Earnings Call Transcript - NGD Q1 2021

Ankit Shah, VP of Strategy and Business Development

Thank you, Michelle, and good morning, everyone. I appreciate you joining us today for New Gold's first quarter 2021 earnings conference call and webcast. On the line today we have Renaud Adams, President and CEO; and Rob Chausse, CFO. Should you wish to follow along with the webcast, please sign in from our homepage at newgold.com. Before the team begins the presentation today, 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 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. In addition, at the conclusion of 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.

Rob Chausse, CFO

Thanks very much, Ankit. And good morning. Slide 5 provides our operating highlights for Q1. The production details are consistent with our April production press release. During Q1, the company produced 96,000 gold equivalent ounces. The amount consisted of 13.8 million pounds of copper, 54,600 gold ounces from Rainy River, and 11,994 ounces of gold from New Afton. A total of 66,650 gold ounces, lower gold production as compared to the prior year quarter, is primarily due to lower grades and lower throughput at New Afton. Our operating expense per equivalent ounce was higher than the prior year quarter due to lower sales volumes and a strengthening Canadian dollar. With regards to the impact of the US dollar CAD FX rate in the first quarter against our guided FX rate of $1.28, the impact was around $2 million. Going forward and on a sensitivity basis, a $0.05 change in the US CAD FX rate represents about a $9 million impact on our operating cash flow. Consolidated all-in sustaining costs for the quarter were $1,550 per equivalent ounce, 7% higher than the prior year quarter, primarily due to lower sales volumes. Turning to our financial results on slide 6; first quarter revenue was $164.9 million driven by sales of approximately 63,500 gold ounces at an average realized gold price of $1,788 per ounce, and sales of 13.3 million pounds of copper at $3.83 per pound. Q1 revenue was 16% higher than the prior year quarter due to higher metal prices. Our operating cash flow before working capital adjustments was $63.7 million or $0.09 per share for the quarter, higher than the prior year quarter primarily due to higher metal prices. The company recorded net earnings of $15.1 million or $0.02 per share during Q1 compared to a loss of $0.04 per share in Q1 2020. After adjusting for certain other charges, net earnings were $8.1 million or $0.01 per share in Q1 compared to a net loss of $18 million or $0.03 per share in the first quarter of 2020, with differences driven by higher revenue and lower depreciation. Our Q1 adjusted earnings includes adjustments related to our unrealized adjustments on the Rainy River stream, mark-to-market, and free cash flow royalty. Our MD&A has additional details on the non-GAAP measures discussed. Capital expenditures on the next slide were around $56.4 million in the quarter. $37.9 million was spent on sustaining capital and $18.5 million on growth capital. Sustaining capital spend was primarily related to planned tailings work on both operating assets and B3 mine development at New Afton. Growth capital was focused on project development, specifically the TAT project at New Afton. We remain on track to achieve both operating and capital guidance. On slide 7, you can see our capital structure. As of March 31, 2021, we had $131 million in cash and $435 million in liquidity. With that, I'll turn the call over to Renaud Adams, our CEO.

