Q2 2020 New Gold Inc Earnings Call

Excuse me, ladies and gentlemen that 60, operator for today's conference is scheduled to begin momentarily and for that time Airlines will again be placed a musical thank you for your patience.

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Ladies and gentlemen, thank you for standing by welcome to the New go 2022nd quarter earnings Conference call.

At this time all participants are in a listen only mode.

Today's speakers presentation, there will be a question and answer session.

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I would now like to hand, the conference over to your Speaker today and day, Vice President of Investor Relations. Thank you. Please go ahead ma'am.

Thank you operator, and good morning, everyone. Every product. We appreciate you joining us for new Gold second quarter 2020 earnings conference call. The webcast, we have with US today Renaud Adams, CEO and Rob show say CFO, who are present, our Q2 operational and financial results.

After the presentation said they completed we will open the lines for a brief today period.

Before the team brigands the presentation today, we'd like to direct your attention to our cautionary language related to forward looking statements found in the presentation.

Today's commentary include forward looking statements relating to new gold in this respect we refer you to are 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 two and three provide additional information and should be reviewed.

We also refer you to the section entitled Risk factors, a new goals latest mdna another filings available on SEDAR, which set up certain material factors that could cause actual results to differ.

Please note that all amounts are presented in the U.S. dollars.

In addition included in the presentation there a number of endnotes. It provide important information that should be reviewed in conjunction with the material presented.

Now I'll turn the call over to Renaud Adams.

Thank you. Thank you all for joining us today.

We're extremely pleased but our overall operational and financial performance in this unprecedented quarter.

Quarter that include an enormous challenges presented by coded mine team, but also a quarter that wouldn't be a remember our for its significant achievement.

While positioning the safety of Parker employees on our key partners our prior to number one we weren't able to report strong operational performance.

During the quarter the company has been able to execute our enormous <unk> key strategic unfortunately, including the closing of the 300 million partnership with the Ontario Teachers' pension plan.

The divestment of the Blackwater project.

490 million cash Canadian and an 8% gold stream.

And the restructuring of our balance sheet sort of 400 million bond offerings. Your 2027 that farmed into redemption or for senior notes due 2022.

Over the balance of the year, our operations, where we returned to pre cobian level and we'll complete all nonrecurring capital project at rainy River and advanced the development of the C zone as we position the company for free cash flow generation beginning in 2021.

Your goals future will be supported by profitable operation, a stronger balance sheet and as our current hedges expire.

And we won't be fully exposed to gold price [laughter] I will now turn the call to our rupture say CFO for a quick financial review or for a second quarter results raw [laughter]. Thanks, Renault and good morning, [noise] turning to slide five which provides our operating highlights for Q2 2020 details are consistent with.

Our July production press release.

During the quarter. The company produced approximately 98000 gold equivalent ounces. The amount consisted of 16.9 million pounds of copper a 48800 gold ounces from rainy and 15500 gold ounces from new Afton.

For a total of 64294 gold ounces [laughter] lower gold production has compared to the prior quarters, primarily due to grades at rainy river at lower grades that rainy River and new Afton, our operating expense per equivalent ounce was higher than the prior year quarter due to lower metal grades and lower sales volumes.

Consolidated all in sustaining cost for the quarter were 12 83 per equivalent ounce, 18% higher than the prior year quarter due to the previously mentioned lower grades and also higher sustaining capital [laughter] turning to slide six for our financial results second quarter revenue from continuing operations was 128.

When 5 million driven by sales of approximately 60850 gold ounces at an average realized gold price up from 1500 $16 per ounce and sales of 15.3 million pounds of copper at $2.51 per pound.

Q2 revenue was 17% lower than the prior year quarter due to lower grades partially offset by higher gold price.

Our operating cash flow before working capital adjustments was 51 point sixmillion or eight cents per share for the quarter.

Lower than the prior year quarter, primarily due to lower grades the company recorded a net loss of 45.6 million or seven cents per share during Q2 compared to a loss of six cents per share in Q2.

2019.

As a result of the previously announced transaction during during Q2, our Blackwater asset was reclassified as held for sale as a result of 38 million dollar unrealized impairment loss was recorded.

After adjusting for the Blackwater impairment and other certain charges net loss was 3.3 million or nil cents per share in Q2 compared to a net loss of 7.2 million or one cents per share in the second quarter of 19.

Our Q2 adjusted earnings also includes adjustments related to the unrealized.

