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spk06: Good morning, and welcome to WESM Goldmine's first quarter 2022 financial results earnings call. Heather Laxman, Chief Governance Officer, will begin today.
spk00: 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 CETA. 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 with that, it's over to Lindsay Dunlop, Vice President of Investor Relations.
spk01: Thanks, Heather. Speaking on the call today will be Duncan Middlemuth, CEO, Scott Gilbert, CFO, and Mike 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 Kena, and finally a conclusion and outlook summary from Duncan. We will then open the lineup for the Q&A session. Please go ahead, Duncan.
spk04: 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 scope 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 Ikena. There were a few reasons for this. In January, where we had very poor mobile fleet performance, specifically the scoop jams, 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 6-yard scoop jams. These are all currently in service and working as expected, reliably. In May, the mine also received two jumbles, 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 Kena. 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 $9 million in cash margin at Kena, despite the cash cost of $1,364 per ounce of gold sold. The Paintsill plant, a critical component of the Kena 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 Mercé Langevin, who starts in June. Frederic comes from Agnès Couigle, where he was most recently the General Manager of Emilia-Denis Mines. 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 Kena, will be very valuable as we ramp up Kena and continue to optimize Eagle. And 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.
spk03: Thanks, Duncan. In Q1 2022, West Dome generated $66.6 million of gold revenue from the sale of 28,000 ounces, which includes 9,200 pre-commercial Kina ounces. The operating cash flow was $29.9 million. The total capital spend was $34.6 million, of which $29 million was growth capital. The ending cash balance was $52.5 million. Despite implicating Inflationary pressure and pandemic-related impacts, the overall aggregate cash cost of Eagle River remained consistent with Q1 2021. Eagle River cash costs per ounce sold increased by 10% to $12.62 compared to Q1 due to the lower ounces sold. As expected, combined total cash costs of $12.95 per ounce and all-in sustaining costs of $16.95 per ounce were higher than our full-year guidance as a result of expected lower production. Now over to you, Mike.
spk02: 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 zones. 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 is 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, continues to show the high-grade nature of this zone, including 90 grams per tonne uncut over 4.9 metre core length and 87 grams per tonne over 6.6 metres. Of significance, the ongoing drilling has also identified the number of thicker sections of the zone, mostly related to dilational jogs, as well as splays and full doses and limbs that have the potential to add significantly to the existing near-mine resource base. What makes the discovery in 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 off the upper 300 meters of the Falcon 7 zone. Second, to test for goldenization further along strike of the 7 zone in the volcanic rocks. And third, to test for parallel zones where surface exploration has already returned encouraging results. This is a region of the mine that has historically been given very little attention. It's a similar situation at Kena, 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 straight from the key in the mine, particularly at the Martin and Wish zones 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 Shockey Zone and the recently discovered Borgo 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.
spk04: Thanks, Mike. As expected, cash and all its sustaining costs were higher than guidance due to planned lower production levels. Higher production levels were planned for the second half of the year, with Q2 production being higher than Q1 at both assets. The material upset in production begins in the third quarter. Consequently, both cash and all its 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 Kena. 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 labour market. Based on where the world is, it is very fortunate that we started our Kena 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 Kena. 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 $80 million this year as we complete the final projects related to the Kena ramp-up, namely the paid fill plant, water treatment plant, and tailings dam augmentation. Despite the higher spending and one-quarter delay at Kena, we expect to return a positive free cash flow status in the second half of the year. As a result of improved development rates at Kena with our new equipment, drilling activities are also going very well. and we expect to deliver an update of our exploration progress from Kena in the near term. I am especially excited about our new drill platform to optimally explore the football zone. The football 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 diary. 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.
spk06: To ask the question, you will need to press star 1 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 A Capital. Your line is now open.
spk07: Thanks, operator. Thanks for taking my question, Duncan. Two of them, please. One on Eagle and one on Kina, please. Just wondering, when we think about the Falcon zone and the company's target of 100,000 ounces a year, what's your current thinking on the ideal mining rate coming out of Falcon to maintain that production level?
spk04: I think really Falken, Ralph, is really a higher grade, lower volume zone. So I think really the mining rate, you know, in terms of tons would be probably in around the, I'd say, 300 generally. But the ounce contribution from Falken is going to be, you know, a half year 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? And so when you're in Falcon, you definitely, you know, feel that effect. It's something like that 303 zone that we had previously within the diorite. So, yeah, I would think it would be the 3 to 350 range. We're really just getting out there to fully develop it now and, 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. We're looking at the upper part of Falcon with that drill platform.
spk07: Okay, yeah, that's very helpful. Switching to Kina, it looks like things are getting back on track. Are there any areas of reconciliation that are not meeting expectations and thinking about some of the April numbers and the May numbers so far?
spk04: I'd say it's early right now, Ralph, just because of where we are in terms of 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 face, which is great. So I would say there's really no news on that front, and we're not expecting any big surprises, I don't think.
spk07: Okay, yep, well said. Appreciate the help. Thank you.
spk06: Thank you. Our next question comes from Don DeMarco with National Bank. Your line is now open.
