Q3 2021 New Gold Inc Earnings Call
Good morning, ladies and gentlemen.
Inc. Third quarter 2021 earnings call and webcast conference call.
At this time all lines are in listen only mode.
During the presentation, we will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star zero for the operator.
This call is being recorded on Friday November 12, 2021, and I would now like to turn the conference over to Mr. <unk>.
<unk> Shah Vice President strategy and business development. Please go ahead.
Great. Thank you operator, and good morning, everyone. We appreciate you joining us today for new Gold's third quarter 2021 earnings conference call and webcast on the line today, we have Renaud Adams, President and CEO and Rob So as a CFO should you wish to follow along with the webcast. Please sign in from our homepage at Nucor Dot com.
Before the team begins the presentation I'd 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 were.
For you to the section entitled Risk factors in New Gold's latest MD&A and other filings available on SEDAR, which set out certain material factors that could cause actual results to differ in.
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 Rob. Thanks, Dan. Good morning, Slide five provides our operating highlights for Q3. The details on that slide are consistent with our October.
<unk> production press release.
During Q3 the company produced approximately 105600 gold equivalent ounces amount consisted of $15 6 million pounds of copper and 58600 gold ounces from rainy River and approximately $13 600 gold ounces from new Afton total gold ounces of.
72000 ounces lower equivalent gold production as compared to the prior year quarter is primarily due to lower tonnes processed at rainy River and new Afton. The operating expense per equivalent ounce was higher than the prior year quarter due to the strengthening Canadian dollar and the Canadian wage subsidy received in the prior quarter.
Consolidated all in sustaining costs for the quarter was 14 $408 per equivalent ounce higher than the prior year quarter, primarily due to the higher operating expenses previously noted partially offset by lower sustaining capital.
Turning to slide six for our financial results third quarter revenue was approximately $180 million driven by sales of 66982 gold ounces at an average realized price of 70 $888 per ounce and sales of 14 million pounds of copper at $4 28 per pound.
The Q3 revenue was 4% higher than the prior year quarter, primarily due to higher metal prices operating cash flow before working capital adjustments was $81 million or <unk> 12 per share for the quarter in line with the prior year quarter. The company recorded a net loss of $11 3 million or <unk> <unk> per share during <unk>.
Q3, compared to earnings of <unk> <unk> per share in Q3 of the prior year. After adjusting for certain charges net earnings were $23 4 million or <unk> <unk> per share in Q3 compared to net earnings of $12 4 million or <unk> <unk> per share in the third quarter of 2020.
The difference is driven by higher metal prices and lower finance costs.
Our Q3 adjusted earnings includes adjustments related to unrealized adjustments on our rainy River stream mark to market and our free cash flow royalty at new Afton. Our MD&A provides additional details on the non-GAAP measures discussed.
As discussed in this presentation.
Yes.
With regards to capital expenditures, our total capex for the quarter was $58 million $34. Nine was spent on sustaining capital and $23. One on growth capital sustaining sustaining spend was primarily related to plant tailings work at both operating assets and B III mine development at new Afton growth capital.
It was focused on project development, specifically the C zone, and the thickened and amended tailings project at new Afton and the underground Intrepid zone at rainy River.
Slide seven provides up our capital structure.
Cash on hand as at September 32021 was $151 million and liquidity at the end of the quarter was $477 million with that ill turn the call over to Randy. Thank you.
Thanks Robyn.
Thank you everyone for joining us today.
So first let me start by saying that I had the chance recently to spend quality time at both SaaS.
And I really continue to be amazed by the tremendous level of hard work and commitment of our employees and contractors as we continued to build our company on a solid foundations and core values.
In term of our third quarter on a consolidated basis I believe that we responded very well to the challenges experienced in the third quarter positioning us to meet our updated guidance I'm really pleased with the global reductions of our all in sustaining costs of over 9% compared to the first half.
A year with rainy improving by almost 16% and I really want to thank everyone at <unk> for their continued effort.
Are there anything I'm on slide 10.
Another quarter of nearly a 150000 tonnes per day mine in line with our objective to achieve approximately 151000 tons per day for the year. The mine is now at a bridge of our 150000 tons per day for over a year and is now well SaaS for further optimization as we.
Progress towards 2022. It is now about redirecting our efforts in 2022 from ramping up and stabilization to continue to deliver volume, but in a more optimized way unlocking further opportunities for cost reductions improved <unk> all linked.
