New Gold Inc. Q1 2023 Earnings Call
After adjusting for certain charges, our net earnings was $18 4 million or <unk> <unk> per share compared to net earnings of <unk> <unk> per share in the first quarter of 'twenty. Two this earnings increase was primarily due to higher revenues.
Set by our higher operating expenses, our Q1 adjustments.
Adjusted earnings.
Include unrealized adjustments on the rainy River stream mark to market and the free cash flow royalty at new Afton in our MD&A has.
Details on all of those and other non-GAAP measures discussed.
Our total capex for the quarter was $63 1 million $26 3 million was spent on sustaining capital $36 8 million on growth capital.
Sustaining spend was primarily related to planned tailings work at both sites, both operating assets capital stripping at rainy River and stabilization activities at new Afton and our growth capital was specific was focused specifically on season at new Afton and the underground at rainy River.
Slide nine provides details of our capital structure, our cash at the end of the quarter was $197 million and liquidity was $570 million.
In line with the end of 2022.
With our investments I'd say largely offset by the sale of the previously held Artemis gold shares, which contributed approximately $31 5 million Canadian dollars.
Subsequent to the quarter, we also amended our credit facility.
Increasing the maturity date by year to December 26.
We continue to execute short term hedges on CAD and fuel and are hedged on both commodity that 75% for Q2 and approximately 30% for Q3.
I'll turn the call back to Pat.
Thank you Rob.
Florida delivering provides additional detail in the first quarter.
During the quarter, the mine and mill performed well and delivered solid production increase over the first quarter of last year.
While the mill throughput was below our plans.
A couple of them that we can get some hard targets for the year due to the current investment plan amendments for the processing plant.
<unk> gold grade at Trinity River was one four grams per ton well above the first quarter was up from last year and it's more underground ore was processed.
Im really excited to see the mining of the overburden is now complete.
It will lead to the significant improvement in mining efficiencies.
Can also share that money in the north Rowboats finished providing further confidence in open with greater contribution through the remainder of the open pit mine life.
Surely.
Completing the north logos grew to the cost saving and improvement in function.
This part of the open pit will be utilized to pilot.
Going forward.
Over the last year. The operation has made upgrades in preparation to water management the infrastructures.
We have a boosted the pumping system.
Doubled pipeline built.
Built opened but there were some channels and increase the water treatment capacity alright.
Alright, Kevin.
Rene rivers.
Manage any excess water.
During the quarter, the Auckland, a bit pushed back was kneeling leading to lower capital spend and budget.
I am confident the team will catch up over the year.
Turning to the underground.
Terms of the development about 300 meters in Q1.
Suddenly in the quarter include over 69000 tonnes of ore from the end of the underground zone at agree that $3 52 grams per tonne gold receivables.
Most importantly.
The underground tons and grade continued to reconcile well.
Going forward.
I remain confident that.
<unk> to meet our annual production guidance.
River.
As noted in our guidance production was expected to get stronger in the second half of the year.
Midlands activities are to be completed in the first half of the year.
We have great expected to normalize in Q2 I wanted to reiterate our target of <unk> 50.
45, 55 for approaching slip between the first and the second half of the year.
Slide 12 provides further details with new <unk> first quarter results.
The underground mine average over 7700 tons per day of ore mined in the quarter an increase over the prior year period as <unk> reached city states mining rate post completion of construction activities in 2022.
The mill average 8100 tonnes per day in.
In line with daily mining rates, incorporating between online as well as our approaches in relation to our two hour virtual agreements.
In short.
<unk> delivered to plan.
His own development continued to advance.
1172 meters in the quarter.
Development fell behind schedule during Q1 due to ventilation constraints.
The ground conditions in the area in the inventories.
However, I am confident in our ability to achieve the critical path.
Mining furnished photoshop or during the fourth quarter and deliver a commercial production in the second half of 2024.
Going forward the new offers.
<unk> remains well positioned to meet its annual production guidance set out at the start of the year.
Before I close out the presentation today.
Wanted to highlight what I view to be the key priorities for the company.
First.
Continue to stabilize our operations.
Hi, Ken.
To advance our organic growth opportunities.
Third we have a <unk> priority.
A lever on our guidance set out earlier in the year.
I am proud of the commitment of my colleagues.
