This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: Good morning. Welcome to Westtown Goldmine's second quarter 2022 financial results conference call. I will now turn the call over to Heather Laxton to begin today.
spk08: 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 August 10th, 2022. Both documents are available on our website and OCR. Please note that all figures discussed on this call are in Canadian dollars unless otherwise stated. The slides used for this presentation and the 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.
spk01: Thanks, Heather. Speaking on the call today will be Duncan Middlemiss, President and CEO, Fred Langevin, Chief Operating Officer, Scott Gilbert, Chief Financial Officer, and Mike Michaud, Vice President, Exploration. The agenda today will be Fred leading off with a Q2 operations review, and then Scott will discuss the related financial results. Mike will then follow with an exploration update at both Eagle River and Kena, and finally a conclusion and outlook summary from Duncan. We will then open the call up for questions. Fred, please go ahead.
spk03: Thank you, Lindsay. Hi, everyone. Thank you for calling in this morning. Since I officially joined West Dome on June 15th, I've spent a lot of time with the teams at both sites, and I'm glad to be able to provide an update on our G2 operating results. At Eagle, the plan was for a lower grade cycle in the first half of the quarter, with higher grades expected in the latter half, especially in June. Early into the month, when performing a routine road change, it became apparent that the brand new hoist rope we had on hand had a manufacturing defect. While we were able to source a replacement rope, the time to do so coupled with the installation process and subsequent testing and validation resulted in two weeks of reduced productivity, as we had to rely on trucking art to search Secondly, we suffered a failure of one of our leach tanks. The condition of this thing had been identified as problematic and was slated to be decommissioned and replaced later in 2022. This did further impact another week of high-grade milling during quarter, however, as processing activities were suspended while we investigated this event. Finally, a very high-grade stoke in the Falcon Zone has come up with lower grids than expected, impacting gold productions. As we continue to gain more experience in this new zone, rate assumptions for the second half of the year in the area of Apto have been revised to be more conservative. At Kena, the new equipment delivered in Q2 is performing well and the overall reliability of the fleet is steadily improving. Development performances have been tracking up in Q2 and are expected to ramp up to full capacity in HQ as long-awaited bolting equipment is delivered and improvements to the ventilation system at Kena Deep are put in place. But at the moment, without the facial plant, we're constrained from increasing mining rates, but much beyond what has been achieved in Q2. While most components of the new facial plant have arrived and are being installed, certain electrical components have had delays in deliveries. For this reason, we're now looking at late Q4 for delivery and commissioning of the facial plant. Over to you, Scott.
spk11: Thanks, Fred. Quite the operational challenges at Eagle River regarding the hoist ropes and the leach tank failure and the supply chain challenges at Kena, we generated $61.9 million of revenue in Q2 2022 from the sale of 26,000 ounces of gold, which generated a cash margin of $21.9 million. We invested $38.3 million in combined capital expenditures at Eagle River and Kena in the quarter. Despite the lower cash margin and higher capital expenditures, we ended the quarter with a cash balance of $23.5 million a full $45 million secured credit facility available. Subsequent to the quarter end, we drew $16 million U.S. of the revolver as both operations are scheduled to be shut down for maintenance in July. Based on our most recent forecast, our cash position and revolver is sufficient to bring Kena into commercial production. cash costs and AISD per ounce sold increased from Q2 2021, primarily due to the 30% decrease in ounces sold, along with inflationary pressures for costs of consumables and vapour. Over to you, Mike.
spk04: Thanks, Scott. At Eagle River, underground drilling is ongoing to upgrade and expand many of the known mine zones at depth, including the 300 East, 711 and 8 zones. Additionally, drilling at the Falcon 7 zone is ongoing with both underground and surface drilling to expand and better define the zone. The ongoing definition and expansion drilling at Falcon 7 zone has increased our confidence of the Gold Grade distribution and continues to show the high-grade nature of this zone. of significance the ongoing drilling has also identified a number of thicker sections of the zone as well as splays and old noses that have the potential to add significantly to the existing near mine resource space a new drift has now been established on the 355 meter level to drill the upfung extension of this zone and provide access for mining the results of the ongoing surface drilling at the falcon 7 zone as well as at the central portion of the mine diorite, where the seven zone trend has been identified by drilling, will be released shortly. At Kena, we continue to be pleased with the drilling results that have again expanded the high-grade A zones and footwall zones. Most recently, drilling at the A zone has discovered a new mineralized interval located 100 meters below the known limit of the A zone resource. This hole returned 13 grams over 83 meters. The hole was slightly down plunge, so that's not the true thickness, and we're working on to identify that. This highlights the potential at depth. The company plans to develop a hanging wall exploration drift on the 116 level to establish more optimal drill platforms. Of course, the most exciting news for the quarter is the discovery of a new zone, namely the South Limb. Up to this point, the vast majority of the exploration drilling at the A Zone has focused on the North Limb, along the sub-vertical contact between mafic and ultramafic rocks. However, recent drilling was designed to test the lateral extension of the A Zone along the South Limb of the fold. although early days initial drilling returned 51 grams per ton over 4.7 meter core length and this area remains open along strike and down depth and could significantly add to the resource base just as the football zone discovery this lateral extension of the a-zone will increase the number of ounces per vertical meter and has the potential to provide additional working faces during mining it is evident that as we continue to explore we discover new zones demonstrating the prospectivity of this area and the entire property. Meanwhile, on surface, we are drilling the Presskill and Dupuisone zones to better define and expand these areas to upgrade to reserves in the future. Also, drilling is ongoing at Shockey and the recently discovered Borgo zones along the southeastern part of the property, and we expect to release these results in the near future. Over to you, Duncan.
