Wesdome reports second quarter results

TORONTO, Aug. 15, 2011 /CNW/ - Wesdome Gold Mines Ltd (WDO: TSX) ("Wesdome" or the "Company") is pleased to report its unaudited financial and operating results from its Canadian operations for the second quarter ended June 30, 2011.  This information should be read in conjunction with the Company's interim unaudited financial statements and Management's Discussion and Analysis for the second quarter ended June 30, 2011 which will be available for viewing on the Company's website at www.wesdome.com and on SEDAR (www.sedar.com).  All figures are in Canadian dollars unless otherwise specified.

The Company owns and operates the Eagle River gold mining operations in Wawa, Ontario and the Kiena mine complex in Val d'Or, Quebec.  It is developing the Mishi project in Wawa and the Dubuisson project in Val d'Or.  The Eagle River mine commenced commercial production January 1, 1996 and the Kiena mine on August 1, 2006.

The second quarter of 2011 highlights are as follows:

• Production of 10,459 ounces
  
  
• Loss of $1.1 million or $0.01 per share
  
  
• Revenues of $19.2 million on sales of 13,000 ounces at $1,475 per ounce
  
  
• Cash flow from operations of $1.4 million or $0.01 per share
  
  
• Bullion inventory of 7,594 ounces or $11.0 million marked to market as at June 30, 2011

Donovan Pollitt, President CEO comments "This quarter marks the low tide mark from which an extended period of growth will ensue".

OVERALL PERFORMANCE

At June 30, 2011, the Company had $15.9 million in working capital and 7,594 ounces of refined gold bullion in inventory.  For the first half of the year, revenue exceeded mining and processing costs by $10.9 million and $8.7 million in capital costs were incurred.  Cash flow from operations totalled $8.8 million and net income was $1.4 million, or $0.01 per share.

Both mining operations processed greater volumes of lower grade ore compared to last years' first half.  The cost per tonne milled declined to $140 per tonne, while the realized gold price increased 19% to $1,424 per ounce.  The operating cost per ounce increased to $1,064 per ounce due to lower ore grades during the first half, 2011.

External factors which influenced results in this quarter included unfavourable strength of the $Cdn/$US exchange rate, continued tightness in the skilled labour market and inflating energy and consumables costs.

More ounces of gold were sold than were produced.  Favourable gold prices enabled us to realize a reasonable financial performance during a transitional period of weak production and increased development.  We expect this to be our weakest quarter as higher grade ore progressively comes into the mining sequence.

RESULTS OF OPERATIONS

* The Company has included in this report certain non-IFRS performance measures, including mine operating profit and mining and processing costs to applicable sales. These measures are not defined under IFRS and therefore should not be considered in isolation or as an alternative to or more meaningful than, net income(loss) or cash flow from operating activities as determined in accordance with IFRS as an indicator of our financial performance or liquidity. The Company believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company's performance and ability to generate cash flow.

Summary of Quarterly Results

Second Quarter

During the second quarter, combined operations produced 10,459 ounces of gold and 13,000 ounces were sold at an average price of $1,475 per ounce.  Bullion inventory at June 30, 2011, stood at 7,594 ounces which is carried at net realizable value.  In accordance with Company policy, bullion inventory is carried at the lower of production cost, or net realizable value.

Gold sales exceeded mining and processing costs resulting in a mine operating profit*, or gross margin, of $2.0 million.  In addition to these mining and processing costs, other costs, including royalty payments, corporate and general costs and net interest costs totalled $1.28 million.  An additional $2.0 million was paid in dividends.

At Eagle River, mining focused on low grade stopes and salvage work while the new decline advanced towards the high grade 811 Zone.  The new decline has now arrived at the 811 Zone and we are opening it up on the 670 metre level.  This is providing some higher grade development ore.  Since breaking into the zone in June, year-to-date development muck has averaged 8.35 gAu/tonne.  A larger volume of lower grade ore, including stockpiles, was processed.  During the second quarter, the mine produced 5,479 ounces of gold from 43,316 tonnes milled at an average recovered grade of 3.9 gAu/tonne.  We expect grades and production to pick up in the second half of the year.

At Kiena, difficult mining conditions in two small stopes dampened second quarter production, as previously disclosed.  The mine produced 4,980 ounces of gold from 70,505 tonnes milled at an average recovered grade of 2.2 gAu/tonne.

