Q2 2022 New Gold Inc Earnings Call
Good morning, My name is Chris and I'll be your conference operator today welcome to the New Gold second quarter 2022 earnings Conference call. All lines have been placed on mute to prevent any background noise. Please be advised that today's conference call and webcast is being recorded after the Speakers' remarks, there will be a question and answer session.
You'd like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press Star then the number two I would now like to hand, the conference over to anchor Shah VP of strategy and business development. Thank you.
Thank you, Chris and good morning, everyone. We appreciate you joining us today for new Gold's second quarter 2022 earnings conference call and webcast on the line today, we have Renaud Adams, President and CEO , Rob <unk>, our CFO and Patrick or Dan or should you wish to follow along with the webcast. Please sign in from our homepage.
New gold Dot com.
Before the team begins the presentation I would like to direct your attention to our cautionary language related to forward looking statements found on slides two and three of the presentation. Today's commentary includes forward looking statements relating to new gold in this 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 slide two and three provide additional information and should be reviewed we also refer you to a section entitled risk factors and 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 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 hand, the call over to pronounce.
Thanks, Dan and.
Good morning, everyone.
Randy production in mine sequencing were impacted by heavy rainfall.
The flooding of the kit.
While significant progress has been made to date to restore organ deterioration and optimize each step moving forward. We have to replace lost fixed path will provide more detail.
The equipment.
What is regular cadence and the capital waste stripping at dance resumed paying in the strip ratio for the quarter nearly 8%.
When you can't access ore at the bottom of the Brazil.
Brazil, resulting from back then.
<unk> you are right.
As it is all part of the same quarter our vesting.
Our mineral reserve at start of the year was up nearly 44 million tonnes of ore of Approx.
Approximately one grams a ton gold Inc.
Clothing.
Hello, Greg.
All of which contained in the mining strip ratio of 232 to one which has been further reduced now as a result of the Q2 execution.
Very attractive plan moving forward.
On a very positive note our gold grades.
So our targets are related to reserve bottomed in Q2.
EMEA recovery is up for the first half of the year.
Year to year.
We've made great progress in preparing and chip will buy any stock in the fourth quarter of this year in capital.
Just more of a detail.
New Afton low grade higher cost recovery level was close earlier than planned impacting our short term mine plans and production for the year, but with no impact on the future.
At the start of the project there was already.
Our GAAP into production that was I've been surprised has with transitions from the next one.
<unk> III and eventually the reward is seasonal.
Some zone, where.
Made as an assumption to support at that gap in his section.
Some of that in there.
<unk> zone, and the lift we've done extremely well and completing the last mine and we have a little more difficulties with some of the oil and gas structure recovery level and some pillar in our recovery.
Area.
But as such the future has no impact and the closing of the recovery level represented the execution is a core value and protecting the health and safety and minimize the cost and distraction to what are the true value of the CS on project.
Returning the mill at its full capacity processing, Oracle, but high quality better grade better recovery and a very low cost to be mined at the very minimum all sustaining capital.
If an increment of tailing with no need for further tailings rates all of which.
<unk> not been impact today.
During the third quarter Phase III development advanced on plan with focus now on our ramping up of production in the fourth quarter.
And <unk> continued to advance with first our plan for a second half of 2023.
Patrick will provide more details on calls.
Our 2022 operational and cost guidance, where our data to reflect the changes in our respective pipelines and related cost it back and other factors and Rob will touch on it.
Continued to maintain a very healthy balance sheet, while also paying down $100 million of our debt in the quarter with no additional.
Until 2027.
And we began saying it to maintain the strong cash and liquidity position, allowing us to execute on our plans.
And position both assets for free cash flow generation.
We continue to be very encouraged with our drilling program and in particular with the underground program at new Afton that is truly focused on.
Providing potential organic growth has.
Our word.
We had originally thought have been capable to put a comprehensive update on our plan in Q2, but given some further delays in assays. We are now ramping up and plan to release a comprehensive.
