Omnicom Group Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 27, 2023

There are 11 speakers on the call.

Operator

Good morning. My name is Michelle, and I will be your conference operator today. Welcome to the New Gold's First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Please be advised that today's conference call and webcast is being recorded.

Operator

After the speakers' remarks, there will be a question and answer session. I would now like to hand the conference over to Ankit Shah, Executive Vice President, Strategy and Business Development, please go ahead.

Speaker 1

Thank you, Michelle, and good morning, everyone. We appreciate you joining us today for New Gold's Q1 2023 earnings conference call and webcast. On the line today, we have Patrick Godin, President and CEO and Rob Chauvet, 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 would like to direct your attention to cautionary language related to forward looking statements found on Slides 23 of the presentation.

Speaker 1

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 Actual results and future events could differ materially from those expressed or implied in forward looking statements. Slides 23 provide additional information and should be reviewed. We also refer you to the section entitled Risk Factors in New Gold's latest AIF, MD and A and other filings available on SEDAR, which set out certain material factors that could cause actual results to differ.

Speaker 1

In addition, at the conclusion of the presentation, There are a number of endnotes that provide important information and should be reviewed in conjunction with the material presented. I will now turn the call over to Pat.

Speaker 2

Thanks, Ankit, and good morning, everyone. Before I turn the call over to Rob to discuss the quarter, I want to provide some brief opening remarks. It has been almost 1 year since I joined New Gold, And at that time, I saw a lot of potential for our operation and for our company. We worked hard Through 2022 and this momentum has carried into 2023. I'm proud of our team's performance in the Q1 of this year.

Speaker 2

As I note in our April production release, the Q1 of 2023 was our strongest start in 4 years. I cannot say enough how important safety is to our success. This was a core aspect of the impressive 1st Quarter Operating Results. Q1 saw no lost time injuries at our operations. New Afton reached a big milestone and exceed 1,000,000 hours we filed last time.

Speaker 2

Rainy River continued to operate safely and reached 1,600,000 hours without loss line. I strongly believe safety and productions are correlated and our Q1 performance prove this. As a result, we are well positioned to meet our production and cost guidance set out earlier in the year. During the quarter, we also continued to focus on the long term strategy of New Gold. We complete multiple steps to strengthen our balance sheet, which Rob will talk to shortly.

Speaker 2

And we continue to advance underground future production at both Rainy River and New Afton. Lastly, I would like to talk about our people. Specifically, the appointment of Johan as new CEO, The promotion of Ankit to Executive Vice President and Keith to VP Finance as well as new hires Jean Francois to VP, Geology and Luc to VP, Technical Services. These executives will all be great asset to our As we continue to advance growth opportunities and pursue sustained and safe function at our operation. I would also like to acknowledge Rob's retirement at the end of this year.

Speaker 2

Rob has been crucial In the turnaround of New Gold over the past 5 years. Over my career, I have worked alongside Rob several times and he has been an excellent business partner We are grateful it's going to be staying until the end of this year to ensure a seamless transition and support Keith positioning New Gold for success in the year to come. With that, I will turn the call to you, Grell.

Speaker 3

Thanks, Pat. And I'll start with Slide 7, which provides our operational highlights. The production details on that slide are consistent with our Press release from April 10. During Q1, the company produced approximately 105,000 gold equivalent ounces. The amount consisted of £10,300,000 of copper and 66,200 gold ounces from Rainy River and 16,300 gold ounces from New Afton, totaling approximately 82,500 gold ounces, Almost 20% higher equivalent gold production as compared to the prior year quarter and is primarily due to higher gold and copper grades and recoveries, partially offset by lower tons processed at Rainy River.

Speaker 3

Our operating expense per equivalent ounce was slightly higher than the prior year quarter, Primarily due to production from the underground Intrepid Zone and timing of mill maintenance performed in the quarter at Rainy River, As well as ore purchase costs in association with our ore purchase agreements at New Afton. Our consolidated all in sustaining costs for the quarter were 14.86 per equivalent ounce, lower than the prior year quarter primarily due to lower sustaining capital spend and higher sales. Turning to our financial results on Slide 8, our Q1 revenue was approximately $201,000,000 driven by sales 87,200 gold ounces at an average realized price of $18.90 per ounce and sales of 9,500,000 pounds of copper At $4.10 per pound. Our Q1 revenue was higher than the prior year quarter, primarily due to higher gold and copper sales volumes, Partially offset by lower prices, the 1st quarter revenue split saw gold contribute 81% to our quarterly revenue And copper 18%. Our operating cash flow before working capital adjustments was $75,700,000 or $0.11 per share for the quarter higher than the prior year period due to higher revenue.

