Q2 2021 New Gold Inc Earnings Call
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Good morning, My name is Sylvie and I will be your conference operator today welcome to the New Gold's second quarter 2021 earnings Conference call. All lines have been placed on mute to prevent any background noise. Please be advised of today's conference call and webcast is being recorded after the Speakers' remarks, there will be a question and answer session.
If you would like to ask the question Duane This time simply press Star then the number one on your telephone keypad and if you would like to withdraw. Your question. Please press Star then the number of chips and I would like to turn the conference over to encode Shah VP of strategy and business development. Please go ahead Sir.
Thank you Sylvia and good morning, everyone. We appreciate you joining us today for new Gold second quarter 2021 earnings conference call and webcast on the line today, we have Renaud Adams, President and CEO and Rob shows a our CFO.
Should you wish to follow along with the webcast. Please sign in from our homepage at New girls Dot com.
Before we begin the presentation I'd like the 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 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 entitled risk factors of New Gold's latest MD&A and other filings available on SEDAR, which set out certain material factors that could cause the app.
The results to differ.
In addition at the conclusion of the presentation. There are a number of other notes that provide important information and should be reviewed in conjunction with the material presented.
Now I'll turn the call over to Rob Rob Thanks for that bad debt.
Slide five provides our operating highlights for Q2 production details are consistent with our July production press release.
During Q2 of the the company produced approximately 105700 gold equivalent ounces. The amount of consisted of $18.2 million pounds of copper of 52900 gold ounces from rainy River and 14088 gold ounces from the new Afton totaling approximately 66000.
900 ounces of gold ounces higher equivalent gold production as compared to the prior year quarters, primarily due the higher tonnes and grades at rainy River and higher copper production of new Afton operating expense per equivalent ounce was higher than the prior year quarter due to planned higher cost of new afton of strengthening Canadian dollar and the Canadian.
Wage subsidy received in the prior period consolidated all in sustaining costs for the quarter were $50.51 per equivalent ounce higher than the prior year quarter, primarily due to the higher operating expenses previously noted and the increase in sustaining capital of that new assets turning to our financial results on slide six.
The second quarter revenue was $198 million driven by sales of 68000 gold ounces at an average realized gold price of $18.17 per ounce and sales of $16.9 million pounds of copper at $4.43 per pound.
Q2 revenue was 54% higher than the prior year quarter, primarily due to higher sales volumes and metal prices operating cash flow before working capital adjustments was $84.7 million or <unk> 12 per share for the quarter higher than the prior year quarter of primarily due to higher sales volumes and metal prices. The company recorded a net loss.
Of $15.8 million of <unk> <unk> per share during the quarter compared to a loss of <unk> seven per share in the prior year quarter.
After adjusting for other certain items net earnings were $26.7 million or for per share in Q2 of <unk>.
<unk> two of net loss of $3.3 million or is there a zero cents per share in the second quarter of 2020. The difference is driven by higher sales volumes and metal prices. Our Q2 adjusted earnings includes adjustments related to unrealized adjustments on our rainy River stream mark to market and the free cash flow of royalty at new Afton our MD&A.
As additional details on the non-GAAP measures discussed here.
Next slide covers all of our sorry on the bottom of the slide covers the capital expenditures our total capital expenditures for the quarter were $82.4 million $49.2 million was spent on sustaining capital of $33.2 million on growth capital.
Containing spend was primarily related to plant tailings work at both operating assets and be three mine development at new Afton growth capital was focused on project development, specifically the C zone, and the thickened and amended tailings project at new Afton and the underground and Tropic zone at rainy River.
Slide seven provides details of our capital structure at June 30th 2020, one we had $138 million in cash and 464 million of liquidity, adding to liquidity will be the received this month of the remaining $50 million cash payment related to the Blackwater share with that I'll turn the call over to Renaud.
Thank you Rob and the again, thank you everyone for joining us today I'm on slide nine on rainy River. So let me start by saying that there are currently no active of Covid cases of rainy.
The mine continued to to use of rapid testing and has also implemented vaccination the clinic at site.
The the asset perform extremely well during the second quarter and it was a very well position at quarter end to end per the second half of the year, which works to be focus on high grade and the lower strip ratio.
The mining operations continued to execute the very well during the quarter with over 158000 tonnes per day mine, our third consecutive act.
Water at or above the operational target off for 151000 tons per day.
So the focus really remain on a third of our operations and cost optimization as we move forward in advance.
The mill of per farm at a slightly lower availability disk water, but but we expect the mill to deliver its maximum impairment capacity of <unk>.
27000 tons a day in the second half of the year the of processing milling rate has been maintained net and interesting average of nearly 26500 tonnes per day over the last four quarters. This compare with the permit of 27000 tons a day.
