Earnings Call Transcript - NGD Q4 2020

Operator, Operator

Thank you, operator, and good morning, everyone. Thanks for joining us today for New Gold's fourth quarter earnings conference call and webcast. We have with us today Renaud Adams, CEO; and Rob Chausse, CFO. Rob will present our Q4 operational and financial results, followed by Renaud, who will discuss our operational results. After the presentations have been completed, we will open the lines for a brief Q&A period. Before the team begins the presentation today, I would like to direct your attention to our cautionary language related to forward-looking statements found in the presentation. Today's commentary includes forward-looking statements relating to New Gold. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in the presentation. You are cautioned that actual results and future events could differ materially from those expressed or implied in forward-looking statements. Slide 2 and Slide 3 provide additional information and should be reviewed. We also refer you to the section entitled Risk Factors in New Gold's latest MD&A and other filings available on SEDAR, which set out certain material factors that could cause actual results to differ. Please note that all amounts are presented in U.S. dollars. In addition, included in the presentation, there are a number of end notes that provide more important information and should be reviewed in conjunction with the material presented. I will now turn the call over to Rob Chausse.

Robert Chausse, CFO

Thanks, Anne. Good morning. Just jumping straight into Slide 5, which provides our operating highlights for Q4 and year-to-date; details are consistent with our January production press release. During Q4, the company produced 120,567 gold equivalent ounces. The amount consisted of 18.5 million pounds of copper and 66,734 gold ounces from Rainy River and 16,362 gold ounces from New Afton, totaling 83,096 gold ounces. The higher gold production, compared to the prior year quarter, is primarily due to higher grades at Rainy River and New Afton. Operating expense per equivalent ounce was lower than the prior year quarter due to higher production and sales volumes. Consolidated all-in sustaining costs for the quarter were $1,491 per equivalent ounce, 20% lower than the prior year quarter, primarily due to lower sustaining capital at Rainy River. Moving to Slide 6 and our financial results. Fourth quarter revenue was approximately $199 million, driven by sales of approximately 86,500 gold ounces at an average realized price of $1,623 per ounce and sales of 17.5 million pounds of copper at $3.34 per pound. Q4 revenue was 43% higher than the prior year quarter due to higher metal prices and higher grades. Our operating cash flow before working capital adjustments was $95 million or $0.14 per share for the quarter, higher than the prior year quarter, primarily due to higher metal prices. The company recorded a net loss of $21.1 million or $0.03 per share during Q4 compared to earnings of $0.00 per share in Q4 of 2019. After adjusting for certain charges, net earnings was $27.9 million or $0.04 per share in the quarter compared to a net loss of $28 million or $0.04 per share in the fourth quarter of 2019. The difference is driven by higher revenue and lower operating costs and depreciation. Our Q4 adjusted earnings also include adjustments related to the previously announced redemption of notes, unrealized adjustments on our gold price option contracts, Rainy River's stream mark-to-market, and our New Afton free cash royalty. Our MD&A has additional details on the non-GAAP measures discussed here. Moving to Slide 7, our CapEx. This slide provides a breakdown of our Q4 2020 capital expenditures. Our total sustaining capital and leases for the quarter was $69.2 million, and the spend was primarily related to tailings work and wick drains at Rainy River and B3 mine development and advancement of the tailing dams raised at New Afton. Growth capital was focused on project development at New Afton. Slide 8 provides details of our capital structure. At December 31, 2020, we had approximately $185 million in cash and approximately $490 million in liquidity. During the fourth quarter, New Gold completed a $200 million redemption, with cash on hand, of the outstanding 6.375% senior note due in 2025, leaving a balance of $100 million on those notes. Also, in early Q4, the company extended its credit facility to 2023. I would refer you to the company's press releases for further information on those specific transactions. Slide 9 provides our 2021 consolidated guidance. Renaud will provide details by operation, but on a consolidated basis, the company is expecting to produce between 440,000 and 490,000 equivalent gold ounces. By metal, the estimated gold production range is 322,000 to 352,000 ounces, and the estimated copper production range is expected to be between 56 million and 66 million pounds. When compared to the prior year, production guidance includes an increase in production from Rainy River mine, offset by lower production at the New Afton mine. The consolidated cash costs are expected to be in line with the prior year, with lower costs from the Rainy River mine and higher from the New Afton mine. The all-in sustaining costs ranging between $1,230 and $1,330 per equivalent ounce are expected to decline compared to the prior year, primarily due to lower sustaining capital requirements at Rainy River. Growth capital is expected to increase over the prior year, primarily related to the New Afton C-zone project development and the Intrepid underground at Rainy River. With that, I'll turn the call back to Renaud.

