New Gold Inc. (AMEX:NGD) Q2 2023 Earnings Call Transcript

New Gold Inc. (AMEX:NGD) Q2 2023 Earnings Call Transcript July 27, 2023

Operator: Good morning. My name is Michelle and I will be your conference operator today. Welcome to the New Gold Second 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. [Operator Instructions] I would now like to hand the conference over to Ankit Shah, Executive Vice President, Strategy and Business Development. Please go ahead.

Ankit Shah: Thank you, Michelle and good morning everyone. We appreciate you joining us today for New Gold’s second quarter 2023 earnings conference call and webcast. On the line today we have Patrick Godin, President and CEO; and Keith Murphy, our VP 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 two and three 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. Slides two and three provide additional information and should be reviewed. We also refer you to the section titled Risk Factors in New Gold’s latest Annual Information Form, 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. I will now turn the call over to Pat for some opening remarks.

Patrick Godin: Thanks Ankit and good morning everyone. I want to welcome Keith Murphy, our VP of Finance to the call. Keith will cover the quarterly result going forward, and we are excited to have him joining us. I wanted to give a few brief remarks before to turn the call over to Keith to discuss the quarter. We had an excellent quarter and continued to build on the momentum from the beginning of the year. I note on our first quarter call that Q2 will see planned major maintenance perform at Rainy River. I also note at that time that our team prepares for the worst, but we plan for the best. And I’m proud to say our team showed great resilience. Because of the proactive measures taken at site, Rainy River not only complete the maintenance on schedule, but also delivered a strong production results by accomplishing our goals all without sacrificing safety.

During the quarter, we have no loss-time injuries at both of our operations. And both sides reached more impressive milestone with New Afton exceeding 1.5 million hours since its last loss-time injury and Rainy River surpassing 2 million hours. I want to take a moment to further recognize the team at New Afton for receiving the GT Ryan CT Award for British Columbia and Yukon as well as British Columbia’s Safest Large Underground Mine Award. These two awards are incredible recognitions to New Afton’s hard work and to our company commitments to safety and our health. As a result, we are well-positioned to meet our production and cost guidance set out earlier in the year. In short, we are executing our 2023 plan strongly and safely. Looking to our future, we also continued to make progress advancing our growth in initiatives.

We continue to advance underground development at Rainy River with the development of the ramp access to the underground main zone commencing, something I would expand on the coming slides. And seasonal development at New Afton continued well in the quarter our development rate increased over the first quarter, and I remain confident in our ability to achieve first production ore during the fourth quarter with commercial production plan for the second half of 2024. With that, I will turn the call over to Keith. Keith?

Keith Murphy: Thank you, Pat. I’m on slide seven, which has our operating highlights. Q2 was another strong quarter. We produced 102,374 gold equivalent ounces. 45% higher when compared to the prior year quarter. Rainy River produced approximately 60,000 gold ounces. The increase over the prior year quarter if primarily due to higher gold grades. New Afton produced approximately 16,600 gold ounces 12 million pounds of copper. The increase over the prior year quarter is due to higher gold and copper grades and recovery, partially offset by lower tons processed. Gold produced at New Afton also includes approximately 940 ounces from the ore purchase agreements. Operating expense 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 or $1657 per equivalent ounce. This decrease compared to the prior year quarter is primarily due to lower sustaining capital spend and higher sales volumes at both sites. Turning to our financial results on slide eight . Second quarter revenue was $184 million, driven by sales of over 74,200 gold ounces at an average realized gold price of $1,970 per ounce and sales of 10 million pounds of copper at $3.82 per pound. Q2 revenue was higher than the prior year quarter, primarily due to higher gold and copper sales volumes, partially offset by lower copper prices. The second quarter revenue split saw gold contribute around 80% to our quarterly revenue and copper around 20%. Cash generated from operations before working capital adjustments was $65 million or $0.10 per share for the quarter.

This was higher than the prior year period due to higher revenue. The company recorded a net loss of $2.6 million or $0.00 per share during Q2, an improvement compared to a net loss of $0.06 per share in Q2 2022. After adjusting for certain other charges, net earnings was $11.5 million or $0.02 per share in Q2, an improvement compared to a net loss of $16.7 million in the second quarter of 2022. The improvements in net earnings and adjusted net earnings were primarily due to higher revenues and lower finance costs. Partially offset by higher operating expenses and depreciation and depletion. Our Q2 adjusted earnings included adjustments related other gains and losses. Our MD&A has additional details on the non-GAAP measures discussed here. Our total capital expenditures for the quarter were $72 million with $36 million spent on sustaining capital and $36 million on growth capital.

