Q2 2026 Doman Building Materials Group Ltd Earnings Call

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Speaker #1: Good morning, everyone, and thank you for participating in Magnolia Oil and Gas Corporation's second quarter 2026 earnings conference call. My name is Megan, and I will be your moderator for today's call.

Speaker #2: Good morning, everyone, and thank you for joining us for Domen Building Materials Q2 2026 financial results conference call. Joining us on today's call are the companies' chairman and chief executive officer, Amar Doman, and chief financial officer, Darren Gwozd.

Speaker #1: At this time, all participants will be placed in listen-only mode as our call is being recorded. I will now turn the call over to Magnolia's management for their prepared remarks, which will be followed by a brief question-and-answer session.

Speaker #2: If you have not seen the news release which was issued after the close of market yesterday, it is available on the company's website, as well as on Cedar along with our MDNA and financial statements.

Speaker #2: Thank you, Megan, and good morning, everyone. Welcome to Magnolia Oil and Gas's second quarter earnings conference call. Participating on the call today are Chris Stavros, Magnolia's chairman, president, and chief executive officer; and Brian Corrales, senior vice president and chief financial officer.

Speaker #2: I would also like to remind you that a replay of this call will be accessible until midnight on August 20. Following the presentation of the Q2 results, we will conduct a Q&A session for analysts only, instructions will be provided at that time for you to join the queue for questions.

Speaker #2: As a reminder, today's conference call contains certain projections and other forward-looking statements. Within the meaning of the federal securities laws, these statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements.

Speaker #2: Before we begin, we are required to provide the following statements regarding forward-looking information which is made on behalf of Domen Building Materials Group Ltd. and all of its representatives on this call.

Speaker #2: Remarks and answers to your questions today may contain forward-looking information about future events or the company's future performance. This information is subject to risks and uncertainties that may cause actual events or results to defer material risk.

Speaker #2: Additional information on risk factors that could cause results to differ is available in the company's annual report on Form 10-K filed with the SEC.

Speaker #2: A full safe harbor can be found on slide 2 of the conference call slide presentation, with the supplemental data on our website. You can download Magnolia's second quarter 2026 earnings press release as well as the conference call slides from the Investor section of the company's website at www.magnoliaoilgas.com.

Speaker #2: Any information regarding forward-looking statements is made as of the date of this call, and the company does not undertake to update any forward-looking statements.

Speaker #2: Please read the forward-looking statements and risk factors in the MDNA as these outline the material factors which could cause or would cause actual results to differ.

Speaker #2: I will now turn the call over to Mr. Chris Stavros.

Speaker #2: The company will not provide guidance regarding future earnings during today's call, and management does not anticipate providing guidance in future quarterly or interim communications with investors.

Speaker #3: Thanks, Tom. Good morning, everyone. Thank you all for joining us today for discussion of our second quarter 2026 financial and operating results. I know that today is a very busy day of earnings.

Speaker #2: I'll now turn the call over to Amar.

Speaker #3: I will briefly cover our second quarter results, which continue to validate the consistent high-quality nature of our gettings asset and provide strong overall financial results.

Speaker #3: Thanks, Alan. Good morning, everyone. We appreciate you taking the time to be with us as we review Domen's Q2 2026 financial results, and discuss the current market environment.

Speaker #3: Returns together with our current area of business. I'll then highlight a few items related to the financing underlying our recent agreement to acquire wildfire energy.

Speaker #3: Overall, our Q2 performance demonstrates the resilience of our business model and the strength of our diversified product offering. Despite a market that continues to be influenced by economic uncertainty, an uneven demand across construction markets, we delivered another solid quarter highlighted by record Q2 numbers on revenue, stable margins, and improved net earnings.

Speaker #3: Brian will then review our financial results for the second quarter in greater detail and provide some additional guidance before we take your questions. Beginning on slide 3 in our quarterly investor presentation, Magnolia markets 8-year anniversary by delivering another quarter of strong and consistent execution as seen through our financial and operating metrics, which continue to underscore the strength of our differentiated business model and the quality of our asset base.

Speaker #3: Revenue for the quarter reached a record 904 million and increased from 887 million in the Q2 of last year. This performance was primarily driven by higher year-over-year pricing, and several construction materials categories.

Speaker #3: Our strong second quarter financial metrics were supported by both solid production growth and higher year-over-year oil and NGL prices. Our second quarter adjusted net income was approximately $184 million, or 99 cents per diluted share, with adjusted EBITDAX of $370 million, during the period.

Speaker #3: Construction materials continued to represent the largest component of our business, accounting for approximately 84% of sales, with specialty and allied products contributing 13% and other sources making up the balance.

Speaker #3: Our ability to deliver record revenues while maintaining disciplined pricing and customer service reflects the effectiveness of our distribution network, the breadth of our product portfolio, and the long-standing relationships we have built with customers across North America.

Speaker #3: Drilling and completion capital for the second quarter was $125 million, with a reinvestment rate of just 34% of adjusted EBITDAX, and our lowest quarterly rate of capital reinvestment since 2022.

Speaker #3: Our pre-tax adjusted operating income margins averaged a very robust 51% for the quarter. Magnolia generated $235 million of free cash flow in the second quarter and returned $80 million of this free cash to our shareholders through a combination of our base dividend and our share of purchase program, where we bought back just over $1.7 million shares during the quarter.

Speaker #3: Gross margin dollars increased modestly to 146 million while our gross margin percentage remained stable at 16.1%. Maintaining margins in today's environment speaks to the discipline approach our teams continue to take in managing inventory, procurement, and pricing across a dynamic market.

Speaker #3: Adjusted EBITDA for the quarter was just under 79 million, broadly consistent with a prior year's quarter despite continued market volatility. While EBITDA was slightly below last year's level, we were pleased to generate net earnings 31.2 million and improvement over the 27.7 million reported in Q2 2025.

Speaker #3: Our ongoing discipline around capital allocation, strong operational performance, and continued focus on our financial returns allowed us to generate meaningful free cash flow and to continue to execute on our proven business model.

Speaker #3: For the second quarter of 2026, total company production volumes grew by 8% year-over-year to $106.1 thousand barrels of oil equivalent per day, above our expectations in earlier guidance, with oil production growing by 5% and averaging 41.9 thousand barrels per day.

