Q2 2020 New Gold Inc Earnings Call
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Ladies and gentlemen, thank you pay standing by and welcome to then you got to 2022nd quarter earnings Conference call.
At this time all participants are in listen only mode. After the speakers presentation, there will be a question and answer session.
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I'd now like to hand, the conference I'll repeat your speaker today and day, Vice President 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 result.
After the presentation said they completed we will open the lines for a brief Q in a 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 a detailed cautionary note regarding forward looking statements in the presentation.
You are cautions 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 gold latest mdna another filings available on SEDAR, which set of 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 and notes that provide important information and should be viewed in conjunction with the material presented I will now turn the call over to Renaud Adams.
Thank you and then thank you all for joining us today.
We're extremely pleased with our overall operational and financial performance and this unprecedented quarter.
Quarter that include an enormous challenges presented by coded mine team, but also a quarter that wouldn't be remembered or for its significant achievement.
While positioning to safety or four employees and our key partners over 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 reports amenities, including the closing of the 300 million partnership with the Ontario future pension plan.
The divestment of the Blackwater project.
[noise] 490 million cash Canadian and the need for single stream.
And the restructuring of our balance sheet grew to 400 million bond offerings. Your 2027 that farmed into redemption or for a senior notes due 2022.
Well I heard a balance of the year, our operations will return to break all good level and we'll complete all non recurring 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 through true supported by profitable operation the stronger balance sheet and as our current hedges expire at year end, we won't be fully exposed to gold price.
I will now I'll turn the call to our Rob show say CFO for a quick financial review, our far second quarter results, Rob. Thanks for an hour 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.
Lower gold production has compared to the prior quarters, primarily due to grades at rainy river at lower grades at 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 [noise].
Turning to slide six for our financial results second quarter revenue from continuing operations was 128.5 million driven by sales of approximately 60850 gold ounces at an average realized gold price of 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 51.6 million 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 jury 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 sense.
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 plan tail.
Things Dan raise at new Afton growth capital was focused on project development at New Afton.
Liquidity on slide nine.
During the quarter, New gold completed of 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.
As 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 black mater transaction was as 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 after each of our assets I'd like to make some quick Commons around the management appropriate.
Recently and after a few months of hard work in collaboration with precision buyer monitoring three grogan maintain rapid testing devices were purchase and received at 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 a symptomatic.
Cases, which obviously are difficult to detect with on the physical screening.
Only proactive testing where that out for rapid and timely.
Detection.
Training and calibration of the unit is currently underway prior to the rolling out for permanent use at rainy River, but also potential extended the surrounding communities and new Aftons overtime on another note and as mentioned by Rob have your goal isn't are well positioned with sufficient liquidity of approximately 560 million.
And to support our operations during.
This crisis.
On slide 11, we're extremely pleased with the outcome of darkened divestment of Blackwater, which marks a significant milestone into repositioning of new though.
The transaction Ferreter enhance our balance sheet with total cash payment of Canadian $190 million, while keeping [noise], keeping a significant upside in the asset the gulfstream production and liquidity position.
The asset is in our core focus of the duplicate effort dedicated management team with a proven track record that would on lockett's potential which will greatly benefit new goals shareholder.
Current reserve at Blackwater stand at 8.2 million ounces of gold, which could represent a potential 460000 ounces of gold delivered to new goal will be added gold stream over time.
On slide 12.
We're pleased to provide our revised 2020 outlook. The total estimated gold production of 284000 340000 ounces Carl.
Combined with estimated copper production of six to five to 85 million pounds of copper.
Production estimates for the year at rainy River has been lowered mainly related to the impact of curbing 19 into first half of it here, resulting in lower Tom.
And slightly lower grade meal for full year.
While at new Afton gold and copper production estimates for the full year had been lowered mainly due to plan goal to lower planned gold and copper grade.
I'll make mark comments on the great at new Afton menu asking section with the presentation.
The combined operating expenses and the cash cost per gold equivalent ounces system Meda, respectively.
780 to 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 at both assets compared to original plan were mainly due to lower sales, resulting from lower estimated production.
The total capital for the year at rainy River has increased by less than $10 million due to a portion of the tailing management area. Construction that was originally scheduled for completion in 2021 and our plan for completion in 2020.
At New Afton total capital estimate that remain consistent with our original estimates.
On slide 13.
After rainy River the mine operation as a reason on April Threerd.
Focusing on the safety and well being of for our employees, our local and partners again to transmission of curve in 19.
By June the mine had to return to pray koby performance, while the meal perform at precluded level from day, one close expansion, 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 the cost 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 level.
Tailings, our capital left less than $10 million, that's been brought forward from 2021.
Total of $67 million has been stem today than sustaining capital over a revised guidance of 145 to 160 million.
It is expected by the capital to 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 that 14 seller 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 and mill, which was due to higher proportion of the medium grade ore tonnes process due to the gradual ramp up in mine operation.
The Miller the availability of 90% was in line with plan, while the recovery of 89% was slightly ahead of plan despite the lower grade processed.
On slide 15.
I thought I would just provide some more color is around the mine plan and exit fusion to date as of the end of Q2, but also has we see at IDN versus the original plan.
You can see the first half the first half of the year.
There was more mining mining taking place in March.
Versus eastland now I'd like to our to clarify that he slope is the area that pad that was some sort of controlling or a higher grade in the second half of the year.