Done an excellent job to start the year.
We'll continue to drive our success.
This completes our presentation I will now turn it back to the operator for the Q&A portion of the call operator.
Thank you ladies and gentlemen, we will now begin the question and answer session.
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One moment. Please for your first question.
The first question comes from Michael <unk>.
RBC capital markets. Please go ahead.
Thanks, almost right Mike Cybarco good morning, everyone.
Just.
On the quarter I mean, it was obviously a.
A great result, especially from new Afton, you talked about the maintenance in Q2.
But could you could you talk a bit about how we should look at at existing.
Existing operations.
Going forward.
Without looking at the <unk> zone, and the ramp up of underground mining at rainy should we be rebase lining our forecast at least over the course of 2023 on the basis of Q1.
So thank you for your question Michael.
The way we should look at this as actually we we are doing the significant amendments from the crusher with rainy River.
We plan for the worst and we wish photo Beth so what.
What we are doing actually the crusher is under repair and we are changing the <unk> components.
After six years of operation. So we are.
I think we really plan to risk.
With respect to our guidance.
So it's why we indicated $45 55.
It doesn't mean that we will do it because we are actually working really hard. So we put in place mitigation measures due to the closure shutdown, we pre crush tons of float.
We continue to operate the mill so the efficiency is less but the way. We guide you to 40, both if they voted with mutual consider the worst position that we can but we cannot.
So should we be thinking coming out of 2022, and what was a pretty challenging year should we be thinking of 2023 as as a period of stabilization at the operations. While you are continuing to develop in <unk>.
And the new growth from 2024 and beyond or is it more a case, where you are operating at full capacity.
That makes sense.
So do the first I will start with new Awesome battery is the block cave.
He is performing really well so we are at the beginning of the block cave. So we're probably a 60 meter affiliation in the book So it's performing well.
At this stage so.
For this I am not concerned about the stability of the extraction.
The weapon.
<unk> is the same so extreme to you that we.
One of the reason why in Q1, we might've been classes because we.
It was really less sufficiently to mine in the nortel because it wasn't narrow shallow pit so the face on a small and difficult to indirect equipment <unk> equipment in one single phase and also we are.
Pursuit of all of you that we are the overburden is over and it was really difficult material to endo. So we maximize the opportunity the winter of <unk> <unk>.
Thanks, Robert So it's behind US. So we know in term of fifth we have a mine life of three five years through an inventory the 'twenty to 'twenty two 'twenty through 'twenty four 'twenty five in 'twenty.
<unk> 26.
So we will remain in Iraq. The mine is in good shape.
Or is the pumping system is robust and the litigations are all in place. So we deploy a lot of investment in time, and therefore, the capital to beef up the preventive and prevent the printed a predictive amendments and mobile actually so.
Im strongly confident.
That's why I said to you that our priority is to stabilize I think going forward.
We reduced a lot of risk on the execution of the provision in the guidance.
Don't see any.
Other than something that would be out of my control and the control of our people don't see any huge risk for the operation going forward.
Okay perfect. Thank you so much.
Thank you. The next question comes from Andrew <unk>.
National Bank financial please go ahead.
Hi, good morning.
I just have a couple of questions on rainy River I'm. Just wondering if you can give some update on how that's proving versus the block model.
What your conviction is in that going forward.
You talked about on their own.
Yes, I'm sorry.
So it is so so actually we are we are.
We have a team that is when we have a new <unk>.
So we increased our capacity to to do stuff to look to opportunities. So <unk>.
Luke and dropouts worrisome to join US that will support also list.
But we.
The work was still working on the block models sold to optimize.
Shapes.
Did a lot of work in terms of the solution for the extraction for under the under the main zone. So we are working actively on that.
And so and the optimization of the around the optimization of the ventilation the optimization of the equipment and the grade up to now in Q1, we got inside it really well.
Yes, I think we will be well positioned to.
Good to talk to finalize our transition for Q3 this year.
Okay. Thank you and then just one follow up.
On the development at the C zone.
Just wondering if you can provide a little bit more color on the delay that you.
Mentioned this quarter end.
Yes, if you see any impact on Florence.
The timelines that you previously provided.
Good question very.
Really good question so.
So just to summarize.
Actually just first.
We developed this we can see zone is split into we have the infrastructure on the ground and we have that.