The decrease over the prior year period is due to lower sustaining capital as Rainy River had lower capital stripping and New Afton had B3 development capital in the prior year, partially offset by higher growth capital at both sites. Sustaining capital spend at Rainy River was primarily related to capitalized waste, capital maintenance, and the annual tailings dam raise. And at New Afton, it’s primarily related to tailings management and stabilization activities. Growth capital was invested in the C zone at New Afton and the underground Intrepid and main zones at Rainy River. Slide nine provides details of our capital structure. We had cash on hand at the end of Q2 of $174 million and our liquidity was $547 million. We have $373 million available on our credit facility.

We continued to execute short-term hedges on CAD and fuel and our hedge at 75% on both for Q3. We will continue to evaluate short-term hedge options on CAD and fuel and utilize it as we see fit. Sum up, we remain in a healthy financial position following a strong quarter, while advancing our growth initiatives. Now, I’ll turn the call back to Pat.

Patrick Godin: Thank you, Keith, and welcome again. So slide 11 provides additional details on the second quarter at Rainy River. During the quarter, the mine and mill performed well and delivered solid production increase over the second quarter of last year. The Rainy River team complete all previous discussed planned maintenance activities in the quarter. Rainy River’s open pit mining sequence was optimized to maintain a consistent production profile throughout the year, leading to answers being mine ahead of schedule. As a result of the production ounces pull forward in the quarter, we now expect production in the second half to be approximately 50% of annual production. Throughput was in line with the second quarter from last year and an increase from the first quarter of this year.

I remain confident that we can get to the target rate for the year with the recently completed maintenance of the processing plant. The average gold grade at Rainy River was 0.97 grams per ton, well above the second quarter from last year. The grade normalized from the first quarter as expected. Turning to the underground development advanced 524 meters in Q2. Production in the quarter include over 99,000 tons of ore from the intricate underground zone at a grade of 3.11 grams per ton gold equivalent. Underground production continues to ramp up, and tons and grade continue to reconcile well. As I mentioned in my opening remarks, development of the underground main zone coming during the quarter as planned. with the development advancing approximately 100 meters.

Following a detailed review of optimization opportunities over the last six months, the underground main zone will initially be reached via Intrepid instead of in-pit portal. This will allow for efficiencies and further optimization of the existing open pit for its remaining mine life. This will reduce haulage distance by allowing us to use the North Lobe as an in-pit waste storage facility. In addition to further facilitating access to the underground main zone, this will allow us to preauthorize underground exploration activities between the Intrepid and main zone through the ramp access. I am very happy with the progress made to the underground and I remain confident that we are well-positioned to meet our annual production and cost guidance at Rainy River.

Slide 12 provides further details of New Afton’s second quarter results. The underground mine have reached over 8,500 tonnes per day of ore mine in the quarter, an increase over the Permian, the prior year period SB3 is now comfortably operating at a three state mining rates plus completion of construction activities in 2022. The mill average over 8,300 tonnes per day, relatively in line with the daily mining rate, incorporating B3 ore mine exclusive of ore purchase in our region in relation to our purchase agreement. B3 continues to deliver to plan and New Afton remains well-positioned to meet its annual production and cost guidance set out at the start of the year. Key zone development continued to advance with 1,415 meters in the quarter.

Completion of the ventilation rates in the second quarter contribute to increased development rates substantially higher than the first quarter. Development on the extraction level to achieve first drybulk was completed in the quarter, functioning the company well for 1st production ore in the fourth quarter with commercial production planned for the second half of 2024 for seasonal. Before I close out the presentation today, I want to reiterate what I said on the Q1 call and what I view to be the key priorities for the company. First, continue to stabilize our operations. The open pit and underground at Rainy River continue to reconcile well and the New Afton B3 is operating to plan. Second, continue to advance our organic growth opportunities.

We made good progress at the underground main zone at Rainy River, and C Zone at New Afton. Third, we have safety as the highest priority delivered on our guidance set out earlier in the year. This was another consecutive quarter with no loss-time injuries and strong operating results. This quarterly result shows we are well on our way to executing these priorities. I’m incredibly proud the effort shown by our team in the first half of the year, and we will continue to build on these results as we look to the second half of 2023. This completes our presentation. I will now turn it back to the operator for the Q&A portion of the call. Operator?

Q&A Session

Operator: Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. [Operator Instructions] And the first question in the queue comes from Fahad Tariq with Credit Suisse. Your line is open. Please proceed.