Adjustments on our gold price option contracts are rainy river stream and the free cash flow royalty recently entered into our Mdna has details on these non-GAAP measures mentioned here discussed here.

Slide seven or was it just shows our capital expenditures a breakdown of our capital expenditures for Q2, 2020, our sustaining capital and leases for the quarter was 41.1 million spend was primarily related to tailings work and with drains at rainy River Nvthree mine development and advancement of the plants.

Tailings dam raise at new Afton growth capital was focused on project development at New Afton.

Liquidity on slide nine.

During the quarter, New gold completed a 400 million senior notes offering yielding 7.5% due in 2027 that was used along with cash on hand to fund the full redemption of the outstanding six in a quarter percent senior notes due in 20 to 2022. The redemption was completed on July 10th.

Please refer to the Companys June 24th in July 10th News releases for further information.

At June Thirtyth, we had approximately 700 million in cash and approximately 965 million and liquidity after adjusting for the bond redemption, which occurred post quarter in July quarter ended in July the liquidity was approximately 560 million.

And also taking into account the first payment related to the Blackwater transaction was expected to close in the near term liquidity as approximately $664 million a pro forma.

With that I'll turn the call back over to Reno.

Thank you Rob I'm on slide 10.

Before I discuss some key aspect that the each of our assets I like to make some quick Commons around the management program.

Recently and after a few months of hard work in collaboration with precision buyer monitoring three gogan maintain rapid testing devices were purchase and receive about the rainy river, where the purpose to ER to significantly improve our capacity or screening and detection or potentially affected people and in particular when it comes to us symptomatic.

Cases, which obviously are difficult to detect with omni physical screening.

Only proactive testing where that out for rapid and timely.

Detection.

Training and Recalibration of the unit is currently underway prior to rolling out for permanent use at rainy River, but also potential extended for surrounding communities and new Afton overtime on another note and as mentioned by Rob and your goal isn't are well positioned with sufficient liquidity of approximately 560 million.

And to support operations during.

This crisis.

On slide 11, we're extremely pleased with the outcome of the dark divestment of Blackwater, which marks a significant milestone into repositioning of new girl.

The transaction further enhance our balance sheet with total cash payment of Canadian 190 million, while keeping keeping a significant upside in the assets be Gulfstream production and iniquity position.

Yes that is in our core focus of the duplicate Africa dedicated management team with a program track record that would unlock its potential which will greatly benefit new goals shareholder.

Current reserve, a blackwater stand up 8.2 million ounces gold, which could represent a potential 460000 ounces of gold delivered to new go all the other gold stream over time.

On slide 12.

We're pleased to provide our revised 2020 outlook. The total estimated gold production of 294000 340000 ounces. So.

Combined with estimated copper production of six to five to 85 million pounds of copper.

Production estimates for the year after rainy river has been lowered mainly related to the impact of curbing 19 into first half of the here, resulting in lower Tom.

And slightly lower grade mail for the full year.

While at new Afton gold and copper production estimate for full year had been lowered mainly due to planned goal to lower planned gold and copper grade.

I'll make more comments on the grade at new Afton menu African section of the presentation.

The combined operating expenses in cash cost per gold equivalent ounces assisted meda, respectively.

Seven 782 860.

830 to $910 per ounce 40 year.

The increase the increase which as many mall at rainy River in operating expenses in cash costs on a per gold equivalent basis, I bolus assets compared to original plan were mainly due to lower sales, resulting from lower estimated production.

The total capital for the year after rainy River has increased by less than $10 million due to a portion of the tailing management area construction or was originally scheduled for completion in 2021 and our plan for completion in 2020.

I have new Afton total capital estimates remain consistent with our original estimate.

On slide 30.

Oh, the rainy river to mine operations the resume on April Threerd.

Focusing on the safety and well being up our employees, our local and partners again to transmission of curve in 19.

By June the mine had returned to pre koby performance, while the meal perform at precluded level from day, one call suspension, including successful execution of the planned shutdown.

In particular, our team at rainy River was able to safely ramp up the operation, while delivering an excellent performance on costs with cash costs of $890 per gold equivalent ounce.

The unit costs and cash costs, a year to date trending lower than the original plan.

Finally, our capital projects are underway and expected to be completed in 2020 with an addition, now.

Tailings, our capital left less than $10 million, that's been brought forward from 2021.

