New Gold Inc (NGD) 2020 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the first quarter 2020 earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would like to now hand the conference over to your speaker today, Anne Day, Vice President of Investor Relations. Please go ahead, ma'am.

Thank you, operator. And good morning, everyone. We appreciate you joining us today for New Gold's First Quarter 2020 Earnings Conference Call and Webcast. And I hope everyone is well and staying safe. We will begin today's session with Rob Chausse, CFO of New Gold, to present our Q1 financial results; and then followed with Renaud Adams, CFO (sic) [CEO], to discuss our operational results. After the presentations have been completed, we will open the lines for a brief Q&A period.

Before the team begins presentations today, I would like to direct your attention to our cautionary language related to forward-looking statements found in the presentation. Today's commentary includes forward-looking statements relating to New Gold. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in the presentation. You are cautioned that actual results and future events could differ materially from those expressed or implied in forward-looking statements. Slide 2 and 3 provide additional information and should be reviewed.

We also refer you to the section entitled Risk Factors and New Gold's latest MD&A and other filings available on SEDAR, which set out certain material factors that could cause actual results to differ. Please note that all amounts are presented in U.S. dollars.

In addition, included in the presentation, there are a number of end notes that provide important information and should be reviewed in conjunction with material presented.

I will now turn the call over to Rob Chausse.

Thanks, Anne, and good morning. I'll turn you to Slide 5, which provides our operating highlights for Q1 2020. The details are consistent with our April production press release.

Overall, our quarter was impacted by lower grades and higher sustaining capital when compared to the prior year quarter. During Q1, the company produced 103,435 gold equivalent ounces. The amount consisted of 18.5 million pounds of copper, 50,381 gold ounces from Rainy River and 16,409 gold ounces from New Afton. Total gold of 66,790 ounces. Lower gold production as compared to the prior year quarter is primarily due to planned lower grades at Rainy River and the 12 days that the Rainy River mine was suspended.

Operating expense per equivalent ounce was higher than the prior year quarter due to lower metal grade and lower sales volumes. Consolidated all-in sustaining costs for the quarter were $1,446 per equivalent ounce, a 33% higher than the prior year quarter due to lower grades and lower sales volumes.

Turning to our financial results on Slide 6. First quarter revenue from continuing operation was $142 million driven by sales of approximately 68,800 gold ounces at an average realized gold price of $1,458 per ounce and sales of 17.7 million pounds of copper at $2.56 per pound. Q1 revenue was 15% lower than the prior year quarter due to lower grades, partially offset by a higher gold price.

Operating cash flow before working capital adjustments was $47 million or $0.07 per share for the quarter, lower than the prior year quarter, again primarily due to lower grades.

The company recorded a net loss of $28.3 million or $0.04 per share during Q1 compared to a loss of $0.134 per share in Q1 2019. After adjusting for certain charges, net loss was $17.8 million or $0.03 per share in Q1 compared to net earnings of $0.00 per share in the first quarter of 2019. Our Q1 adjusted earnings includes adjustments related to inventory write-down and other gains and losses, including the unrealized adjustments on our gold price option contracts and the extreme mark-to-market. Our MD&A has additional details on the non-GAAP measures discussed here.

Slide 7 provides a breakdown of our Q1 2020 capital expenditures. Our total sustaining capital and leases for the quarter was $49.1 million. Spend was primarily related to tailings work and wick drains. Growth capital was focused on project development at New Afton.

As of March 31, 2020, we had approximately $400 million in cash and approximately $600 million in liquidity.

And with that, I'll turn the call over to Renaud.

Thank you, Rob, and good morning, everyone. I'm on Slide 10. Before we touch base on the operating performance, I'd like to discuss some aspects of the COVID-19. At the early stage of the pandemic crisis, we created our common goal objective along the preserving and the -- protecting the health and safety of our people, the environment and communities, while preserving the viability and integrity of our mines and business. Thanks to the tremendous commitment and involvement of all, we've been pretty successful to date to deliver on that statement.

When it comes to the protection of all of our employees, contractors and community health and safety, well, this is where really the tire hits the road and the true sustainability takes place. As CEO of New Gold, I'm extremely proud of what has been achieved to date. While we are physically separated, I truly feel much closer than ever to our employees and community.

I won't go to the details of everything that has been in place. I would summarize by saying that I really feel that the -- both sides and at the corporate level, working with the local government and health agency recommendation that we've put in place, every single aspect of what we consider to be the best practice are currently in place and has further rules and more.

