Wesdome benefits from weak US dollar

It’s been trying times for many but not for junior gold miner Wesdome Gold Mines (WDO-T).

After years of consistently losing money, the company reported earnings of $9.4 million (9¢ per share) for 2008 from sales of 85,100 oz. By comparison, Wesdome reported a loss of $13.1 million in 2007 from sales of 73,200 oz.

Operating in Canada is paying off. The company got an extra boost in profits in the fourth quarter, earning $6.4 million, thanks to a favourable exchange rate between the US and Canadian dollars. In September and October the Canadian dollar fell 20% against the greenback creating a $200 per oz. spread in the gold price.

“It was a unique windfall circumstance,” says Wesdome’s vice president of corporate development, Donovan Pollitt.

Over the year gold actually fell US$50 per oz. but when converted into Canadian dollars it was $150 higher on average. Wesdome sold its gold for $933 per oz. compared to $748 per oz. last year while operating costs averaged $666 per oz. over the year.

The company produced more than 90,000 oz. gold surpassing its 2008 target by 10,000 oz. and 2007 production by nearly 18,000 oz.

At the Eagle River Mine in Wawa, Ont., Wesdome mined 119,000 tonnes grading 13 grams gold per tonne for 49,660 oz. gold.

Over in Val d’Or, Que., Wesdome mined 242,000 tonnes grading 5.2 grams gold per tonne for 40,344 oz. gold.

At the end of December, Wesdome had working capital of $13.1 million, up $5.2 million from a year earlier. The company took in $1.725 million from a private placement of flow through shares, which will help fund an 80,000-metre drill program planned for 2009.

There are about two years worth of reserves at Eagle River and two years at Kiena, which has long been the case for Wesdome. But Pollitt says that although the company has beencomfortable operating that way, not everyone is.

“Investors and analysts all want a clearer picture,” Pollitt explains. “A lot of people aren’t comfortable with a two-to-three year reserve.”

But Wesdome has never really had the cash surplus to work with until now.

“You can only find it if you drill it,” Pollitt says.
He also says that in addition to investor confidence this major drill program will also help with the company’s engineering planning and mine optimization.

Wesdome will spend $2.2 million on drilling at Eagle River, which is more than four times as much as last year. Exploration spending will double at Kiena with a budget of $1.8 million there.

Wesdome also plans to explore already-known structures to depth while examining newer targets close to existing workings. The company will spend $2.4 million proving up the potential at a new discovery known as Dubuisson zone, which is 3 km east of the Kiena mine.

Pollitt says the company may end up drilling more than 80,000 metres it originally budgeted for because the cost of drilling has dropped significantly. Last year, the company paid in the mid-$70 per metre range but for its 2009 contracts it will pay $52 per metre.

Wesdome expects to produce 75,000 oz. gold this year with about 40,000 oz. coming from Eagle River and 35,000 oz. from the Kiena mine. The company is expecting lower grades in the second half of the year but hopes that lower costs, increased throughput and high gold prices will offset the grades.

Wesdome will pay a 2-¢ per share dividend this month which Pollitt says could be repeated in the fall if things continue to go well.