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.
spk04: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
spk05: Good morning and welcome to the West Dome Goldmine's Q3 2022 Financial Results Earnings Call. Heather Laxton, Chief Governance Officer, will begin today.
spk04: Thank you, 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 November 9th, 2022. Both documents are available on our website and on CDOT. Please note that all figures discussed on this call are in Canadian dollars unless otherwise stated. The slide views 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, Investor Relations.
spk01: Thanks, Heather. Speaking on the call today will be CEO Duncan Middlemiss, COO Fred Langevin, CFO Scott Gilbert, and Mike Michaud, VP Exploration. Also on the call today is Raj Gill, VP Corporate Development. Fred will begin today with the review of operations.
spk10: Hi, everyone, and thank you for calling in this morning. At Eagle this quarter, the planned thickener refurbishment shutdown was successfully completed and scheduled in July. Production grades were in line with revised guidance, but production times felt slightly short of internal expectations due to delays in production in September as a result of a COVID spike in the workforce, which forced us to extract underground crews on two occasions. Also, production lasting issues delayed our extraction to some extent. We expect significantly higher gold production in Q4 with no shutdowns planned during the quarter and COVID numbers trending over. Finally, we have significantly increased our confidence level in the Falcon Zone as a result of additional delineation drilling and experience with till development and actual production results. With this additional information and our improved reconciliation processes, we have a much better understanding of grades coming from this zone going forward. Athena, which was also in shutdown in July for refurbishment of the hoist, the team has made significant headway towards achieving commercial production. Most importantly, at the basal plant, all electrical components for the controls were delivered and installed. Pre-commissioning activities have started, and we expect the plant to be fully operational choice. This is very good news, as it will provide the mine with improved capabilities to deal with the challenging ground conditions encountered in Sina Deep. Additionally, it will free up equipment currently being used to backfill stoves to focus on developing the ramp to access the wider part of the Kina DP zone. We continue to be challenged with mobile equipment delivery, especially our critical bolting equipment, but in Q3, we have been able to source rental equipment and we expect those to be commissioned in Q4, de-risking any further supply chain issues on that front. Over to you, Scott.
spk08: Thanks, Fred. Both cash and AISD costs have increased in Q3 2022 compared to Q3 2021, due to an 8% decrease in ounces sold, the inclusion of the high teen and pre-commercial ounces, and inflationary pressures. At Eagle River, the cash cost increased by 49% to $1,473 per ounce Canadian, and the AISD by 57%. $2,259 per ounce, primarily due to a 30% decrease in ounces sold. We are still experiencing wage pressure, but the price of diesel decreased by approximately 7% from the average price in Q2 2022, and the other consumable prices were fairly consistent with Q2 2022. During the quarter, the company generated $12.9 million of operating cash flow, despite Eagle River being shut down for 15 days and Keenan for 24 days for scheduled maintenance. Capital spending totaled $33.8 million with $22.8 million being spent at QNAP. In Q4, we expect capital spending to remain consistent with Q3 2022 as we complete the remaining projects before we declare commercial production action. We expect costs to trend lower in 2023 as production mounts up and major capital projects related to putting QNAP into commercial production are complete. As of today, we have drawn $54 million of the secured $80 million revolving credit facility.