Development on the ROE and the development, we have what we call the critical path and what all of the supporting Auto development was supported Loveland, Florida other peripherals.
So actually we respect the critical paths with two created the undercut the block cave and to develop the draw bells and saw the extraction levels and also to do the development board of concern of the crusher.
So we actually in development will be a place where it leads.
In Q1, mainly because the main.
Cash raised forces one is 450 meters alone and if there is more in the bottom part we have some some some zone, where we allocated then we have to spend more time to short read this into your ability to perpetually.
Paul and stabilize its part of mining.
And we are we are full steam ahead, so we <unk>.
If you look that we recently increased our development meters. We did 450 meters in March actually we are reaching that 500 meters per month, we reduced the temperature on the ground from seven to 10 degrees C that is mainly due because we have more our exchange.
We argue it's going really well for the development of the <unk> too so and we will receive our new electrical equipment.
In the following days.
<unk>.
First of Oreo is still expected.
For the second half of 2020 Dream immune Q4, and we are still expecting to reach.
Commercial production or what we call the withdraw the previous for the second half of 2024, so our folks on profile mobile is still irrespective.
Okay. Thanks for the ethane that's it for me.
Thank you. The next question comes from.
<unk> of credit Suisse. Please go ahead.
Hi, Good morning, Thanks for taking my question on rainy River you highlighted a few different mining efficiencies underground optimization just at a high level. How do you think about aspirational, what the cost profile could look like at this mine.
For example is it possible that the all in sustaining cost gets closer to let's say the $1200 an ounce range I'm just trying to get a sense of like a best case scenario, where cost could end up longer term. Thanks.
Well I think for this.
So for you to give me more time to look at my numbers.
We are still optimizing this so the fact that we can now.
We reminded of.
North loan.
As though.
It provides us a huge opportunity to shortly all those disciplines backfill misfit.
So.
That's going to be really significant for us in terms of efficiency and fuel consumption and operating costs.
For auto loan itself is I think the customer is still in the Tech report are still valid, but we are working again to do development as much as we can reduce the capex.
And to maximize the fact that we are in the open pit that can be we can tie in to reduce development. So it's what we are working on luxury.
<unk> said to the previous question, but will be more important than to answer to that in Q3.
Great. Thank you.
Thank you. The next question comes from Anita Soni of CIBC World markets. Please go ahead.
Hi, good morning, Patrick.
I have a number of questions I'm, hoping you'll bear with me I just wanted to clarify.
First at rainy River on the grain head grade is expected to normalize in Q2 can you talk about what happened in Q1.
The positive grade reconciliation in the pet I know you're pulling.
From Entropic now, but you haven't given us.
An idea of how much tonnes are coming from underground or from Nielsen.
Could give us a breakout.
Both of those.
And the grade and then also what was different about what happened in Q1 that would be helpful.
The remaining one time income postured, the normalization is mainly because in the north slope.
Yes.
<unk> discussed previously.
The year before the reconciliation was more tricky.
We apply a mine gold factor and we use <unk>.
Drilling to.
Due to determine integrated so we have more volatility in the north load and all the other part of the ore body. So it's behind us with my boat so.
This is why we mainly we relieved to know will come in that we are going to be more straightforward.
Contribution will be easier for us.
For the underground mine.
You know as the entire grade so as I explained to you with three five grams per tonne and the reconciliation.
As planned so remain mostly.
Compared to the turn that we process.
670000 tons compared to 2 million tonnes processed from the pit so basically.
Okay.
On the answers point of view, it's what is making a difference.
Okay.
When you say the grade is expected to normalize and then what you are talking about is that you've mined out the north mobe and <unk> gone back and I guess the main zone.
Great should be more along the lines of $9.
995 or so.
Something like this yes.
More.
It's easy for us to predict the grade.
We have a better reconciliation.
Okay, and so you are when you reiterated the $65 45, you were talking about one of the great team also that you're still going through maintenance in the second half and the second quarter, but that should be complete by the end of the second quarter rate.
Yes, so the shutdown is actually ongoing and is going to handle them.
The beginning of May.
Alright. So my next question actually relates to.
Our financial.
I noticed the new Afton costs are.
As it relates to or purchase agreements previously.
Previous agreements could you clarify, but both our purchase agreements are referring to.