Speaker #3: Looking at the first 6 months of the year, revenue totaled 1.67 billion, with adjusted EBITDA of 147 million. Gross margin percentage improved slightly to 16.5%, and net earnings increased to 55.1 million compared to 51.2 million in the same period last year.

Speaker #3: But total production and oil production volumes established new quarterly records for the company. Based on the strong second quarter production we are raising Magnolia standalone full year 2026 production growth guidance to 6% from 5%.

Speaker #3: These results demonstrate our ability to generate consistent profitability while navigating a market that remains far from uniform. As always, our priorities remain unchanged. We continue to focus on disciplined execution of operational efficiency, prudent working capital management, and providing exceptional service to our customers.

Speaker #3: Production at gettings continued to be the primary growth driver for Magnolia and setting a new quarterly record with total gettings production increasing 10% year-over-year to 85.5 thousand barrels of oil equivalent per day and oil production of 29 thousand barrels per day, with growth of 7% over the same period.

Speaker #3: These fundamentals have enabled us to perform consistently across different market cycles and position the company to capitalize on opportunities as demand improves. Our balance sheet and cash generation continue to support our capital allocation strategy, including returning capital to shareholders.

Speaker #3: Gettings production accounts for approximately 81% of Magnolia's total company volumes. Production in our current area was relatively flat year-over-year at just over 20 thousand quarter, and which we expect to sustain for many years.

Speaker #3: Consistent with that commitment, we declared our quarterly dividend at 14 cents per share, reflecting our confidence in the long-term strength of the business. Looking ahead, while macroeconomic uncertainty remains we believe Domen is well positioned.

Speaker #3: The current area assets continue to generate a significant amount of free cash flow for Magnolia. Turning to slide 4, as we announced last month, we entered into a definitive agreement to acquire wildfire energy for total consideration of approximately 4.06 billion dollars.

Speaker #3: Our diversified product mix, broad geographic footprint, experience management team, and disciplined operating model provide a strong foundation as market conditions continue to evolve. In closing, I'd like to thank our employees for their continued dedication and commitment, our customers and supplier partners for their ongoing trust, and our shareholders for their continued support.

Speaker #3: The acquisition will add approximately $810,000 net acres to Magnolia's gettings area position and total oil and gas production of roughly $53,000 barrels of oil equivalent per day.

Speaker #3: With that, I'm going to turn the call over to Darren, our CFO, to review the financial results in more detail before we open the lineup for analyst questions.

Speaker #3: Thanks. Darren?

Speaker #4: Thank you, Amar. Good morning, everyone. Sales for the 3-month ended June 30, 2026, were 904.5 million versus 886.7 million in 2025, representing an increase of 17.8 million or 2%, largely due to increases in year-over-year pricing and certain construction materials categories.

Speaker #4: The company's sales in the quarter were made up of 84% of construction materials, the remaining balance resulting from specialty and allied products of 13% and other sources of 3%.

Speaker #4: Gross margin dollars were 145.8 million in the 3-month ended June 30, 2026, versus 142.7 million in 2025, an increase of 3.1 million or 2.2%, mainly driven by the increase in sales.

Speaker #4: Gross margin percentage was 16.1% during the period, unchanged from the same period in 2025, despite the volatility experienced in the past year with respect to lumber pricing further reinforcing the resilience of our business model.

Speaker #4: Expenses for the 3-month ended June 30, 2026, were 90.9 million as compared to 87.9 million, an increase of 3% or 3.4%, and 3 million dollars.

Speaker #4: As the percentage of sales, 2026 expenses were 10.1% compared to 9.9% in Distribution selling and administration expenses increased by 4.3 million, or 6.9%, to 67 million in the Q2 of 2026, from 62.7 million in the same period in 2025, primarily due to broad inflationary pressures.

Speaker #4: As of percentage of sales, these expenses were 7.4% compared to 7.1% in the same quarter in 2025. Depreciation and amortization expenses decreased quarter over quarter by 1.4 million or 5.5% to 23.9 million for the 3-month ended June 30, 2026, compared to 25.3 million for the same period in 2025, mainly due to dispositions of property plant and equipment.

Speaker #4: Finance costs for the Q2 of 2026 were 17.6 million, compared to 19.3 million in 2025, a decrease of 1.7 million large as a result of overall net debt including lower utilization over the revolving loan facility during the quarter.

Speaker #4: This quarter's EBITDA was 76.8 million compared to 80 million in the comparative quarter of 2025, a decrease of 1.3 million or 1.8%. EBITDA during the quarter was generally stable versus prior quarter despite some slightly elevated inflationary pressures from freight and fuel costs.

Speaker #4: Domen's net earnings for the quarter were 31.2 million compared to 27.7 million for the same period in 2025, an increase of 3.5 million. Turning now to the statement of cash flows, operating activities for the 6-month ended June 30, 2026, consumed 2.3 million in cash and cash equivalent versus generating 1.2 million in the comparative prior year.

Speaker #4: The following activities during the period accounted for the change in the cash. Operating activities before non-cash working capital changes generated 96.5 million in cash compared to 100.7 million in the same period in 2025.

Speaker #4: Operating cash flows during the period were impacted by the timing of income tax payments. During the 6-month ended June 30, 2026, the company generated 35.9 million of cash from overall financing activities related to the funding of seasonal working capital compared to 6.9 million in 2025.

Speaker #4: Payment of late lease liabilities, including interest, consumed 17.7 million of cash compared to 15.8 million in 2025. The company's lease obligations generally required monthly installments and these payments are all current.

Speaker #4: Total net advances of the revolving loan facility were 84.9 million compared to 46.8 million in 2025, shares issued net of transaction costs generated 1 million of cash compared to 0.8 million in 2025, the company also returned 26 or 24.6 million to shareholders through dividends paid during the 6-month period, largely in line with 2025.

Speaker #4: The company was not in breach of any of its lending covenants during the 6-month ended June 30, 2026. Investing activities consumed 15.3 million of cash compared to generating 8.6 million in 2025.

Speaker #4: Investing activities for the first 6 months of the comparative 2025 period included the sale of a portion of the company's timber learns for total cash proceeds of 14.4 million; additionally, the company invested 21 million in new property plant and equipment during the period, 16 million of which was spent in Q1 compared to 6.1 million spent in the 6 months in 2025.