spk07: Over to you, Michael. Thanks, Scott. Well, at Eagle River, we are now about a year into mining of the Falcon Zone, and given some initial challenges with forecasting, we have since remedied this situation with the addition of 95 definition drills and several hundred meters of development on various levels. Further to this infill drilling, in October we released the results of exploration drilling at Pelican that was completed from surface and from the new 355 meter level development that now extends 400 meters west of the mine into the volcanic rocks. This drilling has extended the zone up plunge to surface. In addition, a number of drill holes have intersected mineralization in sub-parallel zones in the hanging wall of the Falcon 7 zone, possibly the mine 5 and 311 west zones, including a recent hole that returned 40.3 grams per tonne gold over 1.5 metres. The 355 metre level development is not only an important level for drill platforms to test these hanging wall targets, but also for future mining. Based on the success along the western boundary of the diary, we have now started to test the eastern boundary. Within the volcanic rocks to the east and directly beneath the previously mined two zone, initial drilling returned 233 grams per tonne gold over 0.4 metres. This area remains a focus given that this could represent a separate future mining front. Elsewhere, drilling within the central portion of the mined diorite has discovered a new lens of gold mineralization. Recent highlights include 27 grams per tonne over 4.6 metres and 40.4 grams per tonne over a three-metre core length. This new lens will now be drilled and accessed from underground adjacent infrastructure along the previous mine eight zone, located only 100 metres to the south. So overall, a good quarter of exploration at Eagle River. At Kena, we also had good exploration success in Q3, in particular at the Preskill zone, which is located only two kilometres west of the Kena mine. Recent drill highlights include 24.3 grams per tonne over 3.3 metres and 30 grams per tonne over 9.4 metre core length, and the mineralization remains open at depth. Given the significant upside that the pressed skill zones could represent for KINA, the company has commenced the planning to develop an exploration ramp from surface. Already, the initial soil investigation and geotechnical drilling has been completed to determine the optimal core location and the permit application has been submitted. Also, the exploration ramp could be easily connected to Kena's existing underground ramp network, providing access to surface for the existing operation that comes with many benefits, including improved ventilation, less reliance on the shaft for the transportation of vented materials, access to higher level ore bodies, et cetera. In the underground, exploration drilling continues to return exciting results was a footwall zone discovery last year, and more recently, the discovery of the South Limb, both having the potential to increase the number of ounces per vertical meter and to provide additional working bases during mining. Encouraged by these results, we continue to explore within the basalt in this area, which we expect to report these results later this month. Over to you, Duncan.
spk02: Thanks, Mike. Staying at Kena for a moment, the slide you're seeing depicts the current development in that gives us access to the upper portion of the aid zone, which is narrower than the portion below the 1,250-meter elevation. The first two years of the PFS production scenario were built on the mining of the upper portion of the aid zone. The increase in the PFS mining rates were starting in 2024 as we developed the reserves down towards the wider area of the aid zone. Currently, the operation is behind in the planned advance of the ramp space, mostly attributable to challenges in the supply chain. As it stands, we will be developing into the wider part of this zone, in yellow, towards the end of 2023. Ramp development will be able to advance much more quickly once the final pieces of our long-awaited mobile fleet arrive in Q4-Q1, namely our mechanized bolters. And we have been able to source some short-term bolter rentals to augment this. Additionally, once the PACE plant is operational, this will eliminate the need to use cemented rock filth which will free up additional resources such as scoots, trucks, and workforce. We are finalizing our 2023 budget now and will release production and cost guidance in early January. 2023 production at Kena will be lower than the PFS schedule, reflecting the delays incurred to date. However, 2024 is more in line with the PFS. On a positive note, Fred and his team were able to develop more meters in October than at any previous point, and we are continuing to build on this success. 2022 has often been one of our better years. A downward revision in guidance and currently chalking near the lower end is hardly performance we are proud of. As implied by our guidance, we are expecting a big fourth quarter. Moving forward, the two major issues we have faced this year have been the faulting grade, reconciliation, and a keynote supply chain issue. The variability of the falcon zone has negatively impacted our ability to accurately forecast production. Our block model in the falcon, which informed our budget for 2022, was largely drill-indicated. Now that we have drilled an additional 95 holes and completed substantial ore development within the zone, we feel our predictability is increasing. The falcon zone can best be described as a high-grade nuggety zone, and so far we have experienced both positive and negative reconciliation. As our additional information gets incorporated, we are confident our forecasts will improve. We will take into account the high-grade variable nature of this zone when issuing 2023 guidance at Eagle River. At Kena, we finally have the majority of our components critical to mining, with the exception of our mechanized bolters, which we expect in the next few months. Even with new equipment, breakdowns occur and sourcing parts is still an issue. However, this is improving. We are in the pre-commissioning phase at the Paceville plant and look towards the full commissioning of this critical piece of infrastructure as the final pre-production item which needs to be in place. We are still on track to finalize the Pace plant commissioning for December. Global conditions have certainly made the development of Kena a process much more difficult than I have ever experienced. I am confident we are better equipped now to continue the path to become an all-Canadian mid-tier gold producer with the assets, the team, the jurisdiction, and the exploration potential we all see. I will now open up the call for questions.
