Argonaut Gold Inc. (TSE:AR), Timmins Gold Corp. (TSE:TMM), Yamana Gold Inc. (TSE:YRI), McEwen Mining Inc. (TSE:MUX), and Wesdome Gold Mines Ltd. (TSE:WDO) were the finalists for our top gold stock pick
SmallCapPower | April 7, 2017: As promised, today’s article features ONE gold producer, our top gold stock pick, that we think is most likely to outperform its industry peers out of our Gold Investing Pro universe of gold stocks. If you haven’t been following this series of articles, we encourage you to read Parts 1, 2, and 3.
We began this process of finding the one stock that we like the best by distilling our list of 34 companies down to just 5. The criteria that we looked at in detail were: companies operating in a safe, mining-friendly jurisdiction, with low debt levels and an attractive valuation relative to peers. After filtering the results, the following 5 stocks stood out to us: Argonaut Gold Inc. (TSX: AR), Timmins Gold Corp. (TSX: TMM), Yamana Gold Inc. (TSX: YRI), McEwen Mining Inc. (TSX: MUX), and Wesdome Gold Mines Ltd. (TSX: WDO).
However, as mentioned in Part 2, no single multiple or valuation technique will isolate the best stock in which to invest. Thus, we looked at several other factors when making our top choice. Specifically, we looked at:
- Company’s management team and experience relative to their mining operations and jurisdictions.
- Next, we reviewed the main assets of the company, to see if they are located in a key geological area, with known adjacent mining operations
- Lastly, we looked at the company’s (or management’s) ability to raise capital
Having isolated these factors, one winner emerged that not only fit our risk tolerance but also had near and mid-term catalysts that would fuel growth and shareholder returns. That pick is Wesdome Gold Mines Ltd (TSX: WDO).
Duncan Middlemiss, President and CEO of Wesdome Gold, is a native of Kirkland Lake, Ontario with extensive experience in mining gold deposits in the Abitibi Greenstone belt. Mr. Middlemiss was a former Chief Operating Officer and Vice-President of Operations before he was promoted to President and CEO of St. Andrew Goldfields Ltd. Mr. Middlemiss has intimate knowledge of operations and activities in northeastern Ontario, with a consistent reliable track record of delivering 100,000 oz Au annually from the Timmins mining district. Mr. Middlemiss joined the Wesdome team after St. Andrew Goldfields was bought by Kirkland Lake Gold Inc (TSX: KL).
Presently, Wesdome currently has three 100% owned Canadian properties including the Eagle River Complex and Moss Lake Property in Ontario, plus the Kiena Complex in Quebec. The Eagle River Complex consists of two high-grade operating gold mines (Eagle River underground and Mishi open-pit), and has been producing 50 Koz Au consistently since 2002 (Figure 1).
Figure 1: Eagle River Hosts Two of Canada’s High Grade Gold Mines
SOURCE: Corporate Presentation
A drilling exploration campaign has been initiated at the Moss Lake Property near Thunder Bay. Wesdome had expanded its footprint in the area with the acquisition of Coldstream and Hamlin properties in 2016 (Figure 2). Wesdome now has four gold deposits along the 36 km Shebandowan Gold Belt that are open for expansion. There has been numerous gold operations in the area including the Huronian mine, Hermia lake project (MGold Resources Inc.), and Span Lake (Foundation Resources Inc.).
Figure 2: Moss Lake Property Expansion (in blue)
SOURCE: Sedar Filing, NI 43-101
Lastly, the Kiena Complex is located in the famous mining jurisdiction of Val D’Or, Quebec (Figure 3). The site is home to proven assets belonging to Agnico Eagle Mines Ltd., Knick Exploration Inc., Metanor Resources Inc., to name a few. Wesdome plans to kick-start production after suspending operations in 2013, as the strong Canadian Dollar no longer made operations economically feasible. Nonetheless, past production from 1981-2013 produced 1.75 Moz Au, and a 2015 feasibility study estimates Measured and Indicated underground resources of 450 Koz at 5.59 g/t Au, in addition to an Inferred resource of 1.5 Moz. At 7.97 g/t Au.
Figure 3: Adjacent Properties to the Kiena Complex
SOURCE: Sedar Filing, NI 43-101
Wesdome Gold Mines has had no trouble raising capital; whether it be a private placement or public offering; Wesdome has strong investor interest. Its recent April 2016 public offering went over-allotment, raising proceeds of $17.3mm from 10.5 million common shares priced at $1.65/share. It had raised proceeds of $3mm in October 2015 through a private placement at the same share price. YTD, Wesdome’s stock price has nearly doubled thanks to strong investor interest, which would bode well to raise additional financing to fund the restart of the Kiena Complex in the near term.
Looking forward in 2017 and beyond, Wesdome has positive near and mid-term catalysts with the potential to grow into a mid-tier gold producer. Wesdome currently has high-grade producing assets in Canada with growing reserves. Recent interceptions of Kiena’s Deep system extend over a length of 500m and a vertical depth of 400m, with high grades not letting up. Wesdome recently reported 80 intercepts at 36.05 g/t, increasing the potential for Wesdome to add a third high-grade producing asset to its North American portfolio. Considering past performance and current exploration results, Kiena can produce approximately 120,000 oz of gold per year, bringing the consolidated production outlook of Wesdome beyond 200,000 oz starting in 2021.
Wesdome’s 2017 exploration plan of $13.1mm is the highest in over 10 years, and is sure to generate positive news flow for the Company in 2H/2017. By acquiring the 100% interest in the Coldstream project and the Hamlin-Deaty Creek property, Wesdome’s exploration results are expected to improve the economics at Moss Lake given the increasing mineable resources. This is likely to gain investor interest, providing the Company with an option to develop and produce this asset in the future.
As of December 31, 2016, Wesdome Gold Mines Ltd. has a strong balance sheet with a cash balance of $26.8mm, working capital of $15.6mm, and total debt of $13.2mm. It can be expected that sustaining and exploration activities will be funded by cash and operating cash flows. Wesdome’s 2017 guidance of 52-58 Koz Au at AISC of US$1,075-US$1,150/oz is conservative considering production is expected to come from three high-grade zones and Wesdome has the option to increase throughput to 2,500 tpd from base case of 2,000 tpd at the Eagle River Complex. With the stock price nearly doubling in the past year, it appears that most of Wesdome’s short-term catalysts appear to be priced in. However, looking further ahead to 2021 and beyond, production from Kiena and the potential to become a mid-tier producer provides an excellent rationale for long-term investing in Wesdome Gold Mines Ltd.
Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.
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