Early in the year, there was some relocation or for power line that needed to take place in the east sorry, and as we executing the rig drain and with the Caribbean maintain there was a bit a delay in the wake drain execution limiting a best a bit.
The westar overburden mining, but globally. The mine 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 will.
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.
From a 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 there are about 10% less turns for the year come.
In our when considering all the impact of the first half as a result in decoded we're extremely pleased with execution, even though there. The end result for 2020.
Is there a slightly lower grade mine compare to original plan.
On slide on slide 13.
16, sorry, I'm on slide 16.
At New Afton I'm extremely pleased as well to report that the mine the reached a significant safety milestone achieving 3 million person are worse lost time injury free.
Congrats relation of the whole team at the new Afton.
The lower production reported for the quarter and year to date, mainly due to lower gold and copper grades from the east and West Gate.
The lower grade expected as well over the balance of 2020.
The mind that over the next and then performance on cost with cash costs of $644 per gold equivalent ounce. The unit costs in a cash costs year to date trending lower than the original plan finally, while capital project were slightly delayed at first half the year. It is expected at all.
Jack initially plan will be completed during the second half an aggressive but absolutely achievable task.
On slide 17.
The overall mine and mill productivity is slightly lower than prior quarter due to a lower availability tier, resulting from mine and mill maintenance shutdown, where the original completion date expanded due to decode 19 safety protocol.
The overall.
The overall mill availability was lower at 92% as a result of that the corner.
I'm very pleased with the underground development of the be Threec zone, achieving a 1253 meters in the quarter with approximately now 95% of the planned levels realize in the year today.
The recovery has remained in line with our original plan despite the lower grades.
And on slide 18 above the lower grades.
This this is a quick snapshot.
Comparing that plan and the first half of 2020 with the actual.
As you could see and 2020, if some part of our fair cocktail that mix as the analogy.
The extraction fund to block cave.
Some areas of re rehabilitation that are.
As we add believed and are included in the end the execution.
As some pell ours reservoir recovery, and and one area and to east caves called a recovery, so that blending or the albeit sources formed our plan of 2020.
So there are right you'll see the actual going as you could appreciate in some areas like in the east cave a level aligned 41.
We have the software Laura dilution, then plan, resulting in lower gray barring another area, we have benefited at a better grade.
The west along our execution and the east gave recovery label, where.
At the lower productivity.
Limiting some access as well to better great. So in a global.
While we are.
Experiencing some higher dilution, resulting in a lower grade in some areas. We have also benefited you know under Westgate for example, where we've benefited a much better grade.
Moving forward to the end of big year.
And based on the current picture in the mine.
We've taken the approach that the lower grade.
Well remain to be in RMB here.
But we are currently absolutely actively engaged and improving the situation.
And and as we move forward of course, improving our productivity is as on the east deck 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 I've been said and done since the launch of our repositioning strategy in late 2018.
The rainy River mine is not performing at design and plan criteria and as we complete our capital of execution in 2020, the mind will be position in poised for a bright future and short term high free cash flow generation starting in 2020 as our goal hedge of Dan IDN of 20 combine.
And with projected increase productions and lower cost at rainy.
The new Afton seeded a lot many is well underway would absolutely continued focus on delivering a self funded execution.
With the restructure balance sheet proper runway on our long term debt cash on hand in significant liquidity. We are now well positioned to our two antero our next phase of value creation.
This concludes the presentation portion of the call I will now I'll turn it over to the operator for Q and a 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 picking path avastin.
And your first question comes from the line and Nick Jarmoszuk.
Hi, Paul.
Thank you could talk about how.
You guys think about free cash flow generation its application to either paying down debt.
And the exploration opportunity 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 I think at this stage as a matter of fact talking mid completion.
We do acknowledge and understands that in BC, there's been some prior to giving to permitting.
Operating operations in others are I think it's a matter of fine.
Well, we have an excellent project.
Ready to go program ready to go.
I have done and.
And as soon as we received a permit.
Well be will be a significantly engage.
And completing this 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.
Justin.
At rainy River, we also ready to go and the northeast exploration program, but as well we're waiting for some permitting there, which most likely will be like agents here [noise].
I wouldn't from our free cash flow I mean, this is the opportunity here I rainy River is well positioned we know our cost will be way lower end 2021, our were fully exposed to gold price.
We continued to focus.
To focus on executing a self funded approach that the new afton.
While it will be benefiting and unlocking to free cash flow and I can pass over to Rob you know if you're wrong you had any extra time.
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 continue to 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 or 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 execute our words may be that $10 million in the second half.
And our course it depends on the results, but are we intent we intend starting as soon as we get the permit including 21 to be a to b to have exploration and drilling us.
The significant part are far organic growth.
That's great. Thank you.
Thank you.
Your next question comes from me, how I assume bank.
Yeah, Hi.
Yeah, Hi, sorry, actually my question just Guy answered.
Okay. Thanks.
I thought we couldn't hear you always panicking advanced thank you [laughter]. Thanks, everyone.
Okay.
Again, if you would like to ask a question Craig Darwin on 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.
Presumably when you got proceeds from the Blackwater sale is that still your intention to redeem 200 million, but that issue.
And apologies I got one is that this 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 it's still.
This year.
Yeah, I would expect it happened 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 Oh, they can attain day.
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 hi, thanks.
This does conclude today's conference call. Thank you for your participation you may now disconnect.