Two our mobile maintenance capital program.
As originally planned the mine executed on a much lower strip ratio up $1 83 to one in the quarter.
In line with our objective to average approximately $2 721 for the year. So accordingly, we expect to.
To remain at the low strip ratio in the fourth quarter.
The highlight of the quarter and Randy will share around and they got savings or greater accountability issue and the east LOE, but part of the pit.
Forcing a revised production guidance, but September responded very well to our short term adjusted great approach for the zone and our overall production was for the quarter was in line with our revised plans.
With a much lower contribution from the east low plan for the fourth quarter, we expect an increase grade in the core in the fourth quarter over to 0.89 grams, a tonne to achieve in Q3, which was already approximately 10% higher than the first half of the year.
In parallel of grade control, we continue to see in line reconciliations for zones outside of the east low area.
Confirming our confidence when looking at our future production profile.
Second RC drill arrive in flight and the mortgage drilling is taking place to continue to SaaS that use low area in prep for 2022.
Production plant.
The mill averaged 25245 tons per day, lower or the same period of last year of 27000 tonnes per day, mostly due to extended maintenance in the crushing area, but looking forward I'm very confident that the male returning hits permitted capacity of 27000 tons a day.
But also I am looking forward to potentially improve recovery as we continued to optimize the grinding.
Gravity and backend circuits with.
With completion of all deferred construction work in 2000 22020, the mine achieved a reduction of sustaining capital in Q3 compared to the same period of 2020 contributing to lower all in sustaining costs of $37 per gold equivalent versus the fourth and fixed environment.
For the same period of 2020, but also a reduction of nearly 60%, 16% compared to the first half of the year.
So we remain on track to meet our updated production and cost guidance.
Beyond the ground development of the <unk> zone continues during the quarter with the objective to initiate long hole stoping.
<unk>.
And in late 2020 ones. The first long haul panel is fully developed and waste and ore.
We also continue to advance our optimize underground mine planned study that will potentially include include additional conversion of underground mineral resources into mineral reserve all located directly below the pit.
The results of this study are expected to be released in the first quarter of 2022, along with our.
Year end mineral reserve and mineral resources sub base.
At New Afton, Tom on Slide 12.
As a result of the delay in receiving the <unk> in 2021, the contribution of tonnes mined from <unk> zone was lowered than originally planned resulting in a lower tons mined compared to same period of 2020.
The other contributor to lower tonnes mined included the limited mining capacity on the recovery level.
The marketing activities continuing in the remote mode. Following the events of last February.
As we complete 2021.
And then third in 2022, our focus remains.
On first safe and efficient ramp up with the <unk> zone. This is this is really important to us as it will be the main contributors of 2022.
Save mining of the recovery level reserve prior transitioning to the in pit tailings planned for 2022. So we don't leave anything behind us and of course, the safe and efficient exhaustion of the east Cave area.
The overall grade for the quarter were comparable to the same period of 2020 has the grade mined from the east cave come to need to perform super well in the quarter.
The metal recoveries at the mill were also comparable to slightly better for gone to the same period of 2020. Despite despite an increased supergene R volume now.
Our rates are nearly 13000 tons per day.
Neil was lower to the same period of last year, but in line with our mining rates in the quarter and our plan to optimize metal recovery, while assessing higher volume of Super gene ore.
So overall, we remain on track to meet our gold equivalent production guidance with an all in sustaining costs expected to be in the higher range on the higher end of the guided range.
Our seasonal underground development advanced by nearly 800 meters in the fourth quarter.
And then taken amended tailings facility was nearly commissioning.
Warner and.
In term of exploration, we have six small holes totaling nearly 3900 meters that were completed in the quarter and the Cherry Creek trend.
To explore for deep porphyry style system. The drilling program is expected to be completed by the end of the fourth quarter.
Following the very encouraging and exciting results of our underground drilling program testing artificial intelligence targets more drilling were added and should also be completed by year end. So really looking forward to our next exploration update to markets in the first quarter of 2022.
This will complete the presentation portion of the call so I wouldn't know.
Handed back to operator for the Q&A portion of the call operator.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you have been hearing for you Tony from Technology. Your request and your questions will be polled any argued that Dr. Recede.
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Please Mr handset before pressing any Keith.
One moment. Please for your first question.
Your first question comes from Anita Soni from CIBC World markets. Please go ahead.
