Earnings Call Transcript - NGD Q3 2023

Operator, Operator

Good morning. My name is Jenny and I will be your conference operator today. Welcome to New Gold’s Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Please be advised that today's conference call and webcast is being recorded. After the speakers' remarks, there will be a question-and-answer session. I would now like to hand the conference over to Ankit Shah, Executive Vice President of Strategy and Business Development. Thank you.

Ankit Shah, Executive Vice President of Strategy and Business Development

Thank you, Jenny, and good morning, everyone. We appreciate you joining us today for New Gold's third quarter 2023 earnings conference call and webcast. On the line today we have Patrick Godin, President and CEO; Yohann Bouchard, COO; and Keith Murphy, our VP of Finance. Should you wish to follow along with the webcast, please sign in from our homepage at newgold.com. Before the team begins the presentation, I would like to direct your attention to our cautionary language related to forward-looking statements found on Slides 2 and 3 of 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 from those expressed or implied in forward-looking statements. Slides 2 and 3 provide additional information and should be reviewed. We also refer you to the section titled Risk Factors in New Gold's latest AIF, MD&A, and other filings on SEDAR which set out certain material factors that could cause actual results to differ. In addition, at the conclusion of the presentation, there are a number of end notes that provide important information and should be reviewed in conjunction with the material presented. I will now turn the call over to Pat for some opening remarks.

Patrick Godin, President and CEO

Thanks, Ankit, and good morning, everyone. I want to welcome Yohann Bouchard, Executive Vice President and Chief Operating Officer to the call. Yohann will cover the operational portion of these calls going forward. Yohann joined the company six months ago with Luke Buchanan, VP Technical Services. Both have a strong, proven operational background which is strengthening our management team. Before turning the call over to Pete and Yohann to discuss the quarter, I want to give a few brief remarks. We added another excellent quarter here at New Gold. Our efforts this year are paying off. Due to the strong operational performance over the first nine months of the year, production is striking at the top end of guidance and our all-in sustaining costs are tracking to the low end of the guidance range. These strong results mean New Gold generated $22 million of positive free cash flow. This is the first time we have generated positive free cash flow as a company since Q4 2021. We did this despite continuing to invest in our growth projects and securing future production. I expect this positive free cash flow trend to continue and increase in the coming years as we complete our growth projects. Our ability to meet expectations for our city performance has been strong so far this year. In fact, earlier this month, Rainy River celebrated a significant milestone of one year without a lost-time incident. I am particularly pleased with our ability to meet our objectives without compromising safety, which is a testament to our courage to care culture. The strong operating results at Rainy River over the last four quarters speak strongly to this. Looking to our future, we continue to make progress advancing our growth initiatives. We continue to advance on-the-ground development at Rainy River. The ramp access to the main zone is making good progress, with first ore scheduled for Q4 2024. As highlighted in our recent press release, New Gold accomplished some significant milestones. I want to emphasize the completion of the first season and the final commissioning of all 29 dewatering wells at the new storage facility. These are key for seasonal production, and we are well on our way to reaching commercial production in the second half of next year. We also provided an update on promising opportunities to extend the mine life at New Afton beyond 2030, which I am very excited about. This is a pivotal moment for the New Afton mine with production growth and declining costs expected in the near term. All major capital expenditures for obtaining stabilization have been completed. At both operations, we will continue to deliver our expectations with a strong focus on cost control and operational discipline. With that, I will turn the call over to Keith.