Our update on our exploration drilling program in the third quarter.
I will now turn into Rob Showtime.
Thanks, Ross I'll start on slide seven which provides our revised operational outlook with details that are in line with our July press release. This short term guidance reflects our lower production profile for 2022, and our continued capital investments, which has resulted in higher ASIC.
The companys mid to long term strategy of increasing production and decreasing cost remains intact.
Moving on to the next slide which provides our operating highlights for Q2.
Details are consistent with the July press release during the quarter the company produced 70.
500 gold equivalent ounces. The amount consisted of seven 4 million pounds of copper 42500 gold ounces from rainy River and 9900 gold ounces from new asked him for a total of 52430 gold ounces lower equivalent gold production as compared to the prior year quarter as primary.
Due to lower grade and tonnes process both of our operations operating expense per equivalent ounce was higher than the prior year quarter, primarily due to lower production, which resulted in lower sales volume.
Consolidated all in sustaining costs for the quarter were.
Were $23 73 per equivalent ounce higher than the prior year quarter, primarily due to lower sales volume at our operations and higher sustaining capital spend I'd highlight that new afton sales in the quarter were lower than production due to timing of shipments with approximately 75 100 gold equivalent ounces deferred to the third.
<unk> the impact was approximately $700 per gold equivalent ounce on new Askin's, ASIC and 140 on the consolidated ASIC. The sale was completed in July .
We continue to invest in sustaining capital at our operations during the second quarter with the impact of sustaining capital spend per ounce being $950 per hour in the quarter.
During Q2, we experienced inflationary challenges that have been experienced across the industry, particularly with regards to fuel electricity Grier.
Grinding media cyanide the financial impact of these noted categories were approximately $10 million or 7% on ASIC for the quarter.
Going forward, we continue to work on minimizing any inflationary impacts through optimization at our operations.
Turning to slide nine.
For our financial results second quarter revenue was $115 $7 million driven by sales of 51200 gold ounces at an average realized price of $18 79 per ounce and sales of $4 4 million pounds of copper at $4 14 per pound Q2 revenue was revenue was lower than the prior year quarter.
Due to lower sales volumes as already mentioned and noted in our production release due to the timing issues at new Afton sales of 7500 gold equivalent ounces with deferred to the third quarter and as noted was completed in July .
Operating cash flow before working capital adjustments was $27 4 million or <unk> <unk> per share for the quarter lower than the prior year quarter due to lower sales volumes. The company recorded a net loss of $37 9 million or <unk> <unk> per share during Q2 compared to a net loss of <unk> <unk> per share in Q2 'twenty one.
Adjusting for certain charges net loss was $16 7 million or <unk> <unk> per share in the quarter compared to the <unk> earnings of <unk> <unk> per share in the second quarter of 2021.
Q2 earnings adjustments includes.
Adjustments related to our gains and losses related to unrealized adjustments on the rainy River stream mark to market and the free cash flow royalty at new Afton and you can look at our MD&A for additional details on those non-GAAP measures are.
Our capex and leases for the quarter were $78 8 million $59 9 million was spent on sustaining capital and $18 9 million on growth capital sustaining spend was primarily related to planned tailings work at both operating assets capital stripping at rainy River and B III mine development at new Afton our growth.
Little was focused on project development, specifically C zone at new Afton and the underground Intrepid zone at rainy River.
Slide 10 provides our capital structure during the quarter, we redeemed the remaining $100 million of our 2025 senior secured notes cash on hand at June 32002 was $277 million in liquidity was 649 million the decrease in cash from the prior year quarter is primarily due to the above noted bond <unk>.
Payment along with continued capital investments at our operations now I'll turn the call over to Pat.
Zero.
We direct you to the slide <unk>.
I'll start to cover really were highlights during Q2, so we're mostly in the open pit we achieved.
Some of those 110000 tons per day will be slightly lower than the previous years and previous quarters.
Due to heavy.
Meaningful major water isn't that too.
We.