Speaker #3: Just to give you a sense, after averaging 2,300 tons per day in the second quarter, underground production rates jumped over 40% to approximately 3,300 tons per day in July and we now expect to achieve our target of 5,000 tons per day by year end versus the third quarter as assumed in the original new goal 2026 budget that they approved late last year.

Speaker #4: This concludes our formal commentary; we would now be happy to respond to any questions that you may have. Thank you, Operator.

Speaker #1: Thank you. We will now begin with the question-and-answer session. To ask a question, you may press star, then 1 on your touchstone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker #3: Revised partial year 2026 production guidance at Rainey River is shown on slide 13 which reflects this slightly slower assumed ramp-up of underground mining rates.

Speaker #1: If at any time your question has been addressed, and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster.

Speaker #3: With that, I'll turn the call over to Tom.

Speaker #1: The first question comes from Matthew Keller with—sorry, that's Matthew McKellar with RBC Capital Markets. Please go ahead.

Speaker #4: Thanks, Mick. Turning to slide 9, I'll briefly run through our consolidated financial results. Despite being our second lightest expected production quarter this year, our balance 7 asset portfolio produced quarterly record financial results off the back of the inclusion of our first quarter of our Canadian assets.

Speaker #3: Hi. Thanks for taking my questions. First, I know you don't provide quarterly guidance, but just at a high level, what is your sense of how Q3 is shaping up relative to Q2?

Speaker #4: Some of the many quarterly records included record quarterly revenue of 1.1 billion dollars at 27% increase quarter over quarter. Record EBITDA of 478 million dollars despite the 141 million dollar non-cash expense related to Rainey River's fair value uplift of the short-term stockpile which must flow through EBITDA, the P&L, and our reported CAS number.

Speaker #3: Last year really kind of slowed quite a bit sequentially. What was going on in the markets? I'd be curious to know how you're seeing demand trends so far through Q3 in each of Canada and the US, and with that, how you're thinking about the sequential progression in your results.

Speaker #3: Thank you.

Speaker #5: Yeah, good question, Matthew. You know, we've got, you know, July in the books now, and I can tell you it's fairly similar, you know, what we're seeing.

Speaker #5: So you know, the economy hasn't changed much, you know, I think the consumer hasn't changed much. You know, I think the Middle East is still going on, and these kind of things that are just, you know, not that bullish for the market.

Speaker #4: And record free cash flow of 388 million dollars or more than 4 million dollars per day and increase of 45% versus last quarter. Our Canadian assets delivered 45% of overall quarterly free cash flow or approximately 175 million dollars despite both assets being in ramp-up mode.

Speaker #5: So kind of a steady as she goes. You know, again, nothing crazy on the way up, nothing crazy on the way down. Just hitting a lot of singles and getting it done.

Speaker #3: Okay, thanks. And can you talk about any impacts, even if indirect, that you might be expecting from recently announced tariffs on Brazil and Canada?

Speaker #4: Our Q2 results did see lower realized gold and silver prices than Q1, particularly in June. We are also seeing some signs of cost inflation specifically diesel costs as shown on slide 11.

Speaker #3: Maybe particularly as it might relate to sensing. Thank you.

Speaker #5: Yeah, sure. That's a net benefit to Domen. So when we look at, of course, we don't really cross the border with a lot of material, so the import sort of, you know, severe tariffs have been put on South America are benefiting.

Speaker #4: Slide 8 illustrates the tremendous impact of these accelerating cash flows on our balance sheet. Cash of 1.1 billion dollars at June 30 represents a doubling of the balance versus year end 2025.

Speaker #5: We're getting a lot of inquiry for fencing and I think that's going to continue to bode well. There's a long-term story as we continue to wrap up our fencing production in the US and pretty much stop all imports coming in.

Speaker #4: We paid out approximately 45% of our Q2 quarterly free cash flow with 110 million dollars of buybacks through June 30th. The payment of an inaugural 2-cent dividend and the elimination of 39 million dollars of our higher cost capital lease debt.

Speaker #5: So that's certainly going to help demand as the quarters go on.

Speaker #3: Great. Thanks for the color. I'll turn it back.

Speaker #4: We exited Q2 with liquidity of over 2 billion dollars leaving no doubt about our balance sheet strengths. With expectations for significantly higher production during the second half of 2026, Kerr is poised to deliver even higher quarterly free cash flow for the remainder of the year.

Speaker #5: Thanks.

Speaker #1: Thank you. Our next question is from Hamir Patel with CIBC Capital Markets. Please go ahead.

Speaker #6: Hi. Good morning. Amar, I just wanted to follow up on the fencing side. I know you've got various growth initiatives underway there. Maybe if you could just give us an update on how that's progressing.

Speaker #4: Based on revised guidance and our updated forecast pricing, a 4,000 dollars per ounce of gold, 60 dollars per ounce of silver, and 6 dollars per pound of copper we expect to generate 2026 EBITDA of approximately 2.3 billion dollars and free cash flow of approximately 1.5 billion dollars despite significantly lower assumed metals prices in the second half of 2026 and only 9 months of lower than originally planned contribution from new Afton and Rainey River.

Speaker #5: Yeah, we've got our Gilmer sawmill operating. It's not quite at 100%, you know, capacity yet with the upgrades we did down in Texas, but it's coming along now, which is excellent and reduced our labor costs significantly there.

Speaker #5: And in our automation, and then we've got our Redstone sawmill that is going to start production kind of any day now. It's kind of as promised.

Speaker #5: So we'll start to get into that, you know, later in the third quarter and fourth quarter to see sales. Of one-inch fence products, picket products, and some one-inch that we're going to take back to Texas as well out of Estelle.

Speaker #4: What an amazing story. I wanted to highlight the key changes in our updated guidance on slide 21. We have tweaked our overall 2026 capex guidance at Rainey River to reflect 45 million dollars of phase 5 capitalized stripping costs previously guided as an operating cost and 25 million dollars of expenditures related to underground development, equipment, and infrastructure to assist with the gaps Mick and his team identified.

Speaker #5: So pretty excited about that. Everything's on track as far as our CapEx goes.

Speaker #6: Great. And just on the, you know, wood decking side, it feels like you're gaining share within your product categories, but do you have a sense as to how wood is faring versus composites this year?

Speaker #5: Yeah, you know, I think the price gap, you know, is still a barrier. So composites, you know, obviously are doing well. We distribute a lot of composites as well.