Keith Murphy, VP of Finance

Thank you, Pat. I am on Slide 7, which has our operating highlights. Q3 was another strong quarter. We produced over 111,000 gold equivalent ounces, which is 22% higher compared to the prior year quarter. Rainy River produced approximately 65,000 gold ounces. The increase over the prior year quarter is primarily due to higher gold grades and higher throughput. New Afton produced approximately 18,000 gold ounces and over 13 million pounds of copper, with the increase over the prior year quarter due to higher grades and increased recovery. Gold production at New Afton also includes 761 ounces from the ore purchase agreements. Upgrading expenses per gold equivalent ounce decreased over the prior year periods, primarily due to higher production and sales. Consolidated all-in sustaining costs for the quarter were $1,477 per equivalent ounce. The decrease compared to the prior year quarter is due to the lower operating costs, lower sustaining capital spend, and higher sales volume at both sites. Turning to our financial results on Slide 8, third quarter revenue was $201 million, driven by sales of approximately 107,500 gold ounces at an average realized gold price of $1,924 per ounce and sales of 13 million pounds of copper at $3.78 per pound. Q3 revenue was higher than the prior year quarter primarily due to higher metal prices and sales volumes. Cash generated from operations before working capital adjustments was $88 million or $0.13 per share for the quarter; this was higher than the prior year period due to higher revenue. As Pat mentioned, the company generated $22 million of positive free cash flow in the quarter. Rainy River continued to deliver free cash flow and has generated $85 million in free cash flow over the last two years. New Afton had its first positive free cash flow quarter in almost two years despite the ongoing investment in the C zone, which is a testament to strong operating performance in the quarter. The company recorded a net loss of approximately $3 million or $0.00 per share during Q3. This is an improvement compared to the prior year quarter, primarily due to higher revenues and lower finance costs, partially offset by higher operating costs and higher unrealized losses on the revaluation of the Rainy River Gold Stream obligation under New Afton's free cash flow interest obligation. After adjusting for certain charges, net earnings were $23 million or $0.03 per share in Q3; an improvement compared to an adjusted net loss of $13 million in the third quarter of 2022. The improvement in adjusted net earnings was primarily due to higher revenues and lower finance costs, partially offset by higher operating expenses and depreciation due to the higher production. Our Q3 adjusted earnings include adjustments related to other gains and losses. Our total capital expenditure for the quarter was $70 million, with $36 million spent on sustaining capital and $35 million on growth capital. Our Rainy River sustaining capital spend was primarily related to the tailings dam raise, capitalized waste, and capital maintenance. Growth capital related to the development of the Intrepid underground and underground main zones. At New Afton, sustaining capital spend primarily related to tailings management and stabilization activities, while growth capital primarily related to C zone development. Slide 9 provides details of our capital structure. We had cash on hand at the end of Q3 of $179 million, an increase of $5 million from the previous quarter driven by free cash flow generated at both Rainy River and New Afton. At the end of Q3, the company's liquidity position was $553 million. We continue to execute short-term hedges on CAD and fuel and are hedged at around 75% on both for the fourth quarter. We will continue to evaluate short-term hedge options on CAD and fuel and utilize them as we see fit. To sum up, we remain in a healthy financial position with an increased cash balance following another excellent quarter, all while continuing to invest in our growth projects. Now I'll turn the call over to Yohann to walk through our operating highlights.

Yohann Bouchard, COO

Very good. Thank you, Keith. So commenting on Rainy River, the operations continued to perform well achieving another quarter in line with plans and delivering a 10% increase in production over the third quarter of last year. Through operational discipline, the operation is meeting expectations and achieving stable and reliable production quarter-over-quarter. The operation is well positioned to continue this trend into 2024. Our grade ore is planned from the lower benches of phase three and the Intrepid underground mine, and the processing plant is running well, achieving a throughput of more than 28,000 tons per day in September. The operation is on track for the top end of the production guidance, with all-in sustaining costs tracking through the midpoint. The open pit costs are expected to reduce significantly after 2024 with the completion of the waste stripping, while grade in our plan to increase as underground production ramps up to supplement high grade from the pit. With more stable quality results, we're now looking forward to the next three years in which we see a growing production profile with declining costs driving increased cash flow. Now on Slide 12, the underground production is planned to increase from the second half of 2024, with the expansion into the underground main zone. The connection ramp from Intrepid to the underground main is advancing well, and we expect to be in a position to start raising our fresh air raise in Q1 next year. In parallel, the Intrepid zone continues to produce between 800 to 1000 tons per day with reconciling positively with the block model. Now turning to New Afton, the operation had an excellent third quarter, achieving the highest quarterly production since 2021, mostly as a result of B3K continuing to exceed planned extraction rates. The exceptional performance over the first nine months puts New Afton in an excellent position to achieve the top end of 2023 production guidance and the bottom end of the cost guidance. We expect an increasing production profile to continue over the coming years as C zone ramps up production. We made excellent progress this quarter achieving two significant milestones; first, we completed the first major milestone at C zone on time. This is significant because it marked the start of the seasonal production ramp-up period, putting the project on track for commercial production in the second half of the year. Second, we commissioned the final dewatering well at the New Afton tailings storage facility. Most of the activities and costs related to the dewatering project are now completed. Wrapping up on Slide 15, I would like to highlight the strong outlook at New Afton and four key points that I would like to talk about here. First, with the seasonal ramp-up, gold equivalent production is expected to average 230,000 ounces a year from 2024 to 2030; a 60% increase over the midpoint of 2023 guidance. Second, considering the fixed cost component of 50% with mining, 75% with processing, and 90% with G&A, the unit cost per ton basis is expected to decrease with the return of higher throughput rates. Third, almost all capital expenditure is upfront for the C zone mine, and as such, there is minimal capital expenditure after completion of the C zone project in 2025. Finally, beyond 2030 there is significant upside that could extend the mine life for many more years, which is supported by very encouraging exploration results. With that, I would turn the call back to Pat.