Okay.
Okay.
Okay.
Ms Anita Soni.
Hi, Good morning, sorry, I didn't hear you guys switching from the webcast Dubai Fone, there was some delay in Dalian.
Just wondering.
Rainy River.
Did you give us any color could you give us an update and some color on the amount of east low material that you expect to see next year.
Perhaps into 2023.
What I can say at this stage and you guys. You would you would appreciate that we can't see too to SaaS and optimize our plan, but if you are if you're referring to the 43 101 and quite frankly, the plan remains like somewhat pretty similar you had about <unk>.
95%.
Dr Mind for 'twenty, two and 'twenty three completion in the second half of 'twenty three on the east loving area.
Okay.
We advance and complete.
Yeah. So we're obviously in our guidance early in 2022 and an update on our.
All our plans, but this is this is what you can see so far.
It's pretty funny.
Alright, and then secondly could you comment on the inflationary pressures that you guys are if any that youre seeing and just give us some color on the magnitude.
Just overall and then where are where are the sources of that.
In terms of like yes.
Yep.
Sure there's no material inflationary pressures.
Any sort of major capital items and components related to steel et cetera.
Or ordered and received pre this inflationary period, if you will.
Ultimately I think.
Our inflationary pressures come down to access to maybe contractors et cetera, and labor is within line.
That 2% to 3% that we're seeing so.
As it stands right now we're not seeing any material.
Impacts on our business related to inflation.
Okay. Thank you I'll pass it over to someone else.
Thanks.
Your next question comes from Josh Josh Wolfson from RBC. Please go ahead.
Okay.
Hey, Josh you might be on mute.
Sorry about that for the upcoming optimized mine plan.
At rainy River, you mentioned looking at opportunities for upside for resource conversion.
Any changes in sequencing that we should potentially expect or is there any ability to maybe incorporate some upside.
More near term rather than mine life extensions.
The the purpose of this study really is to create some sort of.
Stand alone on the ground.
Mining Josh as we.
As we complete the stockpile that is currently 2028, so it's really a continuum because if you look at the current plan and the 43 101, we already.
We had already incorporated the top part of the center's long below the pit and the 40 to 101 together with the stockpiles. So really this study is a kind of a continued <unk> of the mining standalone.
Will it continue to you know and just keep mining deeper in the central zone and all the interest in that.
As already in the reserve so.
It's not so much about as you say unfortunately annoying corporations.
Early stage market and creating.
An extended life of mine beyond 2028, and there'll be some here and there are parts in EPS, but the main purpose of this study is an extension of life of mine beyond 2028.
Got it and when the initial slope issues had come out that there were some discussion maybe a look.
Looking at mining some of that material underground.
Is that something which could still make sense or that could be incorporated in this plan or is that not.
A priority right now.
It's not a priority right now there is not much of the east Vulcan the open pit to complete in 'twenty two 'twenty three I think we were.
We're as I said previously we are continued to refine and optimize our plan as we advance towards 'twenty two but.
But at this stage I think it's fair to say that it still makes more sense to catch it.
And pick and carry our on the ground plan as previously planned.
Got it and win last question when Youre looking at.
Year end reserves rainy.
Well first off I guess, what sort of price assumptions are you expecting to incorporate.
And then how should we think about the impact of.
E slope as well as maybe some exploration efforts that have materialized this past year.
We're looking at a use of $4800 for our reserve exercise of at year end.
And the exploration.
<unk> is still somewhat early stage show metrics.
And I would expect to expecting an impact from the.
From the from the exploration program of 'twenty, one, but as we continue in 'twenty, two and 'twenty three and so forth are we'll see and continue to help you on all four additional resources out of our exploration program, but.
This will not be the case for 'twenty one.
Got it and then and then to understand the impact for <unk>.
Slow is it fair to assume.
Loss of answers.
Just from from that and depletion.
Very honestly.
Josh I mean this is exactly the assessment that is taking place now we're not we're decoupling contractually first of all with decoupling completely open pit from the underground Thats a different complete.
As you know in the approach.
And in the mining mining.
The demand in the systems rider and then on the volume and <unk>.
And Bob So it's a completely different so we're not mixing both here and.
And for the remaining ounces suffer a slope that's exactly the assessment, we're doing with modern drilling and are seeing so far and there will be prepping for our 2022, our guidance, but don't have all of this answer.