Very important is on the Amtrust bed. The <unk> zone is the first the underground part of our located in East Africa.
So the answer for a decline of advanced by another 616 meters.
We have now reached the second landfall in the or and we're in the process now to.
To implement more of definition drilling has we resume and the build up from the Oregon The <unk>.
<unk> continued to advance in the third quarter with the objective of advantage for later half of full for a span of totally a day.
Dave of locked in all of our prior to any shade.
At auctions in the later part of 2022.
While we would have also advanced the second panel.
For parallel to to enter bid development as the default study that would eventually target the.
Conversion for a significant portion of the resources into reserves from the resources located below the pit the <unk>.
<unk> has the previously discussed the fault.
Zone, whereas now incorporated in the reserve at the December 2020.
And we have now completed.
For a detailed mine plan that would be incorporated in our next generations of life of mine.
So we're now busy to do the same exercise of the current fair reserve as of December 2020 of contemplate on the the our proportion of the on the ground our resources located below the pit.
I ran the process and the use of the fortune $100 a reserve price.
To complete the study two to approve the conversion of those resources to reserve for our ink operations. Our next life of mine, which is targeted to increase the life of mine and devaluation of the.
Awesome.
I will now refer you to a shot extract for far MDA MD&A and.
And <unk>.
Press release with regards to the situation.
And the challenge of debt.
In July of 2021.
In truth there in July of 2021 of the production, whereas finally from the eastern area of the over the call the slow.
And the realized gold grade from this area of is below the expected gold grade in this period.
For the east La represent approximately 50% of the planned production for the second half of 2021.
So you have to realize the gold grade continued to track below the expected gold grade.
Would make accurately and pack the amount of ounces, we expect to produce in the second half of 2000, and then finally one.
For the extent of the impact is not yet known but there is a rate of about rainy river in may not the achieved the lower end of our fifth call equivalent of production guidance range of <unk> 2070 of 5000 to of 195000 ounces.
At the high end of its all in sustaining cost guidance range of if you live in 'twenty five to $12.25 per gold equivalent ounce.
Yes.
So I'm now turning to the slide 10, where I appreciate that the sensory.
<unk> of July is the very recent.
Whatever the I would like to provide some additional comments took the said the slower.
So let me start by giving a better for background here. So the resources of rainy are categorized in three groups the.
For the high medium and low grade the call the H D O Mgo analogy. So the combination of the age of do in Mgo farm Woodworth with called of Derek the direct feed to the mirror, while the algeo of stockpile for future use.
So in other words the combination of the ACO Mgo is really what you are targeting to feed the mill at of 27000 tons a day for all the AGL, our stockpile for future of land with the underground as we move and transition to the underground so the reconsolidation of the <unk> of Mgo Israeli what drive the.
The performance of the mine.
So as you can see on the table historically the mine has the rig count five extremely well with the.
The.
With the agencies on the Mgo in the last three year ex actually you could see.
We have successfully.
Mine and deliver on the China on the municipal.
The initial deposits of rig counts affiliations with total ounces when compares with the resource model so with that in mind.
For the planned 2021 production was done using the reserve on the December 2020 of which was based on the of course, the resource and the <unk>.
Right and in the.
The reconciliation so.
So how does mention the east lobe represent about 50%.
At the time to be mined in the second half so as we initiate the second half of the year at the higher grade plan.
And that the production was primarily from our from the debt.
The slogan that represents the 50 per effective kind of it.
H do so of course this situation was highlighted.
So the saturation of the situation of the thousand of July of 2021 of his very early stage or there is still quite a bit of work to be done.
I'd like to mention that the east LOE per represented approximately on the 15% one 515% of the remaining open pit for age.
<unk> post 2021, so we're not talking about something of the 50.
That 2% range of now and the remaining life of mine, but this represent a significant portion of the H two and therefore the.
The situation is taking obviously extremely seriously.
So it is really early stage to predict the behavior of the east LOE in the future months to come.
We've been in situation very similar in the past so not because we have recast.
The early basis extremely well in the last three years that average every day every month every moment wise.
It was perfect. So we've been in situations before where we've seen.
Similar situations, where we had some reconciliation on the sporadic basis that the again because of the importance of the east lump in the second half of this was highlighted in the for early stage.
Total.
And the like as well to notice that the.
Oh I see of drilling was incorporated to our strategy in 2020 and fully incorporated into our operational strategy in 2021.
So I'd like to mention as well, but the RFC drilling that took place below the 433 and all of the Irma earlier. This year has become standard of source of SaaS plan.