Speaker #4: Revised CapEx guidance also includes an additional $15 million at Silvertip for 2026 pre-feasibility study and related costs. Cash taxes were guided downwards to reflect lower assumed metals prices and lower Canadian taxes.

Speaker #5: Treated lumber is still around your substructure, so you're really dependent on your price point. Lumber is still, you know, the number one by, you know, massive amounts, and we're happy to distribute either.

Speaker #4: Amortization guidance was also reduced as we completed our initial purchase price allocation for the newly acquired Canadian assets. Adjusted CAS guidance for gold and copper at New Afton increased as a result of the lower expected production.

Speaker #5: And produce obviously on the lumber side, but we just like more decking happening. So we're just good. People are focusing on the backyard. That bodes well for Domen.

Speaker #4: However, it is important to note that we did not see an overall increase in total operating costs at New Afton. Adjusted gold CAS guidance at Rainey River also increased as a result of the lower expected production.

Speaker #6: Great. And so last question I had: any opportunities to, you know, enhance that relationship you have with your largest home improvement retailer customer in the US?

Speaker #4: We are also expecting a 10% increase in total operating costs or approximately 30 million dollars during 2026 for additional labor, rental equipment, and maintenance to address the gaps Mick and his team identified.

Speaker #5: Yeah, we're always, you know, you know, working to hold on to that business, number one, and make sure we service it properly. So we tend to try and bring in different product lines and, you know, when there's opportunities in the aisle to make new products available.

Speaker #4: I did want to spend a minute on the acquisition accounting related to the short-term inventory including the significant short-term stockpile at Rainey River. That we acquired at the transaction closing.

Speaker #5: But, you know, there aren't a lot of new products in our portfolio, but certainly we try to get more market share in the aisle with accessories and other things that we're producing that we'd like to scale coming west, out of the east, on things like sterilizers, stringers, ball toss, and balusters.

Speaker #4: The fair value uplift of the acquired inventory as required under US GAAP is an important pointy-headed accounting matter to clearly understand given the magnitude and the pervasive impact it has on our financial results.

Speaker #5: Those are items that we're producing on the east coast that we would want to replicate as mentioned kind of in Texas Arkansas markets and then push north on freight.

Speaker #4: While the impact is non-cash the full year total will be 244 million dollars at Rainey River and 20 million dollars at New Afton. We want to emphasize this non-cash amount must be included in our EBITDA net income and CAS.

Speaker #6: Great. Thanks. That's all I had. I'll turn it over.

Speaker #5: Thanks, sir.

Speaker #1: The next question comes from Zachary Evershed with National Bank. Please go ahead.

Speaker #4: During the first quarter approximately 85 million dollars of the fair value uplift hit our EBITDA net income and CAS. The Q2 impact was a further 140 million dollars or approximately 10 cents per share and the remaining 38 million dollars is anticipated to flow through during Q3 as we expect to have depleted the remaining acquired short-term stockpile at Rainey River by the end of the quarter as Mick mentioned.

Speaker #7: Hi. It's Prashant subbing in for Zach this morning, congrats on the quarter. Just a few quick questions here. I saw that revenue growth was driven primarily by pricing this quarter.

Speaker #7: Can you quantify the contribution from price versus volume, and maybe explain which product categories or regions saw the greatest volume pressure?

Speaker #5: Yeah, I wouldn't say there was any volume pressure. In fact, our volumes are now ticking, you know, almost in line with 2025 and also in some areas they're up.

Speaker #4: To give a better sense of the order of magnitude of this non-cash impact on our CAS the Q2 impact at Rainey River was 2,036 dollars per ounce of the total 3,788 dollars CAS per ounce.

Speaker #5: So we really don't have a volume issue, if you will. I can't really quantify exactly how much of those dollars were inflation on the lumber side, but, you know, it certainly has helped drive that top line to a record over $900 million for the quarter.

Speaker #4: And on a consolidated basis it represented 834 dollars per ounce of the total 2,442 dollars in CAS per ounce. I hope that made sense.

Speaker #5: If anything to add Darren there?

Speaker #4: Yeah, no. Just like Amar said, I mean, volume, we're not a concern. They were relatively consistent.

Speaker #4: And I'll get off the accounting soapbox. We remain extremely excited and proud of this platform we have created as a unique North America only precious metals producer with a heart of silver.

Speaker #7: Okay. That's good to know. And just my next one here, I saw that OpEx picked up this quarter. And that the $67 million was higher than the $62 average we've seen over the past six quarters.

Speaker #4: We are set up for a strong second half of free cash flow continued capital returns and cash accumulation on the balance sheet as we continue to deliver on our strategic plan.

Speaker #7: What specifically drove that increase and how much of this is temporary?

Speaker #4: I'll now turn the call back to Mitch.

Speaker #1: Thanks Tom. Before opening it up for Q&A our key strategic priorities for the remainder of the year are shown on slide 20. We're looking forward to delivering sharp increases in production and cash flow during the second half that are expected to lead to record full year 2026 results leaving us well positioned to deliver another record year in 2027.

Speaker #4: Yeah, so I'd say, like, you know, there were certain inflationary pressures and that is just more general in nature. But I would say about half of the increase was kind of more non-operational in nature.

Speaker #4: And in particular, there's some earn-out costs in there related to one of our prior acquisitions. Which actually, in our mind, is good news. It means that that acquisition was a good acquisition and we're kind of ahead of where we're expecting to be when we initially did our purchase allocation.

Speaker #1: With that let's go ahead and open it up for questions.

Speaker #2: We will now begin the question and answer session. To ask a question you may press star then 1 on your telephone keypad. If you're using a speakerphone please pick up your headset before pressing the keys.

Speaker #4: So there's a little bit of that. So I'd say about half that increase is related to that, to kind of non-operational items.

Speaker #7: Okay. Okay, that's clear. Thanks so much. I'll turn it over.

Speaker #2: And to withdraw a question you may press star then 2. At this time we will pause this momentarily to assemble our roster. And our first question here will come from Wayne Lamb with TD Securities.

Speaker #1: This concludes our question and answer session. I would like to turn the conference back over to Ali Mahdavi. For closing remarks.

Speaker #8: Once again, thank you for joining us today for the conference call. We look forward to speaking with you again during the Q3 conference call and in the interim.

Speaker #2: Please go ahead.

Speaker #5: Yeah thanks. Morning guys. I just want to. Hey how's it going. Just want to understand the reset in the expectations for the new gold assets after just the first quarter of operation post the combined guidance.

