Wesdome Gold plans low-cost mine at Kiena

Wesdome Gold Mines (TSX: WDO) has released a preliminary economic assessment (PEA) for its wholly owned Kiena mine complex, 15 km northwest of Val-d'Or and 100 km east of Rouyn-Noranda in Quebec.

The PEA estimates a mine life of eight years producing an average of 85,931 oz. gold annually at cash operating costs of US$374 per oz. and all-in sustaining costs (AISCs) of US$512 per ounce.

The early-stage study forecast an initial capex of $35 million and a payback period of 1.7 years. At a base case gold price of US$1,532 per oz., the study demonstrated an after-tax net present value at a 5% discount rate of $416 million and an internal rate of return of 102%.

Aerial view of the Kiena mine complex in the Province of Quebec. Photo Credit: Wesdome Gold Mines.

"We're pleased with the results from the PEA, which shows the potential for a low-cost mine with low capital costs and a relatively short payback period," Duncan Middlemiss, Wesdome's president and CEO, said in an interview. "Furthermore, as we've already built and operated the mine previously, we believe the PEA provides a conservative estimate."

Kiena produced 1.75 million oz. gold (12.5 million tonnes grading 4.5 grams gold per tonne) between 1982 and 2013 before the mine was put on care and maintenance.

The 65-sq.-km. mine complex has a 2,000 tonne-per-day mill and tailings facilities, and nine shafts including the 930-metre Kiena shaft.

The project contains indicated resources of 2.83 million tonnes grading 8.67 grams gold per tonne for 788,100 contained oz. gold and inferred resources of 2.92 million tonnes grading 8.51 grams gold for 798,100 oz. gold. The PEA was based on resources from the A, B, S50, VC and South zones.

Since the resource was issued in September 2019, the company has completed an additional 47,800 metres of drilling in 164 new holes, and these will be included in an updated resource estimate in the fourth quarter of this year.

The company started its 2020 drill program in February with eight drill rigs and plans to drill 75,000 metres from underground and 10,500 metres from surface. But the program was suspended in March due to the coronavirus pandemic. Drilling resumed on May 11.

Before the work program was suspended, Wesdome completed 45 holes (7,045 metres) in the Deep A zone. Highlights include hole 6599, which intersected 3 metres grading 108.2 grams gold starting from 245 metres downhole.

Core samples from the Kiena Deep A zone. Photo Credit: Wesdome Gold Mines.

"We're very excited at what we've seen so far," Middlemiss said. "Our intention with the program is to convert the resources from the inferred to the indicated category, and we hope to have this completed at the beginning of the fourth quarter."

Exploration drilling will focus on the up-plunge potential of the Deep A zone as well as resource expansion at depth.

The company plans to complete a prefeasibility study on the project by the first quarter of 2021 and then make a production restart decision.

"Our strategy is to maximize throughput from the high-grade Deep A zone and to augment production from the B, South, VC and S50 zones," Middlemiss said.

BMO Capital Markets' mining analyst Andrew Mikitchook described the PEA as positive and said it provided "clear visibility on restarting the mine."

"We extended Kiena's mine life to 10 years from 8 in our model at a flat 10 grams per tonne to reflect our expectation of future exploration success in which management has a solid track record of delivery to date," Mikitchook wrote in a research note. "Additionally, the PEA only includes resources proximal to the mine infrastructure and an updated resource estimate is planned early in Q4 2020."

"Wesdome has now delivered to the market visibility on doubling production to roughly 200,000 oz. per year by late 2021 while maintaining high margins," he noted. "The company, in our opinion, will remain amongst the most visible junior producers with an admirable operating track record, premium Canadian jurisdiction, and likely modest, if any, COVID-19 impacts. We expect Wesdome will maintain its momentum as a top destination for investment in the junior sector and remains our top pick among small producers."

In addition to Kiena, Wesdome owns the Eagle River complex in Wawa, Ont., which is currently producing gold from two mines - the Eagle River underground mine and the Mishi open pit. It also owns the Moss Lake gold deposit, 100 km west of Thunder Bay, Ontario.

At the end of the first quarter, the company had a cash position of $49.4 million.

At press time in Toronto, Wesdome was trading at $11.92 per share within a 52-week trading range of $4.33 and $13.50.

The company has 138 million common shares outstanding for a $1.65-billion market capitalization.

BMO's Mikitchook has an outperform rating on the company and a target price of $15 per share.