2023-03-31 11:42:59 ET
Summary
- Wesdome Gold Mines Ltd. posted $55.23 million in revenue, down 17.3% compared to the same quarter a year ago. Net loss was $2.60 million or $0.02 per diluted share.
- Wesdome Gold produced 35,116 Au Oz in the fourth quarter of 2022, down 15.5% YoY. The company sold 31,500 Au Oz in 4Q22.
- The Wesdome Gold Mines Ltd. Kiena Complex in Québec is a prime property that could fit perfectly with Agnico Eagle, Yamana, or Eldorado Gold.
- I recommend buying Wesdome Gold Mines Ltd. between $5.60 and $5.25, with a potential low at $4.88 in case of sharp retracement.
Introduction
The Canadian-based Wesdome Gold Mines Ltd. (WDOFF) is a small gold producer focused on Canadian assets. The company is producing gold from two mines now. The Mishi mine did not produce any gold in 4Q22.
The Eagle River and the Kiena complex are two crucial mines considered high-quality asset bases with solid growth potential, fully funded by the company. Both mines are located in Canada.
WDOFF Assets presentation (WDOFF presentation)
1 - 4Q22 and full-year 2022 Production results snapshot
Wesdome Gold Mines Ltd. released its fourth-quarter production results on February 22, 2023. The company posted $55.23 million in revenue, down 17.3% compared to the same quarter a year ago. Net loss was $2.60 million or $0.02 per diluted share compared to an income of $19.35 million or $0.13 in 4Q21.
Gold production this quarter was 35,116 Au Oz, and the company sold 31,500 Au Oz. The gold price realized this quarter was $1,676 per ounce (C$2,275).
Wesdome indicated in its last presentation on March 23 that Kiena mine commercial production was declared on December 1, 2022 . The mine is located between Canadian Malartic (Agnico Eagle and Yamana Gold) mine and Lamaque Mine (Eldorado Gold).
WDOFF Kiena Mine (Wesdome Gold Presentation)
Note: Production in 1Q23 will be the first full-quarter production for Kiena Mine.
Interim CEO Warwick Morley-Jepson said in the conference call:
While 2022 was a challenging year in many ways, our accomplishments; we are very proud of, is putting a second mine into production; funded almost entirely from internal generated cash-flow. The guidance we have provided for 2023 is achievable and our production is vested more heavily in the second half of the year. The work we are doing this year is setting up the company for a strong 2024 and beyond.
2 - Investment Thesis
Wesdome Gold Mines Ltd. is a mid-tier gold Canadian producer with a clear potential for an acquisition/merger, especially with the Kiena Mine between two good-producing mines, Canadian Malartic, and Lamaque (see the map above). The Presqu'ile zone is an excellent extension potential (see below), and the company made a discovery in the footwall and South Limb, which is a perfect addition to the Kiena deep zone. In the press release, the company said:
From surface, drilling has focused on the Presqu'île Zone located 2 kilometres west of the Kiena Mine. Highlights include 24.3 g/t over 3.3 m core length and 30.0 g/t Au over 9.4 m core length. Given the significant upside that the Presqu'île zone could represent for Kiena, the Company is currently evaluating options to fast-track an exploration ramp from surface. It could also easily be connected to Kiena's existing underground ramp network, providing access to surface for the existing operation and enhancements to the mine's ventilation network
Thus, the Kiena Complex in Québec is a prime property that could fit perfectly with Agnico Eagle, Yamana, or Eldorado Gold.
Production for Q4 2022 was excellent, but Eagle River production has been affected by the timing and weather issues in Q4 2022. Also, the Eagle River mine in Ontario, the company's flagship mine, offers good growth potential. COO Fred Langevin said in the conference call:
Unfortunately, a significant part of the high grade or produced in December, could not be sent to the mill before the end of the quarter to be processed, as the major winter storm that rolled over most of Canada at the end of December; caused road closures at site, with complete interruption of the flow of ore from the mine to the mill for several days. This resulted in the operation ending the year with approximately 6,000 tons of ore at 18 grams with some left unprocessed until later in January.
Thus, I recommend accumulating Wesdome Gold Mines Ltd. on any weakness while trading a good part of your position to take advantage of the gold volatility. The best solution is a dual strategy with a long-term core position that you grow by the short-term gain from your trading LIFO.
3 - Stock Performance
Wesdome Gold Mines Ltd. stock has significantly underperformed VanEck Vectors Gold Miners ETF (GDX). The situation has been accelerating since August 2022. WDOFF is now down a whopping 52%.
Wesdome Gold Mines Ltd. Q4 2022 Balance Sheet And Gold Production: The Raw Numbers
Warning: The company data are indicated in US$ here.