Speaker 3

The company recorded a net loss of 31,800,000

Speaker 2

or $0.05 per share

Speaker 3

during Q1 compared to a loss of $0.01 per share in Q1 of 0.22. Decrease is primarily due to an unrealized Loss on the revaluation of the Goldstream obligation at New Afton and related to the free cash flow interest obligation. After adjusting for certain charges, our net earnings was $18,400,000 or $0.03 per share compared to net earnings of $0.02 per share in the Q1 of 2022. This earnings increase is primarily due to higher revenues offset by higher operating expenses. Our Q1 adjustments adjusted earnings include unrealized adjustments on the Rainy River stream mark to market And the free cash flow royalty at New Afton.

Speaker 3

And our MD and A has details on all of those and other non GAAP measures discussed. Our total CapEx for the quarter was $63,100,000 $26,300,000 was spent on sustaining capital, $36,800,000 on growth. Capital, the sustaining spend was primarily related to planned tailings work at both sites of both operating assets, Capital stripping at Rainy River and stabilization activities at New Afton and our growth capital was specifically focused specifically at C zone at New Afton and the underground at Rainy River. Slide 9 provides details of our capital structure. Our cash at the end of the quarter is $197,000,000 and liquidity was $570,000,000 in line with the end of 2022.

Speaker 3

With our investments at site largely offset by the sale of our previously held Artemis Gold Shares, which Approximately CAD31.5 million. Subsequent to the quarter, we also amended our credit facility, Increasing the maturity date by year to December 26. We continue to execute short term hedges on CAD and fuel and are hedged on both commodities at 75% for Q2 and approximately 30% for Q3. With that, I'll turn the call back to Pat. Thank you, Rob.

Speaker 2

Slide 11 provides additional details on the Q1 of 2018. During the quarter, the Marlin mill performed well and delivered solid production increase over the Q1 of last year. While the new throughput was below our plans, I'm confident that we can get to the target rate for the year due to the current investment On planned maintenance for the processing plant. The average gold rate at Trinity River was 1.12 grams per ton, Well above the Q1 from last year as more on the ground ore was processed. I'm really excited to say that mining of the overburden is now complete, which will lead to this significant improvement I can also share that mining in the Northwell has finished, providing further confidence in open pit grade reconciliation Through the remainder of the open pit mine life.

Speaker 2

As shown, completing the North Lobe has created a cost saving and improvement opportunity As this part of the open pit will be utilized to pile waste within the pit going forward. Over the last year, the operation has made upgrades in preparation to water management infrastructures. We have boosted the pumping system, doubled the pipeline, built open pit diversion channels And increase the water treatment capacity. I can confidently say Rainy River is prepared to manage any excess water. During the quarter, the open pit pushback was delayed, leading to lower capital spend and budget.

Speaker 2

I'm confident that the team will catch up over the year. Turning to the underground, Interpret development advanced 388 meters in Q1. Production in the quarter include over 69,000 tonnes of ore From the end of the underground zone at a grade of 3.52 grams per tonne gold equivalent. Most importantly, The underground tons and grades continue to reconcile well. Going forward, I remain confident that we are well positioned to meet our annual production and cost guidance at Rainy River.

Speaker 2

As noted in our guidance, We have great expected to normalize in Q2. I want to reiterate our target of 80five-fifty 40five-fifty 5 for the production split between the first and the second half of the year. Slide 12 provides further details of New Afton's 1st quarter results. The underground mine averaged over 7,700 tons per day of ore mined in the quarter, An increase over the prior year period as B3 reached steady states mining rate, post completion of construction activities in 2022. The mill averaged 8,100 tonne per day relatively in line with daily mining rates incorporating B3 ore mine as well as our purchase in relation to our purchase agreement.

Speaker 2

In short, V3 delivered to plan. Season development continued to advance with 11.72 meters in the quarter. Development fell behind schedule during Q1 due to ventilation constraints related to ground condition in the air intake vent rates. However, I'm confident in our ability to achieve the critical path of mining first production ore during the Q4 Before I close out the presentation today, I want to highlight what I view to be the key priorities for the company. 1st, continue to stabilize our operations.

Speaker 2

2nd, continue to advance our organic growth opportunities. And third, we have safety as the highest priority, delivering our guidance set out earlier in the year. I'm proud of the commitment of my colleagues who have done an excellent job to start the year. This will continue to drive our success. This completes our presentation.

Speaker 2

I will now turn it back to the operator for the Q and A portion of the call. Operator?