Okay. Those are all my questions. Thank you.
Thanks.
Thank you. Your next question is from Dalton Barreto from Canaccord. Please go ahead.
Okay.
Okay.
So I think I was on mute again can you hear me.
It seems to be a premium on this call.
Yeah.
Good morning. Thank you for taking my question. My question is also on the east though.
To ask do you understand exactly why you have a great reconciliation issue at this point in time.
Well the only thing I can say is in all of our debentures and all that took place the mining took place on benches in the Q3.
I think I think it's fair to say you know that Youre never exactly there right on the model and rig cancellation day to day every hours, but I think it's fair also to say that unfortunately for the Q3 period debentures that took place.
Fortunately the reconciliation competitive resource models were showing last tons analysis now why is it <unk> is it just like a localized fiber fast systems it sometimes happens.
In some areas we're in a period of times and then it switches. So globally, we have been doing extremely well over the last three years.
All the other areas on a global basis continued to perform very well with the model, but with nearly.
If you look at our Q3.
A big portion of the Q3 was really focused on mining in that specific area. So when you are.
When you experience and they get sandvik constellation in most of your mine plan is from one specific area. It does highlight has.
A big variance off course.
If it would be more distributed over in the year, you will have like more flexibilities and so forth. So.
We really need to complete all this RC drilling to look at this in a global basis, because there is nothing telling us that things cannot even.
Shifting now to answer your calls so I've seen I've seen those localized situation in my carrier and.
Sometimes it's very localized over a few benches, sometimes a little more but I think our model has.
Responded very well globally.
But unfortunately that very far east area.
I was just not responded well and now in term of tonnes and grade.
There is nothing really specific mark to say, we just need to at this stage to continue to drill underneath and assess the remaining ounces and see how does that compare with the model but.
It's a one resource model apply now.
We're cross selling on the deposits and sometimes you have a positive sometimes negative but.
<unk> effort on that is one area in that Q as we experience in Q3, Unfortunately the variance.
Haas stronger right.
Let's see let's see with the completion of the RSC and I'll definitely be in a better position.
As we complete the year and enter 2000 to two that you have all the specifics to that question.
Okay. Thanks for that and then maybe a bigger picture question I wanted to ask you about M&A pretty topical in the gold space right now.
On the <unk> side on the acquisition side.
Are you seeing anything in the vicinity of rainy River.
Potentially complement the underground much the open pits done and then part b on the merger side.
If you were to consider a merger of equals that what would you look for in a partner. Thank you.
[laughter] our tanks for that very specific question on the Friday morning, I can answer that first one I think I think the first one you know when it comes to they've been sanity. This is an exercise that is a continuous exercise for us to drive radius.
Around our operations and always look for opportunities for resources that could eventually be unfortunately at rainy I would qualified like.
Somewhat like not to really advance.
Volume ounces five stories, you know hits.
It's Phil.
More with 10, our land package that we see.
The best opportunity.
New Afton is a bit of a different situation.
Considering the very prolific areas in multiple opportunities and resources around the.
Around the assets, but rainy.
And.
I would I would I would keep my comments from myself when it comes to <unk>.
More specific and merger I mean, do you understand that as we advance our focus now is ready to deliver on our plan, we see our cash balance that we would continue to.
Prove over the over the years, we have the streams and so I think we are extremely well equipped to two.
To provide eventually as we advance you know some growth so fortunately due to our shareholders, but I went back I would not go any further than that but thanks for asking.
Thanks, guys all the best.
Thanks.
Thank you. Your next question comes from Mike Kelly from Bank of Montreal. Please go ahead.
Bank of Montreal.
Yeah.
I don't even banks there.
Yes, it's still at Bank of America 32 years.
Well, Rob Thanks for the call and actually drawn to slide 13.
One proposition.
A couple of questions there.
I noticed the 25% GLA growth 2020 versus $22 26.
That's about an average of $5 46, 546000 ounces for that period.
Would that also be guidance for 2022.
No no no were not referring I mean this is the this is really for the period the period like going towards 26, if you look at our production profile and rainy you see a constant grade increase there.
Over to <unk> 22, 26, so you had to seize on that it's coming at play so as we advance for let's say this year towards 22 first step increase that Randy and you continue to increase over the periods going toward into 'twenty fixed and you incorporate the CS onto this.
We are seeing is in that to increase 25% plus to.
Our current situation Thats the way to look at it.
