2011 Annual and Fourth Quarter Results
PRESS RELEASE
2011 ANNUAL AND FOURTH QUARTER RESULTS
Toronto, Ontario – March 15, 2012 – Wesdome Gold Mines Ltd (WDO: TSX) (“Wesdome” or the “Company”) reports its financial and operating results from its Canadian operations for the year ended December 31, 2011. This information should be read in conjunction with the Company’s annual financial statements, notes to the financial statements and Management’s Discussion and Analysis. All figures are in Canadian dollars unless otherwise specified.
The Company owns the Eagle River and Mishi gold mining operations in Wawa, Ontario and the Kiena mining complex in Val d’Or, Quebec. The Eagle River mine commenced commercial production on January 1, 1996, and the Kiena mine on August 1, 2006.
HIGHLIGHTS
- New Mishi Mine developed
- Earnings of $0.2 million or $0.00 per share
- Revenues of $79.6 million
- Cash flow from operations* of $10.5 million or $0.10 per share
- prior to working capital adjustments
- Cash and bullion at market at year-end of $19.1 million
- Reserves increase 10% net of depletion
- Bullion inventory of 8,652 ounces at year end
Donovan Pollitt, CEO comments “In 2011, we had some unforeseen events that disrupted a tight miningdevelopment sequence at Kiena, resulting in weaker than expected performances in the second and third quarters. These issues have been addressed as demonstrated by a marked improvement in fourth quarter results. Despite these challenges, a committed investment in development and drilling has increased our reserves to record levels, built a third mine (Mishi) and put us in an advantageous position moving forwards.”
OVERALL PERFORMANCE
At December 31, 2011, the Company had $7.2 million in working capital and 8,652 ounces of refined gold bullion in inventory. In 2011 revenue exceeded mining and processing costs by $14.6 million and $19.3 million in capital costs were incurred. Cash flow from operations totalled $4.9 million and net earnings were $0.2 million, or $0.00 per share.
Both mining operations are producing from lower grade areas and are pushing development of higher grade new production areas, which will progressively come onstream starting in 2012. In addition, a third mine, Mishi, is in the pre-production development phase.
More ounces of gold were sold than produced. Favourable gold prices have allowed us to secure development for future years, develop a new mine and invest in drilling to replace and increase reserves
- all at reasonable costs during a transitional period of lower grade production and elevated investment.
External factors which favoured results include low interest rates and rising gold prices. We hope this continues. Also, energy prices stabilized and commodity-based input costs and consumables have stabilized or decreased.
Negative external conditions were dominated by extreme competition for the skilled and professional labour pool which is of insufficient size to support the booming resource development cycle. In this environment we are finding it more challenging to attain the rate of development advance we are accustomed to and believe, industry-wide, that costs will inflate further and that many projects likely will be delayed. On a more positive note, the tightening of risk capital and credit markets since the summer indicates that some of these competing projects may not get financed.
In light of these pressures, and very strict control of costs, operating costs increased only 3% to $65.0 million for the year ended December 31, 2011, compared to $63.3 million last year. Fortunately, realized gold prices increased 20%, or $254 Cdn per ounce, over this corresponding period.
RESULTS OF OPERATIONS
Three Months Ended Dec 31 Twelve Months Ended Dec 31
2011 2010 2011 2010
Eagle River Mine
| Tonnes milled | 48,639 | 39,281 | 182,449 | 155,554 |
| Recovered grade (g/t) | 5.2 | 7.9 | 4.8 | 7.3 |
| Production (oz) | 8,104 | 10,004 | 28,231 | 36,712 |
| Sales (oz) | 5,000 | 10,000 | 29,000 | 40,000 |
| Bullion inventory (oz) | 8,024 | 8,793 | 8,024 | 8,793 |
| Bullion revenue ($000) | 8,598 | 14,013 | 44,613 | 50,690 |
| Mining and processing costs ($000) | 5,604 | 11,222 | 29,448 | 35,163 |
| Mine operating profit ($000) * | 2,994 | 2,791 | 15,165 | 15,527 |
| Gold price realized ($Cdn/oz) | 1,717 | 1,399 | 1,536 | 1,266 |
Kiena Mine Complex
| Tonnes milled | 56,414 | 84,751 | 255,311 | 285,527 |
| Recovered grade (g/t) | 2.5 | 4.2 | 2.4 | 3.5 |
| Production (oz) | 4,618 | 11,508 | 19,516 | 32,162 |
| Sales (oz) | 5,000 | 9,000 | 23,000 | 30,000 |
| Bullion inventory (oz) | 628 | 4,113 | 628 | 4,113 |
| Bullion revenue ($000) | 8,608 | 12,621 | 35,030 | 38,693 |
| Mining and processing costs ($000) | 8,676 | 6,276 | 35,568 | 28,134 |
| Mine operating profit (loss) ($000) * | (68) | 6,345 | (538) | 10,559 |
| Gold price realized ($Cdn/oz) | 1,717 | 1,398 | 1,519 | 1,286 |
Total
| Production (oz) | 12,722 | 21,512 | 47,747 | 68,874 |
| Sales (oz) | 10,000 | 19,000 | 52,000 | 70,000 |
| Bullion inventory (oz) | 8,652 | 12,906 | 8,652 | 12,906 |
| Bullion revenue ($000) | 17,206 | 26,634 | 79,643 | 89,383 |
| Mining and processing costs ($000) | 14,280 | 17,498 | 65,016 | 63,297 |
| Mine operating profit ($000) * | 2,926 | 9,136 | 14,627 | 26,086 |
| Gold price realized ($Cdn/oz) | 1,717 | 1,398 | 1,529 | 1,275 |
- The Company has included in this report certain non-IFRS performance measures, including mine operating profit and mining and processing costs to applicable sales. These measures are not defined under IFRS and therefore should not be considered in isolation or as an alternative to or more meaningful than, net income(loss) or cash flow from operating activities as determined in accordance with IFRS as an indicator of our financial performance or liquidity. The Company believes that, in addition to
conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company's performance and ability to generate cash flow.