Renaud Adams, CEO

Thanks, Rob, and thank you, everyone who is joining us today. I'm on Slide 11. And before I start, it's with mixed feelings that I'm addressing you today. The year started tragically at New Gold with a fatality that occurred at the New Afton mine. When I look at the New Afton team, the New Afton family, I see a strong group of people committed to health, safety, and well-being while working at New Afton. We have achieved significant milestones in health and safety, ending the year with more than 3.6 million hours worked without LTI injuries. This represents over 1,050 days and significant milestones in reducing every aspect of frequency and incident rates. In general, we've reduced our overall frequencies and incidents by over 45%. New Gold comes with a significant commitment. As outlined on Slide 11, our focus areas include environmental and social responsibility on water tailings, climate, and indigenous relations, all circling back to our commitment to health, safety, the environment, and the well-being of our people. However, on February 2, we faced a mud rush at the recovery level, which resulted in a fatality. This incident impacted the whole family of New Afton and New Gold hard because it strikes at the core of our values and our people. Nevertheless, we will get back on our feet and learn from this accident. We have encountered adversity in the past, and we will continue to prioritize health and safety. Looking back at 2020, I'm proud of the tremendous achievements we made. We achieved significant milestones in every aspect, positioning the mine for success. We reduced our debt and restructured our balance sheet while maintaining a healthy cash and liquidity position. While it is mixed feelings because of our tragic start to 2021, I assure everyone that the New Afton family remains strongly committed to health and safety. When I look at Rainy River, 2020 was about repositioning the mine with an aim to enter 2021 at higher production, reduced costs, and a steady free cash flow. By the end of 2020, we achieved the high end of our gold equivalent production. We made tremendous progress in controlling and reducing unit costs, resulting in lower cash costs compared to our revised guidance. We've completed all capital projects and are now moving towards sustaining capital for more regular operations. We’re well-positioned at Rainy River, and the future looks very bright. On Slide 13, you can see how we've transformed the mine with a focus on operational costs. For the last two quarters, we have been operating at around 150,000 tonnes mined with 27,000 tonnes processed. As we move forward and examine our operational outlook for 2021, we predict a significant improvement with expected production between 275,000 to 295,000 ounces equivalent. There's a reduction in cost, with cash costs below $800 and AISC slightly below $1,200 per ounce equivalent. The first part of the year will see a higher strip ratio and a lower grade as we continue our stripping efforts, but in the second half, we anticipate returning to Phase II operations, benefitting from better grades and a lower strip ratio. The mill will operate at full capacity while consistently improving recovery. A notable upside is from underground mining; we decided to accelerate the development of the Intrepid Zone, which is part of the '22 to '28 mine plan, providing an opportunity to accelerate operations here. Significant progress has also been made in returning as many ounces as possible to the mine plan and potentially extending the mine's life. By the end of 2020, the entire Intrepid Zone was transferred back to reserve due to the higher gold price used, providing better grades at earlier stages than in the current plan. This may extend the life of the stockpile as we incorporate more underground operations in the period. We're conducting an economic study in 2021 to assess the feasibility of bringing back underground resources. We expect our exploration program to ramp up significantly, focusing on Rainy River and incorporating details from New Afton as well. Looking at New Afton in 2020, we saw engagement in the construction and development of both the B3 and C-zones, with significant progress across the board. We ended the year well-positioned to initiate B3's operations in the first half of 2021, as important capital advancements were made. While I won't discuss the detailed investigation related to the accident at New Afton, I can provide a 3D sketch of where the incident occurred to illustrate our operations. All activities in the B3 and C-zone have resumed, and we aim to initiate the B3 mining sequence in the second quarter. C-zone development has also resumed, and we expect to deliver on our capital plan in 2021. As for our operational outlook for New Afton, the mine plan reflects the revisions around the recovery level and milling capacity due to the incident. The plan now envisions a revised milling capacity of around 1,700 tonnes a day, which will be supplemented by surface stockpiles. The B3 is still slated to represent 20% to 25% of ore for the year, and we aim to keep more focus on sustaining capital as we complete B3 development this year.