Deal with from the region.
And for Infosys region. So.
Company <unk> to support our stakeholders.
You may need to somebody else's and two support people because we have to deal with major clubs.
So that goes.
As previously explained by renewals some issues with the open pit operation, where the bottom of the pit was flawed mainly the north load that was in the mining sequence.
The mining sequence Dubuque thrived during the spring so we'll relocate the equipment and yogurt part of the.
We're pleased to increase.
Maximize the value of our teams.
Secretary helped to axon redistribute nishu.
Sure.
During the quarter.
The average.
21000 tonnes per day.
It's slightly lower compared to the previous year. However, mainly due to the fact also that we had to rebuild a lot of material in the face of mechanical issues.
50% of the fee was mainly coming from the low grade stockpile that was what is explaining the low agreed however, what is on a positive note.
The recovery was 90% for point 69 Gram per ton between the redeployment has performed really well in term of gold recoveries. During this period.
As discussed previously at the beginning of the quarter the Q3.
Some guidance for year end and two of them between 30 to 50000 ounces and approximately 50% of the total year production will be made in the second half of the year and actually we are trending positively in terms of function.
Really revealing the Pip.
Intrepid is going really well in terms of development that will cover that later in the above 774 meters of development mode. We remain on track to start the commercial production in Q4 of this year.
What is important to before to go to slide 14 years to keep in mind that we did not mind is remaining in the ground. So.
<unk>.
The value of the ore body will be will be will show up in the next quarter and moving forward.
On slide 14.
Wanted to dig Hugh.
Sure.
Little bit of time to explain to you what happened to move water rhythm.
So you have on the on the <unk>.
Slide the graph of the institutions, so the dark Blue line.
Normal precision.
Right.
The worst of them and one of the year.
The Green line is what we position that we are facing this year in the region.
You can see that in May and June .
We receive a lot of rain and compare those sold to other region that you compare bodies on board wasn't be seen in the last two years.
Yield arena as a bucket so.
Heavy rain.
And it's more difficult to manage in term of then.
It comes in this distribution on the ground so.
It was really intense.
Combined with the snowmelt.
For us it goes a lot of issues mainly in the pit with also with a water management on site team.
Team did an excellent work.
To control the impact on the environment, where we were putting meaningful compliance.
So consequently, we work really hard.
Do we do we did some slight improvement and adjustment to the water treatment and to increase our treatment capacity by 40%.
We also.
Through the pit and additional dewatered alignment dewatering system, so to double our capacity.
Terminal bumping and the construction of the tailing dam is on time.
It's a continuous project for US we are reusing that involves every year.
Actually what is the project that is ongoing and we are planning to complete <unk> toward the end of October beginning of November .
We'd go due to this slide 15, now where you can see the open pit as it stemmed.
At the beginning of this week.
We see that the north lobe is dry so it's all the water and it's where we are mining now. So we are in beds. One bench 140 is completed then we will mine.
<unk> during August so in the third.
We will do for us because of the greed is good work indexes all year, but we agree there is excellent.
What we are looking at also into <unk> to the pit as we readjust our strategy.
<unk> reduced slightly we're mining rate to be to reflect the fact that it's narrower in the pit at the bottom of the pit and also that we have longer distance.
We we optimize also our mind or money mining sequel to redo the rambling so.
We are mainly relating to mix the material to optimize the mill recovery and the processing throughput.
But in term of the <unk>. We won two we are targeting to feed the mill with 80% of execute literally also to be much more efficient and reduce our costs in our fuel consumption.
What gave you to the slide 16 within government tripled so in term of Intrepid.
Actually we are the access to the euro we loved that.
No.
The city level.
What is nice is that we regard what we see and what we expect is what we get so in term of volume. We are still long in terms of grid. We are slightly higher so the level of 175 and above the first mining horizon is ready for production.
Will.
The contract orders, maybe losing actually we already started that.
The drilling for the first stope at the beginning.
This week.
And we will be on time.