But all of our RC drilling program for the East law was not yet completed and will be advance as we are as we are not appropriate time over the next hour.
For the next week.
So well keep our goalkeeper inform as new information comes to US and there is some potential modification of the mine plan as well if needed to mitigate a portion of the 2021 impact, but again early stage and more analysis require the advent.
And time.
Like to move on to our to the to slide 11, and the new often.
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Hello.
Globally I'm extremely extremely pleased with the new Afton, a solid performance of the sector.
In a quarter with approximately 58500 gold equivalent ounces produced.
With the including our copper production of $18.2 million pounds.
Unfortunately, we had to resent active cases of Covid, new afton, but basically the mines copper.
The operating at the heart of the broader zero of active cases of like dementia as well as you've probably following in the news at the.
The wildfire situation in British Columbia remain active.
And at this time, there has been no impact to the operation of new Afton arent of the supply chain in the U.
<unk> has an active fire management plan in place and the number of.
Crackers from recent measure has been implemented in the event the risk to our employee of contractor community and the infrastructure increased considerably.
Again, we're monitoring the situation we have a very strong plan, but no impact has been known to date the asset.
So the mining of mail performed within the plan for a while the copper grade the off the farm and the second quarter sort of resulting in a very strong quarter for us the fees on there's a lot of them in advance by five 919 meters as of <unk>.
During the quarter and the site continued to focus on delivering our future on time and on budget.
For a later.
While later than our original plan had the BS III permit was received during the quarter.
And the extraction of started and will continue to ramp up over the second quarter of 2021 and 2022.
But as a result of the delay and they will be less than from <unk> available in our second half of the year and therefore, a portion of the VR will be replaced by a lower grade ore from the lift of one and the ore stockpile.
But overall, we continue to expect to meet.
Our gold equivalent in guidance.
With the strong as the mid point of the copper guidance.
A point as well to it to now a very important point that found new Afton is that the reserve of December 2020, which serve of course for the 2021 mine plan.
Were estimating using a gold price of for a fortune $100, but also of copper prices in the west $2.75 per pound.
So with the current metal prices significantly above the reserve pricing new Afton is evaluating the potential for additional short term, we're fortunate to using a lower cutoff grade. So we come to the need to maximize the total value of the asset as we transition to the C zone in 2000.
23.
So all of this complaint that the.
The presentation portion of the call and I would now turn it back to the operator for the Q&A portion of our operator, Thank you Sir.
Ladies and gentlemen, if you do have any questions. At this time. Please press star followed by one on your Touchtone phone you will Dan here three telecom acknowledging your request if you would like to withdraw your question. Please press star followed by two.
Using a speaker phone, we do ask that you. Please lift your handset before pressing any Keith. Please go ahead and press Star one now if you do have any questions.
And your first question will be from Anita Soni at CIBC. Please go ahead.
Hi, Thanks for taking my from my question for node.
And thank you for the disclosure on the reconciliation.
Can you just give us an idea.
What grade was expected and what your I guess, if he talks of the grade that was expected. We can you know from the massive figure out what kind of what youre actually getting.
Reconciling for you, but I just wanted the actual relative the the reference point Oh.
Also like range you were expecting in the Islam.
We've never we've never really Oh like disclose on the the detailed basis, but what I can say is you know you know we've been performing in the point of raging in the eight to eight 5% in the first half and we're expecting of full year around the one gram. So obviously, we're expecting in the second half.
You know something along the the 112 grams a tonne in the 50% of the times in order to achieve that is from the EU.
The slow and so again without breaking down into the detail the.
The.
The performance of Bakey slope in achieving 1% to one kilograms in the second after the year contributes for about 50% of that.
Okay. Thank you and then just moving on to the new Afton with the B three.
The development rate I've indicated some of the second half of this year.
Most of mine on that can you.
Just give us an idea of what kind of ore sources, and what kind of grades new should perhaps be thinking about going into Q3, and then is it fair to say that.
The can.
Can you just give us an idea of how far behind them you know the proceed.
Receipt of the permit was I am looking at the technical report and I think it.
You were supposed to have started developing at the beginning of this year. So I would estimate left three of four months behind and is that a fair assumption.
Yeah listen the day three of them.
Yeah the.
It's sort of assumption I mean, like we were as of as guests lowest prior you know privately disclosed so we were hoping for the first for.
For the <unk> in the first quarter.
Of course, you know last year, we were really hoping for early in the year and then as you know we were hit with the other fatality and and quite frankly, I mean, our communities.
The BC government has been extremely challenge from over the last short while so we knew that there were some pending conversations to cloud. So we're patiently.
