PI Financial is bearish on Canadian miner Wesdome Gold Mines Ltd (TSX:WDO) following the release of its fourth-quarter operating results, which showed weaker than targeted production guidance for 2023.
Analysts said the period's "in-line" production of 35,116 ounces of gold across group operations was "overshadowed" by the lower-than-expected guidance for 2023.
They highlighted the slower ramp-up of operations at the firm's Kiena mine in Val d’Or, Quebec last year, which has resulted in lagging year-on-year (YoY) production growth for 2023, including higher than targeted capex, and thus the inability for free cash flow (FCF) as well as "continued balance sheet concerns".
"Considering the struggles and limited ability to generate FCF over 2022 and now into 2023, we foresee Wesdome hinged on maintaining sufficient liquidity via its recently announced C$100M ATM equity program and expanded C$150M credit facility," noted analysts.
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"With lower than expected guidance and cash flow for 2023, we continue to reiterate our view that Wesdome will be positioned at the bottom of its peer group in terms of an FCF/EV yield."
Wesdome is guiding production in 2023 of between 110,000 and 130,000 ounces of gold, compared to PI Financial's target of 178,000 ounces that assumed growth from its Eagle River (Ontario) and Kiena operations.
"At Kiena, head grades of 3.7-4.7 g/t Au are considerably lower than expectations as management is aiming to access higher ounces per vertical meter from deeper horizons of the Deep A zone at Kiena in 2024," said analysts.
Shares in Wesdome Gold Mines stood at C$6.49, up 0.31%, on Thursday having dropped sharply on Wednesday following the results. The stock has fallen around 40% over the last 12 months.
"At present, Wesdome is trading at a P/NAV metric of 1.0x versus its peer group average of 0.7x for other junior gold producers under coverage," said PI Financial, which has a target price of C$8.10 on shares.
"Until Wesdome can demonstrate positive and sustainable cash flow with advancements at Kiena, we remain NEUTRAL on the stock and suggest investors seek exposure to the sector from alternative equities."
Contact the author at giles@proactiveinvestors.com