Mine operating profit excludes the following specific items included as operating expenses on the Consolidated Statements of Income: Depletion, Production royalties, Corporate and general, Share based compensation and Amortization of capital assets.
Bullion sales exceeded mining and processing costs resulting in a mine operating profit, or gross margin, of $14.6 million. In addition to these direct operating costs, additional cash costs, including royalty payments, corporate and general costs and interest costs totalled $6.3 million. We pride ourselves in running a tight ship with low corporate and general costs. The regulated implementation of IFRS accounting standards increased these costs significantly in 2010 and 2011. This is now behind us.
At the Eagle River Mine a large volume of low grade ore from development headings, salvage stopes in the old mine areas and surface stockpiles was processed. Combined with greater than expected dilution in main production stopes, the results represented the lowest grades of annual production to date. The Eagle River Mine produced 28,231 ounces of gold from 182,449 tonnes milled at a recovered grade of 4.8 gAu/tonne. We have made considerable progress in developing deeper levels of the high grade 811 Zone and as previously disclosed, expect to see significant improvements in grade and production starting in 2012 and moving forward.
At the Kiena Mine, production suffered from severe dilution and lost ore caused by caving in two salvage stopes during the first and second quarters. The mine schedule had been relying on these stopes in the transitional period while larger future production areas were being prepared. These unfavourable circumstances were further exacerbated by delayed development of the new production areas due to tight labour markets, lack of advance and financial stress on a key contractor. We have largely addressed these issues and are rapidly catching up on development. This catching up will extend through the first quarter, 2012 with production from higher grade areas scheduled for the second half of 2012. In 2011, the Kiena Mine produced 19,516 ounces of gold from 255,311 tonnes milled at an average recovered grade of 2.4 gAu/tonne.
At the Mishi Mine work commenced in August, 2011, and involves an 8-month pre-production period. This will be an open pit mining operation located just 2 kilometres west of the Eagle River Mill. We are proceeding with an initial 5-year mine plan. At year end 2011, approximately 21,000 tonnes of ore were stockpiled at the mill and scheduled for processing commencing in January, 2012.
In summary, 2011 was a disappointing year in terms of production. However, a committed investment in development and drilling has increased our reserves, built a third mine (Mishi) and put us in an advantageous position moving forwards. We expect a return to life-of-mine type grades over time at Eagle River, hope to get ahead on development at Kiena and look forward to the contribution of new production from Mishi.
FOURTH QUARTER
In the fourth quarter, 2011, Wesdome’s production totalled 12,722 ounces of gold of which 10,000 ounces were sold at an average price of $1,717 per ounce. This performance showed improvement of 23% and 22% compared to production levels in the third and second quarters respectively.
At Eagle River production increased 18% and grade increased 13% compared to the third quarter, 2011 results. The Eagle River Mine produced 8,104 ounces of gold from 48,639 tonnes of ore milled at an average recovered grade of 5.2 gAu/tonne. Both grade and throughput were up.
At Kiena, production increased 33% and grade increased 32% compared to the third quarter, 2011 results. The Kiena Mine produced 4,618 ounces of gold from 56,414 tonnes of ore milled at an average recovered grade of 2.5 gAu/tonne. Work focused on development of new stopes. Once development catches up a steady production rhythm will result in higher levels of production. We expect this development catch up to continue in the first quarter, 2012 and scheduled production grades to pick up in the second half of 2012.