When it comes to, more specifically on Rainy, we have adapted the chem situation. We have adapted the transportation as well. But very key, we have created as well some community-based consultation, which has been absolutely key to date. And this is how I feel. I really feel that under this crisis, that we have significantly raised the bar when it comes to

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You can see more on our website under the COVID-19 under the New Gold website.

Just in terms of the supply chain continuity as well. Somewhat surprised, but very happy to see that, truly, the supply chain has not been impacted. We have the proper inventory on hand and required quantities are being maintained. Our long-term schedule item as well remain as planned.

Creative business continuity plans, both sides are fully mobilized with the response team. We have different scenarios and ramping up and ramping down and adjusting as we continue to address the operations and ramp-up and bringing more as we needed for capital execution as well.

We've talked at large on our financial status as well, so I'm going to just go with crisis. While our 2 mines are currently operating, of course, but I feel that we have significantly raised the bar with regards to financial and properly funded to go through this crisis.

The only really suspended site activities to date has to do more with the exploration -- regional exploration program as a result of more priority from government being currently focused on more operating permit and more pricing. So we are expecting a bit of a delay there, but nothing material to our plans. And we continue to believe we'd execute.

And of course, key as well as the spring comes will be the important execution of our capital project time lines as well and execution. And again, we've been adapting this as biochem as per the COVID.

As a closing remark, I would say that we are currently actively engaged in initiatives to bring some testing capacity at our site, which we believe is crucial to significantly improve our health and safety programs as we continue to increase the amount of activities.

On Slide 11, on February 13, we released our new updated 43-101. The release were pretty -- the release was pretty detailed, however the webcast presentation, the result were on a year-by-year basis. So I'm looking at our quarterly plans that served to build the 2020 year 1 of the plan, and I would say that I'm very pleased with our production's result for Q1, considering the 12-day suspension at the Rainy River as a result of the COVID, with the cash cost and all-in sustaining costs also aligned with our plan and somewhat below. While we have withdrawn our guidance, we definitely continue to focus on executing our disclosed plans, which remain for the time being our internal scorecard.

Operational -- operation, we started at Rainy River on April 3. And after a total of 14 days of suspension, it is currently ramping up on operating capacity. But also and equally important in terms of capacity for capital execution, it is all about to say we're incorporating some others that currently using mostly the local workforce, which is about 70% of the total workforce. But as we advance, we need to bring more specialized employees and contractors, so we could execute our capital project and also continue to ramp-up our operation back to normal.

The mill has been operating super well since the restart using direct feed and stockpile, generally all in line with our target plan.

On Slide 12, in terms of the key performance indicators for Rainy River mine, the highlight is the great performance of the mine in terms of total tonnes, efficiencies and unit costs when compared to our plan. Prior to suspension, the open pit was operating at an average of 140,000 tonnes a day, and we were very pleased with that performance. Our strip ratio was lower in Q1 compared to last year as planned.

The mill did well in terms of ability -- availability and recovery. Maybe the only spot on our filing Q1 at Rainy, if any, was the ramp-up of the mill up to 24,000 tonnes a day at much harder rock. By February, we were there, but it was more difficult at start in January. We worked on improving fragmentation in a pit, commissioned the pebble crusher properly and improve ore on planed. As a result, the mill is now performing very well.

Capital projects advanced in Q1 and as planned, we are anticipating some increase in Q2 and Q3 as the core of the TMA, the tailing management, and the wick drains and the water management will be completed, potentially up to Q4.

I'm on Slide 13. At New Afton, we also released on February 13, a new technical report updating the capital execution and operations of the B3 and C-zone, bringing the life of mine to 2030. We are very pleased with the wonderful work achieved at New Afton, where operation was uninterrupted during the quarter and continue while COVID -- while remaining COVID case-free.

One action taken, which we believe was key, was the implementation of 14/14 schedule rather than 7/7, which provides for proper self-isolations every 14 days and for 14 days. While our guidance was withdrawn, we continue to focus on execution of our new plants. Our gold production, cash cost and all-in sustaining costs were aligned with our plan, our copper production was below our plans due to lower grade mill than plan.

Sustaining and growth capital was slightly below than originally planned, but nothing specific to discuss more on the timing of certain activities. Capital spend also expected to increase in Q2 and Q3 as more scheduled work will take place.