Speaker #8: Should you have any questions, please feel free to reach out to us. That concludes today's call. Have a great day.

Speaker #5: Maybe starting with New Afton what was the previously budgeted timeline to get to the 16,000 tons per day or was the revision here also largely grade driven?

Speaker #5: Because I think most had baked in a ramp up to reach the run rate capacity but also seems like a second haircut taken at New Afton now from what new gold management had previously guided to what was outlined in the combined guidance a few months ago to now.

Speaker #1: Yeah well we'll start there with New Afton. Thanks for the question. The original plan for New Afton coming into this year was for them to be at 16,000 tons a day by the end of the second quarter.

Speaker #1: And I think what we're seeing now is hitting that level early in the fourth quarter. So you know roughly three months. Slower than what they came into the year assuming.

Speaker #1: And so the reset in the guidance ranges there was driven more by that timing there's a little bit of a grade differential just as we draw from different parts of the cave in response to kind of how the cave is propagating since the construction was completed in April but maybe Mick you can go a layer deeper than that.

Speaker #2: Yeah, yeah, thanks for the question. It’s really about that healthy cave propagation and, with respect to the grades, we’re really trying to chop the cave up into six main areas. That’s north and south, and then split up into the east and west zones.

Speaker #2: And that's different grades across the cave but the key to the start of the cave is really about drawing it and getting it balanced and flat so that it comes down as a block.

Speaker #2: And where were high grades are really in the south and the east and we have to draw more on the west and the north at the moment to get the cave to propagate in a flat manner so as we see that coming to bear over this next quarter then we'll see the draw rates increase and we should see the grades improve.

Speaker #2: Over that period between now and the end of the year.

Speaker #1: Does that help Wayne?

Speaker #5: Yeah that's great. And then maybe just at Rainey River can you give us a bit more detail on the challenges with the underground contractor this quarter and again on the prior timeline on the ramp up to 5,000 tons per day and maybe some color on the underground grades as well.

Speaker #5: And then just wondering maybe for Tom if you're chewing through more of the stockpiles at a faster rate resulting in a greater non-cash impact near term on the purchase price adjustment does that mean that that non-cash impact the CAS goes away at some point soon or just not sure if I'm thinking about that correctly?

Speaker #1: Well maybe I could Tom I'll try and answer that second question first is yes it should go away with the third quarter. I think Tom in your comments you mentioned 30.

Speaker #1: 38 million or so is expected to roll through the P&L in Q3 and then we should be done. Thankfully. So on that that's on that Wayne.

Speaker #1: Is that good on the accounting question?

Speaker #5: Yeah yeah that's good color. Yeah.

Speaker #1: Yeah okay. Good. And then just on the Rainey River front I'll say a couple things and then Mick you can cover more detail. I'd say that those short-term execution challenges were more in the kind of in the tactical realm you know as those throughput rates started to climb you could see some gaps start to surface in things like trucks, personnel, availability and some infrastructure related constraints that will be covered by the CapEx increase that Tom flagged.

Speaker #1: But you know we got in there in April and May Mick and the team and the team at Rainey River did I think a really good job of identifying some of these gaps as they started you know ramping up to that next level.

Speaker #1: And put a good plan in place pretty quickly and it's really nice to be able to see in July the effects of that work as the rates started to climb up pretty quickly and that's continued here into the early days of August.

Speaker #1: So that has us feeling really good about the second half ramp up to that 5,000 tons a day by year end. And just quickly on the underground grade open pit grade mix I think in the second quarter the underground contributed like something like 9% of total tons.

Speaker #1: And that should be almost twice that in the second half. And those underground grades are almost three times higher than the surface grades. The open pit grades.

Speaker #1: So as we see that tonnage come up to 5,000 tons a day with that higher grade impact from those tons you know that's going to be the nice tailwind in terms of the second half production levels there at Rainey River.

Speaker #1: Mick did I leave anything there for you to cover?

Speaker #2: Yeah a couple of bits and pieces. Really just to say well actually really happy with the response of what underground mining contractor working really well with them hand in a glove.

Speaker #2: The early part of the development of the underground was really focused on those development rates and the contract structure focused on that. Once we addressed that and we ramped up hard on the development that outpaced the mining rates which then effectively exposed the other bottlenecks that we had to address.

Speaker #2: So we've got after those with what contractor with a great response and we're seeing already that the uptake in that performance with the contractor focused now on mining rates to balance that against the development rates and yeah really happy about how that's improving.

Speaker #5: Okay great. Yeah looking forward to the operational improvements in the back half of the year. Maybe just last one at Rochester. Can you just walk us through the expectations into the second half on the grades and recoveries?

Speaker #5: I know the quarterly guidance had accounted for some of the lower grade this quarter. And a pretty big step change on silver into Q4.

Speaker #5: But just given the longer cycle for silver recoveries that we've seen in the past is that still realistic to expect those ounces to come out that quickly as per the guided expectations?

Speaker #1: Yeah I'd say the three biggies there Wayne consistent crusher performance that we're now demonstrating assume that continues higher and then you've got the nice mix of higher grades and then close to fresh liner and those are the ingredients for what should be a pretty dramatic second half compared to the first half.

Speaker #1: But Mick you want to cover that?

Speaker #2: Yeah and you know during this first part of the year Wayne we had a lot of material that we had to produce as overlay now for the construction of those new parts and that's at a higher size fraction and it slows what crusher performance down.

Speaker #2: And so we got through that a lot. We're still producing a little bit of that for the next phase of the expansion but overall we're in good shape for that uptake in the second half.

Speaker #2: There's a lot of tons sitting on that new liner that have not even been started to irrigate yet. So looking forward to that.

Speaker #5: Okay perfect. Nice to see a lot of free cash flow coming through despite the slow ramp up and look forward to the catch up operationally.

Speaker #5: Best of luck in the months ahead.

Speaker #1: Yeah yeah. Thanks Wayne.

Speaker #2: And our next question will come from Cosmos Q with CIBC. Please go ahead.

Speaker #6: Thanks. Mick and Tom for the presentation. Maybe my first question is going back to New Afton here. I noticed that recovery was slightly lower quarter over quarter 85.1 for gold and 90.6% for copper I guess two parts to my question.

Speaker #6: Number one you know as you talked about grades potentially coming back up later on during the year is that going to help in terms of recovery?

