New Gold Inc (NGD) 2023 Q3 法說會逐字稿

Good morning. My name is Jenny, and I will be your conference operator today. Welcome to the New Gold's Third Quarter 2023 Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference call and webcast is being recorded. (Operator Instructions)

I would now like to turn the conference over to Ankit Shah, Executive Vice President of Strategy and Business Development. Thank you.

Thank you, Jenny, and good morning, everyone. We appreciate you joining us today for New Gold's Third Quarter 2023 Earnings Conference Call and Webcast. On the line today, we have Patrick Godin, President and CEO; Yohann Bouchard, COO; and Keith Murphy, our VP of Finance. 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 actual results and future events could differ 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 AIF, MD&A and other filings 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 Yohann Bouchard, Executive Vice President and Chief Operating Officer, to the call. Yohann will cover the operational portion of these calls going forward. Yohann joined the company 6 months ago with Luke Buchanan, VP Technical Services. Both have a strong proven operational background, which is strengthening our management team.

Before turning the call over to Keith and Yohann to discuss the quarter, I want to give a few brief remarks. We had another excellent quarter here at New Gold. Our efforts this year are paying off. And due to the strong operational performance over the first 9 months of the year, production is striking to the top end of guidance, and our all-in sustaining costs are tracking to the low end of the guidance range.

These strong results at New Gold generated $22 million of positive free cash flow. This is the first time we have generated positive free cash flow as a company since Q4 2021. We did this despite continuing to invest in our growth projects and securing future production. I expect this positive free cash flow trend to continue and increase in the coming years as we complete our growth projects.

Our health and safety performance continue to meet expectations with a year-to-date TRIFR of 1.01 through the first 9 months of the year. In fact, earlier this month, Rainy River celebrated a significant milestone of 1 year without a lost time injury. I am particularly pleased with our ability to meet our objective without compromising safety, which is a testament to our courage to care (inaudible)

The strong operating results at Rainy River over the last 4 quarters speaks strongly to this. Looking to our future, we continue to make progress advancing our growth initiatives. We continue to advance underground development at Rainy River. The ramp access to Main Zone made good progress with first ore scheduled for Q4 2024.

And as highlighted in our recent press release, we have accomplished some significant milestones. I want to emphasize the completion of the first draw bell at C-Zone and the final commissioning of all 29 dewatering wells at the New Afton Tailings Storage Facility. This is our key for C-Zone production, and we are well on our way to reaching commercial production in the second half of next year.

We also provide an update on promising opportunities to extend the mine life at New Afton beyond '23, which I'm very excited about. This is a pivotal moment for the New Afton mine with production growth and declining costs expected in the near term, and all major capital expenditures for tailings stabilizations completed. At both operations, we will continue to deliver an expectation with a strong focus on cost control and operational discipline.

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

Thank you, Pat. I'm on Slide 7, which has our operating highlights. Q3 was another strong quarter. We produced over 111,000 gold equivalent ounces, which is 22% higher when compared to the prior year quarter. Rainy River produced approximately 65,000 gold ounces. The increase over the prior year quarter is primarily due to higher gold grades and higher throughput. New Afton produced approximately 18,000 gold ounces and over 13 million pounds of copper, with the increase over the prior year quarter due to higher grades and increased recovery. Gold production at New Afton also includes 761 ounces from the ore purchase agreements.

Operating expenses per gold equivalent ounce decreased over the prior-year periods, primarily due to higher production and sales. Consolidated all-in sustaining costs for the quarter were $1,477 per equivalent ounce. The decrease compared to the prior year quarter is due to the lower operating costs, lower sustaining capital spend and higher sales volume at both sites.

Turning to our financial results on Slide 8. Third quarter revenue was $201 million, driven by sales of approximately 107,500 gold ounces at an average realized gold price of $1,924 per ounce, and sales of 13 million pounds of copper at $3.78 per pound. Q3 revenue was higher than the prior-year quarter primarily due to higher metal prices and sales volumes.

Cash generated from operations before working capital adjustments was $88 million or $0.13 per share for the quarter. This was higher than the prior year period due to higher revenue. As Pat mentioned, the company generated $22 million of positive free cash flow in the quarter. Rainy River continued to deliver free cash flow and has generated $85 million in free cash flow over the last 2 years. New Afton had its first positive free cash flow quarter in almost 2 years despite the ongoing investment in C-Zone. This is a testament to the strong operating performance in the quarter.

The company recorded a net loss of approximately $3 million or 0 cents per share during Q3. This is an improvement compared to the prior year quarter, primarily due to higher revenues and lower finance costs, partially offset by higher operating costs and higher unrealized losses on the revaluation of the Rainy River gold stream obligation and the New Afton free cash flow interest obligation.

After adjusting for certain other charges, net earnings were $23 million or $0.03 per share in Q3, an improvement compared to an adjusted net loss of $13 million in the third quarter of 2022. The improvement in adjusted net earnings was primarily due to higher revenues and lower finance costs, partially offset by higher operating expenses and depreciation and depletion due to the higher production. Our Q3 adjusted earnings include adjustments related to other gains and losses.

