New Gold Inc (NGD) 2022 Q1 法說會逐字稿

Good morning. My name is Michelle, and I will be your conference operator today. Welcome to New Gold's First Quarter 2022 Earnings Conference Call. (Operator Instructions)

I would now like to hand the conference over to Ankit Shah, VP of Strategy and Business Development.

Thank you, Michelle, and good morning, everyone. We appreciate you joining us today for New Gold's first quarter 2022 earnings conference call and webcast. On the line today, we have Renaud Adams, President and CEO; and Rob Chausse, our CFO. Should you wish to follow along with the webcast, please sign in from our homepage at newgold.com.

Before the team begins the presentation, I'd like to direct your attention to our cautionary language related to forward-looking statements found on Slides 2 and 3 of the presentation. Today's commentary includes forward-looking statements relating to New Gold. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in the presentation. You are cautioned that the actual results and future events could differ materially from those expressed or implied in forward-looking statements. Slides 2 and 3 provide additional information and should be reviewed. We also refer you to the section entitled Risk Factors in New Gold's latest MD&A and other filings available on SEDAR, which set out certain material factors that could cause actual results to differ.

In addition, at the conclusion of the presentation, there are number of end notes that provide important information and should be reviewed in conjunction with the material presented. I'll now turn the call over to Renaud.

Thanks, Ankit, and good morning, everyone. So, before I pass it to Rob to discuss our quarterly financial results, I just wanted to take a moment to discuss some of the changes we've made at our company and the challenges we've experienced, like many of our peers during the quarter.

Over the past 2 years our teams have adopted quickly to make changes in light of COVID. I'm very proud of our group and the health and safety focus at our operations. Like many of our peers, we've also experienced a higher level of COVID cases earlier in the year which impacted productivity levels to start 2022. But despite this, our teams were resilient and we delivered a good quarter.

Inflation have challenged many of us in the industry and we're no exception. We felt the same pressures as our peers, mainly on diesel consumables, but also electricity at Rainy River. But I've been able to partially offset these higher prices with the benefit of having 2 Canadian assets in the period of weakening of Canadian dollars. We continue to evaluate potential optimization and assess cost reduction initiatives in an effort to mitigate these pressures. We remain committed to delivering on our guidance.

During the quarter, we also continued to advance on our longer-term priorities at Rainy River Intrepid development event and we look forward to initiating mining later this year. I'm also very pleased with the updated Rainy River technical report we completed in March, which has extended our mine life to 2031. I will discuss this later in the presentation, but this is a significant accomplishment for the team and a positive milestone for our business.

At New Afton, the B3 ramp-up continues we've made good progress on the C-Zone development and we completed the commission of our thickened and amended tailings facilities.

I'm very pleased to welcome Patrick, Pat Godin as we knew him, as our new COO of New Gold. Pat brings extensive technical, operational and capital execution experience in the mining sector and I'm sure his addition to our team will be invaluable, and as we continue to advance key projects for our company and unlock potential organic opportunity. I'm really looking forward to hearing from Pat in our Q2 review and more to come as we move forward.

I'm looking forward to building on our first quarter and continuing to deliver value for all our stakeholders. And with that, I will now pass it to Rob Chausse, CFO.

Thanks, Renaud, and good morning. Slide 5 provides our operating highlights for Q1. Production details are consistent with our April production press release. During Q1, the company produced 87,600 gold equivalent ounces. The amount consisted of 8.2 million pounds of copper and approximately 58,800 gold ounces from Rainy River, 9,267 gold ounces from New Afton for a total of 68,100 gold ounces.

The lower equivalent gold production as compared to the prior year is primarily due to lower grade and tonnes processed at New Afton. Our operating expense per ounce was in line with our prior year quarter. Consolidated all-in sustaining costs for the quarter were $17.78 per equivalent ounce higher than the prior year quarter, primarily due to higher sustaining capital spend and lower sales volume at New Afton, partially offset with higher sales volume at Rainy River.

As Renaud mentioned, during Q1, we experienced inflationary challenges that have been experienced across the industry, particularly with regard to fuel prices and with the benefit of weaker Canadian dollar as well as optimization and cost reduction initiatives, we are offsetting a good portion of the inflationary pressures. Going forward, we'll continue to work on minimizing any impacts.

Turning to Slide 6. First quarter revenue was $175 million, driven by sales of approximately 70,500 gold ounces at an average realized gold price of $1,897 per ounce and sales of 9.2 million pounds of copper at $4.53 per pound.

