Kiena Deep And Eagle River Will Improve Operational Flexibility

Key Takeaways

• Successful ramp-up of Kiena Deep ore production and additional mining fronts expected to enhance production and revenue growth, improving operational flexibility.
  
• Continuous improvement initiatives at Eagle River and fill-the-mill strategy aimed at reducing costs and improving net margins through operational efficiency.
  
• Reliance on mine performance and exploration poses risks to revenue and profitability, with uncertainties in production forecasts and reserve estimations potentially impacting margins.

Catalysts

Wesdome Gold Mines Ltd. mines, develops, and explores for gold and silver deposits in Canada.

• The successful ramp-up of high-grade Kiena Deep ore production and the development of additional mining fronts at Kiena are expected to enhance production, supporting revenue growth and improving operational flexibility.
  
• The fill-the-mill strategy at both Eagle River and Kiena, along with initiatives to optimize the fixed cost base, is aimed at reducing costs and improving net margins by blending high-grade with low-cost material without displacing high-grade tonnes.
  
• Continued and increased investment in exploration, including the expansion of the exploration budget and the implementation of advanced geological models, is expected to convert resources into reserves, driving long-term growth and potentially increasing revenue.
  
• Implementation of continuous improvement initiatives at Eagle River, such as transitioning development to an owner-operated model and achieving supply chain synergies, is expected to improve operational efficiency and reduce costs, positively impacting net margins.
  
• The expected improvement in operational flexibility through increased drilled and developed ore inventory and strategic infrastructure investments is anticipated to support the fill-the-mill strategy and enhance adherence to mine plans, contributing to stable future earnings.

Wesdome Gold Mines Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wesdome Gold Mines's revenue will grow by 12.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 24.3% today to 27.7% in 3 years time.
• Analysts expect earnings to reach CA$218.0 million (and earnings per share of CA$1.47) by about April 2028, up from CA$135.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.7x on those 2028 earnings, down from 20.6x today. This future PE is greater than the current PE for the CA Metals and Mining industry at 14.7x.
• Analysts expect the number of shares outstanding to grow by 0.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.81%, as per the Simply Wall St company report.

Wesdome Gold Mines Future Earnings Per Share Growth

Risks

• The dependence on a successful fill-the-mill strategy, aimed at maximizing asset value through increased production and leveraging fixed costs, carries a risk that could impact revenue and profitability if not executed as planned.
  
• There are potential challenges in reserve and resource estimation due to fluctuations in cut-off grade determinations and modeling, which could affect the reliability of production forecasts and ultimately impact revenue.
  
• The high reliance on the Kiena Deep and Eagle River mines for production increases carries operational risks, and any disruptions or underperformance in these mines could adversely affect expected revenue and earnings.
  
• Sustained success depends heavily on exploration to identify new resources and convert these into reserves, which carries inherent risks of uncertain outcomes affecting long-term revenue projections.
  
• The company’s plan to increase exploration budget and reliance on geological models involves significant costs, posing a risk that these investments might not lead to proportionate reserve additions or revenue increases, impacting net margins.

Valuation

• The analysts have a consensus price target of CA$19.929 for Wesdome Gold Mines based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$27.75, and the most bearish reporting a price target of just CA$15.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$786.8 million, earnings will come to CA$218.0 million, and it would be trading on a PE ratio of 16.7x, assuming you use a discount rate of 6.8%.
• Given the current share price of CA$18.58, the analyst price target of CA$19.93 is 6.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.