The new Mishi operation stockpiled 21,000 tonnes of development ore at the mill. The fourth quarter results of operations showed a marked improvement over disappointing second and third quarters. After an extended development cycle, our new generation of production areas and a new mine (Mishi) are coming onstream.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2011, the Company had working capital of $7.2 million compared to $28.8 million at December 31, 2010. The Company invested $19.1 million in exploration and development, $0.1 million on exploration properties, and $0.1 on capital equipment for a total of $19.3 million, compared to $19.4 million on exploration and development, $0.7 million on exploration properties, and $2.2 million on capital equipment for a total of $22.3 million in 2010.
The Company traditionally maintains an inventory of refined gold bullion. At December 31, 2011, the Company held 8,652 ounces of gold at a market value of $13.9 million. This practice increases the Company’s leverage to gold prices and has proved rewarding during the bull market.
During the second quarter, long term debt, consisting of convertible 7% debentures due May 31, 2012, in the amount of $10.6 million, became a current liability. The Company believes the debentures will either be repaid or refinanced at a favourable rate of interest. The Company is confident it has sufficient flexibility to fund these obligations given the current strong gold market and recent improvements in production.
The Company believes it has sufficient capital resources to cover its obligations, capital and operating costs going forward. On April 29, 2011, the Company paid a dividend of $0.02 per share.
OUTLOOK
In 2012 we expect higher output levels from each mine and a full year’s contribution from the Mishi Mine. Overall production should exceed 60,000 ounces in 2012. We expect the Eagle River Mine to produce about 28,000 ounces from 160,000 tonnes at a recovered grade of 5.4 gAu/tonne, the Kiena Mine to produce about 23,000 ounces from 300,000 tonnes at a recovered grade of 2.4 gAu/tonne and the Mishi Mine to produce about 9,000 ounces from 150,000 tonnes at a recovered grade of 1.9 gAu/tonne. We believe these estimates are conservative with upside potential as progressive improvements in grade are realized.
We expect a slow first quarter at the Kiena Mine as we catch up on development and forecast stronger grades in the second half of the year when the upper portions of the 388 Zone come onstream. This lowgrade, high cost operation is extremely leveraged to the gold price.
We are confident in Eagle River’s potential to exceed forecasts. The Mishi Mine is just starting and requires a track record to be established to more confidently forecast production levels. Over Mishi’s 5year mine plan, each year will improve in sequence as the stripping ratio declines.
Nonetheless, our conservative forecast of 60,000 ounces in 2012 would represent a 25% improvement over 2011 production. We remain very optimistic regarding the gold market and continue to believe our assets demonstrate exceptional leverage to gold prices and the capacity to grow production over the short to medium term.
ABOUT WESDOME
Wesdome is celebrating its 25th year of continuous mining operations in Canada. It currently has three producing gold mines with wholly-owned mining and milling complexes located in Wawa, Ontario and Val d’Or, Québec. The Company has 101.9 million shares issued and outstanding and trades on the Toronto Stock Exchange under the symbol “WDO”.
For further information, please contact:
Donovan Pollitt, P.Eng., CFA President & CEO 416-360-3743 ext 25
8 King St. East, Suite 1305 Toronto, ON, M5C 1B5 Toll Free: 1-866-4-WDO-TSX Phone: 416-360-3743, Fax: 416-360-7620 Email: [email protected], Website: www.wesdome.com
This news release contains “forward-looking information” which may include, but is not limited to, statements with respect to the future financial or operating performance of the Company and its projects. Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “believes” or variations (including negative variations) of such words and phrases, or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward- looking statements. Forward-looking statements contained herein are made as of the date of this press release and the Company disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The Company undertakes no obligation to update forward- looking statements if circumstances, management’s estimates or opinions should change, except as required by securities legislation. Accordingly, the reader is cautioned not to place undue reliance on forward-looking statements.