Q1 revenue was 6% higher than the prior year quarter, primarily due to higher metal prices, partially offset by lower copper sales volumes. Operating cash flow before working capital adjustments was $66.4 million or $0.10 per share for the quarter, in line with the prior year quarter.

The company recorded a net loss of $7.8 million or $0.01 per share during Q1 compared to net earnings of $0.02 per share in Q1 2020. After adjusting for certain charges, net earnings were $10.3 million or $0.02 per share in Q1 compared to net earnings of $0.01 per share in the first quarter of '21.

Our Q1 adjusted earnings includes adjustments related to our gains and losses related to unrealized adjustments on the Rainy River stream mark-to-market and the free cash flow royalty at New Afton. Our MD&A has more details on these measures.

Capital expenditures. Our total capital and leases for the quarter was $78.4 million, $55.5 million was spent on sustaining capital and $22.9 million on growth capital. Sustaining spend was primarily related to planned tailings work at both operating assets, capital stripping at Rainy River and the B3 mine development at New Afton. Growth capital was focused on project development, specifically the C-Zone at New Afton and the underground Intrepid zone at Rainy River.

Slide 7 provides details of our capital structure. During the quarter, we announced that we will be redeeming the remaining $100 million of our 2025 senior secured notes in mid-May. And cash on hand as at March 31, 2022 was $432 million. The decrease in cash from the year-end is primarily due to interest paid and cash settlements on noncurrent derivative financial liabilities.

With that, I'll turn the call back to Renaud.

Thanks, Rob. I will now make some additional remarks on our operational performance in the first quarter. I'm on Slide 10.

The Rainy River mine had a lighter quarter in terms of total tonnes mined, mainly due to higher COVID cases in the start of the quarter, which improved as the quarter progressed. We had a strip ratio of approximately 5:1, and this was in line with our strategic approach to use winter months for the main capitalized waste, which focused on positioning the Phase 4 mining. The lower tonne mine did not have a meaningful impact on grades and the total production of nearly 60,000 gold equivalent was up from the same period of 2021 -- 2020.

The milling rate was impacted by additional downtime related to crushing and conveying circuit and adverse weather conditions impacting also the crushed stockpile movement, all of which was back to normal as the quarter of progress. All in all, the team was very resilient and navigated around adverse conditions to deliver a good quarter.

Despite the inflationary pressures, the team delivered lower operating expenses compared to the same period of 2021 and a free cash flow of approximately $15 million for the quarter. Rainy River continues to work on seeking ways to reduce cost and improve productivity. So, such increase of fuel and consumables can partially to fully be mitigated.

For example, the mining team delivered an improved tire life year-over-year of nearly 40%, offsetting current potential and further increase of tire prices. The efforts continue in improving other consumable uses such as grinding, milling cyanide, and we continue to see potential improvement in our overall pit operational efficiency with objective to achieve production with use of less truck for example, so we reduce our operational and maintenance costs present and future.

Bringing the mill back to expected 27,000 tonnes a day mark will also have a huge contributor -- would also be a huge contributor to our overall cost performance. I have just returned from Rainy and I remain very positive on our ability to deliver on our 2022 plan.

The Intrepid development continued in the first quarter, with over 500 meters of total development achieved. We are now developing a hole on Level 175, 150 and 125 in prep for first long-haul stoping to take place in the second half of the year, and the reconciliation to date is in line with the resource model.

On Slide 11, I'm very pleased with the result of our updated technical report at Rainy River which has extended the mine life to 2031. Our updated mine plan illustrated an attractive average production profile of 310,000 gold equivalent ounces over the period of 2022 to 2027 and over 250,000 gold equivalent ounces for the whole life of mine.

With full transition from open pit to underground during the period of 2025 and 2026 for an estimated gross capital of only $71 million to complete the underground preproduction work for both Intrepid and central zone, a very attractive cost approach using in-pit portal design to access mineralization with minimal development required.

For the open pit portion, significant reduction of strip ratio and sustaining capital post 2023 when all capitalized stripping is complete, reducing total mining and maintenance requirements. So overall, life of mine all-in sustaining costs of nearly $1,050 per gold equivalent ounce, bringing excellent margin and free cash flow as we deliver on our execution.

On Slide 13, in the New Afton in-line quarter at New Afton as the lower tonne mines were perfectly aligned with the planned completion of the Lift 1 activities. With the exceptions of recovery level, which will continue until we initiate in-pit tailing disposition planned for later this year.

