New Gold Inc (NGD) 2023 Q2 法說會逐字稿

Good morning. My name is Michelle, and I will be your conference operator today. Welcome to the New Gold's Second Quarter 2023 Earnings Conference Call. (Operator Instructions)

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

Thank you, Michelle, and good morning, everyone. We appreciate you joining us today for New Gold's second quarter 2023 earnings conference call and webcast. On the line today, we have Patrick Godin, President and CEO, and Keith Murphy, our VP Finance. If you wish to follow along with the webcast, please sign in from our homepage at newgold.com.

Before the team begins the presentation, I would like to direct your attention to our cautionary language related to forward-looking statements found on Slides 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 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 Annual Information Form, MD&A and other filings available on SEDAR, which set out certain material factors that could cause actual results to differ. In addition, at the conclusion of the presentation, there are a number of end notes that provide important information and should be reviewed in conjunction with the material presented.

I will now turn the call over to Pat for some opening remarks.

Thanks, Ankit, and good morning, everyone. I want to welcome Keith Murphy, our VP Finance to the call. Keith will cover the quarterly results going forward, and we are excited to have him joining us. I wanted to give a few brief remarks before turning the call over to Keith to discuss the quarter.

We had an excellent quarter and continue to build on the momentum from the beginning of the year. I note on our first quarter call that Q2 will see planned major maintenance performed at Rainy River. I also note at that time that our team prepares for the worst, but we plan for the best. And I'm proud to say our team showed great resilience, because of the proactive measures taken at site, Rainy River not only complete the maintenance on schedule, but also delivered a strong production results accomplishing our goals all without sacrificing safety.

During the quarter, we have no lost time injuries at both of our operations. And both sides reached more impressive milestone with New Afton exceeding 1.5 million hours since the -- its last lost time injury and Rainy River surpassing 2 million hours.

I want to take a moment to further recognize the team at New Afton for receiving the J.T Ryan Safety Award for British Columbia and Yukon as well as British Columbia's Safest Large Underground Mine Award. These 2 awards are incredible recognitions to New Afton's hard work and to our company commitment to safety of our health. As a result, we are well positioned to meet our production and cost guidance set out earlier in the year. In short, we are executing our 2023 plan strongly and safely.

Looking to our future, we also continued to make progress advancing our growth initiatives. We continue to advance underground development at Rainy River with the development of the ramp access to the underground Main zone commencing, something I would explain on the coming slides.

And seasonal development at New Afton continued well in the quarter. Our development rate increased over the first quarter, and I remain confident in our ability to achieve first production run or during the fourth quarter with commercial production plan for the second half of 2024.

With that, I will turn the call over to Keith. Keith?

Thank you, Pat. I'm on Slide 7, which has our operating highlights. Q2 was another strong quarter. We produced 102,374 gold equivalent ounces, 45% higher when compared to the prior year quarter. Rainy River produced approximately 60,000 gold ounces. The increase over the prior year quarter is primarily due to higher gold grades. New Afton produced approximately 16,600 gold ounces and 12 million pounds of copper. The increase over the prior year quarter is due to higher gold and copper grades and recovery, partially offset by lower tons processed. Gold produced at New Afton also includes approximately 940 ounces from the ore purchase agreements.

Operating expense per gold equivalent ounce decreased over the prior year period primarily due to higher production and sales. Consolidated all-in sustaining costs for the quarter were $1,657 per equivalent ounce. This decrease compared to the prior year quarter is primarily due to lower sustaining capital spend and higher sales volumes at both sites.

Turning to our financial results on Slide 8. Second quarter revenue was $184 million, driven by sales of over 74,200 gold ounces at an average realized gold price of $1,970 per ounce and sales of 10 million pounds of copper at $3.82 per pound. Q2 revenue was higher than the prior year quarter, primarily due to higher gold and copper sales volumes, partially offset by lower copper prices. The second quarter revenue split saw gold contribute around 80% to our quarterly revenue and copper around 20%.

Cash generated from operations before working capital adjustments was $65 million or $0.10 per share for the quarter. This was higher than the prior year period due to higher revenue. The company recorded a net loss of $2.6 million or $0.00 per share during Q2, an improvement compared to a net loss of $0.06 per share in Q2 2022. After adjusting for certain of the charges, net earnings was $11.5 million or $0.02 per share in Q2, an improvement compared to a net loss of $16.7 million in the second quarter of 2022.

