diorite east of our current mining area. We have done a really good job finding and delineating the Falcon 7 zone, and given that this zone is adjacent to mine infrastructure, it is expected this zone will have a significant impact on mine production in coming years. The Moss Lake mineral resource remains unchanged compared to last year, and Raj will speak to this later. No doubt, the Falcon 7 and the 300 East zones have been the star players of the year. The drilling has continued to return exceptional high grains, high grades this year, and as importantly, continuity of grades down plunge. This gives us a lot of confidence in achieving good production results going forward. Ongoing extension and definition drilling of the 300 east zone has continued to return high-grade gold intersections, and this zone has now been extended to the 1400 meter level and remains open down plunge. In addition, limited drilling has intersected a new zone of mineralization approximately 40 meters to the north, and then the hanging walls of the 300 East Zone, returning over 40 grams per tonne gold. This intersection really highlights the potential of finding additional sub-parallel zones in this area, and it remains a priority throughout 2021. Meanwhile, the Falcon Zone has been extended to the 1,000 metre level, with one hole returning 314 grams per tonne gold over 6 metres. This drilling was completed from the 772 meter elevation and since that time additional mine development has been completed on the 622 meter elevation to allow for drilling. And it's now within 50 meters in the foot wall of the Falcon 7 zone. So getting close to first mining. Surface drilling is also now ramping up with two drills turning and more later in the year. The drills will focus on discovering zones near the mine area, such as the falcon zones, and also testing the 20 kilometres of regional exploration potential. Over the past year at Kena, the impact of reduced drilling was to focus the underground drilling on converting the large inferred mineral resource at the A Zone to indicated resources that could then be used in the ongoing pre-feasibility study. This definition drilling resulted in an increase of 77% in indicated resources. In addition, initial sill development was completed on the Kena Deep A Zone on 111 level. The development has confirmed the continuity of the A Zone high-grade mineralization along strike. The mill was restarted to process the A Zone bulk sample in December, of which a total of 1,500 ounces of gold have been sold to date. More gold from the mill circuit cleanup has been recovered and will be refined by the end of Q1, followed by the final reconciliation of the bulk sample once all the information is available. Since the start of the year, the drilling has since been refocused on expansion drilling and exploration, not only at the A and B sea zones, but at other prospective targets within the mine area. As part of this exploration focus, initial drilling with seven underground drills has already successfully expanded the size of the A and VC zones, with follow-up drilling expected to contribute to future resource updates. Since the close-out date of the last mineral resource estimate in September of last year, 28,000 metres of drilling have been completed along the perimeter of the A zone, including one hole that recently returned 326 grams per tonne gold over 8 metres core length. There exists excellent potential around the A zone to discover additional zones in this underexplored area. Also, drilling of the VC1 zone has continued to return a number of high-grade intersections at depth and has now confirmed that the VC1 zone extends 475 meters down plunge from 67 level to 107 level. The down-plunge extension of this zone will be drilled from new platforms on 107 level that are currently being developed. Any additional mineralization found in this area could be mined using existing and planned development at the A Zone. This is a very exciting area, so stay tuned. Over to you, Rush.

Thanks, Mike. In January, we were pleased to enter into an agreement with Gold Shore Resources to monetize Moss Lake. The transaction will further enhance our balance sheet with upfront proceeds of $12.5 million, while maintaining exposure to long-term upside in the asset via milestone payments, a meaningful equity stake, and a royalty. The asset now has a dedicated team with a strong track record for creating value, allowing Westone to focus on our core portfolio of high-grade underground mines. Back to you, Duncan.

Great. Thanks, Raj. 2020 was a year that nobody expected, and I want to extend my thanks and appreciation to all our employees and contractors for their attentiveness to safety. 2021 will be a transformational year for us, as we plan to bring Kena into production, significantly reducing the risk associated with being a single asset producer. We were very happy with the successful restart of the mill at Kena to process the A-Zone bulk sample, which is so far exceeding our expectations. The pre-feasibility study is progressing well and is on track to be released in the second quarter. We would expect to begin production in the second half of the year. At the same time, we are carrying out a $16 million exploration program with 65,000 meters focused alone on the azole and numerous step-out targets within the mine and more regionally. At Eagle, we are forecasting 92,000 to 105,000 ounces of up slightly from our results in 2020. We are equally excited about the $16 million exploration program in and around Eagle, with many targets being generated through our structural analysis. With a solid cash position to start the year, plus the additional proceeds from the Moss Lake sale, we are well positioned to execute on all our plans this year and look forward to keeping you updated as they unfold. I will now open it up for the question and answer session and back to the operator.