I apologize I don't think I've seen that before.
But I'm not sure. If you had previously mentioned that think you can explain why or purchase agreements are that would be helpful.
Okay. So it is.
The new Afton mill is.
Mill throughput capacity of.
14.
500 tonnes per day in the U K increased to 16000 tonnes per day and peaks depending of the words index.
Actually we are using just saw 60% of this capacity, so and we have neighbors around us or more of a smaller operation.
And for US, it's an opportunity that we look at so this this quarter. The all purchase agreement includes mainly.
<unk> generated for us.
<unk> hundred 22500 ounces of productions and we represented throughout most of the 7% of the new I'll turn in term in terms of revenues.
Okay.
And it's mainly it's we have a small small small operators. Besides those who are another meeting.
Capacity and ore mill in place and so it's just an opportunity for us too.
To generate more cash flow and we also our purchase agreement on a new six point of view, it's increasing our costs.
Okay.
Great.
Could you explain like how that purchasing agreement works in terms of how it would impact your financials. I mean, you guys you mentioned that <unk>.
Added to the cost, but I'm just to understand I'm trying to understand.
Purchases.
The value of spot price less a discount on them.
But like what's the cost associated with those ounces, how do we think about it.
Yeah, we.
Purchase they are at.
At a factor and our discount if you will and.
As we processed so we recognize those ounces and generate the cash flow. It's as simple as that there is no <unk>.
Significant.
It's not a complicated farnell.
Okay, and then follow up sorry on one comment you guys mentioned that Tom in your opening remarks, Rob you mentioned that you said.
We are 75% hedged and 35% hedged on both commodities and I think you were referencing fuel and cat, but I just wanted to clarify you at fueling CAD and not gold and copper.
Yeah, no it said input cost.
And our exchange rate.
Alright, Thank you didn't mean commodities, okay alright.
We are.
Hedged Manuel Romo.
No.
Alright, sorry, I just want to make sure.
Alright.
Another question I had was probably the last one looking at note 11 in the financials I just wanted to understand theres two different kinds of.
Hum.
I guess two different kinds of.
Fair value.
The charges that are coming through and one I guess came through the comprehensive income of owner of the owners and the other one came through the income statement and it's just a little bit higher than we've seen before so I guess I understand the one that went through the income statement and that's related to the Royal gold and the teachers pension plan.
Sure agreement there.
But I don't understand really the one that's going through the operating side of the owners.
Side and then.
Specifically why it's called related to our own credit risk I guess I wanted to understand is there any implications at the higher rates that are happening now in that particular node.
Yes.
The big change.
Gold stream obligation and the new Afton free cash flow obligation is as you noted I think in your note. There is some impact on higher metal prices, which increases that liability for both of those but the bigger change is related to our bond yields and the change during the quarter of those yields.
Which impacts the discount rate that we use so there was a.
There was a change of approximately 28% and note that discount rate downward, which increases the liability. There is some impact from the risk free rate, but not as much as what we've seen on that new gold credit spread if you will so it's.
It's a part of the option.
Our model and that we have to.
Used to calculate these liabilities quite yet what I wasn't understanding of our current clients.
Discount rates are going down.
Great concern on our part if you are if you are a perfect.
Yes, that's related specifically to our exactly.
It had nothing to do with the open market rates, if you will or the risk free rate. Okay. Thank you very much tougher for my question.
Thank you.
The next question comes from Farooq Hamed <unk> from.
From Raymond James Please go ahead.
Hi, there thanks good morning.
Most of my questions have been asked and answered, but maybe just following up on rainy River.
The performance in Q1, and what you're kind of guiding for Q2 here.
Q1 was strong I think it represents something like.
27% or so of your full year guidance.
And yet you are calling for 45 55 split in the second half my focus is actually on the costs Youre Q1 costs. Despite the good production were above your guided rate and I'm, assuming that if you have this pullback in grade and lower production in <unk> I would imagine that costs are probably moving higher into <unk> relative to <unk>.
And so in order for you to hit your cost guidance that range for the year that would imply something like operating expense in the.
700 to $800 per ounce range in the second half of the year is this consistent with your expectations.
No.
First in.
In terms of the second quarter or so to do that we plan for the worst and we wish all above well that's one thing.