Anita Soni, Analyst

Rob and Renaud, I'm just wondering about the capital numbers that you've provided for both New Afton and Rainy River. There's a bit of a range on that, particularly on New Afton. So can you just give me an understanding of what cases would lead to lower or higher spending? Why is that range present?

Renaud Adams, CEO

The capital project for New Afton is a four-year endeavor. Just as we experienced in 2020 at Rainy River where we could accelerate some aspects into 2021, we have made estimates based on average productivity and timelines. Since most activities relate to development, there is always a chance for improved performance, which may lead to more stabilization than initially planned. Given that these activities occur over four years, we feel comfortable with our guidance set in the mid-range, allowing for slightly better performance or instances that may slow us down. Rainy River, being focused on tailings, is much more straightforward. There is a good handle on the situation. Depending on progress and gold prices, there may be some flexibility regarding operational aspects.

Anita Soni, Analyst

I'm just wondering if capital allocation, focusing on hitting that free cash flow inflection point, is part of your planning. Are you trying to maintain positive free cash flow?

Renaud Adams, CEO

Regarding Rainy River, aside from the CAD 10 million to CAD 12 million for accelerating Intrepid, we expect to see an AISC slightly below $1,200, which signifies a significant margin and will produce a healthy amount of free cash flow. And we have the second payment this year for Artemis. Yes, we are confident about achieving positive free cash flow this year. New Afton must be self-funded over the four years.

Anita Soni, Analyst

Can you provide insight into where your mining, milling, and G&A costs are landing for both assets?

Renaud Adams, CEO

I don’t have that information available right now. However, I would recommend looking at our 43-101 references for an overview of Rainy River. New Afton presents a different scenario due to the new plan, so although unit costs may be higher currently, we expect to stabilize by 2022.

Anita Soni, Analyst

Regarding unit costs for New Afton, will they be affected by remote mucking? The processing rate seems lower than last year, is that accurate as well?

Renaud Adams, CEO

Yes, it will have an impact on a unit basis. When you perform recovery operations at a plan and rely on remote mucking at 1,700 tonnes a day rather than manual mucking at 3,000 to 4,000, this creates an impact. We expect some downtime impacts, but once we are back on track, we feel strong about our B3 unit costs referencing 43-101.

Anita Soni, Analyst

Is there a quarter-by-quarter spending trend we should be aware of? Typically, there’s lower spending in Q1 and more is made up in Q4, what’s planned for this year?

Renaud Adams, CEO

Yes, our disclosure covers it well. As you noted, New Afton will be stronger in the second half. Other than that, our disclosures provide clarity on the guidance and expectations.

Michael Parkin, Analyst

Regarding Rainy, you're nearing the permit limit for processing. Moving into the second half, where conditions are better, will there be revisions to the permit limit, or do you anticipate needing a revision?

Renaud Adams, CEO

Conversations about that have started. We can peak up to 32 tonnes, although we haven't hit that every day. For two quarters, we’ve maintained a little downtime to avoid surpassing the 27-tonne limit due to the life of mine considerations. We are focused on improving efficiency and profitability while continuing to grow our operations in the region. We may discuss expanding the mill capacity if necessary, but I’m not currently expecting an increase in permitted capacity in 2021.

Michael Jalonen, Analyst

Renaud and Rob, I'm aware that IAMGOLD has recently sold some royalties. Are you considering selling your stream on Blackwater or do you have any buyers in mind?

Renaud Adams, CEO

We're not questioning the possibility of being a buyer out there. As for Artemis, we recognize its solid project development potential. Rob and the team did an excellent job restructuring the company's balance sheet, maintaining cash reserves. There's no immediate need to monetize or sell anything. My preference would be to hold onto this stream strategically while continuing to add value to our enterprise. Therefore, we prefer retaining ownership rather than selling just for the sake of selling.

Operator, Operator

Thank you, operator. Thanks, everyone, for joining us today. As always, should you have any additional questions or require more information, please feel free to reach out. But that completes today's call. Thanks again.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.