Speaker #6: And then number two you know as you had recalibrated your guidance for the year what kind of recovery rate are you assuming for the rest of 2026?

Speaker #1: Yeah thanks Cosmos for the question. I'll as we go into the second half of the year and as Mick alluded to you know we'll not only see a throughput put uptick but we'll see a grade uptick as well as they start drawing on some of those other areas of the season and that should flow through to higher recoveries on both gold and copper relative to what we saw in the first half of the year.

Speaker #1: But Mick do you want to cover that as well?

Speaker #2: Yeah you nailed it actually. So those lower grades and it's all really about the key of draw management as those grades come up we should see some appreciation in the recovery rates.

Speaker #6: Great. And then so is like what we saw in Q1 is that a better sort of run rate? I forget in terms of you know based on the technical report what kind of recovery rates you know is expected sort of life of mine for copper and gold?

Speaker #1: Yeah that first quarter was for us in our world was 11 days so I can't even remember what those recoveries looked like for that little snapshot of time but Mick do you want to answer Cosmos's question?

Speaker #2: Yeah based on the material that we pulled from the cave the recoveries actually just did better than what that model in fact. So it's tracking well based on recoveries compared to the tech report.

Speaker #6: Great. I guess going to Rainey River here you know as you mentioned as underground development caught up mining rates are now you know now catching up to those development rates.

Speaker #6: I guess my question is, you did 2,300 tons per day in Q2. Is there any kind of internal targets you can share with us?

Speaker #6: Like what were you expecting in Q2 for mining rates to have hit? And then second part is you know you're getting to 5000 tons per day or targeting 5000 tons per day by year end that's almost double that's yeah.

Speaker #6: More than double what you did in Q2. What's kind of like that cadence or that increase? You know you did 3300 kind of now.

Speaker #6: Is that a good number to use for Q3 or how should we think of how that increase is going to be? Is it a straight line or is it going more parabolic?

Speaker #6: How should we look at it?

Speaker #1: Wayne you're asking for some pretty good precision there Cosmos but I'd say the rates of underground production between now and the end of the year is fairly linear and gradual and you know that 5000 ton a day is not an average for the fourth quarter.

Speaker #1: It's sort of the end you know at the end of the year is where we plan to be. So you know as you think about building that into your model you know it's a pretty steady ramp assumed from where we saw July to where we see December.

Speaker #6: Great. Yeah it doesn't hurt to ask right Mick you can always.

Speaker #1: Hey, you know you've got a model to update. I get it.

Speaker #6: And then maybe in terms of the pre-stripping of phase five how's that going?

Speaker #1: Yeah that's a good news story. I mean you know at Rainey we talk a lot about these underground mining rates but let's not forget the open pit is doing great.

Speaker #1: The mill is doing great. They're really hitting their stride on the underground development and now you know chasing that next bottleneck down into the underground mining rates now that we're on top of.

Speaker #1: But in terms of phase five pre-strip, that's a good story, right, Mick?

Speaker #2: Yeah the strip is ahead of the game and we expect to get a fair amount of material in the second half from five now which is great as we finish off four and then we manage coming out of the four pushback we'll get into five before the end of the year and pull some material.

Speaker #2: Yeah really happy about the progress there and the mill I mean the mill is full. We have stockpiles that allowed us to keep the mill full continuously.

Speaker #2: So yeah we're in good shape.

Speaker #6: Great.

Speaker #2: Heading up the case.

Speaker #6: Cool. And maybe one last question I see that in your CapEx you know discussion in your MD&A. You have allocated additional $15 million in CapEx to silver tip.

Speaker #6: Any updates there you can provide to us and you know what should we be looking for?

Speaker #1: Yeah yeah no good catch. Good question. Since we talked after the first quarter in early May we wrapped up the initial assessment and we've now progressed into a pre-feasibility study and that was a decision that we made together with our board in mid-May and so that extra capital that you've flagged there Cosmos is really a reflection of us you know funding that additional work to wrap up a PFS hopefully you know early 2027.

Speaker #1: Mean time exploration you know is fully funded for the year to continue to try and expand the resource. That's really hitting its peak right now here in this third quarter.

Speaker #1: So that extra capital for silver tip is really to fund the studies that we're proceeding with.

Speaker #6: Great. Thanks Mick and Tom for answering all my questions and enjoy the rest of your summer.

Speaker #1: Yeah thanks you too Cosmos.

Speaker #4: Our next question will come from Josh Wipsen with RBC Capital Markets. Please go ahead.

Speaker #5: Yeah thank you very much. I appreciate all the disclosures on this call and some of the details for the new gold assets. It's been helpful.

Speaker #5: Just sort of going into some of the details there further and looking at maybe some of the impacts on 2027. You know the company was talking about changing I guess the draw of the cave for New Afton.

Speaker #5: Maybe balancing things out a bit more. Would it be reasonable to think you know if you're balancing things out more the grades that were previously expected in '27 and '28 that were quite high you know might be a little bit more smoothed out versus the rest of the mine plan or is that is the cave sort of changes more limited to 2026?

Speaker #1: Yeah Mick do you want to cover that?

Speaker #2: Yeah yeah. So at the moment we're busy rerunning those plans. We'll really know that through Q3 and into Q4 as we set the budget for '27 and beyond.

Speaker #2: But for the moment, there hasn't been any more sterilized. We're really just making sure that we balance the cave, and we draw from the right points to get that balance.

Speaker #2: So my expectation is that we'll see that grade at some point over the next period.

Speaker #5: All right thank you. And then similarly at Rainey I believe the underground throughput or mining rate was closer to about 6000 over the next two years.

Speaker #5: Is that still a reasonable ultimate target and maybe is there some slight ramp up here that we should be forecasting in '27?

Speaker #1: Yeah no good question. I'd say you know that technical report some good piece of work obviously it was new gold technical report not ours.

Speaker #1: And there's still some work that we'll want to do here as we get closer to 2027 on how we see that mix of underground versus open pit going forward.

Speaker #1: You know for now getting up to that 5000 ton per day from the underground by year end and carrying that into 2027 is the near term plan.

Speaker #1: But there's still a lot of good work to do there in terms of figuring out what that future looks like at Rainey River because there's a lot of optionality there with the open pit that we want to make sure we're factoring into our thinking as we go forward.