And we've mitigated the risk there going forward and our costs too so.
We plan in the budget to mind, mostly 131000 <unk> per day rooms wanted <unk> into Q1, but actually we are entering 170, so and we have a sort of a big part of our money because we are the same people in semi equipment. So our costs will decrease our capital costs for the pushback we will.
Decrease as we are way more efficient in our business, so and going forward in terms of our basic im not expecting that we are we are slightly.
<unk>.
In terms of net income because of the contractor cost and photo shutdown with one it will be behind us.
The second half of the year. These costs will go back to normal so and we are in control. We are in total control award G&A. So all Britney we are pretty lean as an organization that really.
So basically in term of ASIC.
We further proportional level going forward.
Okay. Thanks, that's helpful. I guess I'll focus a little more on Opex, because I figured that there was some capex accounting moving over into the ASIC category, there, but just more on the Opex because that was already running ahead of your guidance for the year. Despite the strong production in the first quarter.
So maybe I can just follow up on that but.
Unless I misheard, you I am surprised to hear that youre expecting cost to come down we're using youre expecting cost to come down in the second quarter from Q1 levels or or is it really just a second half thing.
It's always question, a denominator to what they're paying or unusual look a bit from the next quarter and not on the Walnut thing too.
We have some of the Odeon in open beta so compared one underground mining. So I think if you just target Q2 with inventories. So we need to dominion's you need to look at the cost going forward I'm, hoping and expecting a strong second half in terms of our cost per ounces produced in 2023.
Okay. Thanks, Thanks for that maybe.
Maybe I'll just switch gears a bit just a little bit on strategy.
In your in your wrap up slide you talked about your second priority being advancing your organic growth opportunities.
Patrick can you can you talk to us a little bit about what those organic growth opportunities or is that is that the C zone and underground at rainy River or is there something else to be considered in that organic growth bucket.
So it's mainly this.
First is this is <unk>, it's an opportunity for us.
It's an opportunity it's not on opportunities, it's our mission our jewelry.
And we have a strong vision the cover price going forward and we want to be fully efficient 2024.
Sorry, when the copper price is expecting to incur.
The increase so.
And for US is the execution is the exemption of the C zone in terms of development and construction achievement a pejorative radius is important because it's a it's a nice opportunity for us to be well positioned to serve from the copper wave at the end of 2024.
In term of rainy River, it's an abortion due to increase of extreme see efficiencies maximize what we get from the geology and to see how we can in addition to the reserve where we can address the resource underground.
Actually that's what we are looking up and we.
We are seeing we're still seeing this as an abortion.
To create more value than any of the point of view.
Okay. Thanks.
And then maybe just the last question from me at the beginning of the call you talked about strengthening your balance sheet.
I believe you sold your Artemis shares in the quarter.
You pushed back your.
Your date on your credit facility.
I'm just wondering.
Why the filing obviously, it's always good to have a good balance sheet, our strong balance sheet, but I'm just wondering why the focus here it looks like your covenant positions are in good shape.
Looks like your balance sheet is in relatively good shape. So I'm just wondering.
Whats driving the focus on strengthening the balance sheet.
Focus on starting first quarter of this year.
Yes, I think it is just driven by good housekeeping and Optionality and just keeping ourselves in good shape and ahead of the game.
Nothing specific okay alright.
Alright perfect. Thanks.
Thank you.
Next question comes from Eric Windmill of Deutsche Bank. Please go ahead.
Hi, its actually scotiabank, but thank you very much.
Yes. Thanks for taking my question I think a lot of.
I was going to ask has already been addressed but maybe just quickly on.
On rainy in the underground any additional details there in terms of.
Quantum in tons or grade or what youre seeing there in Q1.
And when you talk about the past production are you moving forward.
Well I guess, both actually any additional details you can provide.
So.
Or if I'm looking so just not sure that they are.
Understand clearly the question, but the first part of it.
<unk>, we modified the way we changed our mining method.
We are pretty efficient now think and we are what I like to say is the Trinity we are reconciling the grade and the tons sold.
It's always.
I would say an overhang and when you start an operation underground like this.
We are giving to us confidence.
Looking forward as I explained to you will be in a better position to explain in the Q2 at the end of Q4 in Q3, where we are positioned with the optimization of the underground mine.