Patrick Godin, President and CEO

Thank you. So turning to our 2023 guidance. Following the strong results year-to-date, we are striking towards the top end of the gold equivalent production range, and all-in sustaining costs are tracking to the midpoint of the guidance range. At New Afton, I'm pleased to say that copper, gold, and gold equivalent productions are all tracking towards the top end of their respective production guidance ranges, with all-in sustaining costs striking toward the low end of the respective cost guidance range. It's been almost one year since I took the role as CEO at New Gold. I want to say how proud I am of our teams. We have strengthened both our corporate and site management teams throughout the year, and we all share the same vision of one team, fully integrated and fortunate enough to have the same objectives of delivering on expectations safely. We have come a long way, and this is a driving force behind our strategy. Before concluding the presentation, I want to share a few reflections and reiterate what I have been saying throughout this year; and what I view to be the key priorities for the company. Our first priority was to continue to stabilize our operations. The challenges at the Rainy River open pit are behind us. The underground production at Intrepid has performed well with positive reconciliation. The connection ramp to the main zone commenced in June and continues to make excellent progress. At New Afton, the B3 ramp-up is complete and exceeding planned extraction rate targets. Our second priority was to continue to advance our organic growth opportunities. At Rainy River, we are on track to deliver first ore from the main zone in Q4 2024. Production at Intrepid will continue below level 300, which will increase our rate contribution from underground mining. New Afton's C zone is on track and has achieved several milestones over the last 12 months including completing the ticket dewatering plant, receipt of all season permits, completing 29 dewatering wells at the New Afton storage facility, and the completion of the first C zone draft bill. The C zone remains on track for commercial production in the second half of 2024. New Afton is also exploring promising opportunities to extend the mine life beyond 2030, and we will look to follow-up on these early successes with future exploration programs. Our third priority is to deliver on our guidance set out earlier in the year. We have performed well through 2023 with a continued focus on operational discipline and safety. I am pleased that we are tracking to the top end of our production guidance and the low end of our total cost guidance. With four strong and consistent operating quarters behind us, it shall be clear that we now have in place the right people to get the job done. The company is well positioned for significant free cash flow generation in the coming years. I look forward to updating everyone in the coming quarters. This completes our presentations. Now I will turn it back to the operator for the Q&A portion of the call.

Operator, Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question is from Eric Grinnell from Scotiabank. Please ask your question.

Unidentified Analyst, Analyst

Hi, good morning, Patrick, Yohann, and team. Thanks for taking my question. Just wanted to drill down on Rainy River for a moment, if I could please. You made the decision to commit to the underground main zone, and I'm just wondering how we should look at the ramp-up here towards the second half of 2024 in terms of working faces, tons per day, and whether you still plan to put in the second decline from the Intrepid. Any comments would be helpful. Thanks, guys.

