Earnings Call Transcript - NGD Q3 2025

Operator, Operator

Good morning. My name is Carrie, and I will be your conference operator today. Welcome to the New Gold Third Quarter 2025 Earnings Call and Webcast. Please be advised that today's conference call and webcast is being recorded. I would now like to hand the conference over to Ankit Shah, Executive Vice President and Chief Strategy Officer. Please go ahead.

Ankit Shah, Executive Vice President and Chief Strategy Officer

Thank you, operator, and good morning, everyone. We appreciate you joining us today for New Gold's Third Quarter 2025 Earnings Conference Call and Webcast. On the line today, we have Patrick Godin, President and CEO; Keith Murphy, CFO; Travis Murphy, Vice President, Operations; and Jean-Francois Ravenelle, Vice President, Geology. In addition, we have Luke Buchanan, Vice President, Technical Services, available to assist during the Q&A portion of the call. Should you wish to follow along with the webcast, please sign in from our homepage at newgold.com. Before we begin the presentation, I'd like to direct your attention to our cautionary language related to forward-looking statements found on Slide 2 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 provides additional information and should be reviewed. We also refer you to the section entitled Risk Factors in New Gold's latest AIF, 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 important information and should be reviewed in conjunction with the material presented. The third quarter was an impressive one for New Gold, and Slide 4 highlights some of the key quarterly accomplishments. We had an excellent quarter operationally with both production and costs improving significantly compared to the second quarter. This was highlighted by Rainy River's record quarterly production of over 100,000 ounces of gold, a 63% increase over the second quarter. At New Afton, B3 continued to overperform during the third quarter, while C-Zone remains on track to ramp up to full production in 2026. We remain well positioned to deliver on our 2025 guidance objectives outlined at the start of the year. Importantly, these impressive quarterly results were achieved while maintaining a focus on safe production with a low total recordable injury frequency rate of 0.61, down from 0.82 in the second quarter, continuing the downward trend over the last three years. During the quarter, New Afton surpassed 1 million hours, and Rainy River surpassed 1.5 million hours worked without a lost time injury, marking a significant safety milestone at both sites. On a consolidated basis, the company produced approximately 115,200 ounces of gold and 12 million pounds of copper in the quarter. All-in sustaining costs reduced from the second quarter by $425 an ounce to $966 per ounce. With an average realized gold price of $3,458 per ounce, this represents an impressive all-in sustaining cost margin of $2,492 per ounce. We expect all-in sustaining costs to further reduce through the fourth quarter. The company generated more than $300 million in cash flow from operations and achieved a record quarterly free cash flow of $205 million, highlighted by Rainy River's quarterly record of $183 million in free cash flow. The balance sheet was further strengthened in the quarter as we repaid a total of $260 million in debt, including the $150 million drawn on the credit facility earlier this year as part of the New Afton buyback, which was repaid one quarter ahead of plan. The company continued to advance initiatives aligned with our 3-year production growth and accomplished several key milestones during the quarter. At New Afton, C-Zone cave construction is approximately 79% complete, supporting the progressive increase in processing rates towards the target of 16,000 tonnes per day by early 2026. At Rainy River, the focus remained on increasing underground development and production rates, which Travis will speak to shortly. Lastly, our exploration initiatives made significant progress as outlined in our September news release, highlighted by the significant growth in New Afton's K-Zone and the ongoing exploration activities at Rainy River to offset mining depletion. In summary, we had a strong quarter, and we built on the results from the first half of the year, all while maintaining focus on generating meaningful value for our shareholders. With that, I will now turn the call over to Travis.