Renaud Adams, President and CEO

Thanks, Rob. And thanks again, everyone for joining us today. I'm on slide 9 to provide additional comment on sustainability and ESG. Besides our health and safety global efforts, New Gold has four sustainability-focused areas: indigenous people, tailings management, water and climate, all of which will be fully addressed in our upcoming sustainability annual report. We have adapted our sustainability effort to align with the most pressing ESG issues facing our company in the mining industry. As we look forward, it is not about presenting a new way of operating, but looking at what we are currently doing and searching for areas to improve upon. We are currently working on our 2030 roadmap with ambitious goals to reduce our emissions while continuing to create value for our host community in the areas we operate. On our side, I've implemented employee-driven programs that help generate ideas for energy efficiencies to help achieve our overall carbon footprint. Both slides have environmental management systems and include water, climate, tailings risk on our operation. Our operation actively seeks partnerships and works with local communities to understand the cultural and traditional aspects for progressive reclamation and environmental monitoring on an ongoing basis. Moving forward, we will implement a more comprehensive climate action plan that also outlines opportunities for electrification and energy efficiencies. This will help us achieve our emission reduction goals. Meanwhile, New Afton has already added its first electric equipment to its underground mobile fleet. Our objectives continue to be very clear: we want to create value, minimize environmental impacts, and do our part in achieving larger global objectives of climate, water, tailings management and indigenous relations, all while continuing to prioritize the health and safety and well-being of our people and the people in the community in which we operate. I would also like to quickly touch base on the COVID update. The company was the first to bring private testing to the Rainy River and Northwestern Ontario area and has worked with the Northwestern Health Unit in its implementation. The onsite PCR testing provides results within three hours of testing. Individuals with positive results from our site PCR testing are directed to take a second administrative confirmatory test, which confirms a positive result with the separate test. These positive in-house cases have previously been referred to as non-negative, which was really terminology used in public health in the early days, so only public health results were officially considered positive. However, going forward, cases that were previously referred to as non-negative will be referred to as presumed positive cases and we will continue to treat them as such. The majority of the positive cases have been detected on site. Contact tracing is also performed by the site team and through public health to isolate any infected individual and limit further exposure. Currently, there are only two active cases at the Rainy River mine. All prior cases, including the ten individuals referred in our April 21 news release, have confirmed positive cases by the Northwestern public health and have recovered following the applicable quarantine period. I am also very pleased to report that there are currently no active cases of COVID-19 at the New Afton mine. Moving to slide 10, reinvesting in our future continued in the quarter. The map shows all minority positions currently held by New Gold across Canada, including a significant 8% gold stream in the Blackwater Development mine owned by Artemis Gold. Recently, the company added three new positions in Harte, Talisker, and Angus. Our 14.9% in Harte represents a unique opportunity to invest in a high-grade underground mining project in Canada, especially given the team's strong skill set towards underground mines, including in that part of Canada. We like the new management in place that has recently joined, the company's significant underexplored land package, more than a million ounces of gold resources over 10 grams a tonne, and the potential to expand to over 100,000 ounces of production a year. Regarding our 14.9% in Talisker, this is a significant land package in the vicinity of the New Afton mine that we own in BC. The experienced explorer has the opportunity to leverage an historic goldmine and prospective land package, also with potential for multi-million ounces in resources. Concerning our 9.9% in Angus, this was really a small investment for New Gold. It represents a prospective land package in the Noranda mining camp with an experienced explorer that has a very strong track record of value creation in Canada. So we're very pleased with their landscape and the strategic minority investments we've been able to put together over the last quarter. Moving to operational performance, I'm now on slide 11 for additional comments on Rainy River's first quarter performance. First, I would say that I’m extremely pleased with the overall performance even though there were lower grades which were planned. We've seen again the mine and mill achieving another good quarter of productivity. The open pit mine achieved nearly 151,000 tonnes per day, in line with our '21 target of also 151 tonnes per day. This compares with roughly 127,700 tonnes per day in the same period last year. The mill did extremely well as well, achieving 26,300 tonnes per day. This compared with 18,400 tonnes a day last year. It's a significant improvement over the same period last year, considering the winter conditions and so forth. I think that I’d like to point out and that really speaks of our overall improvement year-over-year, in the same period last year compared to the period for 2021. The production achieved a 10% improvement over the same period last year, and really despite the fact that the grade in Q1 2021 was roughly 20% below the last year period at the same time last year. A significant improvement of 10% more production over a 20% lower grade. The same with the cash costs, which rose slightly below the same period last year, despite, as I said, a much lower grade and a stronger Canadian dollar. All of which when you really compare both the period of the Q1 last year and this year speaks for itself, speaking to the significant improvement we've made that the asset has and we will continue to improve further down the road. The average grade of 0.8 grams a tonne was a low grade but it was planned as such for our mine plan which previously discussed that considered lower grades in the first half of the year and the slightly higher strip ratio. As we move forward towards the second half of the year, we are expecting an increase in grade, an increase in production, and significant reductions in our costs and the mine remains on track to achieve its guidance. On Slide 12 at New Afton, there was lower productivity as the mine continued to ramp up and achieve pretty good productivity in the second half of the quarter following the mud-rush incident. We had lower grades as planned as we continue to exhaust our current Lift 1 cave and a recovery level as we transition now eventually to the B3 cave and eventually down the road to the C-Zone cave. The preparation work on B3 continued over the quarter. We're expecting our permit in Q2 and then after we'll initially blockade the sequence with the B3 and continue to ramp up over the year. More to come as we advance into Q2. Our C-Zone development and construction plan remains on track for a start of the season as planned. So both mines are really on track to achieve their guidance, and we're very pleased as well with the first phase of exploration results at New Afton. The first phase of drilling of nearly 10,500 meters showed us some pretty interesting interpretations on different patterns similar to the New Afton deposit. We are now engaged in the second phase where we will be drilling deeper to follow up on those trends. We've also commenced an underground drilling program focused on our three priority targets, and there will be more to come on this as well, as we have mentioned in the year. So really this is completing the presentation portion of the call. I will now turn the call back to the operator for the Q&A portion.