Thank you. And ladies and gentlemen, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. First question comes from George Topping with Industrial Alliance.

Great. Thanks, Operator. Hello, Duncan. Hello, everybody. Just interested in the bulk sample that's due in the next week or two or so, I would expect. Can you give us more information on that, on what top cut was used in that area? How representative will it be of the rest of the deposit? And, you know, we've seen with other high-grade deposits very positive reconciliation changes, Cisco Mining, for example. with lower cuts, but how representative and how much can we infer from that if it comes back positive, as you mentioned in your press release?

I'd like George's mic here. I mean, I think the bulk sample was really positive in that it showed the geometry of the mineralized zones and You know, the visible gold that we saw in CORE was certainly easy to see in the underground development, so we were happy about that. And you can see already that we've recovered 1,500 ounces of gold, and the rest is now being processed off-site in a smaller facility. You know, the capping that we used in the block model, you know, for the A zone was sort of a, you know, a three-stage capping process. And, you know, when we compare that block model to what we found from the underground drilling, we capped that at around 90 grams per tonne. But we'll probably be doing a 3D block model just based on the chip data and the muck data, and we'll compare that against the original drill hole data. But I would say overall, from what we saw in the underground sampling there, we have a good chance to recover more gold than we originally predicted. It is on the edge of the deposit. So, I mean, even if it's going to be positive, I don't think we're going to rush out and change the block model right away because it is only about, you know, just a little over 5,000 tons. I mean, my experience, you know, maybe 10 or 20,000 tons would be maybe a little bit more representative, but I think we're happy with that. The geometry confirmed by the drilling was confirmed by the bulk sample, and I think probably will do a little better than what we thought for the uncut bulk model. So that would be really positive. But I think we'd like to get going with the mining there and get some more results back and see if that makes an adjustment in our model going forward. But very happy with what we've seen so far.

Okay, good. Tom? The production for this year, you've had to cut back and cruise underground because of COVID. Is the development up to speed and far enough advanced to get to that 620 tonne per day rate early in the year?

Good morning, George. This is Mark. You know, despite the COVID and the social distancing protocol, I mean, we've done quite well on the development last year. And basically, we're basically on budget or on track. So we are in a very good position with just about half of the production this year is already developed. So basically... We are developing the second half of production, and we're already starting to look at 2022 with the development of the new Falcon Zone. So we're in good shape.

Good. Okay, thanks, Mark. I'll pass it on, operators. Thank you.

Thank you. Our next question is from Don DeMarco with National Bank.

Oh, hi. Thank you, operators. Thanks, Duncan. Maybe this is a bit of an extension to George's question, but with respect to exploration drilling, you've got a pretty heavy program set up for 2021. Can you tell me how many rigs do you have at each site? And I know you've faced some challenges that limited drilling in 2020. Are those fully mitigated on the exploration front too?