The improvements in net earnings and adjusted net earnings were primarily due to higher revenues and lower finance costs, partially offset by higher operating expenses and depreciation and depletion. Our Q2 adjusted earnings include adjustments related to other gains and losses. Our MD&A has additional details on the non-GAAP measures discussed here.

Our total capital expenditures for the quarter were $72 million, with $36 million spent on sustaining capital and $36 million on growth capital. The decrease over the prior year period is due to lower sustaining capital as Rainy River had lower capital stripping and New Afton had B3 development capital in the prior year, partially offset by higher growth capital at both sites.

Sustaining capital spend at Rainy River was primarily related to capitalized waste, capital maintenance and the annual tailings down rates. At New Afton, it's primarily related to tailings management and stabilization activities. Growth capital was invested in the C-Zone at New Afton and the underground intrepid and Main zones at Rainy River.

Slide 9 provides details of our capital structure. We had cash on hand at the end of Q2 of $174 million and our liquidity was $547 million. We have $373 million available on our credit facility. We continue to execute short-term hedges on CAD and fuel and are hedged at 75% on both for Q3. We will continue to evaluate short-term hedge options on CAD and fuel and utilize it as we see fit. To sum up, we remain in a healthy financial position following a strong quarter while advancing our growth initiatives.

Now I'll turn the call back to Pat.

Thank you, Keith, and welcome again. So slide 11 provides additional detail on the second quarter at Rainy River. During the quarter, the mine and mill performed well and delivered solid production increase over the second quarter of last year. The Rainy River team complete all previous discuss planned mainland activities in the quarter. Rainy River open pit mining sequence was optimized to maintain a consistent production and profile throughout the year, leading to ounces being mined ahead of schedule.

As a result of the production ounces pulled forward in the quarter, we now expect production in the second half to be approximately 50% of annual production. Throughput was in line with the second quarter from last year and an increase from the first quarter of this year. I remain confident that we can get to the target rate for the year with the recently completed maintenance of the processing plant. The average gold grade at Rainy River was 0.97 grams per tonne, well above the second quarter from last year. The grade normalized from the first quarter as expected.

Turning to the underground development advanced 524 meters in Q2. Production in the quarter include over 99,000 tonnes of ore from the Intrepid underground zone at a grade of 3.11 grams per tonne gold equivalent. Underground production continues to ramp up in tonnes and grades continue to reconcile well.

As I mentioned in my opening remarks, development of the underground Main zone coming during the quarter as planned, with the development advancing approximately 100 meters. Following a detailed review of optimization opportunities over the last 6 months, the underground Main zone will initially be reached via Intrepid instead of in-pit portal. This will allow for efficiencies and further optimization of the existing open-pit for its remaining mine life. This will reduce haulage distance by allowing us to use the North lobe as an in-pit place storage facility. In addition to facilitating access to the underground Main zone, this will allow us to preauthorize underground exploration activities between the Intrepid and Main zone through the ramp access.

I am very happy with the progress made to the underground, and I remain confident that we are well positioned to meet our annual production and cost guidance at Rainy River.

Slide 12 provides further details of New Afton second quarter results. The underground mine averaged over 8,500 tonnes per day of ore mined in the quarter, an increase over the prior year period as B3 is now comfortably operating at a 3 state mining rates post completion of construction activities in 2022. The mill average over 8,300 tonnes per day, relatively in line with the daily mining rate incorporating B3 ore mine exclusive of ore purchase in our relation, in relation to our purchase agreement. B3 continues to deliver to plan and New Afton remains well positioned to meet its annual production and cost guidance set out at the year -- at the start of the year.

Season development continued to advance with 1,415 meters in the quarter. Completion of the ventilation raised in the second quarter contributed to increased development rates substantially higher than the first quarter. Development on the extraction level to achieve post-drawbell was completed in the quarter, positioning the company well for first production ore in the fourth quarter with commercial production plan for the second half of 2024 for season.

Before I close out the presentation today, I want to reiterate what I said on the Q1 call and what I view to be the creative priorities for the company. First, continue to stabilize our operations. The open-pit and underground at Rainy River continue to reconcile well and the New Afton B3 is operating to plan. Second, continue to advance our organic growth opportunities. We made good progress at the underground Main zone at Rainy River and C-Zone at New Afton. Third, we have safety as the highest priority deliver on our guidance set out earlier in the year. This was another consecutive quarter with no lost time injuries and strong operating results.