Speaker #5: All right. And then last question just on the capital allocation side. I mean good work with the initial buybacks you know noted the high cash balance projected for year end.

Speaker #5: In that context, I'm wondering, you know, how the company is thinking about the cadence of the buyback through the approved period. Should we forecast similar levels or rates, or will it change based on share prices?

Speaker #5: And then when you think about the cash position and the growth expected you know where would the company look to invest in growth that could start to be spent in 2027?

Speaker #5: Thanks.

Speaker #1: Yeah great capital allocation question. I'll start and then Tom you can certainly chime in. You know the I think we set up a well-designed buyback program with you know a portion of it just automatically chewing away you know during blackouts you know no matter what and then we can step in during non-blackout periods and be opportunistic when we see the stock you know at a point where we think it's undervalued.

Speaker #1: And so you know it's going to be driven by that. You know we don't feel like we have a gun to our head to get through 750 million by a certain date.

Speaker #1: But certainly when the stock's weak or is underperforming or on a relative basis seems undervalued you know we're going to step in and be aggressive.

Speaker #1: And so as we go through the rest of the year you know that's really going to be the driver for the pace of that buyback program.

Speaker #1: But we feel good about you know coming out of the gate strong since mid-May and the progress that we've made so far and it remains a key focus for us as we go forward.

Speaker #1: And as far as that building cash yeah it gives us a lot of great financial flexibility to pursue high return growth you know starting with exploration on the brownfields exploration side.

Speaker #1: We'll keep investing as much as we efficiently can deploy at some of those high priority sites. So that's right up there high on our capital allocation framework.

Speaker #1: The big chunky growth really is driven by K zone. Out there at New Afton advancing the studies and seeing if silver tip is a potential new source of you know not that long term or not that far off primary silver production you know Canadian production silver growth.

Speaker #1: You look out at East Rochester a little bit longer term and you think about what could we do over there to take advantage of the exploration success outside of the Franco Nevada area of interest.

Speaker #1: There at Palmorayo, and then back to Rainey River. You know, what does the future look like there in terms of potential mine life extensions that could require some additional infrastructure to support a longer mine life?

Speaker #1: So though some of those are some of the big chunks that come to mind. Tom what did I forget?

Speaker #5: I nailed it. We're really happy with the design program. We'll be coming out of blackout here on Friday and if we see opportunities where the share price is at versus our expectations of value we'll be aggressive.

Speaker #5: All right thank you very much.

Speaker #1: Yeah thanks Josh.

Speaker #4: And our next question will come from Kevin O'Halloran with BMO Capital Markets. Please go ahead.

Speaker #6: Hey Mitch and team, thanks for taking my questions.

Speaker #1: Yeah hi Kevin.

Speaker #6: Hey, at Palmorayo, can you just remind us what your goal is in terms of building out that resource inventory outside the area of influence, and then how much production do you expect to shift outside that stream area over the next, say, few years?

Speaker #1: Yeah great question. Been a topic of discussion here a lot. Especially on the heels of that exploration release that we put out a couple weeks ago.

Speaker #1: That shows continued you know success over there both further to the east at that San Miguel La Union we call it the Guazapares area which is the furthest kind of to the north and east from where you know our current operations are.

Speaker #1: You know that's a longer term game. You know that needs to have additional drilling additional resource growth and then making the team you know we're going to start doing their studies around trade-offs of you know how much mineralization do we need to consider a potential standalone opportunity there longer term or in the interim is there an opportunity to haul material from that Guazapares area back to the Palmorayo processing facility.

Speaker #1: So that's you know that's a work stream that we'll go on for a while and with additional drilling in the meantime. The nearer term stuff that's the Independencia Sur the southeastern extension of Independencia that extends off the Franco Nevada area of interest that's the nearer term opportunity and I think in the second quarter we saw something like 50% of our gold production subject to the Franco Nevada terms you know the goal is to look at that Independencia Sur in the next two or three years as the nearer term opportunity to start bringing in some gold where we can actually sell it for the market price rather than to Franco Nevada for $800 an ounce.

Speaker #1: So there's a near-term play there. To the south and east at Independencia, there's the kind of medium-term play, further off to the east in that Guazapares area. And then, in between those two areas, there's a lot of exploration potential and excitement that we'll continue to fund. That, in my mind, is then the longer-term play, even further beyond the Guazapares.

Speaker #1: So it's like a whole new chapter to the Palmorayo story over there to the east with some near term medium term and longer term opportunities.

Speaker #6: Great, yeah, lots of potential there. Appreciate that. My other question was just at Los Chispa. So, you had higher throughput in Q2 and slightly lower grades, although grades were still quite strong.

Speaker #6: How should we be thinking about the production there going forward? Is there a bit of a trend towards higher throughput and a little bit lower grades or was this just kind of typical quarter to quarter fluctuations?

Speaker #1: Yeah thanks for the question they are doing a tremendous job there of being very predictable and consistent and steady and you look at first half performance versus second half expectations it's a nice equal balance between the two and that's kind of the way we see it continuing you know into the future.

Speaker #1: Anything, Mick, you want to add to that?

Speaker #4: We have a very healthy inventory stockpile, and that helps us balance what we get from the mine and balance the grades and the production rates out, so that the mill sees what we need it to see. We just continue to tick along there.

Speaker #6: Okay makes sense and then on the mining unit cost there at Lost Chispa I noticed they were up a little bit in Q2. Was that driven by royalties and the peso or are there other factors going on there?

Speaker #1: Yeah that's a good one. I don't have a good answer to off the top of my head. I know there was some stockpile management that was taking place building onto the stockpile Mick is there anything that comes to mind?

Speaker #4: Yeah, it was just with those slightly lower grades. We've pushed a little bit more material to keep hitting the plan, but we expect to be on budget by the end of the year.

Speaker #4: So it's just really quarterly fluctuations.

Speaker #6: Okay great. That's it for me. Thanks for taking my questions.

Speaker #1: Okay thanks Kevin.

Speaker #4: And our next question will come from Eric Windmill with Scotiabank. Please go ahead.

Speaker #7: Oh, hi. Good morning, Mitch and team. Thanks for taking my question. I think a lot of my questions have been answered, but maybe just one on New Afton and the K zone—any updates there in terms of what's happening?

Speaker #7: I know you said studies are ongoing, but are we likely to see an update, do you think, later this year or next year?