Hey, John, it's Mike here. Look, at Kena, we certainly, you know, we have seven drills currently, running underground now. We're really comfortable with achieving those meters. You know, really what hurt us last year was the government shut down everything for two months straight, and that really hurt the meters. We couldn't catch back up on that. But with the seven drills and the current production productivity that we see, no problem with that. You know, and I think that this is an exciting year there as we start doing exploration drilling and If we get into something new, you might even see us adding a few more drills underground there, so I think that would be really great. On surface, you know, we're drilling right now with three drills, and we do have one drill on the ice, which is great. We're drilling some completely untested areas before, and so we're kind of excited to see some of that. But surface drilling is easy always to catch up on, hit your targets, because, you know, we can always add another drill. We certainly have seen a little bit of... a little harder to find drills, but we have big, so it's easier for us to get the drilling contractors to want to hook up with us. At Eagle, again, on surface drilling there, no problem. It's going well. We've ramped back up to two drills now. We have a fly drill sitting there on surface, and when the days start to get longer, we'll put that back into action. The only area that we have to push a little harder at this year is Eagle. Underground, typically we run five drills. We have four there now. We have a fifth drill that... It's going to be starting up shortly, and we'll probably end the six drill later. Part of the problem there, as Duncan mentioned, with the social distancing required at the camp, we've had a shortage of rooms. We fixed that. We have another trailer coming in, another 48-man camp coming in, and that's going to help provide more rooms, and then we'll be at a six drill. You know, having just gone through the board cycle here, you know, they're very anxious with getting those meters going, and we are really pushing hard to make sure we hit our budgeted meters for the year.

Okay, good to hear. Yeah, because I see even with the truncated program last year, you still managed some reserve accretion. And to that point, Mark mentioned that there was 86,000 ounces at Falcon 7. This is a priority target at Eagle. How much of that was reserves, and what was the grade?

For the Falcon? Yeah. Yeah. Yeah, that's the reserves, so that's, yeah.

That's the reserves alone.

Yeah, yeah. 86,000 ounces at 20 grams.

Yeah. 20 grams. And more reserves. Yeah, and more resources. Okay, because it was lumped in.

Yeah. Yeah, go ahead.

Yeah, so we're actually really close to getting the footwall drift established at the Falcon, so really sort of two-fold. We definitely want to go in and have some sealing along the ore, but we definitely want to go a little bit further to the west and see if we can continue to convert some of the existing resources there and upgrade them to reserves, but very excited about Falcon. Falcon is a very high-grade chute, and we're looking forward to getting over there.

Okay, so just to confirm, like, the number seven zone, you have 160,000 ounces grading 12.6. So you're saying there's of that, there's 86,000 ounces of Falcon at 20 grams per ton.

No, it's separate done.

Oh, it's separate from the number seven.

Yeah. Yeah. Falcon is, yeah, they, they link at around a thousand meters, but yeah, Falcon is its own entity in the reserves.

Okay. Good stuff. And, um, just final question then the, uh, 2021 grade is 14, you're guiding 14 grams per ton. In 2020, it was a little bit variable from quarter to quarter. Do you think that it's going to be a little more consistent or we'll see a little bit more variability like we did last year?

No, you know what? I mean, Eagle's a very lumpy mine, as we call it. I mean, when you're in the high-grade, boy, you certainly feel it. And, you know, like our reserves, you know, as an example, you know, we've got, you know, 13.4 grams in the reserves right now. And, I mean, some of those reserves obviously are 20 grams. Some of them are 10 or even less, right? So it all comes around to mine sequencing. And because it's not a big mine – You know, you're not able to, you know, take a couple of buckets out of here and not to blend it or whatever. So basically, you know, we saw that especially back in 2019 with our mining of the, you know, the top 70 meters of the 303. I mean, the grades were spectacular and, you know, everything. So it was good. But like I said, this is very difficult to smooth out in terms of grade performance at that mine.

Okay. Thanks for that. That's all for me.

Thank you. Our next question comes from Ryan Walker with Edselman Partners.

Hi, guys. Good morning. Thanks for the call. Just first off, just want to congratulate you guys on your COVID performance. It's very commendable. It's just great. Just turning to unit costs, so creeping back up again, do you expect that to be sticky? Is that mostly COVID-related, the increase?

Yeah. What we see, I mean, we identified $3 million of direct costs, so those are easy to capture. The costs that I think are creeping in there is the cost of inefficiency, and we didn't identify them, but, I mean, if you listen to McKinsey, I think that they had said that they can attribute to about 15% cost creep because of COVID. As an example, Ryan, even at Kena, which is not in production, but we're drilling and developing in that, the cage used to have a capacity of 12. It's now got a capacity of 4. So, I mean, just everything is taking, you know, longer to kind of establish and to get. I'd have to say, though, that the protocols are really working and knock on wood because we have been extremely lucky in terms of, you know, not having any kind of operational disruption due to COVID. However, you know, I do see that, you know, things are just a little more difficult. And we look forward to... The vaccination, actually, our mine rescue team is going to get vaccinated as their first responders at Eagle. So we're starting to see that now. And, you know, hopefully we can, you know, get back to more normal in the second half of the year and kind of, you know, really focus on getting our efficiencies back in the whole bit.