This quarterly result shows we are well on our way to executing these priorities. I'm incredibly proud of the effort shown by our team in the first half of the year, and we will continue to build on these results as we look to the second half of 2023.

This completes our presentation. I will now turn it back to the operator for the Q&A portion of the call. Operator?

(Operator Instructions) And the first question in the queue comes from Fahad Tariq with Credit Suisse.

Patrick, just going back to your comments about the Main zone and accessing it from underground versus an in-pit portal. Does that have any impact on costs or timing, development rates, things like that?

Not really because it's the opposite, because first, the ramp to build an in-pit portal in the North Lobe is -- it will require to build a portal that is not necessarily an easy thing and also to bring services there. So the fact that we will start from Intrepid is -- everything is already in place, and we will be attached to all the services, and I'm talking about compressor and (inaudible), et cetera, that is coming from Intrepid.

So it's more a saving on a timing point of view, that all our mining crews are based at Intrepid so it centralized the activities. And it's mostly the same meters of development. And what is interesting is actually we are at 300-meter deep in Intrepid. So it's going to speed up the access to the main core of the ore body of Main zone. So that's mainly a us [sitting in an opportunity].

The second thing in terms of opportunity for us is we have a gap zone. So we have a gap between Intrepid and the Main zone for exploration. So the ramp itself will give us the opportunity to explore this area. And the other saving opportunity for us is that we are using actually North Lobe as wisdom facility. So it's really short haulage for the bottom of the pit and for the stripping that we are doing actually to get -- to reach the pit limit. So it's reducing significantly the haulage systems and consequently, the cost and the fuel consumption. So it's a pro for us.

Okay. That's really clear. And then maybe just switching gears. Can you talk a little bit about just the inflationary pressures. We've been hearing from some of your peers that maybe on the consumables side, we're starting to see some easing. I'm actually more curious to hear about what you're seeing on the mining labor side, particularly a tight labor market in Canada?

Well, to be honest, the big jump in terms of inflation and conformable and spare parts, it was mainly in 2022. We had significant increase from suppliers. This year, I can say that it's mostly moderate and inside what we plan in the budget in regard of the cost increase for supplies and consumables. For the manpower, I think, generally, in our industry in Canada, we are really turning around 3%, 4%. So I think we're more in control this year than we were 2 years ago and last year up to me. So we're pretty comfortable with our cost management here. And these are discuss -- this escalation is already included in our AISC.

The next question in the queue comes from Anita Soni with New Gold.

So my first question, just trying to get an understanding of how the rest of this year is going to play out. I think in the original lines, you had talked about a strong first half -- I'm sorry, a strong second half and a weaker first half as you did the maintenance, but then you optimize the mine plan. So would we expect grades to moderate in the second half of the year or is it more of a tonnage issue?

I think we anticipate more in the feed. So I'm talking about the grade. So it's -- I think the same tonnage, but we tried to smooth the gold production, so it's going to be a 50-50 going forward. So as -- we are pleased by this. And in terms of AISCs, we had some -- in Q2, we had less capitalized waste and more sustaining capital because of the change that we had -- the improvement that we did to the mine plan, but we are still trending to be in our AISC guidance for this year.

Okay. So does that mean that in the second half, that would reverse that you would have -- I'm sorry, more capital -- I'm sorry, more capitalized waste and less sustaining capital. Is that -- I'm sorry, did I say that wrong?

Yes, mostly, yes.

Okay. Maybe I'll take it off-line because I confused myself. And then secondly, on -- just a follow-up on the -- for the first question about the Intrepid zone. What kind of an impact does that have in terms of the amount, like the strip -- the relative strip by SEDAR now going further into the bottom of the pit and lower strip ratio then. So does that mean next year you might have a lower strip ratio at Rainy than what was previously planned?

Yes. So the change of -- the fact that we started the ramp from Intrepid instead in the portal is not changing the strip, but it will reduce our mining costs and because it will reduce the haulage distance. So consequently, it's a huge efficiency -- operational efficiencies improvement for us. And also it's having -- it's a double impact because it will eliminate the (inaudible) and reduce our impact on the landscaping environment.