Travis Murphy, Vice President, Operations

Thank you, Ankit. I'm on Slide 6, which has our operating highlights. As Ankit noted, Q3 delivered strong production and costs. Production totaled approximately 115,200 gold ounces and 12 million pounds of copper. This increase in gold production compared to Q3 2024 was driven by planned higher feed grade at Rainy River, partially offset by lower planned feed grade at New Afton. Consolidated all-in sustaining costs for the quarter were $966 per gold ounce on a byproduct basis, 19% lower than Q3 2024 and a substantial improvement over the first two quarters of 2025. Costs are expected to continue to trend down in the fourth quarter. At New Afton, the B3 cave continued to overdeliver compared to the plan set out at the beginning of the year. As a result, New Afton achieved an all-in sustaining cost of negative $595 per ounce after considering copper credits. Rainy River delivered a strong quarter; a record quarter as the mill processed higher-grade open pit ore. All-in sustaining costs were $143 per ounce in the quarter, a substantial 39% improvement compared to the second quarter. Costs should continue to trend lower in the fourth quarter with lower sustaining capital. Our total capital expenditures for the quarter were approximately $76 million, with $19 million spent on sustaining capital and $56 million on growth capital. At New Afton, sustaining capital is primarily related to mobile equipment, while growth capital is primarily related to construction and growth mine development, tailings, and machinery and equipment. At Rainy River, sustaining capital is primarily related to open pit stripping and the tailings dam raise, while growth capital is related to underground development and machinery and equipment. Turning to the assets, starting with New Afton on Slide 7. New Afton delivered another quarter on plan. B3 contributed approximately 4,300 tonnes per day during the quarter. The additional tonnage from B3 above and beyond the previously planned April exhaustion continues to provide excellent shareholder value as it comes with no additional capital. We expect the B3 cave will now exhaust in the middle of the fourth quarter as the current contribution has reduced down to around 1,500 tonnes per day. Annual copper and gold production is expected to be in line with the guidance profile previously provided. During the third quarter, New Afton generated over $30 million in free cash flow while continuing to complete the construction of the C-Zone block cave. Through the first nine months of 2025, New Afton has generated $115 million in free cash flow. In terms of development, C-Zone cave construction continues to advance on schedule with cave construction progress at 79% complete as of the end of September. C-Zone remains on track to ramp up to full processing capacity of approximately 16,000 tonnes per day beginning in 2026. Now turning to Rainy River on Slide 8. Gold production in the third quarter was 100,300 ounces of gold at an all-in sustaining cost of $1,043 per gold ounce sold, representing a 63% increase in gold production and a 39% decrease in AISC compared to the second quarter. This excellent performance was driven by processing higher-grade open pit material in addition to processing and pouring the 5,900 ounces of gold in circuit as discussed at the end of the second quarter. The mill continued to perform well with quarterly throughput averaging over 25,100 tonnes per day. Following the impressive third quarter results, Rainy River gold production is now expected to be above the midpoint of guidance of 265,000 to 295,000 ounces of gold. As a result of the strong Q3 results, Rainy River generated a quarterly record of $183 million in free cash flow. As Ankit mentioned, progress was made during the quarter in advancing underground operations with a focus on increasing underground development and production rates. We undertook a number of key initiatives during the quarter specifically designed to improve recruitment and retention of our people and contractors. These include camp facility upgrades and travel improvements. They also included contract modifications to incentivize and reward optimized development rates. While this has led to an increase in cash costs and certain growth capital items related to the underground, it is a significant step forward in securing the production growth expected in the coming years. We are seeing improvements in the continued ramp-up in daily underground development rates, which we expect to build on through the fourth quarter. To sum up, we made excellent progress in the third quarter and remain on track to deliver our 2025 production and cost goals as well as longer-term objectives. And with that, I'll turn it over to Keith.

Keith Murphy, CFO

Thanks, Travis. The financial results can be found on Slide 10. Third quarter revenue was $463 million, higher than the prior year quarter due to higher gold and copper prices and sales volumes. Cash generated from operations before working capital adjustments was $296 million or $0.37 per share for the quarter, higher than the prior year period, primarily due to higher revenues. New Gold generated record quarterly free cash flow of $205 million, as higher revenue was only partially offset by higher capital expenditures as key growth projects were advanced. The company recorded net earnings of approximately $142 million or $0.18 per share during the third quarter. The increase in earnings for the quarter and year-to-date is primarily due to an increase in revenues, partially offset by higher share-based payments due to the increase in the company's share price. Year-to-date, this has also impacted our consolidated all-in sustaining costs by approximately $75 per gold ounce. After adjusting for certain other charges, net earnings were $199 million or $0.25 per share in Q3. Our Q3 adjusted earnings include adjustments related to other gains and losses and nonrecurring items. Turning to our balance sheet on Slide 11. At the end of Q3, we had cash on hand of $123 million and a liquidity position of $500 million. In July, we redeemed the remaining $111 million of the 2027 senior notes paid for with cash on hand. During the quarter, we also repaid the full $150 million, which was drawn on the credit facility to fund the New Afton buyback transaction announced back in April. This was one quarter ahead of plan. To sum up, we remain in a very healthy financial position with a significant free cash flow profile ahead of us.

