New Gold Inc (NGD) 2023 Q4 法說會逐字稿

Good morning, my name is Mark, I will be your conference operator today. Welcome to New Gold's fourth quarter 2023 earnings conference call. Please be advised that today's conference call and webcast is being recorded. (Operator Instructions)

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

Thank you, Mark, and good morning, everyone. We appreciate you joining us today for New Gold's fourth quarter and full year 2023 earnings conference call and webcast. On the line today, we have Patrick Godin, President and CEO; Yohann Bouchard our COO, and Keith Murphy, our CFO. In addition, we have Luke Buchanan, Vice President, Technical Services, and Jean-François Ravenelle, Vice President, geology available for the Q&A portion of the call.

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 slide 2 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. Slide 2 provides 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 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. 2023 was an excellent year for New Gold's, deodorizing health and safety for our Courage to Care campaign led to an industry leading total reportable incident frequency rate of 0.8.

We safely achieved the top end of our production guidance range, which was a 20% increase over 2022. And we map our all in sustaining cost guidance range, delivering an 18% cost reduction over 2022. We delivered key project milestone on time, such as completing the first draw bell at New Afton C-Zone as well as advancing the underground main zone at Rainy River.

And we have the operations of our satellites are able to return our focus to a portion which was highlighted by a 74% replacements of Rainy River's mineral reserves and the subject pipeline for mine life extension at New Afton.

In shorts, New Gold met or exceed our stated objectives in 2023. Last week, we present our three years operational outlook as well as our long-term strategic outlook. We thank everyone who participated in the webcast. The presentation and webcast are still available on our website and I encourage everyone was unable to participate to review.

I will reiterate the highlights from the roadmap we presented on slide 5. We outlined polishing growth over the next three years of 35% gold and 60% in copper as well as a corresponding 51% reduction in ASIC and 77% reduction in growth capital over the next three years, which will drive significant margins and cash flow.

We also discussed our strategic objectives beyond 2026 of targeting a production platform of 600,000 gold equivalent ounces per year for line-of-sight until at least 2030, as well as our pipeline of opportunities and exploration upside in Western mine lives well into the next decade with modest capital investments.

Before I pass things over to Keith, I'd conclude on Slide 6. First, our current liquidity position remains strong. We have $186 million of cash at year end 2023, and we have $373 million undrawn on our credit facility. Based on the three years of our bookings as of last week, we expect to generate significant free cash flow over the next three years with the inflection point taking place in the second half of 2024.

As a result, we are incredibly well positioned to achieve our strategic outlook to at least 2030. We'll have the financial flexibility to repay our 2027 bonds and advanced several important deals to add mine life beyond 2030. To reiterate, we are entering a very exciting period for New Gold.

With that, I'll turn the call over to Keith.

Thank you, Pat. I'm on Slide 8, which has our production highlights. Q4 was another solid quarter. We produced over 105,000 gold equivalent ounces, which put us right at the top of our guidance range.

Rainy River produced approximately 63,000 gold ounces, bringing full year production to approximately 254,000 gold ounces, a 10% increase when compared to 2022. New Afton produced approximately 16,500 gold ounces and 12 million pound of copper, bringing full year production to approximately 67,000 gold ounces and over 47 million pounds of copper. This represents a 46% increase in gold equivalent production compared to 2022. Gold produced at New Afton also includes 553 ounces from the ore purchase agreements in the quarter and approximately 4,800 ounces for the year.

Slide 9 outlines our cost highlights. Consolidated all-in sustaining costs were $1,575 per equivalent ounce for the quarter and $1,545 for the year at the midpoint of the guidance range. This represents a 15% decrease when compared to 2022, primarily driven by the increase in production and sales.

Operating expense per gold equivalent ounce at Rainy River was above the guidance range, primarily due to higher operating tons and lower strip ratio. This is offset by lower sustaining capital, bringing Rainy River's all-in sustaining cost in line with the guidance range. At New Afton, full year all-in sustaining cost was at the low end of the guidance range due to higher production and sales.