The B3 development and production ramp-up continued in Q1, and all efforts are being made to accelerate completion of development ahead of schedule which is currently planned for the fourth quarter of this year. The C-Zone development continue to advance in the first quarter with nearly 930 meters of total development achieved and a successful commissioning of the newly built cap facilities months ahead of initiation of our intended position.

During the quarter, we've completed 32 diamond drilling hole following nearly 10,500 of underground infill or artificial intelligence targeted that were drilled last year and also one hole of exploration on the Cherry Creek Trend. The company intends to release an exploration update in the latter part of the second quarter, which would also include an update on our exploration efforts at Rainy.

On Slide 14, and as I conclude on the presentation portion of this call. At Rainy River, we continued to build on our recently filed updated technical reward and while we continue to seek opportunities to improve margin on remaining open pit ounces, we are now turning our strategic efforts on delivering a strong transition to underground mining. We're bringing first Intrepid in production.

At New Afton, completion of the B3 development and ramp-up remains our key priority, while we continue to deliver the C-Zone on time and on budget, which include receive other permit in the second half of '22. I want to thank all our employees and contractors for their restless effort and commitment in executing on our 2022 guidance and a very special thanks to our Board of Directors, community partners and shareholders for their continued support in such challenging times.

In my opening remarks, I made a comment that Pat is joining us in his first day sitting right next to me today. And I would ask you, Pat, if you have just one, first comment, and welcome.

Yes. Thank you, Renaud. I'm really pleased to join New Gold, not only, I think working experience with Rob, where we had to work together in the past and to join Renaud and the team it's really exciting for me.

Well, mainly to characterize the health and safety approach, I think it's something is valued, that is crucial for me. So -- and the guys are doing -- the team is doing a good job on site, but I will do my best to reinforce that, to provide safe working place.

The workers are crucial for New Gold and also to continue to be in compliance with the [total] performance and to maintain and improve our relationship with our local stakeholders and First Nations group who are supporting us in both assets, I think for me it's crucial.

At the beginning, I would mainly invest my time to stabilize and to be sustainable on an operational point of view and to deliver guidance, and I think we're excited to work with the team, Renaud.

Thank you so much, Pat. And as I said, we'll be hearing from Pat in our second quarter review. I will now turn it back to the operator for the Q&A portion of the call. Michelle?

(Operator Instructions) Your first question comes from Mike Parkin of National Bank.

Can you just speak on labor availability at the assets during shutdowns? Are you noticing any kind of challenges, staffing, contractors or shutdowns? Are you pulling from further and further away cost pressures that kind of thing?

Thanks, Mike, for your comment and question. So, as I mentioned on the operational side, of course, it was a tough start. We did not have really a big maintenance shutdown plan during that period. So that's good. We usually plan our shutdown way ahead of schedule. So that gave a lot of flexibility to our contractors to adjust and adapt.

And so, I wouldn't say on the shutdown, it has been on a real impact. But when it comes to on planned shutdowns, if you have some issues and so forth, of course, you operate in any COVID situation may impact may slow down a little bit the reactiveness of that. But all in all I believe that it hasn't really impacted on the maintenance and shutdown side, but more like on the regular operations mostly around the mine at the start of the quarter. Things have been improved significantly as we advance in the quarter.

And then Slide 14 just notes that you're looking to receive the C-Zone permit in the second half of 2022. Is there any wiggle room on that, that drifted out into early 2023, is there any issues with receiving that a little later if for whatever reason it got delayed through maybe the government has kind of backed up with various COVID delays?

And I appreciate that because as everyone knows, we were impacted with the B3. We had some delays. COVID was, but at the same time too the B3 needed to address the in-pit tailing needed to address stabilizations and the watering of tailings, all of which were included in the technical discussions. There were some longer, of course, conversations and consultations with our partner, First Nations at the very challenging times for them, for the provinces. So, everything is basically happen -- during B3.

When it comes to C-Zone, I'd like to say that there is nothing really new about the C-Zone. It's a little bit of the more of everything we have already permitted. And the process is advancing extremely well our first round of questions on time, answering it. Then comes the second round and quite frankly, we're not expecting. We've completed our conversations internally as well and the support as well from our partners and communities is in place. So now we feel very strong that the process is following its due course and that we could put this to bed not delayed late in the second half of the year.