Operator, Operator

Your first question comes from Trevor Turnbull from Scotiabank.

Trevor Turnbull, Analyst

Yes, thanks, Renaud. I had a question on the way you're accounting for expenditures for the Rainy River underground. I read through it pretty quickly, so I might have missed it. But it looked like you had something on the order of $1 million in gross expenditures for the underground with the intrepid zone and so forth. But it seems like you've done more work than that. I'm just wondering is it the way you're accounting for it? Or am I missing something in the way you're going about the work at intrepid?

Renaud Adams, President and CEO

No, it's really all captured in gross capital. The booking and the timeline when the execution but it's all accounted for as gross capital. As you previously disclosed our guidance, we are expecting to remain within guidance on the gross capital. The very interesting part now that you mentioned beyond the $1 million of expenses is we're very pleased with the same result. I would just like to clarify that our first level in ore has responded extremely well compared to our block model. We see some gains here on the total ounces. We'll continue to execute our plan, and as we move forward, you will see starting in the next quarter, the expenses will pick up and we're expecting to remain within our plan for the year and continue to develop there.

Trevor Turnbull, Analyst

And you talked about having, I think, 16,000 tonnes to be able to add to a stockpile. Are you looking to process any of the material that you do develop this year? Or is all this going to be stockpiled for sometime in the future?

Renaud Adams, President and CEO

It's really to be stockpiled, but definitely this is something we will consider. You can imagine, when you processed an average of 27,000 tonnes a day, the first quarter's 15,000 - 16,000 tonnes is not a lot to impact the result, if that is where we're headed. The truth is, we're currently stockpiling and we will see later in the year. There are some precautions to take, as you can imagine. It comes with some metals from the underground, so we need to be well-equipped before we decide to initiate processing.

Trevor Turnbull, Analyst

And obviously, because of the higher grade, it's going to be a bit of a shock in a way to the mill, the way it's been operating. Is there some sort of plan maybe when the stockpiles have built up a bit more to batch process a bit just to see how it reacts in the mill or will you probably just blend it?

Renaud Adams, President and CEO

At this stage, we're actually continuing on our study. As previously disclosed, we're working on potential extensions of the life of the mine and looking into the milling aspects. So far, our intentions will eventually be to blend. If there is any opportunity to improve results by maybe batching, we're not there yet. Our plan is the basic case is just to blend.

Operator, Operator

At this time, we have no further questions in the queue. I will turn the call back over to our presenters for closing remarks.

Ankit Shah, VP of Strategy and Business Development

Thank you, Michelle. To all of you who have joined us today, thank you again. As always, should you have any additional questions, please do not hesitate to reach out to us by phone or email. Have a great day. Thanks very much.

Operator, Operator

Thank you, everyone. This concludes today's conference call. You may now disconnect.