Going forward, Anita, we will -- because the pit is depleting actually, we are doing the Phase 4 pushback. The -- as discussed previously, the mining fleet will deplete year after year. So actually, we are operating -- we have 20 trucks in the fleet. We are operating 17 trucks. It will go full time up to year-end. And in the second half of 2024, the fleet will deplete and to go down to 5 trucks in the second -- in the first half of 2026. So for sure, going forward, this pit will be well positioned to reduce the cost significantly, and we will see a cost decrease in Q4 this year.

Okay. And then just in terms of impact to sustaining capital or development capital in that 2023 and 2024 as a result of the change and the way you're hitting the Intrepid zone. Can you give some color on that?

It's -- to be honest, I'm not having this detail actually, but we were trending mostly -- we have some slight improvement that will be -- that will be to our advantage. You have the cost increase in the development that will be on the counterpart. But I think the 43-101 is still something that is representing what we were facing, actually.

Okay. So you're going to deliver a 43 -- so you're saying the original 43-101 is still okay or are you going to deliver a new one?

It's still okay, yes.

(Operator Instructions)

Michelle, actually, we had a few questions e-mailed to us because I think a few individuals had difficulty dialing in. So I'm just going to read a couple of the questions for the team. The first question is for Pat. What was the underground grade in the second quarter at Rainy River and how is this reconciling to our plan?

The underground grade at Rainy River was 3.11 grams per tonne for 91,000 tonnes or from Sprott in development, and we are right on. The reconciliation compared to the reserve to what we mine is -- and historically, since we start the mine at Rainy River and Intrepid underground zone, we are mostly right -- we are bang on the grade, and we are mostly 2%, 3% above in tonnage, and it's still the case. We reconcile 100%.

Okay. Great. And one more question was also e-mailed to me. C-Zone continues to be on track for the fourth quarter, but what other milestones can we look for in the C-Zone development over the next few months?

Actually, it's the -- we -- the first milestone that is important for us is the first drawbell. So the first drawbell, we completed the development for the (inaudible) and for the extraction level. So if we are right on time to deliver the first drawbell for Q4, the beginning of Q4, more exactly. So it is the -- one of the milestones, we need to continue to be at full capacity in terms of development at C-Zone. We will complete the excavation of the crusher chamber in the following days, and construction crews will jump in to build the crusher and all the equipment attached to it, conveyors and et cetera, and it's something that we're looking at for Q3 next year to be fully commissioned and operational.

And the hydraulic radius was the -- I will say, the trigger for between commercial production and to complete the investment in the C-Zone. We're mostly targeting the second half of 2024 next year. So it means that we are pursuing the development close to 475 to 500 meters per month to be able to expose the ore and to start to increase production for C-Zone and to reach the full capacity at the end of 2025 as planned.

We do have one more question in the queue from Anita Soni from New Gold.

So I'm actually from CIBC. But anyway, so a follow-up -- I'm sure CIBC would be pleased hear this for a change. But the -- my question is with regards to the Intrepid zone. I just -- in the underground, I just wanted to understand what 2024 look like. So you're kind of running at about 400 tonne per annum right now. I think you said 91,000 tonnes this quarter. And then the ramp to like the 600,000 tonnes per annum next year and then like 1.2, 1.3 in 2025 is still that -- is that still the case at about 3 gram per tonne material?

Yes, you're talking all-in? Yes, the grade all-in because in Phase 3 going deeper, the grade is probably around 1, and we have the grade from underground that is leading this. Intrepid is mostly 1,000 tonnes per day Anita. And so -- and we are bang on, on the 43-101 the same. So I think it's -- I think by the -- our answer previously that the reconciliation is good. So basically, the grade that we have in the 43-101 is the same.

Yes. I was just looking and I just to get an idea of the years, like '24, '25 years, what they look like.

Yes. And we will give you -- we are working -- the fact that we have new colleagues who joined New Gold recently, it's helping a lot to -- it's increasing our capacity to improve our engineering process. And we will provide more -- we will provide more details in the 2024 guidance.

There are no further questions at this time. Speakers, do you have any closing remarks?

Thank you, Michelle. And again, thank you 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. Have a great rest of your summer.

Ladies and gentlemen, this will conclude your teleconference. Please disconnect your phone lines.