Your next question comes from Lucas Pamatat of Canaccord.

So just thinking about costs at Rainy River. Obviously, the costs this quarter were above your guidance. And I believe you had also guided to lower cost in the first half of this year. So how should we think about those going forward for the rest of the year?

We did not really guided by half. So, we've mentioned, though, at the time of the guidance is the first half just like last year at the Rainy River. So, the first quarter is a higher strip ratio, more waste, slightly lower grade. And the second half, which represented only about 55% of the production will be at the less strip ratio, so less cost to achieve higher production. So yes, with some inflation pressure and all that. But all in all, we're following our strategic approach of more waste (inaudible) and pushback. So no, we did not -- so strategically, we execute as planned.

And then just a follow-up. So, you mentioned in your prepared remarks that the B3 zone is on track for Q4 of this year. Do you have an idea of how many tonnes we can expect from that area this year?

So if you look at the B3 technical approach. So, once you have completed all your development and all your draw point and (inaudible) done and that the caving takes place in its max capacity. We're talking about anywhere between the 8 and potentially up to 5,000 to 10,000 tonnes a day. And so there is about -- roughly, we're about like 40% right now. And as we advance, we hope to -- the beauty of the objective and the -- of accelerating and I'm sure Pat will be a lot on this with the team at the New Afton to accelerate and complete the development ahead of schedule would allow the gravity to take place and the ramp up to the full capacity taking place earlier and hopefully achieve it before the end of the year rather than early next year. So that's really what is at stake here and accelerations and completions of the development ahead of schedule will have a big impact and would allow more caving to take place this year.

Your next question comes from Anita Soni of CIBC World Markets.

The first question that I have is with respect to the unit mining cost per tonne at both New Afton and Rainy River. So, at New Afton, from quarter-over-quarter, it jumped pretty significantly. I think it was around 11% to 26%. Is there something that is -- could you provide some clarity on why it was so high this quarter on the mining cost?

It's really the type of mining Anita. So, the fact that we've shut down the Lift 1 activities and also that free, what I would call that free caving draw point picking is out now. The recovery level is all remote. And as a result of the accident last year has increased safety and SOP operating protocols, practices and so forth. And the B3 tonnes comes basically just from the early stage in the B3.

So, it's a transition zone. There is no doubt in my mind, has we progress and ramp up and put the B3 development behind us and we are basically benefiting as well as the B3 and the free caving the cost will come back. But it's a transition. It's all related to the transitions, the same with the sustaining capital, you're spending sustaining capital at B3, but you're still not benefiting the tonnes and the ounces coming from. So, transition, it's difficult. But it's temporary and eventually, we'll establish ourselves and our cost will return to proper structure.

Okay. And then so remind me again, when the B3 zone complete?

We have normally -- if we would follow the, let's call it the 4 bell months, we will be completing this in the fourth quarter. And the opportunity here is to really increase this even more looking at here.

And then on Rainy River, a similar question, except in this case, costs were similar, I guess, mining cost per tonne were a little bit higher, but the process costs were similar versus last year. But I guess my question is relative to the technical report, you guys were looking at, I think, you process costs in the $7 per tonne for this year. And I'm just trying to understand the discrepancy between the 9 -- mid-9s versus the 7 -- the mid-7s that you were expecting in the process, given the technical report that was just released a few weeks ago.

Yes. And it's all about the -- in the first quarter, it's all about the maintenance. Yes, there were some extra inflations and consumable and electricity went up as well this quarter. But globally speaking, is when you have 27,000 tonnes a day and you operate at 24%. So, the difference in between is usually related that when you stopped, you're spending money and, so I know we have absolutely the capacity to bring this cost back to the market.

But it's instability and it's the -- we need to bring the mill down back to the 27% at the planned maintenance and cost and the planned operational efficiency costs, as we highlighted in our 43-101, but those costs per tonne that you referred to that were included in the first quarter were achieved back in 2021. So, it's not something that we haven't achieved. We have achieved those, but Q1 was somewhat unstable, but those costs are absolutely achievable.

Ladies and gentlemen, there are no further questions. I will turn the conference back to Ankit Shah for closing remarks.

Thank you, Michelle, and thanks again to everybody who joined us today. As always, should you have any additional questions, please do not hesitate to reach out to us by phone or e-mail. Thank you and have a great day.

Ladies and gentlemen, this concludes your conference call for this morning. We would like to thank you for participating and ask you to please disconnect your lines.