So the lowest year would be 22 of the highest may 26.
Of that five year period.
The 20 <unk>.
<unk> 2426, specifically 'twenty five 'twenty six very similar if you will.
Good luck guys.
I'm asking because 22 is in the average so that's why I was asking.
Okay.
Yes.
We're very close to a year hand here. So we'll have a very comprehensive guidance.
And as we complete the study for underground study for a rainy river.
And <unk> to year end complete our year end reserve resource mineral reserve resources, a bait and eventually we would update as well our 43 101, so while we provide a more specific detailed plan brought out remaining our life of mine.
Yeah.
Okay that'd be great.
Back to adult and this question the funnel for the company.
Gold company looking at slide 13, I'm going alright.
They're located in Canada, 100% Wow.
You should look at new gold.
So I appreciate your I appreciate your comment because we're definitely.
<unk> to work hard in positioning discount any and we definitely see a very interesting profile down the road.
As we improve the production, but the capital execution behind us and focus on a hard vesting of the C zone.
This company has a very interesting profile down the road.
And the right jurisdiction and as you say, we are becoming more and more.
A rare.
Yes.
Commodity piece, if you will.
Definitely alright, well, thank you and we are thankful Montreal. Thank you very much sir.
Yeah.
Congrats on your promotion.
Okay.
Thanks I appreciate it.
Thank you.
The last question comes from John Kim from John Tumazos, very independent research. Please go ahead.
Good morning.
How much of the full year Capex is the capitalized stripping account in dollars.
And could you.
Talk a little bit about.
What normal.
Capex might be for the next several years please.
Just want to make sure that I got your question right with the dystrophin sorry, you could the first portion of your question. It would be much of the Capex is the capitalized stripping in dollars.
So if our if we look at rainy.
Particular, you have from the sustaining capital year to date $577 million.
About a third of that.
Is around the.
The capitalized item just confirming that.
A big portion is obviously the tailing the sustaining tailing construction.
And the other part has a lot to do with the with the maintenance.
Maintenance and mobile maintenance and so forth so as we move forward.
Very embark them to re highlight here that by the end of 'twenty three.
The biggest part of the stripping will be completed.
So that's it yes, it's about $29 million of capitalized mining costs. So far out of the 77 million for the nine months and as you advance in time, two things going to happen you're going to come to new year. After year. After 2025 to complete the raise at the tailings Avery.
Year like we did this year 'twenty, two 'twenty, three and with the last raise and twenty-five youre stripping exercise and pet.
Will it be mostly completed at the end of 2023 has highlighted again in our second report so that would be a further contributor to quite.
Reductions in our sustaining and as we deplete the Perth as well and start operating with Alaska equipment, you will have as well as significant reductions on your mobile maintenance capital program.
So where we're showing this year to awards like the 100.
The $10 million.
Next year, we have another phase very similar to this year has highlighted in our plan and as you advance 'twenty three 'twenty four youll start seeing and dropping that the stripping and the maintenance costs.
The tailings drop in 25 25, so that that's that's really the big contributor to the cost reductions as well as we increase our production on a combined basis, it's significant margin down the road for us.
Are there particular thresholds.
But investors should look to.
Yeah.
For new goal to have a dividend.
For a particular level of debt reduction.
Or the rainy transition to underground when the capital needs will be with us.
Yes.
Answered as we advance I mean, we've we've received that questions quite a bit.
When you look at our presentation.
And cash building on our cash balance as we advance.
I D.
At current metal prices, you know you could be in excess of 1 billion, our free cash flow generated over the next the next 20 to 2006 period.
And as you know we also have this trains and other and where cash position. There. So so yes, we will be building I think it's important that we keep in mind as well the importance of the growth component in our company as well.
So we're not in a position now to answered this with specificity what its going to exactly happen and how this cash balance will be used to awards like growth debt repayment and dividend and all of that this is all to come for us. The most important now is to deliver on our plan and and as we advance and bill.
Well, we'll see strategically how this the best use of funds.
For our cash position.
Thank you very much.
Thank you.
There are no further questions at this time you may please proceed.
Great. Thank you so much and thanks again to everyone for joining us. This morning as always should you have any additional questions. Please don't hesitate to reach out to us by phone or email have a great weekend.
Ladies and gentlemen, this concludes your conference call for today, we thank you very much for participating and ask that you. Please disconnect your lines.