Patiently waiting, but unfortunately really we were planning for maybe the first quarter and I was expanded to the second quarter. So your assumption is good even though there is a three to four months of ramping up that we were hoping in 'twenty, one and did not happen.
And.
Which which extend the basically.
But on the other hand, it has the mansion as well there is a numerous supports the nitty here too to re look at some draw point that we're at the the east of the lift one.
That was stopped or are.
Mining and back in time, you know on the on.
The use us a lot of metal prices. So so the ton will probably come to new to come from lift one the Anita and the lift one has been performing very well in the first two quarters as you could see from the grade the copper grade and there is obviously an unfortunate day to continue to fall beyond the reserve.
Line towards the resource line remember that this block cave has a massive the resource envelope around the reserve.
So.
All of that for 2021, you know, we're very confident so in term of grade. If you do if you do the math and you look at our production. So we will definitely see the goal of that wed probably dropped here now in the third of it.
The late second and all of late.
Net laid but.
When you know maybe the point of 35 to 40. So we were fine to drop the gold grade from the <unk> 43, you've seen we're fine to drop the copper now noted that the copper grade in this in the first half of spin in part performing as well I'm very pleased but but has it all.
The farm so that gave us the of force anything as I said, you know to go in the other area and average may be more of like a point of six five or so.
This was a maybe more of our originally of clients. So so a lot a lot of reports entities, but there is no point income to new you know and tried to stretch it out to the higher grade and leave for fortunate day behind so so the first two quarters without us two.
To maximize the to maximize the use of for lower grade for the second half and still would be well positioned in our documents.
Okay, the long answer, but I'm overcompensating targeted.
That also pulling from lower gold grades as well.
Yeah, we'll do as well because you cannot decouple, both so why buy by pulling out the lower but but you're still going to be are you still are and we still expect to meet the gold the gold low end.
With the combination of a midpoint now remember as well that are equivalent of equivalent of Ingalls are calculated using a $3.50 copper as well. So we're taking everything into account and we believe that the right thing to do is to maximize the value of the asset as we transition to seize them.
Okay, and then would that imply that maybe perhaps the gentleman no higher than the run rate. So far I think that the run rate the economy.
Contingent upon.
The the grades that you were seeing in new reserves.
From what we see higher tonnage going through as well.
The on that one that would be very prudent to say that as much as we want to maximize the extractions of debt at the <unk> underground and extract the maximum value are we continue to be managing our email.
In parallel to the tailings as well capacity of managing of the water in storage remembered that check.
As we transition next year to the to the in pit tailing, we're ending in all of the life of the current storage. So it's very important debt, we do not try to push beyond and then have to manage some tailing situation. So I would say I'm less fancy you know I'm pushing the mail more than push.
The mine.
Okay last question and then I'll pass it off on that this is more of a big picture of what.
One key theme has been inflation net inflationary pressures could you talk about your relative exposure in terms of energy.
Energy at both assets are labor and other consumables and what kind of questions you're seeing there at this stage going into 2020, our past the hour pass it onto Rob, but just on the labor side per se no I wouldn't say that we feel we feel the pressure like any other mines you know like we are we are.
We're very focused now on the on controlling.
Controlling our turnover and that kind of things, but no I wouldn't see that we feel pressure on the cost is the labor, but Ralph I think the two other areas of.
You can look at in the case of our fuel and certainly the exchange rates.
When we look at fuel its rainy River is the site is primarily impacts the debt, that's where we use most of the consumer most of our fuel cell.
You know the impact.
On an annual basis, there is about $3 million to $4 million. When we compare what we are the pricing of fuel came into at the beginning of the year, so approximately around $10 an ounce.
And as far as FX.
<unk>.
Right now we're at about $1 two five our guidance was a 128 and that that delta that change represents about $30 an ounce for the remainder of this year.
Or maybe put another way.
<unk> change in the CAD is around the 10 million dollar impact.
On the gold.
Okay, and then is there any difference in that the Capex are the <unk>.
That you're seeing on them.
The impact on the Capex line of new closing.
Nothing nothing.
Nothing material.
The majority of of our sort of for instance, steel and other.
The thickened and amended tailings for instances.
As past we've received a lot of that material. So no major of material impact on our capital projects.
So we shouldnt expect the the C zone development to be absolutely was the next day.
No Okay alright, thank you.
Thanks. Thank you once again as a reminder, ladies and gentlemen, if you do have any questions. At this time. Please press star followed by one on your Touchtone phone.
And at this time gentlemen, we have no further questions. Please proceed.
Thank you Sylvia and thank you, everyone, who joined US today as always should you of any additional questions. Please do not hesitate to reach out to us by phone or email and we hope you enjoy the rest of the summer ex scrap.
Thank you ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
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