Consolidated Statements of Financial Position
December 31 December 31 January 1 2011 2010 2010
Assets
Current
| Cash and cash equivalents | $ 5,215 | $ 22,806 | $ 23,702 |
| Receivables | 7,337 | 7,442 | 4,022 |
| Inventory | 15,271 | 14,077 | 14,638 |
| Marketable securities | - | - | 211 |
| 27,823 | 44,325 | 42,573 | |
| Restricted funds | 2,385 | 2,420 | 2,588 |
| Deferred income taxes | 615 | 1,780 | 3,356 |
| Capital assets | - | - | 9 |
| Mining properties and equipment | 90,114 | 77,687 | 65,115 |
| Exploration properties | 30,886 | 30,762 | 30,018 |
| $ 151,823 | $ 156,974 | $ 143,659 |
Liabilities
Current Payables and accruals $ 8,944 $ 12,938 $ 7,322 Mining taxes - 1,317 - Current portion of obligations
| under finance leases | 913 | 1,262 | 1,240 | ||
| Convertible 7% debentures | 10,726 | - | - | ||
| 20,583 | 15,517 | 8,562 | |||
| Income taxes payable | 22 | 58 | 82 | ||
| Obligations under finance leases | 818 | 1,735 | 1,108 | ||
| Convertible 7% debentures | - | 10,072 | 9,483 | ||
| Provisions | 1,593 | 1,574 | 1,517 | ||
| 23,016 | 28,956 | 20,752 |
Equity
Equity attributable to owners of the Company
| Capital stock | 122,685 | 120,496 | 118,846 |
| Contributed surplus | 1,960 | 1,867 | 2,008 |
| Accumulated other comprehensive loss | - | - | (222) |
| Equity component of convertible debentures | 1,970 | 1,970 | 1,970 |
| Retained earnings (accumulated deficit) | 1,585 | 2,945 | (552) |
| 128,200 | 127,278 | 122,050 | |
| Non-controlling interest | 607 | 740 | 857 |
| Total equity | 128,807 | 128,018 | 122,907 |
| $ 151,823 | $ 156,974 | $ 143,659 |
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Consolidated Statements of Income and Comprehensive Income
Years ended December 31 2011 2010
Revenue
Gold and silver bullion $ 79,643 $ 89,383
Operating expenses
| Mining and processing | 65,016 | 63,296 |
| Depletion of mining properties | 6,540 | 11,120 |
| Production royalties | 822 | 917 |
| Corporate and general | 2,604 | 2,489 |
| Share based compensation | 935 | 516 |
| Depreciation of capital assets | - | 9 |
75,917 78,347
| Income from operations | 3,726 | 11,036 |
| Interest and other income | 549 | 239 |
| Interest on long term debt | (1,575) | (1,598) |
| Other interest | (1,301) | - |
| Loss on sale of marketable securities | - | (362) |
| Accretion of decommissioning liability | (66) | (59) |
| Income before income tax | 1,333 | 9,256 |
Income tax expense (recovery)
Current (72) 1,293 Deferred 1,165 2,692 1,093 3,985 Net income 240 5,271 Total comprehensive income $ 240 $ 5,271
Net income (loss) attributable to:
| Non-controlling interest | $ | (208) | $ | (112) |
| Owners of the Company | 448 | 5,383 | ||
| $ | 240 | $ | 5,271 |
Total comprehensive income (loss) attributable to:
| Non-controlling interest | $ | (208) | $ | (112) |
| Owners of the Company | 448 | 5,383 | ||
| $ | 240 | $ | 5,271 |
Earnings and comprehensive earnings per share Basic $ 0.00 $ 0.05 Diluted $ 0.00 $ 0.05
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Wesdome Gold Mines Ltd.
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
Years ended December 31 2011 2010
Operating activities
| Net income (loss) | $ 240 $ | 5,271 |
| Depletion of mining properties | 6,540 | 11,020 |
| Accretion of discount on convertible debentures | 654 | 589 |
| Gain on sale of equipment | (19) | - |
| Share based compensation | 935 | 516 |
| Depreciation of capital assets | - | 9 |
| Deferred income taxes | 1,165 | 2,692 |
| Loss on sale of marketable securities | - | 362 |
| Interest paid | 920 | 1,009 |
| Accretion of decommissioning liability | 66 | 59 |
10,501 21,527 Net changes in non-cash working capital (5,532) 3,387 4,969 24,914
Financing activities
| Exercise of options | 1,600 | 1,232 |
| Shares issued by a subsidiary of the Company to third parties | 160 | - |
| Funds paid to repurchase common shares under NCIB | (118) | (78) |
| Share issuance costs | - | (40) |
| Repayment of obligations under finance leases | (1,266) | (1,589) |
| Interest paid | (920) | (1,009) |
| Dividends paid | (2,028) | (2,013) |
(2,572) (3,497)
Investing activities
| Additions to mining and exploration properties | (19,280) | (23,449) |
| Proceeds on sale of equipment | 161 | 234 |
| Proceeds on sale of marketable securites | - | 71 |
| Funds held against standby letters of credit | 35 | 168 |
(19,084) (22,976) Net changes in non-cash working capital (904) 663 (19,988) (22,313)
| Decrease in cash and cash equivalents | (17,591) | (896) |
| Cash and cash equivalents, beginning of year | 22,806 | 23,702 |
| Cash and cash equivalents, end of year | $ 5,215 | $ 22,806 |
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