Wesdome Gold Mines [stock_market_widget type="inline" template="generic" color="default" assets="WDO.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has shot up rapidly in the past year, with the stock gaining nearly 150% despite its flat performance so far in 2019. That’s outstanding given that gold prices were not in great shape a year ago, and Wesdome has still done well thanks to robust production growth and an impressive cost profile.
Let’s take a look at the reasons why Wesdome Gold Mines can still deliver more upside after its terrific run last year.
What’s Working at Wesdome?
A solid jump in Wesdome’s output last year led to impressive growth in its financial profile. The company produced 71,625 ounces of gold at its Eagle River Complex in 2018, a 21% increase over the previous year’s output.
The increase in the company’s output was driven by a head grade of 11.7 grams per ton of gold at the underground mining operations in the Eagle River Complex. The open pit operations, on the other hand, had a head grade of just 2.3 grams per ton of gold. Not surprisingly, the underground operations supplied the majority of Wesdome’s production as output over here shot up 32% year over year.
Wesdome’s cash costs stood at C$905 per ounce, or US$699 per ounce. Its all-in sustaining costs came in at C$1,276 an ounce, or US$985 an ounce. Both these metrics were below the company’s original guidance range thanks to the superior gold profile it witnessed last year.
Meanwhile, the company’s average realized gold price for the year stood at C$1,645 per ounce, which was nearly flat on a year over year basis. The good news is that Wesdome’s gold production will increase once again this year on the back of further improvements in its grade profile, which should allow the company to capitalize on the recent uptick in gold prices.
Better Days Ahead
Wesdome forecasts production of 72,000 ounces to 80,000 ounces for this year, the mid-point of which indicates a 6% increase in the output over the prior year. Now that might not sound as good as last year, but there are a few other catalysts that could help the company boost its financial performance.
For instance, Wesdome’s cash cost per ounce will drop further in 2019 to a range of C$830 to C$900, or US$640-US$690. The all-in sustaining costs per ounce of gold will rise slightly as compared to 2018 levels on account of the underground drilling and development program being carried out by the company.
However, the drop in cash costs indicates that the company is adopting the right strategy of boosting its grades. Wesdome anticipates an average head grade of around 16 grams per ton of gold this year, which would be a 28% increase over the prior year period.
At the same time, the company should witness higher realized prices in 2019 given the recent rally in gold prices. Gold is trading at a spot price of around C$1,750 an ounce, which is over C$100 higher than the average realized price Wesdome realized last year.
As such, there’s a good chance that the company’s margins will increase once again in 2019 and help Wesdome Gold Mines stock rise higher.