It will be really subjective.
Because when I will we will present the new numbers.
And on the efficiency of the <unk> number that we will stand behind and actually kind of.
You kind of talk about this.
Okay, great. Thank you.
Then maybe one more quick one on new often in terms of additional or purchase from third parties should we assume that will be the same throughout the balance of the year or any sort of guidance there.
Yes, we would have assumed at this we were looking at this as an opportunity.
Because we have a we have a strong team in the middle of this new afton or anything or notebooks skills experience credibility.
So and we have an excellent mill and the recovery factors is excellent we have a lot of maturity.
And we want to maximize the value of our infrastructure and people with us.
Yeah, great. Okay. Thank you very much really appreciate it.
Thank you our last question comes from Mike Parkin of National Bank. Please go ahead.
Hey, guys. Thanks for taking my question just a follow up there.
The regional work purchases from third parties was that factored into the original guidance.
No it wasn't up.
Okay.
And then with respect to drilling.
Some extensions at the rainy River underground.
Can we expect you guys to be like from what I understand you guys were looking to.
Resume that from underground drill stations rather than from more costly surface locations. If that's still the case when do you think you'd be in a position to start that up.
So we the definition drilling.
That was business as usual this year.
For the exploration.
It will be it's difficult for us to drill from the Pip.
As you know we have activities and we can we didnt conflict and can cause issues.
But we are actually looking at this and our transition to the luxury platform to driven events.
It's probably something that will be ready to go in 2024.
Okay.
And then just skipping around.
With respect to targeting year commercial production rates.
Our new App and when do you.
What.
Vintage of full capacity are you basing that off like 14, 5000 tons per day mill capacity or.
Something else what are you what's your abilities.
Sure.
So neutral even the definition of <unk> is when you achieved 70% of your mill rates remain pretty conservatively.
In the block caving, it's a bit different.
Whether it's stock it start to cave by itself so well in <unk>.
So just to create the opening if you will.
That came that is already initiated.
In our case.
So it's pretty particular because were only to my incumbent new ordering block caving in Canada, but the way that the establish the trigger to be in commercial production to suit too.
<unk>.
As when we reached the reduced where at Quebrada itself. So for us it can be actually I think it's an average of 12 to 16 draw Bill Im not sure of the exact amount. It can vary you can change.
It can be in 'twenty, two where it can be just them, but in our case, it's where we call it to any previous commercial production. So when we will start to extract sees one.
We cannot each draw bill is that capacity so.
We will not be able to extract.
14000 tonnes per day as his own but we have <unk> that is operating at the same time, and it's where it <unk> zone is coming season over at <unk>, and we have a progression up to the moment that we reach a 14500 tonnes per day, so and <unk> will be at maturity if I'm right. It would be in 2025.
Okay.
And just following up on that can.
Could you give us a sense of.
What percentage of your operating costs.
<unk> kind of fixed versus variable.
You've got quite.
Quite a significant step up in tonnage coming but that probably doesn't translate into steady state cost per ton from where we are today.
Likely drives a significant drop.
Fixed costs being spread out over a bigger number is it a little too early to ask that question.
It is a bit early but I can.
You're starting to give you a range of between 70 and 80, 70% to 80% fixed it's a high fixed component as you know.
But it'll be in that 70% range, but we haven't.
I haven't done the math recently, but.
It should be in that.
Spot.
Got it.
And then has there been any chat with Ontario teachers in terms of what their intention is.
With the Q2 2024 decisions.
A decision to either take a direct interest in new afton or maintain their interest in the free cash flow.
Hey, Mike Thank you Darren.
Yes, we have a great relationship with teachers that buyback divisions at year out.
So we maintain open dialogue, but there hasn't been any specific.
Discussions around the buyback, let's say a year ago.
Wafer bow.
Okay.
Alright, Thats it for me and for all.
Bob Congrats on your retirement.
You get it on a sailboat or something.
Thanks, Mike.
Thanks, guys.
Thank you.
No further questions I will turn the call back and catch up for closing remarks.
Thank you Michelle and again, thanks to everybody who joined the call today and ask great questions. As always should you have any additional questions. Please feel free to reach out to us by phone or email have a great day.
Ladies and gentlemen, this does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
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Okay.
Yes.
Thanks.
Thanks.
Yes.
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