Speaker #6: And are you talking K zone Eric?

Speaker #7: Yeah. That's correct. Yeah New Afton.

Speaker #6: Yeah yeah yeah.

Speaker #1: Yeah, there's an exploration piece there, and then, you know, a study piece. Mick, do you want to take the study piece—where we are on that work—and then Ifa, maybe you could chime in with a couple of comments on the drilling that we're doing there?

Speaker #4: Yeah we're doing the preparations for an FS which we're getting ready we're having an exact date when we'll kick that off yet but it'll be soon because the engineer and the development and Ifa will talk about the drilling in a second that's ongoing so we're resourced and moving forward with that.

Speaker #4: We have time to do that well and we're already looked at how we'll do that development to get in the right spot to do the drilling and characterize that ready for the engineering requirements of an FS.

Speaker #1: Ifa?

Speaker #2: Yeah, and on the exploration side there, we're having great results from the K zone. We've expanded the footprint by just over 300 meters this year, on a base of somewhere around 600 meters initially from the maiden resource shape that was outlined in Q1.

Speaker #2: So and the grades are holding up very well we're seeing some nice wide juicy intercepts in K zone so we're very excited to see what comes out here in the next resource update.

Speaker #7: Okay.

Speaker #1: Does that help, Eric? Oh, yeah, okay. Yeah.

Speaker #7: Yeah appreciate the update. And then just point of clarity did I hear correctly you said you're expecting a PFS at Silvertip probably early next year you'd release something?

Speaker #1: Well we'll complete it as to whether we'll release it or not that's probably something we'll just keep internal and whether there's a thumbs up or a thumbs down at that sort of off ramp in a we'll see what it looks like is it worth continuing on to an FS you know probably if and if it is and we make that transition into a feasibility study maybe on the back of that work that's something we would look to release.

Speaker #1: That gives us a little more time as well for the drilling to keep going and catching up, and adding to that resource so that we could, you know, put together a really economically attractive project in that kind of a final study.

Speaker #7: Okay great. Thank you very much. And last one from me I know you're still busy integrating the new gold acquisition but in terms of overall portfolio composition are you happy with the assets any thoughts on divestitures or things you might want to add down the road?

Speaker #1: No appreciate the question. We're happy with the portfolio everybody's doing great every asset's contributing the second half is going to be a lot of fun and on the integration front you know the people are great the infrastructure these assets are you know are terrific we couldn't be more pleased with everything obviously we've got a little bit of a timing on the ramp ups that we've made an adjustment for but you know as far as the overall portfolio no we like everything we have we like the North America only we've got good balance across the seven assets and so we're pleased with what we have.

Speaker #7: All right fantastic. Thank you very much we appreciate it and I'll hop back in the queue. Cheers.

Speaker #1: Okay yeah thanks Eric.

Speaker #4: Mick again. If you have a question, you may press star one to join the queue. Our next question will come from Brian MacArthur with Raymond James.

Speaker #4: Please go ahead.

Speaker #7: Good morning, and thank you for taking my question, and thank you for all the guidance. Can I just ask a bigger, philosophical question? Obviously, this is all about free cash flow.

Speaker #7: You've given good guidance for the rest of the year but I kind of want to break it up into Q3, Q4 if I can.

Speaker #7: If I think about this going forward for EBITDA you're sort of saying you need to under your forecast you need a billions tree over the back half of the year.

Speaker #7: With you know the non-cash stuff coming off in the Q4 you've got ramp ups going on I assume costs are coming down. Should I think of this as 40/60 between Q3, Q4?

Speaker #7: Is that reasonable? And then maybe the more important part of the question is: when I go to free cash flow for your CapEx in the back half of the year, is it evenly weighted, or is it heavily weighted to Q3 or something, so that when we get the Q3 free cash flow number, it ends up being, you know, 25 or 30% of your expected back half cash flow?

Speaker #7: I know it's a detailed question, but I think it is about leads into, you know, how much free cash flow the market's expecting, and you know, how much you have available to buy back shares and do everything else.

Speaker #7: Thanks.

Speaker #1: Yeah, no, great. Great philosophical question. I was going to just hand over the call to Tom, thinking it was going to be a tax question that you were going to ask Brian.

Speaker #1: But on the weighting your weighting is probably pretty good between Q3, Q4 on the free cash flow and typically capex is a little higher in Q3 during the better summer season than or weather.

Speaker #1: Versus Q4. Tom?

Speaker #3: Yeah, no, yeah, Q3 is definitely higher capex than Q4, and don't forget IFA has a gazillion drills going in the third quarter, so it will be the heaviest quarter for exploration. But, you know, just look at the production profile that we guided, right.

Speaker #3: You do see the production steps up pretty nicely in Q3, and then steps up even nicer in Q4, so that should help figure out the geography of the free cash flow growth by quarter as well.

Speaker #1: And back to Wayne's question on timing of silver at Rochester—you know that gold comes out a lot faster in Q3, but Q4 on the silver at Rochester is where you'll really start to see the hockey stick in the second half of the year out there.

Speaker #7: Yeah, that's what I was trying to work out, because you've got all these moving parts and you set up and down there and a couple, and then I guess the other thing, just for EBITDA, we get rid of the $38 million, as you said, from Q3 to Q4 as well, right?

Speaker #7: So that'll be you know income statement Q3 but non-cash in Q3.

Speaker #1: That's right. Yeah, it'll be nice to get past that purchase price allocation noise in the third quarter, and have a cleaner, simpler fourth quarter.

Speaker #3: Yeah offset by like let's I know it's accounting noise but this is great operational flexibility for us to have. I mean last Chief Specs has proven to be it's been great to have that stockpile and at Rainey it's been great to have that stockpile just apologies for the accounting we're just this is what has been forced upon us to and so the pain's almost done and thanks for everyone's understanding it.

Speaker #3: All of the analysts did a really good job of understanding this, and thank you.

Speaker #7: Great. Thanks very much. I was just more concerned about the free cash flow. I think that's what's really important. So thank you.

Speaker #1: Yeah no thanks Brian.

Speaker #4: And this concludes our question and answer session. I'd like to turn the conference back over to Mitch Krebs for any closing remarks.

Speaker #1: Okay well we appreciate all the great questions and everybody's time today and we look forward to talking with you all again later in the fall after our third quarter results.

Speaker #1: Have a great rest of the day and rest of the summer.