We are slightly in advance to start the extraction of the of your.
In the next weeks.
We also work hard too.
Two mega we're mining more efficient and the more fluid.
So we changed our mining methods.
Julie we can probably to use the cemented rock fill approach.
We want to as much as we can to steel we are silent in terms of cost.
Infusion.
So we will replace the mining method with pillar with Brookfield or and overcome mining method. So we will be a combination of both so it will be more of a <unk>.
It will be also.
Cost and also in terms of manpower.
So we'll go do nor acknowledged the slide 18, covering the new iPhone.
New Afton and during the quarter the underground mine average.
6500 tonnes per day.
We also and what is the key factor to us that we are.
<unk>.
We stopped the mining of the recovery level. During this quarter earlier than plan, mainly mainly because it was more difficult in terms of reconciliation and mainly in terms of <unk>, because we were losing mud rush.
We have also witnessed an exceptional year in Kamloops actually in terms of rain.
And we're not the ore will remain in place and we are actually going to bleed into recover.
The material that we left in place.
In the lower limit exploration.
The mill Mill point of view the mill is operating really well.
Yes.
Slightly more than 11000 tonnes per day.
The original tonnages coming from a low grade stockpile is actually totally depleted so the gold is.
We average 137 grams per tonne.
We reported 42 and the recovery is in the bracket that we are used to presenting to you. This season development that will cover that again later in more details, but we are performing really well we reached the C zone in may at the beginning of May. So it was agreed achievement for our teams.
And the exploration is going really well at new Afton. So during the quarter underground, we complete 73 holes and we are actually completing the analysis and the resource model for the east to the East extension.
The information, we will be talking to you.
And before the end of Q3.
On the slide 19.
The BG <unk>.
It's.
It's a great achievement for the team at New Afton did really well on this they are on time and the allowance during the quarter. The guys did last more than five <unk> per quarter per months or to the excellent.
<unk> is totally completed.
So what is interesting for US is the fact that the guys did really well with vitry. It will let us the possibility to extract earlier mutual yard and to increase the throughput at <unk> to compensate the tons and audio quality terms than the one that remaining please in the recovery level.
So the and the commercial activities remains on schedule. So we are still planning as you can see in the figure on the lower left what is in Green is the draw point that needs to be completed in terms of construction the development will be completed.
December meeting.
September beginning of October and Goshen is on time.
Also what we what we did the battery is the lesson learned from the upper cave.
We will learn from that and we think by by prevention. It was a mix of <unk> from the team we add additional ground support and cable bolt and we did also gave a losing epic's pillar it will reduce drastically the rehabilitation when the time to complete the <unk>.
The full recovery of Dmitry, so going forward Thats, an investment that we did upfront that will save a lot of times and we will it will be much more efficient in term of the transition of the mining recovery.
On the picture you can see a world second.
Our electrical truck battery vehicles.
That is that we are introducing <unk> actually two <unk> from the lower part of the mine.
In term of <unk> as I said previously we achieved we reached the C zone in May So it was it was really good in theaters.
We are on time to complete.
The undercut to initiate the undercut in mid 2023, and we are still on track.
Two weeks dragged the aura in Q4 2023.
In term of.
In terms of.
Progress continued progress on development progress that come to you on the mineral side is fully commissioned.
So if we.
We are much more efficient in terms of material handling.
We completed that all the question Lee Jacobson contract or to install the crusher to install solar maintenance was it'll be in dewatering system.
And also the team did an amazing work in terms of delineation of the of the extraction level Vitry is longitudinal approach as well.
The Delta DMT for design for the draw points.
In terms of the seasonal it will be trends worsen.
Iridium <unk> approach, but that mainly has to start from one extreme to the RTD order will start from the middle.
So we will control the development will be much more efficient the construction will be much more efficient we did that mainly because of the shape of the ore body.
And it will be.
It will be a big part of that I'm really confident in the future of the season, we will deliver on time and we derisked the approach with that.