spk05: As a reminder, to ask a question, you will need to press star 1-1 on your telephone. Please stand by while we compile the Q&A roster. One moment for our first question. And our first question comes from Ralph Corfitti of Eight Capital. Please proceed.
spk09: Good morning. Thanks very much. Two questions for me, Duncan. Firstly, I'm seeing improved reconciliation and predictability at Eagle and the Falcon Zone. And just wondering, when I think about these 95 definition drill holes, What's that in terms of like tons or meters, right? What I'm trying to get a sense of is how much, trying to quantify how much development is needed ahead of the plan in order to reduce grade variability going forward.
spk02: Yeah, so Ralph, really the issue with Vulcan, I would say, is because it's kind of located about 300 meters to the west of the diorite, we did have a little bit of development in the upper part. That was the 622 to 635 stope that we took out in Q4, which over reconciled to be quite frank, it really performed well. However, sort of the heart of the zone in which we sort of saw from 700 to 772 was largely not developed with anywhere. We had the access to it and it wasn't coming online until Q2. Frankly, at Eagle Q1 performed as it was supposed to. It was only upon reaching the sort of the heart of the falcon zone that we ended up with the grade reconciliation problems that we then recognized. So I would think that we'd like to be up to six months ahead in terms of development, which would give us a much better, I would say, forecasting accuracy. In terms of actual meters, I mean, the zone is typically about 75 meters wide. So in terms of still development, I would definitely want to have at least four levels in there, so 300 meters of redevelopment. just on the ore silt itself. So we're actually getting at that point now. There was a bit of a lag of developing the falcon zone just because it was, you know, periphery to where we had all the infrastructure within the diorite.
spk09: Yeah, gotcha. Yeah, good answer. I appreciate that. And then if I can switch over to Kina, just thinking about whether or not ground conditions are still only, you know, challenged within the footwall zones and whether or not this ground support is really can only, is only required to be remedied through sort of bolting equipment and bolting strategies as opposed to other ground support remedies that may be needed.
spk02: Yeah. Yeah, no, good question, Ralph. And so, as identified in the PFF, Lenny, We always recognize that the schist and the chamadiite rock types, which are in the footwall of the A-zone. So just to put it in perspective, we've got a great confidence assault in the hanging wall of the A-zone. As you go to the footwall, it becomes into the schist and the chamadiite. So quite frankly, we didn't really have the tools in order to address this correctly. I mean, we all see that stand-up time of scopes is a critical event of scopes. When you substitute CRF for paste fill, that extends the whole filling cycle substantially. So I see that the paste fill coming online is going to significantly reduce the exposure time that the openings have. Additionally, to not really have a mechanized bolter, it's been really problematic, I would say, We were expecting our bolsters to arrive in February, March. The way we're going, we might get them in February, March of 2023, okay? It's just been really aggravating. So Fred's done a good job of sourcing rental bolsters. We're going to get those online, but we can foresee that certainly that's going to be helpful. Additionally, I would have to say just our experience with the Schist and the Canadiites, has been beneficial for our, you know, our understanding of it and how best to deal with it. I mean, Fred's certainly quite experienced with this type of sort of converging shifts, I would call it. It's very prevalent in the Abbott City. Bousquet had it, Lapa Mine had it where Fred worked before, and Kina has it. We're not the only ones, for sure. And so I think his experience has really aided us in really controlling this much better.