The mine schedule at Kiena was relying on two small stopes for production in a transitional period, while larger stopes were being developed.  Both of these stopes experienced excessive dilution and loss of ore due to poor ground conditions.

Development of our larger stopes remains behind schedule, but we are confident that we will catch up and increase production in the second half of the year.

Both mining operations are in major development phases to access and develop the next generation of production areas.  These efforts will result in a growing production profile from 2012 onwards.  We believe the second quarter was our worst and we will see continual improvement during the balance of the year.

Project Development

The Mishi project is being developed for an initial 5-year plan.  This surface mining operation is located 2.0 kilometres from the Eagle River Mill and is expected to produce at about 1,000 ounces per month over this period.  There is significant potential to increase this projected mine life.  The results of drilling the immediate extensions of the deposit are expected in the third quarter.  We received our closure plan amendment (the outstanding permit) and are rapidly advancing pre-production activities.  De-watering has advanced, surface construction and overburden removal is advancing and drill-blast contractors are preparing to mobilize.  We expect to generate initial millfeed late this year and ramp up to rates of about 1,000 ounces per month by mid-2012.

The exploration drift to the Dubuisson project in Val d'Or continued.  We have mobilized a drill to test depth and western extensions.  Access to the zone will be planned from the drilling information.

Exploration

Exploration work is focused on delineating known mineralization in proximity to existing infrastructure.  At Eagle River we will be in position to start drilling the depth extension of the 811 Zone to over 1,000 metres in the fourth quarter.

At Kiena, seasonal surface drilling from a barge on Lac De Montigny will take place from mid-June until freeze-up.  We are targeting the Northwest and Martin Zones which are in range of existing infrastructure.  Underground definition drilling at the Martin Zone, above the 330 metre level, was very favourable and provided the basis for mine planning.  The zone remains open up-dip and surface drilling is testing this potential.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2011, the Company had working capital of $15.9 million, compared to $28.8 million at December 31, 2010.  For the first six months of 2011, capital expenditures totalled $8.7 million compared to $8.9 million for 2010 and $2.0 million was paid in dividends.  Also, during the second quarter the convertible 7% debentures due May 31, 2012, in the amount of $10.4 million became a current liability.  The Company believes the debentures will either be converted into common shares or renewed at a favourable rate of interest.

The Company's inventory includes 7,594 ounces of gold bullion, a liquid asset with a market value of $11.0 million on June 30, 2011.  The Company believes it has sufficient capital resources to cover its obligations, capital and mining and processing costs going forward.

Production planned in 2011 should generate operating cash flow, even at gold prices well below those currently being realized.

OUTLOOK

Despite a challenging second quarter, our production forecast remains 60,000 to 65,000 ounces for the year.  We have received the final Mishi permits and expect initial millfeed prior to year end.  We have weathered the worst of unforeseen mining conditions and a tight mining/development sequence at Kiena.  We have accelerated development of the 388 Zone at Kiena - a new mining area with better grade, which should commence production in the second half, 2011.  We also foresee renewing production from the high grade Schist Zone - a nice grade sweetener for the second half.  Likewise, grade is scheduled to improve at Eagle River.

We expect this past quarter to be our weakest and forecast steady improvement going forward.  We are in a transitional development period on track to establish a production growth profile from 2012 onwards.  We forecast higher grades, growing production and rising gold prices.

ABOUT WESDOME

Wesdome is an established Canadian gold producer with wholly-owned mining and milling complexes located in Wawa, Ontario and Val d'Or, Québec.  Wesdome has been producing gold continually for more than 20 years on an unhedged basis and to date has produced in excess of 1.2 million ounces.  The Company has 101.9 million shares issued and outstanding and trades on the Toronto Stock Exchange under the symbol "WDO".

This news release contains "forward-looking information" which may include, but is not limited to, statements with respect to the future financial or operating performance of the Company and its projects. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates", or "believes" or variations (including negative variations) of such words and phrases, or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements contained herein are made as of the date of this press release and the Company disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The Company undertakes no obligation to update forward-looking statements if circumstances, management's estimates or opinions should change, except as required by securities legislation. Accordingly, the reader is cautioned not to place undue reliance on forward-looking statements.