VANCOUVER — Shares of Toronto-based Wesdome Gold Mines (WDO-T) took a tumble following news that the company is suspending activities at its Kiena underground gold mine in Val-d’Or, Que. The company announced on March 8 that it would be shuttering operations at Kiena by June 30 due to rising costs and low grades.
Over the past two years, Wesdome has tried delineating new gold mineralization at a higher average grade to achieve healthy profit margins at Kiena. The company spent $7.2 million on its Val-d’Or camp in 2011, drilling 104,000 metres, with much of it aimed at identifying hoped-for superior mining areas.
Wesdome spent $2 million on surface-drilling at the site, with targets including its Northwest and Martin zones, accessed via the 330-metre level to the west and east of Kiena’s main shaft. Another $2.5 million was earmarked for underground exploration, which targeted the S-50 zone, M zone and Martin. A final $1.7 million was put towards 34,000 metres of underground delineation and definition drilling.
Kiena is part of a 75 sq. km land package halfway between the Sigma-Lamaque mines of Val-d’Or and the Malartic camp. Wesdome’s Kiena property includes both large disseminated gold deposits associated with stockworks and vein-type deposits that are geologically common in the district. Regionally, deposits tend to be spatially associated with the Cadillac Break that stretches from Kirkland Lake to Val-d’Or, and its associated secondary structures and splay faults.
According to a Feb. 11 resource update, Kiena accounts for just under half of Wesdome’s current proven and probable reserves, with 1.8 million tonnes grading 3.4 grams gold per tonne for 204,000 contained oz. The mine produced 18,900 oz. gold in 2012 at an average grade of 2.2 grams.
The company is losing money over Kiena’s operations. Wesdome reported $23 million in bullion revenue at Kiena over the first three quarters of 2012, but with processing costs clocking in at $25 million, the company recorded a loss at an average realized gold price of US$1,653 per oz.
“It is never easy to take these decisions, and [we] appreciate the hard work and dedication shown by management and all employees to date,” president and CEO Donovan Pollitt commented. “To have continued in the face of industry-wide challenges of tight availability of labour and difficult ground conditions has been a challenge for everyone at Kiena. However, in light of these economic realities, and without evidence of improvements in output foreseeable in the near-term, we must make difficult decisions.”
Kiena will be put on care and maintenance, with mining activities limited to blasting and mucking existing and currently drilled-off stopes. Wesdome will be transferring some equipment to its Eagle River mine 50 km west of Wawa, Ont.
The company plans to book a $60-million non-cash asset impairment in relation to Kiena’s suspension, and reclassify the project’s reserves to resources.
Though Wesdome is optimistic about its Kiena land package, the company is non-committal about ongoing expenditures at the project, saying that “depending on free cash generation at our two Wawa mines, [we] may pursue further exploration and development work at [Kiena].”
As a result of the closure, Wesdome dropped its production guidance by 15,000 oz. to 55,000 oz. gold in 2013. Eagle River is expected to contribute around 41,000 oz., while the nearby open-pit Mishi mine will account for 9,000 oz. The company reports that Kiena should generate 5,000 oz. before activities are suspended at the end of June.
Wesdome shares dropped 24%, or 17¢ per share, after the company announced Kiena’s closure. Shares ended at 55¢ at press time, near their 52-week low of 46¢.
Wesdome has 102 million shares outstanding and a $55-million market capitalization, reporting $16 million in working capital at the end of the third quarter.
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