On Slide 14, in terms of key performance indicator for New Afton mine. Again, when compared to our plan, I would say that I'm very pleased with our underground mining and milling productivities. Both recovered (inaudible) as planned despite lower copper grade mill in the quarter. We're reviewing some potential operational aspect causing the higher dilution than expected in Q1 and resulting in lower copper grades.

We are pleased with the 1,231 meters of B3/C-zone development achieved in Q1, but believe that the new safety protocol put in place will, in short term, slow down a bit, the productivities. The BC government stated that priority will be given to this for the time being to more pressing and operating permits. So we are expecting some delays with regards to regional exploration permits.

On Slide 15 and on the Blackwater, just a quick comment. We've now completed our internal scoping study. We like the results and would like to hopefully make a decision before the end of Q2 with regards to the next step, which could lead to a new 42-101 compliance study based on the new scoping. So more to come as we advance on our Q2.

As a closing remark on Slide 16. Sure, a lot has been done over the last 12 to 18 months with regards to repositioning New Gold. We have now a clear path forward to achieve operational profitability and growing free cash flow. And the closing of our recent strategic deal with Ontario Teachers has significantly improved our financial position and balance sheet, while exploration and reevaluation of Blackwater continue to provide optionality to our shareholders.

This will close the formal presentation. And I will turn the call back to operators for the Q&A portion of the call. Thank you.

(Operator Instructions) Your first question comes from the line of Matthew Fields from Bank of America.

Understanding of the expectations are probably not where you wanted to be in coming into the quarter. But under the circumstances, I wanted to ask about your balance sheet now that you have the extra $300 million of cash from the Ontario Teachers transaction. Is there a priority towards doing some kind of refinancing transaction on those 22s, maybe using some of those proceeds for that purpose?

Yes. Certainly. And as you mentioned, the market is an interesting one as we sit here. So definitely a priority to take care of the 22 bonds, which are still 2.5 years away from maturity. So I think we can be patient and prudent as we address those bonds and watch the market form beneath them, and then be opportunistic when we see the market come around. So certainly we want to reduce our debt load and then also deal with any steps that are out there through an opportunistic capital markets move.

Okay. I mean just for the record, maybe the market was not there a month ago at the end of March, but your bonds have certainly rallied back pretty hard along with the rest of the market. So I would say the market is there, and lots of other metals and mining companies are trying to come to the market now because they don't know if the market is going to be available in the future.

So I'm not a leveraged finance banker, but they would usually say you take the money when it's available, not when it's the right time. But good luck, and hopefully you can address those short-term maturities to buy yourself more time in case recovery isn't as quick as people think.

Your next question comes from the line of Fahad Tariq from Crédit Suisse.

Just a modeling one for me. On Rainy River, how should we be thinking about grades in the second quarter given that a proportion of the mill feed will be from the reduced mining, but then also stockpiles? I'm just trying to get a sense of, are we back at Q4 levels for grades? Any color there would be helpful.

Yes, good question. The reason why we -- and I'm not trying to be -- to avoid the question here, but you would understand that we withdrawn the guidance for a reason. I think we're ramping up as we speak. It's all about how rapidly we could get back to feeding the mill with basically 100% from the mine, even though our original plan was, considering the use as well of mid-grade stockpile and blending. And so it's all part of the plan.

But yes, so technically, if we were to stay at about 70%, 75% of the capacity of the mine, you're absolutely right, you should expect a lower grade because we'll be feeding the mill with more than original time. But at what level, I think as we advance and as we explained, we'll be in a better position later on in the quarter to come up. But yes, technically, if you want to keep the mill running, and the mine is not capable to produce 100% of it, you would be using lower grade stockpile and, therefore, you could be down to lower level, maybe similar to Q4.

Okay, great. That's helpful. And just a quick follow-up. I might have missed this earlier, but is there a change in the cadence of the CapEx at Rainy River for Q2 to Q4? Or is that kind of -- hasn't been really impacted...

Not so much to be -- I mean like -- of course, like something would happen in this situation with -- would get worse and they will be implied like suspension of operation, things will be adjusted. But this is not what we're looking at. We're looking at ramping up, we're looking at execution. So we hope that we would be executing most, if not all, the capital that we had originally planned for 2020. Maybe a little bit of delay or maybe we could somehow extend to the Q4. And remember that our original objective was to turn into a free cash flow at $1,300 by Q4. So we're not necessarily interested in postponing and then pushing everything towards the end of the year. But there are some ramp-up activities as well. We're working very closely with the community how we're going to do this, knowing we have to potentially bring people from outside the zone. So in short, maybe a little bit of a timing issue, but the objective remains to execute our plans.