spk05: Thank you, Operator, and good morning, everyone. And 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.
spk04: Yeah, go ahead.
spk05: Yeah. So at any rate, yeah, I saw that the Eagle cost, the AISC, was higher than Kena. You know, we would have hoped maybe Eagle would provide some offset to the volatility at Kena. 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? And what were the drivers of those elevated costs in Q1 at Eagle specifically?
spk04: Actually, Don, I'll tell you, Eagle... Really, by budget, it was just a low quarter, and Eagle actually performed very well within what the plan cost was. 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, midpoint of guidance on Eagle in terms of production and also our cost expectations.
spk05: Okay. So I guess the one at Eagle was the high costs are really just related to the low production base. But it wasn't... Yeah.
spk04: It's still sequencing, Don, really. I just sort of touched on the 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. So 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. We have other good-grade material all around, but it's really a function of slope sequencing that affects that. A few things that we're driving towards, and I alluded to it at the end of my commentary. 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. So 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.
spk05: Okay. That's good. And one question on Kina. So we see that, you know, the equipment's in place. That's encouraging. And the next milestone that we look forward to is to have the PACE backfill plant up and running. Can you just confirm your expected timing for that PACE 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?
spk04: Yeah, no, definitely. I mean, let's face it, the availability of Paysville is going to be such a benefit to the mine in terms of our cycle times on stoves. So really what we're seeing is there's one component which has been delayed. It's the MTC, which is the Master Control Centre. So really 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 going to 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. So really the critical path, I think, is the installation of the MCC, the Motor Control Center. And that's where you're able to automate the process, right?
spk05: Okay. Okay, great. Well, good luck rebounding in the next quarters. And as the key in a CapEx starts to ease and pre-cash flow increases. Thank you.
spk03: Yeah, thanks.
spk06: Thank you. Our next question comes from Michael Fairburn with Canaccord. Your line is now open.
spk09: Hi, and thanks for taking my question. Just one for me on Kena, kind of a two-parter. Just wondering if commercial production at Kena is now expected to be pushed back until after the commissioning of the pay scale plan, and also wondering how this is going to impact the cost profile at Kena EQ2.
spk04: Yeah, I think really... I've said it before too, Michael, that really the paid fill plant commissioning is a key event for declaring commercial production at Kena. So yes, definitely I think it would be after we have that plant fully commissioned. In terms of really what we have for costs, it's definitely going to be decreasing after that because volumes will be increasing at Kena. So I think that that's the guidance I would give you right now, that we're definitely expecting far better costs than what we've seen in the first quarter.
spk09: Okay, fantastic. Thank you.
spk06: 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 Partners. Your line is now open.
spk08: Hi, good morning. Thanks for taking our calls here. Just, Kina, if you could maybe just give us an update on the CapEx remaining there and how susceptible that is to inflation going forward.
spk04: All right, now let's have Scott answer that, our Chief Financial Officer, Ryan.
spk03: Yeah, Ryan, in Q1, we spent about $29 million on the growth capital. We're going to be about, you know, 72 for the first half of the year, and then it's going to trail up down to about another 30, 40 million in the second half of the year.
spk08: So, sorry, I kind of cut out there on Q2. Could you repeat that, please?
spk03: Sorry, for the first half of the year, we're going to be roughly about $62 million, and the second half of the year, about $40 million.
spk08: Great, thank you. And, I mean, is that, again, are those numbers kind of firm, or are they susceptible to a bit of inflation during that time?
spk03: We actually just completed a 3-9 forecast, and these are our most up-to-date numbers.
spk08: Okay, great. And a couple of the other ones at the answer, but I'm wondering if you could just kind of quantify the COVID impact on the workforce. Was it, you know, 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?
spk04: Yeah, absolutely. So really the outbreak was pretty severe, I would say, sort of mid-January into February 1st. We actually had, you know, when I talk about employees and contractors, we had about 150 people affected. Either they were, you know, directly infected or they were contacts with others. So it was a little difficult to juggle the manpower at that point. But we're beyond that now. And hopefully we can stay out of the COVID penalty box. But, you know, we maintain our... Our rigor, I would say, in terms of our protocols and what we do for COVID prevention. So I have both minds. 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. So we had really performed well and then all of a sudden Omicron kind of hit us.
spk08: Yeah, no, no, that is a good track record. That's unfortunate. So the 150, what would that represent of the total workforce on a percentage basis?
spk04: Well, with contractors included, I mean, it's sort of variable, but we're probably running around 400, 450. So almost one-third of the contingent, I would say, would have been affected over a period of time.
spk08: All right. And what are kind of the – I guess, active cases now, or are you down to a more manageable level now?
spk04: No, they're pretty low. I think, yeah, I think we've got four active cases right now at Kena, probably similar at Eagle. You know, Eagle sort of suffered the same woes, maybe not to that degree, but, you know, it's been a challenge, but we're working through it.
spk08: Okay, great. Well, thank you very much.
spk04: Appreciate it. Yeah, thanks, Ryan.
spk06: Thank you. This concludes today's conference call. Thank you for participating. You may be dismissed.
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