Ankit Shah, Executive Vice President of Strategy and Business Development

Thanks for the question. I'm going to take that one. So I just want to say that the ramp is advancing really well. I mean, we're really pleased with the advancement, and the ramp control is excellent. We're aligned; we plan to start the pile-up before the end of this year and begin ramp-up in Q1 next year. Regarding the production profile, we're looking at being in or sometime in Q4 next year. We expect to see an increasing profile. It's still in a very good spot to have strong production from the underground. We're also looking at mining below the 300 level, which is also showing higher grades than our plan, and we're still working on the budget for that. So far, we're really pleased with what we see, and that we're about the second total, the ramping up from Intrepid is just aligning with the open activities. The second access at the moment does not require a fourth shaft because we're going to have a ventilation loop and a second means of egress, but we can still have the portal and start construction maybe in 2025 to handle the haulage with mining trucks to cut on costs. Hopefully that answers your question.

Unidentified Analyst, Analyst

Yes. It's super helpful. Thanks so much. Just one more for me, if you don't mind. I saw some news about Talisker doing an ore purchase deal for New Afton to process feed there. Any further comments on that?

Keith Murphy, VP of Finance

No. I mean, Eric, we have an investment in Talisker, similar to your ore purchase agreement that we have in place with New Afton, and we're always looking for compelling opportunities that generate free cash flow, given the feed capacity we have at New Afton. They have been a great partner to us, and we're always looking for free cash flowing sources that can come to our mine.

Patrick Godin, President and CEO

It’s a win-win deal for Talisker and for New Gold.

Unidentified Analyst, Analyst

Okay, great. Thanks. I appreciate you taking my questions.

Patrick Godin, President and CEO

Thank you.

Operator, Operator

Thank you. Your next question is from Anita Soni from CIBC World Markets. Please ask your question.

Anita Soni, Analyst

Hi, good morning, guys. Just a couple of quick questions. Firstly, in terms of the CapEx spend, I think you alluded to it — that the capital will decline significantly in 2025. But what should we expect in terms of capital from the New Afton mine in 2024? I'm just trying to look at my technical report quickly and wondering if that is still in line with what the tech report had or whether or not there are significant changes outside of any obvious inflationary adjustments from the numbers quoted there?

Ankit Shah, Executive Vice President of Strategy and Business Development

Thanks, Anita. No, we're in line. We've spent about $360 million so far on the C zone project; so we're still in line with what we had in the tech report, and we’re looking forward to completing that in the second half of 2024.

Anita Soni, Analyst

Okay. And then similarly, question for Rainy River; is that still — I mean, that tech report is far more up-to-date, but is that still valid?

Ankit Shah, Executive Vice President of Strategy and Business Development

Yes, yes. Still in line. I mean, you've probably seen on the trip ratio; we continue to work through optimizing our mining sequence in 2023; so we'll continue that and look ahead to 2024, and then we'll give guidance in 2024.

Anita Soni, Analyst

Okay. And then, just a question with regards to the Ontario Teachers' pension plan buyback. Could you remind me when that comes due and what your plans are when it comes to that option being available? I'm not quite sure; I think it's due fairly soon. And what would be the purchase price for you to buy it back if that was the case?

Ankit Shah, Executive Vice President of Strategy and Business Development

Anita, thanks. Yes, this is the four-year anniversary on the transaction at March 31. We have a 60-day window; so this is a Q2 2024 event. In terms of evaluation, together between us and the Ontario Teachers, we'll hire an independent evaluator based on our updated budget plan. So that's currently in the works as we work through our budget; so this is more of a Q2 next year exercise. Right now, we're focused on our operations as it is generating cash flow, and we'll evaluate this more in the first half of next year.

Anita Soni, Analyst

Perfect. Thank you.

Operator, Operator

Thank you. There are no further questions at this time. Please proceed.

Ankit Shah, Executive Vice President of Strategy and Business Development

Thank you, Jenny. Thank you, everybody, again, for joining us today. As always, if you have any additional questions, please feel free to reach out to us by phone or email. Have a great day. Thank you.

Operator, Operator

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.