Our total of 67 million has been stem today than sustaining capital over a revised guidance of 145 to 160 million.

It is expected that the capital execution will be more intense in the third quarter and will reduce in the fourth quarter.

On slide 14.

I'm very pleased with the operational performance achieving the second quarter, considering that the challenge of ramping up the mine and mill operation pulls the 14 sell 14 day self imposed suspension and using a gradual and save for introduction of the non local workforce in particular, the mind returned to its breakover.

Daily rate of 140000 tons per day in June and is now at region is targeted 150000 tons per day in July.

The highlight of the quarter includes a lower head grade mill, which was due to higher proportion of the medium grade ore tonnes processed due to the gradual ramp up in mine operation.

The Miller the availability of mining for Sam was in line with plan, while their recovery of 89% was slightly ahead of plan. Despite the lower grade processed.

On slide 15.

I thought I would just.

Provides some more color is around the mine plan and dig the fusion to date has at the end of Q2, but also has we see at IDN versus the original plan.

As you can see the first half the first half of the year.

There was more mining mining taking place in March.

Versus east Labs, now I'd like to our to clarify that east slope is the area. Our objective there was some sort of controlling or.

Higher grade in the second half of the year.

Early in the year.

Yes, and relocation or for power line that needed to take place in the east sorry.

And as we executed a rig drain and with the Caribbean maintain there was a bit off a delay in the rig drain execution limiting our best a bit of the west overburden mining, but globally. The mining is planned to exit to mine about 50 million tons over to 55 million tons of regionally plan.

We'll be well position at year end are we are now mining on the east fine, but as a result of some delays Vicki slow our wall.

Most likely and.

At the level to 90 of our 40 meters about what was originally planned as an example to 50 and as a result.

Some are better grade from the east slow our will not be seen in 2020 and will be kind of for us from 2021, but overall, it's a it's a it's a very good execution with fair about 10% last turns for the year come.

And our when considering all the impact of the first half as a result of decoded we're extremely pleased with execution, even though there. The end result for 2020.

He is a slightly lower grade mine compare to original plan.

On slide on slide 13.

16 charts on slide 16.

At New Afton I'm extremely pleased as well to report that the mine that reached a significant safety milestone achieving 3 million person are worse lost time injury free.

Congratulations on the whole team after new Afton.

The lower production reported for the quarter and here today, mainly due to lower gold and copper grades from the east and West Gate.

Lower grade expected as well over the balance of 2020.

The mind at a burden excellent performance on costs with cash costs of $644 per gold equivalent ounce the unit costs and the cash costs year to date trending lower than the original plan finally, while capital project were slightly delay in the first half the year. It is expected at all.

The second initially planned will be completed during the second half and aggressive but absolutely achievable task.

On slide 17.

The overall mine and mill productivity is slightly lower than prior quarter due to lower availability, resulting from mine and mill maintenance shutdown, where the original completion date expanded due to covert 19 safety protocols.

The overall.

The overall mill availability was lower at 92% as a result of that quarter.

I'm very pleased with the underground development of the be Threec zone, achieving a thousand 253 meters in the quarter with approximately now 95% of the planned levels realize any year today.

The recovery has remained in line with our original plan despite the lower grades.

I'm on slide 18 above the lower grades.

This this is a quick snapshot.

Comparing the plan and the first half of 2020, where the actual.

As you could see on 2020, if some part of our fair cost there that mix as the analogy.

The extraction from to block cave.

Some areas every rehabilitation that are as we re athlete and.

Included in there and the execution.

Some pell ours, as well recovery and in one area and east caves call. The recovery, so the blending or the albeit sources formed our plan of 2020.

Right you see the actual and as you could appreciate in some areas like in the East cave.

Well aligned 41.

We have suffered more dilution than plan, resulting in lower grade body nanometer area, we have benefited at a better grade.

The west Allar execution, and the East gave recovery label, where.

At the lower product Cbds.

Limiting some access as well to better great. So in the global.

While we are.

Experiencing some higher dilution, resulting in a lower grade in some areas. We have also benefit as you know on the West gave for example, where we've benefited a much better grade.

Moving forward to the end of the year.

And based on the current picture in their mind.

We've taken the approached at the lower grade.

Well remain to the and I've been here.

But we are currently are absolutely actively engaged and improving the situation.

And and as we move forward or of course, improving our productivity is as on the East 8-K recovery for instance, the Lars recovery.