Our total capital expenditure for the quarter was $70 million, with $36 million spent on sustaining capital and $35 million on growth capital. At Rainy River, sustaining capital spend was primarily related to the tailings down-raise, capitalized waste and capital maintenance. Growth capital related to the development of the Intrepid underground and underground Main Zones. At New Afton, sustaining capital spend primarily related to tailings management and stabilization activities, while growth capital primarily related to C-Zone development.

Slide 9 provides details of our capital structure. We had cash on hand at the end of Q3 of $179 million, an increase of $5 million from the previous quarter, driven by free cash flow generated at both Rainy River and New Afton. At the end of Q3, the company's liquidity position was $553 million. We continue to execute short-term hedges on CAD and fuel and are hedged at around 75% on both for the fourth quarter. 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 with an increased cash balance following another excellent quarter, all while continuing to invest in our growth projects.

Now I'll turn the call over to Yohann to walk through our operating highlights.

Very good. Thank you, Keith. So commencing by Rainy River, the operation continued to perform well, achieving another quarter in line with plan and delivering 10% increase in production over the third quarter last year. Through operational discipline, the operation is delivering on expectations and achieving a stable and reliable production quarter-over-quarter. The operation is well positioned to continue this trend into 2024.

High-grade ore is planned from the lower benches of Phase III and the Intrepid under our mine, and the processing plant is running well, achieving a throughput of more than 28,000 tonnes per day in September. The operation is on track to achieve the top end of the production guidance and with the all-in sustaining costs tracking to the midpoint.

Open -- the open pit costs are expected to reduce significantly after 2024 with the completion of the waste stripping, while [feed] grade our plan to increase as underground production ramp up to supplement high-grade mill feed from the pit. With more stable quarterly results, we are now looking forward to the next 3 years in which we see a growing production profile with declining costs, driving increasing cash flows.

Now on Slide 12. So the underground production is planned to increase from the second half of 2024 with the expansion into the underground Main Zone. The connection ramp from Intrepid to underground Main is advancing well, and we expect to be in a position to start raise-burrowing the fresh air raise in Q1 next year. In parallel, the Intrepid zone continued to produce between 800 to 1,000 tonnes per day, with grade reconciling positively with the block model.

Now turning now to New Afton. The operation had an excellent third quarter, achieving the highest quarterly production since 2021, mostly as a result of B3 continuing to exceed planned extraction rates. The exceptional performance over the first 9 months put New Afton in an excellent position to achieve the top end of the 2023 production guidance and the bottom end of the cost guidance. We expect the increasing production profile to continue over the coming years as C-Zone ramp up production.

We made excellent progress this quarter achieving 2 significant milestones. First, we completed the first draw bell at C-Zone on time. This is significant because it marks the start of the C-Zone production ramp-up period, putting the project on track for commercial production in the second half of the year. The second major milestone in Q3 was commissioning of the final dewatering well at the New Afton Tailings Storage Facility. As such, most of the activities and costs related to the tailings stabilization project are now completed.

Wrapping up on Slide 15. This figure highlights the strong outlook at New Afton, and there's 4 key points that I would like to talk about here. The first, as C-Zone ramp up, gold equivalent production is expected to average 230,000 ounces per year from 2024 to 2030, a 60% increase over the midpoint of 2023 guidance. Secondly, considering the fixed cost component of 50% with mining, 75% with processing and 90% with G&A, the unit cost per tonne basis is expected to decrease with the return of higher throughput rates.

Third, almost all CapEx is upfront for the block cave -- for block cave mine, and as such, there is a minimal capital expenditure after completion of the C-Zone project in 2025. And finally, beyond 2030, there is significant upside that could extend the life of mine for many more years, which is supported by very encouraging exploration results.

With that, I will turn the call back to Pat. Patrick?

Thank you. So turning to our 2023 guidance. Following the strong results year-to-date, Rainy River is tracking towards the top end of the gold equivalent production range, and all-in sustaining costs are tracking to the midpoint of the guidance range. At New Afton, I am pleased to say that copper, gold and gold equivalent, productions are all tracking towards the top end of their respective production guidance ranges, with all-in sustaining costs tracking toward the low end of their respective cost guiding range.

It's been almost 1 year since I took the role as CEO at New Gold. I want to say how proud I am of our teams. We have strengthened both of our corporate and site management teams throughout the year, and we all share the same vision of one team, fully integrated and pursuing the same objectives of delivering on expectations safely. We have come a long way, and this is a driving force behind our strategy.

Before concluding the presentation, I want to share a few reflections and reiterate what I have been seeing throughout this year and what I view to be the key priorities for the company. Our first priority was to continue to stabilize our operations. At Rainy River, the open pit challenges are behind us, and the underground production at Intrepid has performed well with positive reconciliation. The connection ramp to the Main Zone commenced in June and continues to make excellent progress. At New Afton, the B3 ramp-up is complete, and is exceeding planned extraction rate targets.