Jean-Francois Ravenelle, Vice President, Geology

Thanks, Keith. I'd like to touch on our exploration successes that were released during the quarter. Exploration at New Afton continues to be at an all-time high. We currently have 9 drills turning at K-Zone as we work to define and grow the deposit. We recently increased our exploration budget by $5 million, as previously announced, bringing us to a full-year budget of $22 million for approximately 63,000 meters of drilling. We also reported two significant exploration highlights at New Afton. First, in addition to confirming the width and the continuity of previously reported mineralization at K-Zone, we have discovered additional mineralization in the footwall of the zone, which has more than doubled the known extent of the system. The system now reaches an impressive 600 meters in strike length and 900 meters in vertical extent with the horizontal thickness locally reaching up to 180 meters. Secondly, exploration drilling conducted from surface intersected C-Zone grade copper-gold mineralization located 550 meters to the east of the current K-Zone footprint. As shown on Slide 13, Borehole 596E intersected 1.1% copper equivalent over 55 meters of core length, demonstrating the high potential for further growth in the eastern sector of the mine. We are continuing to work towards the maiden resource at K-Zone for the end of the year. Following that, we will work towards completing a feasibility study for the first half of 2027. Moving on to Rainy River on Slide 14. The exploration strategy at Rainy River remains focused on sustaining the recent success in mineral reserve replacement. At the Northwest Trend open pit zone, which is located immediately west of the Phase 5 pushback, our drilling programs are expected to grow and upgrade the existing pit-constrained resource to the indicated category. Engineering studies are currently underway to evaluate potential mineral reserves. At Underground Main, exploration drilling focused on converting inferred resources to indicated resources while growing the existing ore zones down plunge and along strike, targeting the highest grade ore zones that can provide additional mining flexibility and further improve the production profile. Concurrently, engineering studies are advancing to support the conversion of underground resources to mineral reserves. Looking forward, the next phases of drilling to be conducted in 2026 and 2027 will benefit from future underground platforms, which are expected to accelerate resource and reserve development over that period and beyond. In addition to growing the surface and underground footprints, we own a significant land package that has remained largely underexplored. This year, we plan to invest approximately $2 million to initiate the identification of additional exploration opportunities over our 31,000-hectare land package. With that, I'll turn the call to Pat for closing remarks.

Patrick Godin, President and CEO

Thank you, Jean-Francois. As I have said previously, we expect continued and significant growth in gold and copper production over the next two years. Third quarter performance was an excellent indication of our potential production and free cash flow generation in the years ahead. As production volume increases, the unit cost per ounce of gold is projected to decrease subsequently. As a result, we continue to expect to generate significant free cash flow over the next two years. We have left the pricing for this figure unchanged since the start of the year. It shows that we generate approximately $1.8 billion of free cash flow over that period. For 2025, we expect to beat the high end of this projection and with rising production and current spot price, the 2026 and 2027 free cash flow generation is expected to be substantially above those outlined in this figure. In closing, the third quarter was really positive for New Gold as we continue to deliver on our stated strategic goals. We will continue to build on these goals from here. This includes delivering on 2025 production and cost guidance with the same attention to health and safety. Our continuous improvement in our total reportable incident frequency rate performance is a direct indicator of the support from all my teammates and for the courage to care culture. At New Afton, we will ramp up C-Zone and continue our aggressive exploration program at K-Zone with the goal of releasing a maiden resource in early 2026. At Rainy River, we will continue to ramp up the underground mine and advance Phase 5 open pit development, and we will continue our exploration efforts targeting offsetting mining depletion. New Gold offers a compelling investment opportunity with increasing production and significant free cash flow generation combined with our safe, well-established mining jurisdiction, an increasingly compelling exploration upside, and exposure to what we view as our preferred metal in gold and copper. We are confident in our ability to deliver additional upside from here. We'll continue to build from here, both operationally as well as with project and exploration catalysts, which are expected to create meaningful value for our shareholders and provide increased financial flexibility and optionality for New Gold moving forward. This completes our presentation. I will now turn it back to the operator for the Q&A portion of the call.

Operator, Operator

Your first question will come from Anita Soni with CIBC.

Anita Soni, Analyst

A couple of questions. So firstly, on the New Afton C-Zone and B-Zone. Can you give us a breakout of how much came from the C and the B in terms of tonnes?

Patrick Godin, President and CEO

From tonnage, the B-Zone contributed 4,300 tonnes per day over the quarter and C-Zone contributed the remainder of the tonnage there, Anita.

Anita Soni, Analyst

Okay. All right. And would it be possible to also find out what the grades were for those?

Patrick Godin, President and CEO

What are the grades for each...

Travis Murphy, Vice President, Operations

Yes. The grade for each...

Patrick Godin, President and CEO

So can we get back to you on this? What we have is the combined rate.