Turning to our financial results on slide 10, fourth-quarter revenue was approximately $199 million. Q4 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 $65 million or $0.09 per share for the quarter. This was higher than the prior year period, primarily due to higher revenue. The company generated $1 million of positive free cash flow in the quarter, which again, continues to underscore that the company can generate free cash flow while still investing in our growth projects.

Rainy River continued to deliver free cash flow and generated $55 million in the year. The company recorded a net loss of approximately $27 million, or $0.04 per share during the fourth quarter. The increase in net loss as compared to the prior year quarter was primarily driven by higher non-cash unrealized losses on the revaluation of the Rainy River goes from obligation and the new Alstom free cash flow interest obligation, partially offset by the higher revenue.

After adjusting for certain other charges, net loss was $4.7 million or $0.01 per share in Q4, an improvement when compared to an adjusted net loss of $6.3 million in the fourth quarter of 2022. The improvements in adjusted net earnings were primarily due to those higher revenues. Q4 adjusted earnings include adjustments related to other gains and losses.

Our total capital expenditures for the quarter were approximately $61 million with $24 million spent on sustaining capital and $37 million on growth capital. At Rainy River, sustaining capital spend was below the low end of the guidance, primarily due to lower capital stripping with $25 million deferred to 2024. Spend related primarily to the tailings dam raise and capital stripping growth capital related to underground development.

At New Afton, sustaining capital spend primarily related to tailings management and stabilization activities, while growth capital primarily related to the ongoing C-Zone development. Total capital was at the low end of the guidance range.

Turning to slide 11, we had cash on hand at the end of Q4 of $186 million, an increase of $7 million from the previous quarter, driven by free cash flow generated at Rainy River, which offset the investments we made in season.

The company's liquidity position was $559 million. We continue to execute short-term hedges on CAD and fuels and are hedged at around 75% for Q1 2024. To sum up, our financial position is strong with an increase in cash and available liquidity following a solid operating quarter while continuing to invest in our growth projects.

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

Thanks, Keith. Well, commenting by Rainy River on slide 13, Rainy continued to perform well, achieving another quarter in line with plan. As a result, Rainy River achieved the top end of the gold equivalent production guidance range for the year with an all-in sustaining cost at the midpoint of the cost guidance. The operation is well positioned to continue this trend into 2024.

The Q4 operating expenses and all-in sustaining costs were higher than the full year 2023 average due to the non-cash impact of processing stockpile and lower sales. In Q4, the operation focused on mining the last benches of Phase 3, which was completed earlier this year.

In the underground mine extraction from Intrepid is as planned and the development to the main zone is on schedule, and we're getting ready to develop the main ventilation raise services.

Looking back at the full year, we're pleased with the processing and mining performance of the operation demonstrated operational discipline, which gives us high confidence in the years to come. As Pat previously note, it is also worth mentioning that when we place definition of mining by a factor of 74%. Those additional mineral reserves are from the underground main zone and the West open pit expansion calls.

Looking to 2024 on slide 14, we are expecting a gold production of 250,000 to 280,000 ounces for the year compared to 254,000 ounces in 2023. As we discussed last week, approximately 60% of our production is expected in the second half of the year, mostly because of the open pit mining sequence.

We are transitioning from Phase 3 to Phase 4, so we'll be playing in some lower grade stockpile funds through Q1 and Q2, while we retain higher grade ore in the pit for the second half of the year. For the same reason, sustaining capital related to the waste stripping will be weighted in the first half of the year.

In the underground mine lateral development meter will ramp up throughout the year as we access additional underground mining zones and more adding become available. As a result, about [two thirds] of growth capital is expected in the second half.

Turning now to New Afton on Slide 15. The excellent production is supported by B3 continuing to deliver above 8,000 ton per day. And the operation is showing stable operating expenses and all-in sustaining cost profile.

