Wesdome Reports Improved Earnings and Cash Flow in Q2 2012

TORONTO, Aug. 7, 2012 /CNW/ - Wesdome Gold Mines Ltd (TSX: WDO) ("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, 2012.  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, 2012 which will be available for viewing on the Company's website 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 mine complex in Wawa, Ontario and the Kiena mine complex in Val-d'Or, Quebec.  On January 1, 2012, the Mishi mine in Wawa commenced commercial production.  The Eagle River and Mishi mines feed a common mill and are referred to as the Eagle River complex.  The Eagle River mine has been in continuous production since commercial production commenced January 1, 1996.  It has produced over 900,000 ounces to date.  The Kiena mine was purchased by the Company in 2003.  It restarted commercial production on August 1, 2006.  It was previously in production from 1982 - 2002.  To date the Kiena mine has produced over 1.7 million ounces of gold.

The second quarter of 2012 highlights are as follows:

• Production of 15,073 ounces of gold compared to 10,459 ounces in the second quarter, 2011 and 12,489 ounces in the first quarter, 2012
• Kiena resumes steady state production under a new mine plan to reduce costs 20%
• Cash flow from operations doubles to $4.5 million compared to first quarter, 2012
• $4.0 million in debt paid down
• Cash and bullion at market $14.8 million
• Net Income $0.7 million or $0.01 per share despite a $1.0 million non-cash write-down

Donovan Pollitt, President & CEO comments "We saw good increases in production and gold sales.  We believe operations at Kiena have stabilized into a steady production rhythm.  We paid down a third of our debt and doubled our cash flow from operations compared to last quarter.  Working capital improved, assets were unchanged and earnings increased to $700,000 despite a $950,000 non-cash write-down. We believe the course is set to realize steady improvement moving forwards".

OVERALL PERFORMANCE

At June 30, 2012, the Company had $14.2 million in working capital including 7,214 ounces of refined gold bullion in inventory.  For the first half of the year, revenue exceeded mining and processing costs by $8.3 million and $5.8 million in capital costs were incurred.  Cash flow from operations totalled $6.6 million and net earnings were flat, or $0.00 per share.

During the second quarter, the new Mishi mine continued its aggressive stripping required in the first year of its initial 5-year plan.  The Eagle River mine continued its steady performance and the Kiena mine resumed steady state production following a development phase during the first quarter.

In general, the mining industry has been stretched due to unprecedented activity.  Equipment, experienced and competent manpower and materials have been in short supply and high demand driving costs up.  We see these external conditions easing up as the flood of risk capital into the sector has dried to a trickle.

During the second quarter, combined operations produced 15,073 ounces of gold and 16,000 ounces were sold at an average realized price of $1,620 per ounce.  This represents a 44% increase in production compared to the second quarter, 2011, and a 10% increase in realized gold prices over the same period.

For the first six months of 2012, our mines produced 27,562 ounces of gold and 29,000 ounces were sold at an average price of $1,653 per ounce representing a 12% increase in production and a 16% increase in gold prices compared to the first half performance in 2011.

Mining and processing costs related to sales rose 20% in the second quarter compared to last year and 25% in the first half compared to last year.  These increases reflect industry wide inflation, the location of our production areas and having a third mine in production this year.  In the second quarter, 2012, bullion revenue exceeded mining and processing costs resulting in a mine operating profit, or gross margin, of $5.2 million.  In addition to these direct operating costs, other direct costs, including royalties, corporate and general costs and net interest costs amounted to $1.0 million.

The combined Eagle River and Mishi mining and milling operations produced 9,743 ounces of gold in the second quarter and 18,579 ounces for the first half of 2012.  At Eagle River both grades and throughput increased compared to last year over both reporting periods.  For the first half, 2012, Mishi produced 2,467 ounces from 34,712 tonnes milled at an average recovered grade of 2.2 gAu/tonne.  This is about half of what was initially planned as higher grade Eagle River ore was available for millfeed.  Consequently, the Mishi ore stockpile at the mill grew to 32,000 tonnes at a similar grade.

At Kiena, second quarter production totalled 5,330 ounces at a recovered grade of 2.5 gAu/tonne.  The mine resumed a steady production rhythm following an aggressive development effort in the first quarter of 2012.  Kiena remains our biggest challenge and in light of this, the Company initiated a restructuring program in May, 2012 designed to reduce total operating and capital costs by 20%.  The results of this effort started appearing in June, 2012 and should be fully reflected in the upcoming third quarter.  Stabilizing the cost structure and ensuring a longer term view at Kiena is a priority for us.

During the second quarter, the Company did not exercise the Pukaskwa property option.  This property remains a prospect of merit in the area, but we chose to focus our resources in our core assets at this time.  Accordingly, a non-cash write-down of $950,000 was incurred in the second quarter.  This option was initially a component of a broader deal designed to clarify potential ownership conflicts in the vicinity of the Mishi mine.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2012, the Company had working capital of $14.2 million compared to $7.2 million at December 31, 2011.  During the first half of 2012, capital expenditures totalled $5.8 million compared to $8.7 million in the first half of 2011.  Capital expenditures were concentrated in minesite development and diamond drilling.  Our equipment fleet is relatively new.

On May 24, 2012, the Company completed a $7,021,000 placement of unsubordinated convertible debentures.  The term is 5-years bearing interest at 7% per annum payable semi-annually and convertible into common shares at $2.50 per common share.  The net proceeds of $6,821,000, along with cash at hand, were used to redeem existing convertible debentures in the amount of $11,539,000 that matured on May 31, 2012, of which $10,931,000 were still outstanding on the maturity date.

The result of this financing is that interest costs moving forward will decline and working capital improved by moving the liability component to long term liabilities from short term liabilities.

The Company traditionally maintains an inventory of refined gold bullion.  At June 30, 2012, this liquid asset consisted of 7,214 ounces of gold with a market value of $11.7 million.  The bullion inventory is carried at the lower of cost or market, in this case at a cost of $10.3 million.

Additionally, the Mishi ore stockpile at the mill, which totals 32,000 tonnes is carried in inventory at a cost of $3.0 million.  Our best estimates of the grade of this stockpile give us confidence its realizable value is greater than this.

Management believes we have sufficient liquidity to carry out our mining, development and exploration programs and prefers not to dilute shareholders' interest with equity issues.

With current gold prices our mining operations are capable of generating strong operating cash flow as they have in the past.

OUTLOOK

We continue to aim for a 60,000 ounce annual production target.  The improvement over the first quarter is encouraging.  The Eagle River and Mishi mines continue to offer flexibility in milling schedules.  Under Kiena's cost reduction program, annual production guidance here has been reduced to about 20,000 ounces as previously announced.

We continue to believe the gold price will resume its upward climb in the second half of 2012 and are well positioned to benefit from this.

ABOUT WESDOME

Wesdome is celebrating its 25^th year of continuous mining operations in Canada.  It currently has three producing gold mines with wholly-owned mining and milling complexes located in Wawa, Ontario and Val d'Or, Québec.  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.

SOURCE Wesdome Gold Mines Ltd.