Fahad Tariq: Hi, good morning. Thanks for taking my question. Patrick, just going back to your comments about the main zone and accessing it from underground versus an in pit portal. Does that have any impact on costs or timing development rates, things like that?

Patrick Godin: Not really because it’s the opposite, because first, the ramp to build an input portal in the North Lobe is it will require to build a portal that is not necessarily an easy thing and also to bring services there. So, the fact that we will start from Intrepid is it’s everything is already in place and we will be attached to all the services, and I’m talking about compressor and installation, etcetera, that is coming from Intrepid. So, it’s more a saving. On the timing point of view, all our mining crews are based upon Intrepid, so it’s centralized the activities. And it’s mostly the same meters of development. And what is interesting is actually we are at 300 meter deep at in Intrepid. So, it’s going to speed up the access to the main core of your body of main zone.

So, it’s that’s mainly a scarcity thing and an opportunity. The second thing in term of opportunity for us is we have a gap zone. So, we have a gap between Intrepid and the main zone for exploration. So, the ramp itself will give us the opportunity to explore this area. And the other saving opportunity for us is that we are using actually North Lobe as a waste down facility. So, it’s really a claw short haulage for the bottom of the pit and for the stripping that we are doing actually to get to read through the pit limit. So, it’s reducing significantly the haulage systems and consequently the cost and the fuel consumption. So, it’s approved for us.

Fahad Tariq: Okay. That’s really clear. And then maybe just switching gears. Can you talk a little bit about just inflationary pressures? We’ve been hearing from some of your peers that maybe on the consumable side, we’re starting to see some easing. I’m actually more curious to hear about what you’re seeing on the mining labor side, particularly a tight labor market in Canada? Thanks.

Patrick Godin: So, we’re pretty — to be honest, the big jump in in terms of inflation and consumable and spare parts, it was mainly in 2022. We had we had significant increase from suppliers. This year, I can say that it’s mostly moderate and inside what we plan in the budget in regard of the cost increase for supplies and consumables. For the manpower, I think, generally, in our industry in Canada, we are really turning around 3%, 4%. So, I think we’re more in all this year that we were two years ago and last year up to me. So, we’re pretty comfortable with our customer engagement here. And these costs, these escalations is already included in our ASIC.

Fahad Tariq: Okay, great. That’s it for me. Thank you.

Operator: The next question in the queue comes from Anita Soni with –. Please proceed.

Anita Soni: Good morning, Patrick and team. So, my first question, I kind of get an understanding of how the rest of this year is going to play out? I think in the original guidance you had talked about a strong first half — sorry, strong second half and a weaker first half if you did the maintenance, but then you optimize the mine plan. So, would we expect grades to moderate in the second half of the year or is it more of a tonnage issue?

Patrick Godin: I think we anticipate ore in the fee. So, I’m talking about the grade. So, it’s just I think the same tonnage, but we try to smooth the gold production. So it’s going to be a 50/50 going forward. So it’s we’re pleased by we’re pleased by this. And in term of ASICs, we had some — in Q2, we had less capital of capitalized waste and more sustaining capital because of the change that we have done, the improvement that we did to the mine plan. But we are still trending to be in our ASIC guidance for this year.

Anita Soni: Okay. So, does that mean that in the second half, that would reverse that you would have — I’m sorry, more capital — sorry more capitalized waste and less sustaining capital. Is that — I’m sorry, did I say that wrong?

Patrick Godin: But yes. Mostly, yes.

Anita Soni: Okay. Maybe I’ll take it offline because I confused myself. And then secondly on — just to follow-up on the — for the first question about the Intrepid zone. What kind of an impact does that have in terms of the amount — like the strip — the relative strip. I assume you’re now going further into the bottom of the pit and lower strip ratios then. So, does that mean next year, you might have a lower strip ratio at Rainy than what was previously planned?

Patrick Godin: Yes. So the change — the fact that we start the ramp from Intrepid instead in the portal. It’s not changing the strip, but it will reduce our mining costs and because it will reduce the average distance. So, consequently, it’s a huge efficiency — operational efficiencies improvement for us. And also, it’s having — it’s a double impact because it will eliminate or will dump and reduce our impact on the landscaping and [Indiscernible]. Going forward, Anita, we will — because the pit is the pre-thing actually, we are doing the phase 4 pushback. As discussed previously, the mining fleet will deplete year after year. So, actually, we are operating — we have 20 trucks in the fleet. We are operating 17 trucks. It will go full steam ahead up to year end.

