VANCOUVER — Shares of Toronto-based operator Wesdome Gold Mines (WDO-T) took a tumble following news it was suspending activities at its Kiena underground mine located in Val d’Or, Quebec. The company announced on March 8 that it would be shuttering operations at Kiena by June 30 due to rising costs and low grades.
Wesdome has been hard at work over the past two years attempting to delineate new gold mineralization at a higher average grade to improve its 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 superior mining areas.
Wesdome invested $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 spent on 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 situated 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.
Kiena accounts for just under half of Wesdome's current proven and probable reserves — according to a Feb. 11 resource update — with 1.8 million tonnes grading 3.4 grams gold per tonne for 204,000 contained oz.
The mine produced 18,900 oz. of gold in 2012 at an average grade of 2.2 grams. Unfortunately, Kiena's operations continue to be economically marginal for the company. Wesdome reported $23 million in bullion revenue at Kiena over the first three quarters of 2012, but with processing costs clocking in at roughly $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," commented president and CEO Donovan Pollit. "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 the blasting and mucking of existing and currently drilled-off stopes. Wesdome will be transferring certain pieces of equipment to its Eagle River mine 50 km west of Wawa, Ontario. The company will book a non-cash asset impairment of around $60 million in relation to Kiena's suspension, as well as reclassify the project's mineral to reserves to resources.
Though Wesdome has stated it continues to be optimistic about its Kiena land package, the company was non-committal about ongoing expenditures at the project, stating that "depending on free cash generation at our two Wawa mines, [we] may pursue further exploration and development work at the [Kiena]."
As a result of the closure, Wesdome dropped its production guidance by roughly 15,000 oz. to 55,000 oz. of gold in 2013. Eagle River is expected to contribute around 41,000 oz., while the open-pit Mishi mine will account for 9,000 oz. The company reports that Kiena should generate roughly 5,000 oz. before activities are suspended at the end of June.
Wesdome dropped 24% or 17¢ per share after announcing Kiena's closure. The company closed at 55¢ at time of writing, which is close to its 52-week low of 46¢ per share. Wesdome has 102 million shares outstanding for a $55 million press-time market capitalization, and reported $16 million in working capital at the end of the third quarter.
© 1915 - 2013 The Northern Miner. All Rights Reserved.