Labour shortage hurts West Lake Gold output

West Red Lake Gold Mines (TSXV: WRLG; US-OTC: WRLGF) has reduced its annual production target by approximately a quarter due to labour shortages and difficulties during mining operations at its Madsen gold operation located in Ontario, Canada. The Vancouver-based company now anticipates producing between 27,000 and 32,000 ounces of gold this year, down from the previously projected range of 35,000 to 45,000 ounces.

CEO Shane Williams reported that extracting certain remaining pillars was proving to be more challenging than initially anticipated, as mining activities had remained focused in previously mined areas. The company plans to utilize its existing mill for processing ore from nearby deposits, but first needs to establish consistent output at the Madsen operation that is already in operation.

West Red Lake's shares experienced a decline of 12%, reaching 61 cents by midday in Toronto and resulting in a market value of around C$253 million ($180 million). The stock had previously traded between 56 cents and C$1.49 over the past year. Prior to the reduction in production target, Cantor Fitzgerald analyst Matthew O'Keefe had expected Madsen to meet its annual guidance, anticipating improved production in the second half of the year.

This optimism was linked to the company's ability to establish and meet production and cost targets through 2027. The positive outlook followed a 51% increase in second-quarter gold output from the first quarter, as well as a 30% decrease in all-in sustaining costs to $3,284 per ounce of gold sold. Madsen mine, which entered commercial production in January, saw a third-quarter production decline of 8.4% to 7,859 ounces from 8,576 ounces in the prior quarter.

The company has added specialist contractors and commissioned a secondary crusher to address the issue. Mining the remaining rock in previously worked areas requires more selective extraction and additional ground support. West Red Lake acquired the Madsen site through Pure Gold's creditor-protection proceedings in June 2023. The site already possessed an existing mill, shaft, and underground access, offering infrastructure that could be reused.

However, the current shortfall highlights the challenges associated with mining around old workings. The upcoming prefeasibility study aims to incorporate Madsen and the neighbouring Rowan project into a single production plan, with Rowan feeding the existing mill. West Red Lake's third-quarter financial results are scheduled to be released on November 27.