And in the second half of 2024, the fleet will deplete and to go down to five trucks in the second — at the second — in the first half of 2026. So, for sure, going forward, this pit will be well-positioned to reduce the cost instantly, and we’ll see a cost decrease in Q4 this year.

Anita Soni: Okay. And then just in terms of impact to sustaining capital or development capital, in 2023 and 2024 as a result of the change in the way you’re hitting the Intrepid zone. Can you give some color on that?

Patrick Godin: I think it’s a — to be honest, I’m not adding this detail actually, but you were trending mostly you have some slight improvement that will be that will that that will be to our advantage. You will have the cost increase in the development that will be on counterpart, but think this the 42,101 is still something that is representing when we were facing, actually.

Anita Soni: Okay. So you’re going to deliver a 43 — so you’re saying the original 43,101 is still okay, or are you going to deliver a new one?

Patrick Godin: It’s still okay. Yes.

Anita Soni: Okay. All right. Thank you guys. That’s it for my questions.

Patrick Godin: Thank you.

Operator: Thank you. [Operator Instructions]

Ankit Shah: Hi, Michelle. Actually, we had a few questions emailed to us because I think a few individuals had difficulties dialing in. So, I’m just going to read a couple of the questions out for the team. The first question is for Pat. What was the underground grade in the second quarter at Rainy River? And how is reconciling to our plan.

Patrick Godin: The underground grade at Rainy River was 3.11 grams per ton for 91,000 tons are from stope and development, and we are right on. The reconciliation compared to the reserve to what we mined is in in historically, since we start the mine at Rainy River and Intrepid underground zone. We are mostly right, we are bang on the grade and we are mostly 2%, 3% above in tonnage, and it’s still the case. We reconcile at 100%.

Ankit Shah: Okay, great. And one more question was also emailed to me. C Zone continues to be on track with fourth quarter, but what other milestones can we look for in the C Zone development over the next few months?

Patrick Godin: Actually, we the first milestone that is important for us is the first draw down. So, the first draw down, we complete the development for the undercut and the for and for the extraction level. So, it’s we are right on time and to deliver the first draw down for Q4, the beginning of Q4 more exactly. So, is the one of the milestone. We need to continue to be at full capacity in terms of development at C zone. We will complete the excavation of the crusher chamber in the following days, and [Indiscernible] crews will jump in to build the crusher and all the equipment attached to it, conveyors, and et cetera. And it’s something that we’re looking at for Q3 next year to be fully commissioned and operational. And the hydraulic radius with the, I would say, the trigger for between commercial production and to complete the investment in the C Zone, we’re mostly targeting the second half of 2024 next year.

So it means that we are pushing the development close to 475 to 500 meters per month to be able to expose the ore and to start to increase production for C Zone and to reach the full capacity at the end of 2025.

Operator: Thank you. We do have one more question in the queue from Anita Soni from New Gold [ph]. Please proceed.

Anita Soni: I’m actually from CIBC, but anyway. So, follow-up — I’m sure CIBC would be pleased to hear there’s been a change. But the — my question is with regard to the Intrepid zone. I just on the underground, I just wanted to understand what 2024 looks like. So, you’re kind of running at about 400 ton per annum right now. I think you said 91,000 tons this quarter. And then do you ramp to, like, the 607,000 tons per annum next year and then at 1.2,1.3 in 2025. Is that still the case at about 3 gram per ton material?

Patrick Godin: Yes, you talked all-in. Yes, the grade all-in well because in Phase 3 going deeper, the grade is probably around one, and we have the grade from on the ground with his meeting, yes, leading this. Intrepid is mostly 1,000 tons per day, Anita. And so and we are bang on the 40,211, the same. So, the thing is I think by the — I’m sure previously that the reconciliation is good. So, basically, the grade that we have in the in the in the 4,111 is the same.

Anita Soni: Yes. I was just looking I just want to get an idea of the out years, like, the 20, 25 years, what they look like.

Patrick Godin: Yes. And we will give you we are working we are the fact that we have new colleagues who joined New Gold assembly, so we love to — it’s increasing our capacity to improve our engineering process, and we will provide more we will provide more details in the 2024 guidance.

Anita Soni: All right. Okay. Thank you very much.

Operator: There are no further questions at this time. Speakers, do you have any closing remarks?

Ankit Shah: Thank you, Michelle. And again, thank you to everybody who joined us 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 rest of your summer.

Operator: Thank you. Ladies and gentlemen, this will conclude your teleconference. Please disconnect your phone lines.