spk02: Great. Thanks, Mike. Well, the guidance reduction this year of both assets is disappointing. We believe the new conservative targets we have set forth are very achievable, despite the setbacks experienced earlier in the year. With the support of Fred now in the COO seat, we are quickly adapting to this challenging environment and making the necessary investments in human capital and processes. For the second half of 2022, we are forecasting sequentially higher production, Q3 will be lighter than Q4 due to the planned shutdowns for standard mill upgrades and the refurbishment of the Thickneret Eagle River. As well, Kena was also shut down for the refurbishment of the hoist breaking system. As well, the results from initial development in the Falcon Zone are showing slightly lower grades than expected, which we are conservatively applying to our second half grade profile forecast. Early indications are showing that the high grade is more variable than initially thought. we are currently advancing plans to establish rigorous short-term block models and reconciliation procedures to improve near-term projections of high-grade zones. Additional drilling and chip sampling within the ore development has already been implemented. At Kena, the rate of mining high-grade stoves in the age zone will be slower than originally planned until the paid-sale plant is completed, thereby impacting the second half production. Additionally, the development deficit incurred earlier in the year has also impacted stoke availability. We will continue to provide updates on the progress of KINA as they become available. We are taking proactive measures to mitigate cost overruns as a result of lower production and inflationary pressures, including deferment of capital expenditures wherever practical. We remain enthusiastic about the upside at each of our mines and expect to ramp up exploration results in the coming months. So stay tuned for that. This concludes the formal portion of today's presentation. We will now open up the line for questions.
spk06: Thank you. As a reminder, ladies and gentlemen, to ask a question, you'll need to press star 11 on your telephone. Please stand by while we compile the Q&A roster.
spk00: One moment for our first question.
spk06: And our first question comes from Andrew McKitchick with BMO. Your line is now open.
spk10: Good morning. Thanks for the detailed rundown. I was just wondering if you could provide a little bit more sense of where you're seeing inflationary pressures, you know, at the two mines beyond, you know, kind of cost divided over lower production. but actually kind of in terms of consumables or labor, where are you seeing more impact and where are you kind of coping better? Just so we kind of have a sense of what the main drivers are.
spk11: Good morning, Andrew. It's Scott. Thanks for the question. So we've done analysis and at both of our studies, when we look at it, we're actually very heavily dependent on labor costs and That's probably about 60% of our cost, 60 to 65%. We've also done an analysis on the diesel fuel, cyanide, propane, ground supports, and we're seeing probably approximately about 10%, but they don't have significant impact on our overall cost because of our small size. So that's one advantage of having a few smaller mine sites.
spk10: And on the largest cost contributor on labor, any commentary on how that's... Yeah. Retention cost essentially at this point in time, or is that a thing?
spk02: I think really what we're seeing in the industry, Andrew, because it's been such a demand and low supply for, you know, qualified people and everything else, yeah, we're definitely the industry is very competitive, you know, in terms of attracting and retaining. And, you know, it's... Certainly, it's a labor market, I would say, right now, as opposed to a company. So, that's what we're faced with. So, in order to get the proper resources in the door to execute, you have to pay the going rate.
spk10: Great. One last question. Just looking beyond, call it this year or even beginning of next year, are there any broad changes or long-term adjustments that you're seeing to how you have to mine Eagle or even Kiena once you're ramped up and have these new workplaces available to you? Or is that essentially on a medium to long-term still completely intact?
spk02: Yeah, I think that's the way to look at it, medium to long-term. I think really at Kiena, we'd love to get our pace still planned up and running and see exactly how we'll be able to perform What we're seeing right now is a slope cycle being impacted by us having to mechanically place the cemented rock fill into the open voids. And that's a lot more arduous than what we had initially projected at this point, right? As opposed to a pace fill delivery. At Eagle River, I think it really, what we've outlined really, I think the identification of variability within the high grade, just to be clear, we're quite, satisfied with the Falcon Zone. We just see some variability in it. We've had two production experiences there. One's been really positive, one's been less positive, but still very high-grade zone. And so really, I think the more data that we can generate in the zone, the better predictability we're going to get. So for me, I think that's going to be the keys for our production going forward.