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Followed by the 1 on your touch tone phone. You will hear a 3 tone prompt acknowledging your request. The first question comes from Michael Sipparsio, RBC Capital Markets, please go ahead.

Speaker 4

Thanks. Almost right. Mike Sabarco. Good morning, everyone. Just on the quarter, I mean, it was obviously a great result, Especially from New Afton, you talked about the maintenance in Q2.

Speaker 4

But could you talk a bit about how we should look At existing operations going forward, sort of without looking at the C zone And the ramp up of underground mining at Rainy. Should we be rebaselining our forecasts at least over the course

Speaker 2

So thank you for your question, Michael. The way we should look at this is actually we are doing the significant maintenance on the crusher at Rainy River. We plan for the worst and we wish for the best. So that's what we are doing. Actually, the crusher is under repair and we are changing main components After 6 years of operation, so we are I think we really plan to respect our guidance.

Speaker 2

So it's why we indicate 40five-fifty 5. It doesn't mean that we will do it because we are actually working very hard. So we put in place mitigation measures due to the crusher shutdown. We pre crush tons at site and we continue to operate the mill. So the efficiency is less, but it was why we guide you to 45, 55, but we should consider that is the worst position that we can have.

Speaker 4

So should we be thinking coming out of 2022 and what was a pretty challenging year, should we be thinking of 2023 as a period of stabilization at the operations, while You're continuing to develop and invest in the new growth from 2024 and beyond? Or is it more a case where you are operating At full capacity, if that makes sense.

Speaker 2

Well, I can say to you that, first, I will start with New Afton. B3 is the block cave is performing very well. So we are at the beginning of the block cave. So we're 60 meter of elevation in the block. So it's performing well.

Speaker 2

It's a steady state. So I think it's for this, I'm not concerned about the stability of the extraction at Neuwassen. For Renewable is the same. So I explained to you that we one of the reasons why in Q1 we mined the class is because We it was really less efficient to mine in the Northland because it was a narrow, shallow pit. So the phase Small and difficult to interact equipment to build equipment in one single phase.

Speaker 2

And also we are Really happy to say to all of you that we are the overburden is over and it was it's a really difficult material to handle. So we maximized the opportunity, the winter to extract this, so it's behind us. So in terms of pit, we have a mine life of 3.5 years, 2023, 20 2024, 2025 and 2006, the first half. So we will mine in rock. The mine is in good shape.

Speaker 2

The ore is the pumping system is robust and the mitigations are all in place. So we deploy a lot of investment am an effort in capital to give up the preventive and preventive maintenance in the field actually. So I'm strongly confident that why I said to you that our priority is to stabilize. I think going forward, we reduce a lot of risk on the execution of the production and the guidance. I'm not seeing any other than something that be out of my control and the control of our people, I don't see any huge risk for the operation going forward.

Speaker 4

Okay, perfect. Thank you so much.

Operator

Thank you. The next question comes from Andrew Dusson with National Bank Financial, please go ahead.

Speaker 5

Hi, good morning. I just have a Couple of questions. On Rainy River, I'm just wondering if you can give some update on how that's proven versus the block model And what your conviction is in that going forward?

Speaker 2

You're talking about underground?

Speaker 5

Yes, it's on the ground, sorry.

Speaker 2

Yes, sorry. So actually, we are We have a team that is when we have a new as you probably. So we increased our capacity To do stuff and to look to opportunities, so we have Johan, Luc and Jean Francois recently joined us that will support us on this. But we work we're still working on the block model, so to optimize the R shapes. We did a lot of work in terms of solution for the extraction for under the main zone.

Speaker 2

So we're working actively on that. And so and the optimization of the ramp, the optimization of the ventilation, the optimization of the equipment and the grade up to now in Q1, we reconcile really well Interpret. And I think we will be well positioned to finalize our transition for Q3 this year.

Speaker 5

Great. Thank you. And then just one follow-up, just on the development at the C zone. Just wondering if you can provide a little bit more color on the delay that you mentioned this quarter and And if you see any impacts going forward to the time lines that you've previously provided?

Speaker 2

Good question. Very good question. So just to summarize, Actually, just first, we developed this we can C zone is fit into we have the infrastructures on the ground We have the development on the ground and the development we have what we call the critical path and what are the supporting other development the support development for other purpose. So actually, we respect the critical path with to create the undercut of the block cave and to develop the drawbells And so the extraction levels and also to do the development for the construction of the crusher. So we actually in development, we're a bit late.