At C-Zone, the first rebuild was completed earlier too far, and the project is on track to ramp up to 5,000 ton per day at year-end 2024, supporting the production for fund that was presented last week in the guidance and outlook presentation.

Stabilization of the New Afton tailings storage facility is progressing above expectation, with consolidation happening much faster than predicted by our model, which is very good. Most of the investment related to the stabilization is behind us and the project is on time with a comfortable contingency to accommodate the C-Zone ore production profile.

Looking forward at New Afton on slide 16, we are trying to setting from B3 cave to C-Zone, the year 2024 will see a significant ramp-up in C-Zone mining rates achieving commercial production in the second half of the year, although most of their production will still come from B3.

The crusher and conveyor system commissioning is scheduled in the second half of the year. This will eliminate all the requirements it impact positively on cost going forward. Through out the year B3 will provide a stable mill feed of approximately 8,300 ton per day as we establish the cave footprint.

And as previously mentioned, C-Zone is expected to ramp up to about 5,000 ton per day by the end of the year. Overall looking a [27% decrease] in run process compare to 2023. The higher throughput in 2024 will be partially offset by lower feed grades due to the cave draw sequence.

Total gold production for the year is expected to be 60,000 to 70,000 ounces, while copper production is expected to be 50 million to 60 million pounds, with production expected to be relatively stable throughout the year.

I will now turn the call back to Patrick.

As I said at last week's presentation, I can see we have certainty and confidence that operationally we have made incredible progress will continue to deliver on our stated strategic goals for 2024. This includes delivering on production guidance with the same attention to LTC.

At New Afton, we will achieve commercial production at C-Zone and commissioned the crusher and conveyor. At Rainy River, we will reach first ore from the Underground Main Zone. We will increase our exploration efforts targeting reserves replacement.

2024 will be a busy year, but it will be a transformative one for our company, our stakeholders, my teammates and our shareholders.

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

(Operator Instructions) Anita Soni, CIBC World Market.

Hi. Good morning, Patrick and team, and thanks for taking my questions. So last week you hosted a very comprehensive on your three year outlook and thank you for that. So a lot of the questions I think that we would have had asked on this call have been answered.

But I guess what I was looking for with this report was where Q4 costs came in and how that would calibrate with costs going forward and really looks largely in line with my expectations. But at New Afton, the cost came up in Q4. And just trying to understand how those are going to come down over the course of the next three years?

I know there's a lot of moving parts with no mining from different zones, but could you give us sort of -- I don't know, a directional and qualitative as well as well as a quantitative indication of both production -- sorry, both mining and processing costs at New Afton.

Anita, it's Yohann here. Thanks for the question, just want to say here. I mean, that's basically our unit costs, I mean or per ton basis, I mean, they're pretty much the same. Nothing changed there. It is mostly related to grade and the tonnes that we pushed through the mill in Q4.

And it goes, I would say, as well that goes as well for '24 since -- based undermining the extraction sequence, we're going to see kind of a lower grade. And that's going to be offset by higher throughput over the year.

So I would say, and I think that we put the comment on that on that aspect. But overall, this is what we usually (technical difficulty) And I think that was well assets was lower tenancy in the presentation.

And to answer your question going forward about the longer-term cost, as you know, I mean, we're going to commission the crusher and the conveyor circuit at the end of this year. And based on that, you were going to see a drastic decrease in operating cost in 2025.

So I'm expecting basically that the cash costs, the operating costs to go down in 2025 significantly. And overall, if you assume that so we want to ramp up to about 14,500 to 15,000 tonnes per day in process, the impact going to be massive. Hopefully, that answer your question.

Yeah, I guess what I would get from that is that in the processing side, in the back half of 2024, as you ramp up the throughput perhaps your processing costs will come down, albeit a dramatic decrease in 2025 when you commissioned the crusher and conveyor?

That is correct, Anita.

