Thursday, July 21, 2016

Wesdome Gold Mines: 2Q 2016 Production Results

After the 1Q 2016 disaster Wesdome Gold delivered its 2Q 2016 production results. In my opinion, the company is slowly getting out of trouble.

To remind my readers, at its flagship property, Eagle River, the company is entering the new deposit, called 300 Zone (later on Wesdome plans to start mining from another deposit, 7 Zone). In 2Q 2016 Eagle River delivered 10,210 ounces of gold. Together with 6,254 ounces extracted in 1Q 2016, it makes 16,464 ounces of gold during 1H 2016. 

Well, it looks like the company is not going to meet its 2016 guidance of around 43,000 ounces of gold in annual production at Eagle River. Although Wesdome's CEO, Rolly Uloth, says:

"The Company anticipates further increases in production for Q3 and Q4 over Q2." 

I doubt that Wesdome is going to deliver around 13,300 ounces of gold a quarter. But who knows...

As for the Mishi open pit mine, in 2Q 2016 it delivered 1,937 ounces of gold (a little bit more than in 1Q 2016 when Mishi produced 1,782 ounces of gold). 

Now, because Wesdome also delivered sales data (volume and gold prices realized) it is possible to build 2Q 2016 financial results forecast:

As the table above shows, I believe that 2Q 2016 was much better than 1Q 2016. However, generally, these results should not have been as good as investors could expect. 

Reasons? Still relatively low production figures and practically no increase in gold prices realized, expressed in Canadian dollars. 

Finally, valuation based on EV / EBITDA multiple. Assuming that:

  • the company continues to deliver the EBITDA of around C$4 million per quarter (C$16 million a year)
  • the stock price is C$1.90 a piece
  • enterprise value stands at C$262.5 million 

today Wesdome Gold shares are trading at 16.4 of its EV / EBITDA. 

Well, in my opinion, these shares are neither particularly cheap nor expensive...

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