Speaker 2

We were late in Q1 mainly because the main Fresh air raise for C zone is 450 meter long and it's a raise more and at the bottom part we have Some zone where we had a cave and we had to spend more time to short read this and to rehabilitate the part actually It's called Stabilize. It's part of mining and we are full steam ahead. So we recently If you look, we recently increased a lot our development meters. We did 4 50 meters in March. Actually, we are rating at 500 meters per month.

Speaker 2

We reduced the temperature on the ground from 7 to 10 degrees C. That is mainly due because we have more exchange. We will we are it's going really well for the development of the Exaxe Race 2. So and we will receive our new electrical equipment In the following days. And first order is still expected For the second half of twenty twenty three, mainly in Q4, and we are still expecting to reach the commercial production or what we call the hydraulic radius for the second half of twenty twenty four.

Speaker 2

So our production profile model is still respected.

Speaker 5

Thanks for the update. That's it for me.

Operator

Thank you. The next question comes from Fahad Tariq of Credit Suisse. Please go ahead.

Speaker 6

Hi, good morning. Thanks for taking my question. On Rainy River, you highlighted a few different mining efficiencies, underground optimization. Just at a high level, how do you think about aspirationally what the cost profile could look like at this mine? For example, is it possible that the all in sustaining cost I guess closer to, let's say, the $1200 an ounce range.

Speaker 6

Just trying to get a sense of like a best case scenario where cost could end up longer term? Thanks.

Speaker 2

Well, I think for this, I will ask you to give me more run time to look at my numbers Because we're still optimizing this. So the fact that we can now remind out the North It will provide to us a huge opportunity to short the haulage distance and backfill this pit. So that's going to be really significant for us in terms of efficiency and fuel consumption and operating costs. And for Onergon itself is I think the customer is still in the tech report are still valid, but we are working again to Development as much as we can, reduce the CapEx and to maximize the fact that we have the open pit That can be we can tie in to reduce development. So it's what we are working on actually.

Speaker 2

And as I said to you previously, I said to the previous question, I will be more in position to answer to that in Q3.

Speaker 5

Great. Thank you.

Operator

Thank you. The next question comes from Anita Soni of CIBC World Markets. Please go ahead.

Speaker 7

Hi, good morning, Patrick and team. And I have a number of questions, so hopefully you'll bear with me. I just wanted to clarify, First at Rainy River on the grade, you said grade is expected to normalize in Q2. Can you talk about what happened in Q1? Like It was a positive grade reconciliation in the pit.

Speaker 7

I know you're pulling tons from Intrepid now, but you haven't given us An idea of how much tons are coming from underground ore and from the open pit, but if you could give us a breakout of both of those, The tons and the grades and then also what was different about what happened in Q1 that would be helpful.

Speaker 2

The main comment that passed through the normalization is mainly because in the North Lobe, we as discussed previously, I think The years before the reconciliation was more tricky. So we apply a mine call factor and we use RC drilling to determine the grade. So we have more volatility in the North Slope than the other part of the ore body, so it's behind us, it's mined out. So this is why mainly we relate in our comments that we're going to be more straightforward. The reconciliation will be easier for us.

Speaker 2

For the underground mine, it's higher grade. So as I explained to you, it's 3 point Compared to the ton that we process, it's 60,000, 70,000 tons compared to 2,000,000 tons processed from the pit. Basically, it's on an answer's point of view, it's what is making the difference.

Speaker 7

Okay. And when you say the grade is expected to normalize, so then what you're talking about is that you've mined out the North Lobe and you're going back into the, I guess, the main zone And that grade should be more along the lines of 0.9, I assume, 0.9, 0.95 or so?

Speaker 2

Yes, yes, something like this, yes. But also more it's easy for us to predict the grade. We have a better reconciliation.

Speaker 7

Okay. And so you are when you reiterated the 55, 45, you were talking about 1, the grade, but 2, also that there you're still going through maintenance In the second half in the second quarter, but that should be complete by the end of the second quarter, right?

Speaker 2

Yes. So the Shutdown is actually ongoing and it's going to end on the beginning of May.

Speaker 7

Beginning of May. Okay. All right. So my next question actually relates to the financials. I noticed that you said new acting costs are there is they went up As it relates to ore purchase agreements previously previous agreements, could you clarify what those ore purchase Agreements are referring to, I apologize, I don't think I've seen that before, but I'm not sure if you had previously mentioned that.

Speaker 7

But if you could explain what ore purchase agreements are,

Speaker 2

Okay. So as you the new Afton mill is adding a mill throughput capacity of 14,500 tons per day and we can increase to 16,000 tons per day in peaks depending on the work index. Actually, we are using just 60% of this capacity. So and we have neighbors around us who are more smaller operation. Well, I mean for us, it's an opportunity that we look at.