And also, Anita, in 2025 we're still adding sustaining capital for the construction of the draw bell itself and the draw points this half. These construction will be completed at the end of 2025. So in 2026, it will mostly be extraction only. So this is why going forward 2025 will deplete and 2026 will be mainly just OpEx.

Okay. And then another question, I guess the other one that I had was on the grade. So just drilling a little bit onto the copper grade. It seems a little -- the grades that you've guided to seems a little low. I guess you just throw in the tonnage the recovery and the grade that you've provided, you'd be at the very low end of the copper guidance range.

Is there something that you're sort of holding back a little bit in terms of the grade, like positive grade reconciliation or potential to have better recovery rates, but you're a little on the conservative side. Is that fair to say?

I think the way to think about that is, but the block cave, the mining sequence is really dictated basically by the shape of your cave. So I mean -- but we didn't change the reserve grade. We don't feel that the model need to be adjusted. The low rate that we see for a short period of time is really you find the extraction sequence, but we don't experience any additional dilution at this moment.

This is just what we get from the model, and I would say when we compare -- I would say the extraction model versus reality, we're pretty much spot on. So we have a very open instabilities on that.

All right. Okay. Thank you. That's it for my questions.

Don DeMarco, National Bank Financial.

Thank you, operator, and good morning, New Gold team. Couple questions, with free cash flow projected to increase over the next couple of years, could you give us some indications in your plans for capital allocation, how that may change or shift from investing internally or considering other options?

Last week we highlighted our capital invested investment profile for the next three years. For sure, this year we need to complete major projects at New Afton and C-Zone. We are developing -- I think you I explained that the in terms of growth capital. We'll deploy more money in Rainy River at the second half of this year, mainly because we'll have more earnings and more importantly to speed up the development.

And then after that, the capital expenditures will decrease going forward drastically up to 2026. So we have a degradation of our investment in the next three years. It's mostly I think is I don't know when we did the split between both sides and we did the split between sustaining and growth changes. Nothing is different today than it was last year last week.

Okay. So I mean you've got a little bit that's pretty manageable. Would you be targeting with the additional free cash flow and strengthening of the balance sheet, maybe targeting paying down some of that debt or looking at dividend options or potentially expanding the C-Zone looking ahead a few years, but rather extending eastern expansion looking ahead?

Yeah, it's Keith Murphy. I think over the next couple of years, you know, we're really focused on that operating ramp up and you see the free cash flow profile that we presented over the three years. With that, that's going to give us a lot of financial flexibility to look out at all those options.

Okay, great. We'll look for clarity on that, I guess and then more quarters to come. One of the of the items on the last slide there was that you provide market clarity on teachers buyback? And can you give us any updates on that with regard to maybe the timing of the clarity and what that clarity might involve?

Hey, Don, it's Ankit. I know at last week at our presentations, we did provide some clarity on that. So the timing of the buyback, the four year anniversary is March 31, and then we have a 60 day window after that period. So we plan to provide clarity to the market on our intentions in the second quarter of this year.

I think it should be noted that we've worked really hard at getting our leverage to the position at that, and we're really focused on maintaining our financial flexibility. So any decision that we make in the second quarter and come to the market, we'll have that in the back of our minds as well.

Okay, Ankit, thanks. So basically, we expect maybe an update from the company within the 60 day period that follows the end of Q1? Is that it? So within the first 60 days of Q2 that was when you might provide an indication, for example, of whether or not you choose to buy back a portion of their free cash flow interest?

Yeah, I think, there's a 60 day window in a 30 day financing period. So sometime in the second quarter.

Okay. Fair enough. Thanks so much, guys, and good luck with 2024.

Thank you.

(Operator Instructions) There seems to be no further questions on the phones at this time. So I'll hand back to our speakers for the closing comments.

Thank you, Mark, and thank you to everyone who has joined us today. As always, should you have any follow-up questions, please don't hesitate to reach out to us by phone or e-mail. Have a great day.

Thank you. This now concludes the conference. Thank you very much for attending and you may now disconnect your lines.