Anita Soni, Analyst

Yes. Okay. I would appreciate a call back on that one. And then just secondly, I wanted to say, so that's an impressive free cash flow generation this quarter. And I think on Slide 16, you have $2.2 billion for 2025 to 2027 and using a conservative gold price at $3,250 considering we're somewhat over that at spot. I think the question would be beyond paying down debt, what are your plans from a capital allocation standpoint with that free cash flow?

Ankit Shah, Executive Vice President and Chief Strategy Officer

Anita, it's Ankit. We have consistently emphasized a disciplined approach to capital allocation. You're correct that we generated good free cash flow this quarter and reduced our debt. We also increased our exploration budget following the strong results from our September release. From a capital allocation standpoint, we have a clear methodology. We aim to maintain a strong balance sheet, invest in exploration, and pursue organic opportunities, as we believe these create the most value. After those priorities, we will consider returning capital to shareholders while also evaluating inorganic opportunities.

Anita Soni, Analyst

And then...

Ankit Shah, Executive Vice President and Chief Strategy Officer

Right now, I can say on the capital return front, we're currently evaluating options with our Board. We want to ensure we maintain financial flexibility and capitalize on the right opportunities as they arise. From an M&A perspective, we've demonstrated a very prudent and disciplined approach. We believe we've executed our best deal of the year so far by consolidating New Afton. However, we will continue to take a measured approach to M&A with the objective of increasing value on a per share basis.

Anita Soni, Analyst

Okay. So yes, so my follow-up was going to be on would a special dividend, share buyback, or a more structured dividend be the preferred route, and it sounds like it's something that's more flexible, so probably one of the former two options.

Ankit Shah, Executive Vice President and Chief Strategy Officer

Yes. We are currently reviewing options with our Board as we go through our budget process this quarter, and we'll provide a better update as we roll out our plans for 2026.

Anita Soni, Analyst

Okay. Regarding exploration, could you remind me what the extension on the K-Zone would translate to once diluted? I know you're planning to release a resource update early next year, but I'm trying to get an idea of how the C-Zone grades compare. Are you anticipating that they will be similar to or higher than the current grades in the C-Zone?

Jeff LaMarsh, Analyst

Anita, Jeff here. So yes. So on the K-Zone, we still have a lot of drilling to do this year, about 10,000 to 15,000 meters. And like you say, we still have to do our work, and update our models to really know the total size and grade of that will be and placement of concerning shapes as well. So it's still early to say.

Anita Soni, Analyst

Okay. Congratulations on a solid quarter all around from exploration to paying down debt and delivering on the ops.

Operator, Operator

Your next question will come from Jeremy Hoy with Canaccord Genuity.

Jeremy Hoy, Analyst

I need to address the first one on capital allocation. So maybe I'll focus a little bit more on some of the upside opportunities in existing operations. K-Zone, I think, pretty excited about what we could see there. Good to hear we've got a study coming early 2027. Rainy River definitely looks like we're going to see more gold there. But just wondering, the tailings management was a key part of potentially extending mine life there rather than just displacing the stockpiles in the production plan. Can you give us an update on how you're thinking about that and what the likely solutions to tailings management are there?

Patrick Godin, President and CEO

Thank you, Jeremy. First, your question highlights why we are cautious about returning capital to shareholders. We intend to do so, but the focus is on what we will return. To determine that, we need to thoroughly evaluate our long-term plans. We have significantly invested in exploration over the past two years and plan to continue, as it generates substantial value for our shareholders. We believe strongly in our two assets and their potential. We need to fully assess the K-Zone as we are still in the evaluation phase. The boundaries of the K-Zone are not yet fixed, despite drilling a considerable amount this year. Additionally, we are exploring the Northwest trend and its opportunities. We will reassess our investments before finalizing what we will return. Regarding the tailings storage facility, if we develop a satellite pit like the Northwest trend, it not only provides ore but also a solution for tailings. Our strategy aims to manage this effectively, although we are nearing the capacity of our current design. As it stands, we do not foresee the need for significant further investment in the tailings management area based on the plan we shared with shareholders last February, especially with the inclusion of the Northwest trend.

Jeremy Hoy, Analyst

That's really helpful. Also on Rainy River, you mentioned some of the things you've done to, I guess, improve retention rates, the flights camp, incentivization, etc. Can you give us an idea of what turnover is now and what you're targeting with these improvements?