WDOFF | 4Q21 | 1Q22 | 2Q22 | 3Q22 | 4Q22 |
Total Revenues $ million | 66.80 | 52.68 | 48.37 | 46.35 | 55.23 |
Quarterly Earnings of $ million | 19.35 | 5.57 | -11.19 | -2.92 | -2.60 |
EBITDA $ million | 34.56 | 16.31 | -2.31 | 3.61 | 15.69 |
EPS (diluted) $ per share | 0.13 | 0.04 | -0.08 | -0.02 | -0.02 |
Operating Cash Flow $ million | 37.63 | 23.61 | 9.45 | 9.70 | 7.56 |
CapEx in $ million | 37.37 | 27.33 | 29.94 | 25.37 | 28.85 |
Free Cash Flow in $ million | 0.26 | -3.72 | -20.49 | -15.66 | -21.29 |
Total Cash in $ million | 44.35 | 41.45 | 18.37 | 18.55 | 24.43 |
Total LT Debt in $ million | 0 | 0 | 0 | 20.55 | 40.26 |
Shares Outstanding (diluted) | 143.19 | 143.47 | 142.48 | 142.49 | 142.78 |
Gold Production | 4Q21 | 1Q22 | 2Q22 | 3Q22 | 4Q22 |
Quarterly Production K Oz | 41,559 | 25,611 | 27,240 | 22,883 | 35,116 |
Gold sold K Oz | 37,544 | 28,000 | 27,240 | 27,500 | 31,500 |
Gold Price in $/Oz | 1,777 | 1,907 | 1,866 | 1,730 | 1,676 |
AISC in $/Oz | 1,103 | 1,399 | 1,519 | 1,730 | 1,552 |
Mine | 4Q21 | 1Q22 | 2Q22 | 3Q22 | 4Q22 |
Eagle River | 24,267 | 19,334 | 17,756 | 17,405 | 25,502 |
Mishi | 363 | 1,165 | 570 | 270 | 0 |
Kiena | 13,207 | 5,112 | 8,914 | 5,208 | 9,614 |
Source: Wesdome filings.
Balance Sheet And Production Discussion
Note: all data are indicated in US$ unless otherwise specified.
1 - Fourth quarter of 2022, revenues were $55.23 million.
WDOFF Quarterly revenues history (Fun Trading)
The fourth quarter's revenue was $55.23 million compared to $66.80 million in 4Q21. In 4Q22, the company posted a net loss of $2.60 or 0.02 per diluted share compared to an income of $19.35 million or $0.13 in 4Q21.
2 - Quarterly Free Cash Flow
WDOFF Quarterly free cash flow history (Fun Trading)
Note: Free cash flow is cash from operations minus CapEx.
The company's FY22 free cash flow was a loss of $61.16 million, with a loss of $21.29 million in 4Q22.
3 - Quarterly Cash Versus Debt History
WDOFF Quarterly Cash versus Debt history (Fun Trading)
Total cash was $24.43 million in 4Q22, with a debt of $40.26 million. Liquidity is about $95 million.
CFO Scott Gilbert said in the conference call:
At December 31st, '22, the liquidity position was approximately $130 million, which includes $33 million of cash and equivalent and $95 million undrawn under the credit facility. We established an ATM Equity Program on December 2nd, 2022, which allows the company to issue and sell up to 100 million of common shares from treasury. We're using an ATM as it incurs lower commissions and can be used opportunistically.
One negative for shareholders with dilution potential:
Wesdome Gold has used an ATM program to finance CapEx. While I recognize that using the stock to finance CapEx is convenient and less expensive for the company, I also recognize that this financing is detrimental to shareholders, affecting the stock negatively, down over 50% on a one-year basis.
2 - Quarterly Production Analysis
Wesdome Gold produced 35,116 Au Oz in the fourth quarter of 2022, down 15.5% yearly (please see charts below). The company sold 31,500 Au Oz in 4Q22.
WDOFF Quarterly Gold Production history (Fun Trading)
Production came from two mines in 4Q22:
WDOFF Quarterly Production per mine history (Fun Trading)
At Kiena, Wesdome achieved record throughput at the start of operations in 4Q22, with 35% more tons processed than the previous estimate. The lower grades achieved during the quarter were due to limited production capacity in Kiena Deep, forcing the company to supply products with the lower-grade Martin S-50 and VC zones. Lower grades are expected to continue into 2023.
3 - Mineral Reserves Down YoY.
WDOFF 2022 Reserves (WDOFF Presentation)
Consolidated mineral reserves are 1,006K Oz, down 14% YoY.
Technical Analysis and Commentary
WDOFF TA Chart short-term (Fun Trading StockCharts)
WDOFF forms an ascending wedge pattern with resistance at $6.10 and support at $5.55.
The trading strategy now is to sell about 30% of your position between $6 and $6.40 with possible higher resistance at $7.35. Then, accumulate between $5.60 and $5.25 with a potential low at $4.88 in case of sharp retracement.
Watch gold like a hawk.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
For further details see:
Wesdome Gold: An Acquisition Potential