Our second priority was to continue to advance our organic growth opportunities. At Rainy River, we are on track to deliver first ore from the Main Zone in Q4 2024, and production at Intrepid will continue below level 300, which will increase our grade contribution from underground.

New Afton C-Zone is on track and has achieved several milestones over the last 12 months, including completing the ticket tailings plant, receipt of all C-Zone permits, completing the 29 dewatering wells at the New Afton tailings storage facility, and completion of the first C-Zone draw bell. C-Zone remains on track for commercial production in the second half of 2024. New Afton also outlined promising opportunities to extend the mine life beyond 2030, and we will look to follow up on these early successes with future exploration programs.

And third, deliver on our guidance set out earlier in the year. We have performed well through 2023 with a continued focus on operational discipline and safety. I am pleased that we are tracking to the top end of our production guidance and the low end of our all-in sustaining cost guidance.

With 4 strong and consistent operating quarters behind us, it should be clear that we now have in place the right people to get the job done. The company is well positioned for significant free cash flow generation in the coming years, and I look forward to updating everyone in the coming quarters.

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

(Operator Instructions) Your first question is from Eric Winmill from Scotiabank.

Patrick, Yohann, and team, I just want to drill down on Rainy for a moment, if I could, please. You made the decision to come in to the underground Main Zone from Intrepid. Just wondering how we should look at the ramp-up here towards the second half of 2024 in terms of working phases, kind of tons per day, whether -- are you still planning to put in the second decline from the in-pit? Any comments would be helpful.

Thanks for the question. I'm going to take that one. So I just want to say that the ramp-up is advancing is very well. I mean we're really pleased with that and (inaudible) is excellent. And we're going to -- we're pretty much aligned, I mean, to start to do the pilot before the end of this year and start to ramp in Q1 next year. Regarding like the production profile, we're looking at being in ore sometime in Q4 next year. And we're going to see, I would say, an increasing profile in 2025. But it's doing very good.

I just want to add, I mean, that we're also looking at mining below the 300 level at Intrepid that's going to also have higher grades to the processing plant. We're still working on a budget on that. But so far, I mean, we're really pleased with what we see. And we're advancing very well.

About the second quarter, with the site, I mean to do that from Intrepid, just not to interfere with the open pit activities, and that second access at the bottom pit is not required in the short term because we're going to have a ventilation loop and a second means of egress. But we're looking to have that portal and start construction maybe in 2025 in order to have a shorter haul with a mining truck and do most of the haul with bigger truck to cut on costs.

Hopefully, that answered your question.

Yes, super helpful. Just one more for me, if you don't mind. I saw some news here about Talisker I guess doing an ore purchase deal for New Afton to process feed there. Any further comments on that?

No. I mean, Eric, we have an investment in Talisker and similar to the ore purchase agreement that we have in place in New Afton, we're always looking for compelling opportunities that generate free cash flow given the feed capacity we have at New Afton. So they've been a great partner to us. And we always look for free cash flow ore that can come to our mill.

It's a win-win deal for Talisker as it is for New Gold.

(Operator Instructions) Your next question is from Anita Soni from CIBC World Markets.

Just a couple of quick questions. Firstly, in terms of the CapEx spend. I think you alluded to it that the capital will decline significantly in 2025. But what would -- what should we expect in terms of capital from the New Afton mine in 2024? I'm just trying to look at my technical report quickly. I'm wondering if that's still in line was what the tech report had or whether or not there are significant changes outside of any obvious inflationary adjustments from the numbers quoted there.

Thanks, Anita. No, we're still in line. We spent about $360 million so far on the C-Zone project. So we're still in line with what we had in the tech report and are looking forward to completing that in the second half of 2024.

Okay. And then similarly, a question for Rainy River. Is that still -- I mean, that one, that tech report is far more up to date but is that still valid?

Yes, Yes, still in line. I mean you've probably seen on the strip ratio, we continue to work through optimizing our mining sequence in 2023. So we'll continue that and look ahead to 2024, and then we'll give guidance in that in 2024.

Okay. And then just a question with regards to the Ontario Teachers' Pension Plan buyback, could you remind me when that comes due and what your plans are when it comes to that option being available? I'm not quite sure, I think it's due fairly soon. And what would be the purchase price for you to buy it back if that would be case.

Anita, yes, so the 4-year anniversary on the transaction is March 31, and then we have a 60-day window. So this is a Q2 2024 event. In terms of evaluation together between us and teachers, we'd hire an independent evaluator based on our updated budget plan. So that's currently in the work as we work through our budget. So this is more of a Q2 next year exercise. I mean, right now, we're focused on our operations just generating cash flow, and we'll evaluate this more in the first half of next year.

(Operator Instructions) There are no further questions at this time. Please proceed.

Great. Thank you, Jenny. And thank you, everybody, again, for joining us today. As always, if you have any additional questions, please feel free to reach out to us by phone or e-mail. Have a great day. Thank you.

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.