Your next question comes from the line of Anita Soni from CIBC Bank.

Sorry, operator. I'm sure it's the same for you, but I -- we can't hear any questions.

I don't hear anything either. Should I move on?

Yes, please.

Your next question comes from the line of Don MacLean from Paradigm Capital.

I just was hoping you could give us a little bit more color on the dilution of the New Afton mine. What can you do, given it's a block cave? And how important is that particular source of feed for the overall production profile?

Good question, Don. I mean there is definitely more to look at. There is 2 things, right? There is the -- like you're saying, remember that we are now in the timing of between the B3 and completing the East Cave and the West Cave, and you have some pillar's recovery as well. And we have -- and so there is a lot of, I would say, component to look at as we speak. So absolutely, I agree with you when it comes to a block cave. You already have like -- so -- but basically like ready all across, is there more dilution all across? Is it just like more spotty? What about the pillar's recovery? What about the plan? What about the men, the troop? But there's -- I mean there is a lot to look at. Too early stage. If we were in a position to give more details, we would, but we're not.

But there's a few things that clearly didn't work as planned in Q1 with regards to the copper and we'll be -- and we are, as we're speaking now and looking at more. I would be in a better position later on in the Q2 to be more specific about that, Don. But for the moment, I would say there is maybe 4 or 5 parameters we can look at. And we're going to go to the details in the future, Don, and hopefully correct the situation.

Okay. So I guess, the bottom line or the takeaway is that you're optimistic that you have enough parameters and levers to pull that you can address, at least partially this extra dollars...

Yes. I think it's a fair comment at this stage.

Your next question comes from the line of Mike Parkin.

It's mike Parkin from National Bank. Just following up on that, can you give us an idea of what the new acts in Q1 budget grade was?

Very -- pretty much aligned with the full year. When you're looking at our technical report, as a reference, you are like in the very low 80s, at 0.8%, and we did, just looking at the details here, processing grade, yes. So we're somewhat like maybe at 10% below than what we were hoping.

Okay. And then are you seeing that continue into the month of April? Or kind of was it...

Well, I mean -- yes, I think it's fair to say that we don't turn the corner in 24 hours. But look, like I told the previous questions, I mean, we're very much looking at it. If you recall, last year, we did have a couple of quarters where copper was actually lower but gold was higher, so on an equivalent basis. We run the business on an equivalent basis, anyway. But this quarter, in the Q1, our gold was pretty much aligned with plan, but unfortunately we saw like copper went below. So we need to look at it. And early stage, again, I have more information, I would be providing it. But yes, we were about 10% below our plan in the Q1.

And can you just remind me again on the -- there's a period there where you get into a supergene copper material. Is that where you're at right now?

We are in the supergene right now. We are producing concentrate like copper separated from the sulfide concentrate. So it's already happening right now. And we've been very good to maintain the recovery and adjust the sales and strategy and so forth. So it's really working as planned.

All right. And one last question. What's the grade of the medium-grade stockpile at Rainy River?

The medium stockpile is -- the medium -- what we call medium stockpile is usually between the 0.5 and 0.9. So our assumption is that the average is about in the midpoint of it. We have some zones sometimes that are higher, some zone maybe closer to the 0.5. But technically, you're about like the 0.75 average.

Your next question comes from the line of Trevor Turnbull from Scotiabank.

Okay. Hoping we're not having an IT issue here, but I can't hear that one.

Would you like me to move on to the next question?

Yes, please.

Your next question comes from the line of Anita Soni from CIBC Bank.

I could hear a little bit of a background here, but again just like you. So just in case Anita is listening to us, so why don't you just please reach out directly to Anne after the call and we'll take your question on the one-on-one. Sorry about that. Just can't hear you.

(Operator Instructions)

Well, I guess, that's it.

Hello, everyone. We're having some technical issues, obviously. We're not hearing the call. So feel free to reach out to me directly, and we'll schedule something offline. So at this time, we'll close the call. If you do need some follow up, again, please reach out to me and we'll schedule something. Thank you.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, you may now disconnect.