So we then over to the loan to close the call.
Thank you so much faster.
Such a such a pleasure to serve received back in in our organization that have known as far as long as I worked in this industry and back.
Clearly the first time that we had the chance to combine our effort.
And Mitch will experience.
And value creation are very much looking forward to this.
Sure.
So in closing remarks.
As I mentioned in my opening comments.
We intend to release a negative effect in the third quarter comprehensive exploration update.
And with more color around our intentions up organic growth at new Afton over the next years to come.
We've talked about cost optimization, and we've talked about at cost initiative and we've heard pack at discussing.
<unk>.
Many times repeated.
My vision for the next.
Next.
The wildcard this company and reaching our goals of the 2022 26, and how I believe that everything has remained intact.
When you're looking at rainy river assets and earlier this year, we have file a 43 101, which was.
Which was supporting our increase in reserve on the ground and the central zone with a slightly different approach in the open pit execution, allowing for a little more smoothing, but also a lot of rate annually.
And we know the private cost pressure on certain consumptions at rainy River.
These are the fuel prices for sure and most impactful.
Our increase in the summer.
But when I look forward.
And with the strip ratio remaining strip ratio.
Approximately two to one.
And in looking at the tremendous reports and ATR fleet.
Do you think they're handling over 20 million ton.
Has been added and that ramp.
We annually and our 2000 22006 plan as it stands and there is no doubt in my mind that it provides us significant reports indicate optimization.
As we deplete the remaining capital ways reduce even further the strip ratio tremendous support.
Optimization and sequencing and we are talking about those things. So as we move forward. It is really all about our ability to extract that remaining $44 million.
Early approximately one gram gold at the lowest cost possible.
And the starting point is different.
Going after very underweight and lowering our fuel cost moving forward.
More optimization remain possible in some consumables and we continue to work in Dallas and the grinding media.
<unk>.
And as well on the cyanide tires consumption all of which could provide even further optimization.
It could be a very challenging at some times you are now to control the prices of some consumable.
So we got to go after the consumption that we're going to work.
Our card and reducing the most impactful.
Some of those in terms of consumption has continued to work of course with procurement and a mark global procurement possibilities.
So I remain extremely positive about the rainy river when I look at the carry out of 'twenty two 'twenty effects.
Our ability to extract cost and be more efficient as we move forward and allows <unk> to implement efficiencies. So we improve on our overall.
While we reduced our consumption.
Right.
As we move forward in accounting into our optimized now and return to the Mark capacity of 27000 tons a day that we have.
And back in 2020 remains a tremendous support communicate to ramp up the underground.
Is this incremental or creation of value.
Our progress on beyond the graph.
Everything is in place to be successful and while we have some challenges in the last couple of years.
Our intention and vision remains to position this asset for high free cash flow.
And that has not be impacted.
At new Afton.
Heard Pat on the tremendous progress into Q3 and it Hasnt mentioned in my opening comments.
The reward of the sea for Odysseys on project has always been a great future, where you would return the operations to very low cost higher grade.
Better recovery and higher free cash flow and that has not be impacted.
We have some issues in a short while in the last couple of years with some secondaries on battery, we are trying to bring to production to help in offsetting the gap auto which is all short term and I look forward as we ramp up the <unk> and it has to be reached exceeds or not.
One of the original vision of returning this assets our high free cash flow has been impacted.
As I mentioned, we're going to benefit the impact tailing deposition and simplify our operations.
Yes.
The short term objectives in fact, we all remain committed to.
To execute on our 2022 updated guidance and on that that will close.
That will close the comments portion of the call and I will turn it back to the operator for R&D Q&A portion of the call. Thanks. Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone.
We'll hear with retail and prompt acknowledging our request and your questions will be pulled in the order. They are received should you wish to decline from the polling process. Please press star followed by two if you are using a speaker phone. Please lift the handset before pressing any keys.
Your first question comes from Trevor Turnbull Scotiabank Treasurer. Please go ahead.