While we are assessing and hopefully improving the dilution situation and some in the area.

So in closing.

A lot has been said and done since the launch of our repositioning strategy in late 2018.

The rainy River mine is not performing at designing and planned criteria and as we complete our capital of execution in 2020, the mind will be position and poised for a bright future and short term high free cash flow generation starting in 2020 as our goal hedge it Dan IDN of 20 combine.

And with projected increase productions in lower cost at rainy.

The new Afton see development is well underway would absolutely continued focus on delivering a self funded execution.

With a restructure balance sheet proper runaway on our long term debt cash on hand in significant liquidity. We are now well positioned sort of to enter our next phase of value creation.

This concludes the presentation portion of their call I will now I'll turn it over to the operator for Q any portion of the call operator.

Ladies and gentlemen, if you like to ask a question press star one on your telephone keypad.

Again that is I wanted to ask a question well past three just a moment pick and pack that roster.

<unk>.

And your first question comes from the line and Nick Jarmoszuk of iPhone.

Thank you could talk about how.

You guys think about free cash flow generation and its application to either paying down debt and the exploration opportunities the rainy river at new Afton.

Yes, let's start with the exploration I can tell you that work absolutely excited and ready to go Oh I think at this stage as a matter off a permit completion or we do acknowledge and understands that in BC, there's been some prior to giving to the permitting.

Operating operations and others are I think it's a matter of time.

Well, we have an excellent project are ready to grow our program ready to go.

I have done and I.

And as soon as we received the permit.

Well be will be a significantly engage.

And completing this ER this drilling and unlock the value.

Is drilling its exploration you have to drill two to figure it out but more we're very excited with the quality of the target.

Thanks.

At rainy River, we also ready to girl in the northeast exploration program, but as well we're waiting for some permitting there, which most likely would be like this year.

I wouldn't from our free cash flow arm and this is the opportunity here I rainy River is well positioned we know our costs will be way lower end 2021, our were fully exposed to gold price.

We continue to focus.

To focus on executing a self funded approach at the new Afton.

While we'll be benefiting and unlocking to free cash flow and I can pass over to Rob you know if you're wrong. If you had any extra cost.

I think.

With existing cash we are going to look too.

Reduce.

Our debt in the near term and then as we as we generate free cash. We'll we'll continues we'll look at.

Debt reduction along with other opportunities, but for here and now I think we're looking at the near term debt reduction and then.

Moving forward, we'll let the market dictate how we approach our balance sheet.

Do you have a targeted for how much debt you'd like to pay down.

Yeah, we're looking to take down about 200 million in the near term.

And that would come from our existing liquidity and leave us with a very strong liquidity balance after that.

Okay. Thanks to our program our exploration if we weren't to execute lets say starting tomorrow I think we'll be capable to probably our exit get door words, maybe that $10 million in the second half.

And our of course it depends on the results, but bar, we intent or we intend starting as soon as we get to permit including 21 to be a to b to have exploration and drilling us.

The significant part are far.

I think growth.

That's great. Thank you.

Thank you thanks.

Your next question comes from we highlight at Scotiabank.

Hi.

Yeah, Hi, sorry, actually my question just Sky answered.

[laughter] okay. Thanks.

I thought we couldn't hear you always panicking advair. Thank you [laughter] anyway.

Okay.

Again, if you like to ask a question Chris Darwin are your telephone keypad.

[noise] [noise], we have a questionnaire from a new comment please state your name and company followed by your question.

Oh, Hey, this is Matt fields from Bank of America.

I'm, sorry, I jumped on late I I might not have heard it.

In the in the in the recent bond deal you said that.

You'd be looking to take out redeemed 200 million of 2025 minutes later in the year.

Assumably when you got proceeds from the Blackwater cell is that still your intention to redeem 200 million that that issue and apologies I got one is as asked is already.

No worries, yeah, that's still our intention and we'll we'll take a measured approach, but yes. The 200 million is definitely our target.

And the timing is still.

This year.

Yeah, I would expect it happen this year, yes near term.

Okay. Thanks very much.

Thank you.

And at this time there no further questions. Thank you I'd like to turn the call back over to Mr. Andy.

Thank you operator, and thanks, thanks, everyone for joining us today I. Appreciate your time do you have any further questions. Please contact me I'd be happy to help.

Thanks, very much I buy thanks.

This does conclude today's conference call. Thank you for health care pitching hippy Sandy you may now disconnect.