Wesdome Gold Mines Ltd (TSX: WDO) is a gold producer and engaged in mining-related activities, which includes exploration, processing, and reclamation. The company produces gold at the Eagle River Complex located near Wawa, Ontario from the Eagle River Underground and Mishi Open Pit gold mines. 

Key Updates:

• Strong Production Guidance: For FY22, the company expected its gold production to remain in between 160,000 – 180,000 ounces, which is significantly higher than 123,843 ounces in FY21. The Kiena mine is expected to produce 64,000 – 73,000 ounces of gold, which is considerably higher than 22,440 ounces in FY21. AISC cost is estimated in between CAD 1,270 to 1,400 per ounce. Notably, total gold production stood at 25,611 ounces in Q1FY22, which is higher than 22,565 ounces in pcp.

FY22 Production Guidance (Source: Company Presentation)

• Consistent Growth in Operating metrics: Over, the years, the company has consistently increased its reserve base and production, which suggests growing demand dynamics, and is a key positive for the company. Notably, Net Asset Value Per Share of the company registered a CAGR 25% in between FY16 to FY22E. On the other hand, the company’s cash flow per share also grew constantly since FY16, which is encouraging and would lead to higher liquidity.

Source: Company Presentation

• Healthy Balance-sheet: In Q1FY22, the company reported its debt to equity of 0.03x, as compared to the industry median of 0.22x. This indicates that the company has a prudent capital management and better financial flexibility when compared to the industry median. Moreover, long-term debt to total capital stood lower at 1.3% in Q1FY22, as compared to the industry median of 13.3%, indicating lower balance sheet risks.

• Positive drilling result: The company recently conducted underground exploration drilling activity across the Kiena Deep A Zone, wherein the group reported the discovery of the South limb of the A Zone that could significantly add to the resource base. Notably, this lateral extension of the A Zone will increase the number of ounces per vertical metre and have the potential to provide additional working faces during mining.

Risks associated with the investment:

The performance of the company is correlated with the international gold prices, and volatility in the gold price would negatively impact the company’s realization and sales and might lead to lower margins. 

Q1FY22 Financial Highlights:

Q1FY22 Income Statement Highlights (Source: Company Report)

• WDO declared its first quarter FY22 result, wherein the company posted revenues of CAD 66.6 million, jumped from CAD 45.9 million in pcp. The increase was primarily attributable to higher gold sales of 28,000 ounces v/s 22,457 ounces in pcp.
• Gross profit stood higher at CAD 21.9 million as compared to CAD 15.7 million in the previous corresponding period (pcp), primarily attributable to higher revenue, partially offset by a higher cost of sales.
• Operating income soared to CAD 15.5 million from CAD 13.0 million in pcp, primarily due to higher gross profit, partially offset by a higher exploration & evaluation cost and an increase in Corporate & general expenses.
• The corporation reported a net income of CAD 7.0 million, as compared to CAD 7.1 million in pcp.

This slide was primarily due to a loss from Fair value adjustment on share consideration receivable amounting CAD 2.2 million.

Valuation Methodology (Illustrative): Price to CF based

Analysis by Kalkine Group

Stock Recommendation:

The company ended the quarter on a positive note supported by encouraging production from the Kiena  mine. Moreover, this trend is likely to continue, and the group expects superb production growth in FY22. Additionally, a strong demand dynamic of Gold is likely to support the realization prices of the company in the coming days, which is a key positive. We have valued the stock using the Price to CF-based relative valuation approach and arrived at a target price offering double-digit downside potential (in % terms). We have considered peers like Pure Gold Mining Inc, Osisko Development Corp etc. Hence considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the last closing price of CAD 13.40 on June 10, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on June 10, 2022). Analysis by Kalkine Group

Note: The reference data in this report has been partly sourced from REFINITIV 

Technical Analysis Summary

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