West Red Lake Gold Mines (TSXV: WRLG; US-OTC: WRLGF) reduced its annual production target by about a quarter as labour shortages and difficult mining slowed its Madsen gold operation in Ontario. The stock plunged.
The Vancouver-based company now expects 27,000 to 32,000 oz. this year, down from 35,000 to 45,000 oz., it said Tuesday. The northwestern Ontario mine is about 260 km east-northeast of Winnipeg.
“In addition, the extraction of certain remnant pillars proved more challenging than anticipated as mining activities remained concentrated in previously mined areas,” CEO Shane Williams said in a news release.
The setback tests the company’s ability to turn Madsen into a reliable producer after declaring commercial production in January. West Red Lake is planning to use the existing mill to process ore from nearby deposits, but first needs to establish consistent output at the operation already running.
West Red Lake shares fell 12% to 61¢ by midday in Toronto, giving the company a market value of about C$253 million ($180 million). They’ve traded between 56¢ and C$1.49 over the past year.
Production optimism
Before Tuesday’s cut, Cantor Fitzgerald analyst Matthew O’Keefe expected Madsen to meet annual guidance as production increased in the second half, according to an Aug. 28 note. His assessment linked a potential improvement in the company’s valuation to establishing and meeting production and cost targets through 2027.
That optimism followed a 51% increase in second-quarter gold output from the first quarter. All-in sustaining costs fell 30% to $3,284 per oz. sold. The improvement showed how higher volumes could spread the operation’s costs across more gold sales.
Third-quarter production fell 8.4% to 7,859 oz. from 8,576 oz. in the previous quarter. The company added specialist contractors and commissioned a secondary crusher.
Mining the remaining rock in previously worked areas requires more selective extraction and extra ground support, the company said.
Difficult operation
West Red Lake acquired Madsen through Pure Gold’s creditor-protection proceedings in June 2023. The site’s existing mill, shaft and underground access offered infrastructure to reuse, but the current shortfall illustrates the challenges of mining around old workings.
The forthcoming prefeasibility study would bring Madsen and the neighbouring Rowan project into one production plan, with Rowan feeding the existing mill. The company’s third-quarter financial results are due Nov. 27.