spk09: Gotcha. Yeah, very helpful. Thanks for that, Duncan.
spk05: Thank you.
spk00: One moment for our next question.
spk05: And our next question comes from Don DeMarco of National Bank. Please proceed.
spk06: Oh, thank you, and good morning, gentlemen. My first question is, So it sounds like you're going to declare commercial production at Kena after the Pace Basketball Plant is commissioned sometime probably in December. Does this imply that there isn't much growth capex remaining at Kena in 2023?
spk02: Yeah, it does, Don. I think our forecast for this year is somewhere over $100 million. we're not going to be doing anything close to that. It just depends, again, I'll caution people on the supply chain hangover. Sometimes you think you're going to have expenditures in December that might go into January. Okay.
spk08: Yeah.
spk06: Okay. Sounds good. And Duncan, looking at EGLE, I mean, at Kena, obviously, we've seen the cost increase quarter over quarter, and we're looking forward to the Pace Backfill Plant to largely remedying that. I mean, there might be some ground conditions and other things to also address, but But that pace back to a plan should be an inflection point. But at Eagle, you know, it sounds encouraging that there's a turnaround that might actually happen at the same time as Kena in terms of cost reduction. But how much of the cost escalation that we've seen at Eagle due to grade volatility or so on versus, say, inflation? And maybe if we look at three to six or nine months, what kind of can give us a sense of the magnitude of cost improvement that we might expect at Eagle?
spk02: I think Don really, I mean, we're still doing the budgeting exercise, so it's not finalized, so I don't really want to get too deep into that. What we see at Eagle is it's really, I'd say it's an H2 thing, honestly, is what I'm seeing right now. The cost inflation, we're really most exposed to wage inflation, I think. And so really, when we look at the cost breakdown of Eagle, because really it's a small development-intensive mine, and the Really, I think 65% of our costs are likely our own wages and contractors, right? So we've probably seen an escalation of about 5% to 7%, I'm going to say. Okay. Who are we most exposed to? In terms of consumables, we're really not that exposed. These are smaller mines. We don't get hit with huge cost increases because diesel went up or Things like that, a lot of our cost components, not that. We did, I would say, in terms of building out Keenah, especially in that period, just for example, steel all of a sudden shot up 35%. That certainly affected our pay scale plants, the build and everything else. However, I think that we're starting to see, hopefully, a little bit of retrenchment of inflation. In terms of volume, ounces sold on, I think it really... That's really the major driver here for us.
spk06: Okay. I see. Okay. Well, thanks for that. Appreciate it. And just good luck with the restart and ramp up thereafter. Yeah. Thank you. It's all for me.
spk05: Thank you. One moment for our next question. And our next question comes from Michael Fairbairn of Canaccord. Please proceed.
spk03: Hi, Duncan and team. Good morning and thank you very much for taking my question. I just wanted to ask about the balance sheet. I just wanted to confirm that I heard correctly that you've drawn down $54 million on your credit facility now of the $80 million total?
spk08: That's correct. That is correct.
spk03: And kind of following up on that, just wondering how you see your cash flow progressing over the next few months here. Do you see yourselves drawing down further on a credit facility? And then on the other side, after you achieve commercial production at Kena, how quickly do you think you'll be able to start paying that down?
spk08: For the remainder of this year, we're going to be pretty consistent, I think, at about $54 million drop. Depending on production for the remainder of Q4, but we have positive, you know, positive expectations for the remainder of Q4, and therefore, we should be able to drive the revolver down somewhat. And then, I think, you know, it all depends on how we're wrapping up with PNF4 next year, but probably, we'll probably be using the revolver in and out during the first half of the year of next year.
spk03: Okay, perfect. That's really helpful. Well, thank you very much, and good luck with the ramp-up.
spk10: Thank you.
spk05: Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.
spk00: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
Disclaimer