Patrick Godin, President and CEO

Yes. I can help with that. In Ontario, we are experiencing a shortage of miners, particularly tradespersons such as mechanics and quality miners. We are seeing more retirements than new entrants into the industry, so we need to ensure we remain an attractive option to support our development. Therefore, we plan to focus on recruiting more local talent. Unlike typical mining camps, our location is not a mining camp, so we aim to maximize local hiring as much as possible because this creates value for the surrounding communities. However, we do face certain limitations. To address this, we have been working on boosting our capacity and enhancing the quality of our infrastructure. This is beneficial as it helps us attract talent. Additionally, we are improving our facilities on-site to retain employees, and we are collaborating closely with contractors to offer appealing incentives to keep top performers and achieve our operational goals. In summary, we have enhanced our infrastructure, improved its quality, and implemented incentives in our contracts to retain skilled miners.

Jeremy Hoy, Analyst

Really nice to see the free cash flow thesis playing out.

Operator, Operator

Your next question will come from Eric Winmill with Scotiabank.

Eric Winmill, Analyst

Nice to see the free cash flow in the Q3. I think some of my questions have already been answered, but maybe just one here on Rainy River. You're into the higher grade now. I'm just wondering what we should expect for the balance of this year. And based on the photos, it looks like that secondary open pit egress has been completed. So yes, just wondering any guidance for Q4 would be helpful.

Travis Murphy, Vice President, Operations

Sure. It's Travis here. Thanks, Eric. Yes, generally, we're seeing a continued trend in Rainy River open pit Phase 4 from what Q3 is, and it's going to continue on into Q4. So we're not seeing any real changes in our trajectory there. Phase 4 is working out very well for us.

Eric Winmill, Analyst

Okay. Great. Appreciate it. And then just on New Afton here in terms of K-Zone. So you're drilling, I think you said about 66,000 meters this year. Wondering if all that will make its way into the resource for next year. And I know it's still early days, but any thoughts in terms of development here? Are you thinking about this as more of a traditional underground as opposed to a block cave or sublevel cave? Any detail would be appreciated.

Patrick Godin, President and CEO

I believe it's still early to draw conclusions. The main challenge we face with K-Zone is determining the size of the body, as we still have drilling to conduct. We are collaborating with Luke and Jean-Francois to complete the feasibility study with the team. Several factors will affect whether it's a cave shape or not, and we also need to consider the depth of the ore body. At this point, it's too soon to confirm whether we will use a cave mining method or a more selective one. We will need to size it accurately, and I can assure you, Eric, that next year we will continue drilling to better understand what we have available because we are still defining the limits. Jean-Francois has two main objectives: advancing the resource to convert it into reserves and exploring what’s next. At New Gold, we previously lacked the capacity to invest in exploration effectively, which hindered our ability to develop projects into reserves. Now that we are demonstrating value to shareholders through this investment, we aim to advance our projects further. Our goal as a team is to extend New Afton’s life beyond 2040. We believe we are moving in the right direction, but we still have work to do to confirm the feasibility. We are also considering if it’s possible to extend this to 2050. However, at this stage, it’s still too early to determine the specific mining method we will adopt.

Eric Winmill, Analyst

Okay. Great. I really appreciate that. And obviously, the second part, you do expect all of the drilling for this year will make its way into the resource? Or are you seeing a lot of backlogs on the labs and getting the assays back?

Jean-Francois Ravenelle, Vice President, Geology

Yes, that's right. We will drill all the way to the holidays basically in December. And we will include all of the drilling and the assays that we can in January when we update our models and define the resource.

Operator, Operator

Your next question will come from Mohammed Sasaidi with National Bank Capital Markets.

Unknown Analyst, Analyst

Congrats on a great quarter and the positive free cash flow in the quarter. So most of my questions have been answered, but just maybe on New Afton. Given the good performance from the B3 cave as it exhausted, how should we think about the grades coming into 2026? Could we see maybe a little bit lower grade on the tech report there? Or could you help me maybe provide some color on that one?

Jean-Francois Ravenelle, Vice President, Geology

Yes, I think in 2026, as we add that great performance from B3 throughout the year. We are now focusing on transitioning across to continuing that ramp-up of C-Zone. As we have previously disclosed, the grades at the start of the cave will be a little bit lower as you continue to advance that healthy cave growth. So we should see that transitioning up in line with our plan.

Patrick Godin, President and CEO

I believe we have completed the CapEx for the tech report. We can follow up with you on this. However, we are not seeing any additional expenses. I think we are maintaining a consistent trend.

Operator, Operator

And there are no further questions at this time. I'll turn the call back over to Ankit for any closing remarks.

Ankit Shah, Executive Vice President and Chief Strategy Officer

Great. Thank you very much, and thank you to everybody who joined today. 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.

Operator, Operator

Thank you for your participation. This does conclude today's conference. You may now disconnect.