spk09: Well, thank you for your answers, and I'm sure we all look forward to the exploration results in the second half. Great. Thanks, Andrew.
spk06: Thank you.
spk00: One moment for our next question. And our next question comes from Wayne Lamb with RBC Capital Markets.
spk06: Your line is now open.
spk12: Hey, thanks. Morning, guys. Maybe just wondering if you might be able to provide a bit more detail on the grade variability on the Falcon Zone and how that might impact mine planning on a go-forward basis. And just curious what proportion of ore you guys kind of expect from the Falcon on a run rate basis.
spk04: Yeah, it's Mike Misho here. I mean, really, the Falcon Zone, it's a new zone that's in the volcanics. We had quite a bit of drilling into the zone when we estimated the initial resources and reserves, and we're happy with that global estimate. And, you know, as we started developing it, and we released this development in the latter part of last year, on 622 and 635 level, we certainly were getting more gold higher grade out of that development than we got from the drilling. So now we've gone to a different level and went after a really high-grade area that was, you know, in our plan, about 49 grams. We ended up getting around 30-something grams, so still pretty good material, but less than that. than we had sort of thought we might get there. And I think the variability of zones is just a little bit more than we were expecting. So really what we've done is now we're getting more development in, of course, and that's the best we can do our forecasting, but we've also drilled 80 holes into this falcon zone since the resource estimate data cut off last year. So that really has shown, and we released those results sometime I think earlier this year, I think in May, and that data shows that the grade is there it's high grade it's just that information just helps us better understand where the high grade is and where the low grade is and i think what we're finding is when we went in we mined this higher grade area it came back a little bit lower but then an area we thought we had waste we went into that we just developed through it and now we're mining that because it was higher than the low-grade hole. So with that variability, we know we need development done in front of us, certainly to do our forecasting and our budgeting, and also, you know, with the info drilling, that helps. But we certainly still believe in, you know, the total analysis coming out of the zone, and we certainly believe on the extension of the zone that we're trying to drill off right now. So I think we're still pretty comfortable with everything at the Falcon.
spk12: Okay, got it. Thank you. And then maybe Akina, just looking at the guidance on the grade, it looks like the second half implies a bit of lower grade relative to the first half. So just wondering if that's correct or if that's just a function of deferral of some of the higher grade ore into 2023. And then just curious on your definition of commercial production there, is it going to be, call it 80% capacity of 850 tons per day or just wondering what run rate you need to achieve to declare commercial there?
spk02: Yeah, I'll take that. So really, the grade function, what you see there really, Wayne, is a function of, I think, the development deficit and the Paceville delay, I would say. So really, we're not taking as much of the A zone as initially predicted. For us, the commercial production really stems around the Paysville plant, because at that point, we feel confident that we'll be able to, you know, cycle scopes in the A zone and bring it up to rate. So it's not really an 80%. If you look at the PFS that we put out in 2021, really the first two years, you know, they're ramp up years, quite frankly. I mean, as we, you know, ramp down on this zone, from 1100 level on down. You know, we don't pay light enough reserves to get it up. 2024 is certainly the year where Kena hits 100,000 ounces of production. So really it's a lot of, I would say, development dependency and paid sale really for us.
spk12: Okay, got it. Thanks. And maybe just the last one for me. Just curious on the funding capacity as you guys have drawn almost half the facility post-quarter. Just wondering if there's any additional flexibility that you guys are looking into given the delay in the ramp-up?
spk11: We're definitely looking at it, but we've just completed our 6-6 forecast. We're going to periodically be drawing on the revolver over the remainder of the year, but we seem to be well-positioned with the cash balance and the revolver.
spk12: Okay, perfect. Thanks, guys.
spk06: Thank you. One moment for our next question. And our next question comes from Don DeMarco with National Bank. Your line is now open.
spk05: Thank you, operator, and good morning, team. Some of my questions have already been answered, but just looking at the CapEx spend for the balance of the year, at Keenum in particular, do you expect it to tail off a little into Q3 and Q4? or has it maybe increased versus guidance given the various supply chain delays and incidents and so on?
spk11: Good morning, Don. It's Scott. So looking at it based on our 6-6 forecast, capital spend is going to be maybe a touch higher than the first half, but basically consistent, a little bit higher in Q3, and then it tails off a little bit in Q4.
spk05: Okay, guys. That's all for me. Thanks so much.
spk06: Thank you.
spk00: One moment for our next question. And our next question comes from Ryan Walker with Echelon Partners.
spk06: Your line is now open.
spk07: Hi, guys. Thanks for the call. So I appreciate the additional color on the falcons. That's what I was mostly waiting for. Can I maybe just verify the PACE plant at Kena? So did you say that that will be up and running in late Q4, or the electrical equipment required will be delivered by then?
spk03: Yeah, this is Fred. Yeah, we expect that late in Q4, the PACE plant will be fully commissioned and working.
spk07: Okay, great. Thanks very much. That's it for me.
spk06: Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Everyone have a wonderful day.
Disclaimer