Right. Okay, great. And then, you know, a lot of questions have been asked, but the news flow going forward, you've got very aggressive drill programs at each operation. When can we expect to start to see assays come out of that?

I would say shortly. Certainly, you know, as you say, with so many drills running, And, you know, Kena is, you know, producing a lot of core, and we're in some great areas there. So that's going to produce some good results shortly and throughout the year. I mean, it's a really good target-rich environment, I would say. And that eagle, you know, typically, you know, we go about every couple of months, and we put out some news. So, yeah, it's going to be a pretty exciting year on the exploration side.

Yeah. Yeah, my guess would be you'll probably see an exploration news release every four to six weeks apart.

Okay, great. Thanks, guys.

Thanks, Rich.

Thank you. Our next question is from Phil Kerr with PI Financial.

Thanks, operator. Good morning, everyone. Just a couple questions. Just curious if you could elaborate a little further on – some of the specifics of the COVID costs and, you know, kind of just site-related. You touched on, you know, the cage, you know, at Kiana, only holding four for time. But could you go into further detail over at Eagle?

Sure. Scott here. And so we identified the direct cost, as Duncan indicated. We looked at some of the costs, such as incremental, overtime, you know, as well. We were keeping people in longer at the site. We also implemented some social distancing protocols with regards to safety, doing escorts down to certain areas. And those are the main costs. As Duncan said, there was a lot of inefficiencies related to the operational costs that we just weren't able to capture. But that's sort of the main ones that we were looking at.

Yeah, like PPE fill and things like that, additional security. I mean, we have the ability to do rapid tests. Of course, we have basically our own health unit now kind of at the gate at Eagle. So, yeah, that all costs money. So that's where we capture that. And like we said, we did not capture the cost of operational inefficiencies.

Okay, fair enough. And then the second question here is, you know, Q4 – Maybe we could just refresh our memories here, but the grade and production profile was the weakest on the year, and looking towards guidance and the grade profile for 2021, it doesn't really seem like we're anticipating some of that 20-gram, 21-per-ton material. Could you just expand on maybe the mine plan and any potential, whether it's this year or in 2022, to start to tap into that higher-grade material again?

So basically what we see this year in our budget is basically we're going to be mining within our guidance through the year. In Q3, I think the grade is expected to go a bit higher because we are going to have a stope in the 303 zone. So we expect a bit higher grade there. But overall, within our guidance, as I mentioned before, we are... developing toward the Falcon Zone, and we're certainly going to see the benefit of the newly discovery in the 2022 budget as we are going to begin the production there. So I think what we're targeting for 2022 is, you know, continue to increase the throughput from Eagle and probably a higher-grade cycle with the bringing the new Falcon Zone into production.

Okay. And maybe just quickly the last question on Kiana. You know, he's noted here production of 15,000 to 25,000 ounces in the second half of the year. But with respect to cost, is there going to be some more fine-tuning or expectations of kind of declaring those cost numbers maybe later this year or perhaps within the feasibility study?

Yeah, they're going to be captured in the PFS. So you'll see that. Of course, Life of Mine production will be available through there, so you'll see how we're ramping up. Yeah, so we're, like, I'd say tabled for completion Q2, sort of mid-Q2, I think, and, you know, get a production restart decision shortly after. And I think they're really... You know, we've always said that Keen is not going to take long. I mean, we've been doing, you know, development in support of exploration here for a while, but it's also going to be in support of production very quickly. So it's going to be a relatively short time frame to start generating some ounces. Understood. Thank you very much.

Thank you. And, ladies and gentlemen, this concludes our Q&A session and program for today. Thank you for your participation. Have a great day. You may now disconnect.