Yes. Thank you. Thank you for now.
I just wondered if you could talk a little bit about.
Next year is going to look at new Afton youll have be three starting to come into production obviously the season one.
Getting there in 2023.
But your comments talked about really how things will look much different in 2024 with with the C zone fully in production.
And I guess I'm, just wondering how we get from the.
The second half of this year into 2020 for just kind of how does that bridge look in terms of the costs at new Afton.
Everything that pack as is.
He is working on is to bring the B III ramping up you know two weeks Max capacity. So 'twenty three we feed the mill with better quality or denim currently grade.
The stockpile will be over by banner and we are going to be feeding the mill with the <unk> III. So all of the effort and accelerating the <unk> bring it up to the Mexico City has the objective to feed the mill on January one of the highest capacity possible at <unk> III, which originally has been sat between the eight and 10000 tonnes a day.
Which eventually will be also increase in the overall time from underground as we ramp up.
So so you got it right and all accurate at this stage is to bring <unk> to its Max capacity.
Early stage Cai, we're reviewing certain aspects of our costs.
In term of gap at all once you.
Once you reach your capacity didn't be three year, reducing August aspect of the sustaining cost moving forward of course, and then new complete tier capital project current season.
Which again from reaching an opening and starting the <unk>.
Starting the productions in the queue for a.
While not necessary stop our capital on day, one they will be some remaining ramp up but when you start looking <unk> offices, where you really.
Our best in your work.
Again, I'll ask rate on a b III now for 2023 Hope this answer your question.
And I guess with respect to that effort with the <unk> III does that.
Is there in a perfect world if everything goes the way we'd like it to be three does that mean 2023 won't really need any of the low grade stockpiles.
Rob and operator, I will be gone by then so that's an easy answer on that so really moving forward. It is all about feeding them out from under 23 <unk>, It's all about adding the mill with low cost block caves times.
Okay.
That's good thank you.
And then maybe just one other question with respect to rainy and the Intrepid zone.
You talked about having some production later this year and we saw the pictures in the presentation I just wondered if you could talk a little bit about how fast do you expect it to ramp up from that first production and then to the capacity that you are trying to reach.
I will pass it over to Pat for more comments on that.
Thank you Trevor for the question.
<unk> is not a big operation. So we are targeting something around 1000 tonnes per day. So.
We will I think it is going to.
The ramp up will be pretty short because if you look at the design of the store, we will we will mine ones, though.
Drill one so we'll have more mostly three towards top ongoing one will be an extraction one will be in backfill. The other one will be in drilling and blasting and the mining sequence. So.
That we will reach the true both of 1000 bumps pretty frequently in Q4.
Okay, great. Thank you and that's all I had.
Thank you. Thank you ladies and gentlemen, as a reminder, should you have a question. Please press star one on your Touchtone phone.
Okay.
Your next question comes from Mohammed CDB CIBC Mohamed Please go ahead.
Hi, Thanks for taking my question. So my question is on the Capex guidance with 46% of Capex and to date versus the midpoint of guidance I should we expect an uptick of spend in the second half and if so what would be the drivers of that please. Thank you.
Yes.
Have you seen him as strip ratios in our U S capital payout.
Pay up premiums.
Our callers are.
Backlog, but.
Q2, obviously, you know when you when you're minus 8% to one on that.
On the capital waste hasn't.
Higher impacted globally, but I think I'd be absolutely worth.
Targeting and also be.
The guidance on the sustaining capital our growth capital is pretty.
The work, we're doing and so it has not real given the 10% Mark has really allowing back but it's all about the sustaining capital.
And believe that.
Where we are going to be picked up.
<unk>.
Yes.
Thank you.
Thank you there are no further questions at this time. Please proceed.
Thanks, Chris and to everyone, who has joined US today. Thank you again as always should you have any additional questions. Please do not hesitate to reach out to us by phone or E mail.
The rest of your summers thanks very much.
Thank you ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask you. Please disconnect your lines.