Speaker 2

So this quarter, the arbitrage agreement is mainly It's generated for us 2,500 ounces of productions and we represent mostly 7% Of the new afternoon in term of revenues. And it's mainly as we have a Small operators beside us, we're not having milling capacity and our mill in place. And so it's just an opportunity for us To generate more cash flow. And as we are to our purchase agreement, on any point of view, it's increasing our cost.

Speaker 7

Okay. So

Speaker 2

when you

Speaker 7

could you explain like how that for purchasing agreement works in terms of how it would Impact your financials? I mean, you guys just you mentioned that it added to the cost, but I'm just understand I'm trying to understand Like do you purchase the ore at the value of spot price less the discount and then like what is like what's the cost associated with those ounces? How do we Figure that out.

Speaker 3

Yes. We purchased the ore at a factor and or discount, if you will. And As we process, we recognize those ounces and generate the cash flow. It's as simple as that. There's No significant it's not a complicated problem.

Speaker 7

Okay. And then just to follow-up, Sorry, on one comment. You guys mentioned that in your opening remarks, Rob, you mentioned that you said, we are 75% Hedged and 35% hedged on both commodities. And I think you were referencing fuel and CAD, but I just want to clarify you meant

Speaker 3

Yes. No, it's input costs, fuel and our exchange rate.

Speaker 7

Okay. So you didn't mean commodities. Okay. All

Speaker 3

right. No. We are unhedged.

Speaker 7

All right. Sorry, I just want to make sure. All right. And then another question I had was and probably the last one. Looking at Note 11 in the financials, I just want to understand there's 2 different kinds of, I guess, 2 different kinds of Fair value charges that are coming through and one I guess came through the comprehensive income of owner of the owners And the other one came through the income statement and it's just a little bit higher than we've seen before.

Speaker 7

So I guess I understand the one that went through the income statement and that's related to The Royal Gold and the Teachers Pension Plan share agreement there, But I don't understand really the one that's going through the operating sorry, the owners side. And then and I guess specifically why it's called related to our own credit risk. I guess I wanted to understand, is there any implications of the higher rates that are happening now in that particular note?

Speaker 3

Yes. The big change in the Goldstream obligation and the New Afton free cash flow obligation As you noted, I think in your note, there is some impact on higher metal prices, which increases that liability for both of those. But the bigger change is related to our bond yields and the change during the quarter of those yields, which impacts the discount rate that we use. So there was a change of approximately 28% in those that discount rate downward, Which increases the liability. There is some impact from the risk free rate, but not as much as what we've seen on that New Gold credit spread, If you will, so it's a part of the option of the model and that we have to use to calculate these liabilities.

Speaker 7

Okay. Yes, what I wasn't understanding is that it would have implied the discount rate was going down and rates have generally gone up. So it's your specific

Speaker 1

Yes, it's related specifically to our exactly.

Speaker 3

It's it had nothing to do with the open market rates, if you will, the risk free rates.

Speaker 7

Okay. Thank you very much. That's it for my questions.

Operator

Thank you. The next question It comes from Farooq Ahmad from Raymond James. Please go ahead.

Speaker 8

Hi there. Thanks. Good morning. Most of my questions have been asked and answered, but maybe just following up on Rainy River and the performance in Q1 and what you're kind of guiding for Q2 here. Obviously, Q1 was strong.

Speaker 8

I think it represents something like 27% or so of your full year guidance. And yet you're calling for 40five-fifty 5 split in the second half. My focus is actually on the cost. Your Q1 costs despite the good production We're above your guided rate. And I'm assuming that if you have this pullback in grade and lower production in 2Q, I would imagine that costs Probably moving higher in 2Q relative to 1Q.

Speaker 8

And so in order for you to hit your cost guidance at Rainyburn for the year, That would imply something like operating expense in the $700 to $800 per ounce range in the second half of the year. Is this consistent with your expectations?

Speaker 2

No. 1st, In terms of the Q2, I said to you that we plan for the worse and we wish for the best. So that's one thing. And we mitigate the risk there. Going forward in our cost too, so we plan in the budget to mine mostly 131 We averaged 118 in the Q1, but actually we are hitting 170.

Speaker 2

So and we have a certain big part of our mining costs with the same people, same equipment. So our costs will decrease. Our capital cost for the pushback will decrease as we are way more efficient in our business. So And going forward in term of ASIC, I'm not expecting that. We are slightly higher in term of meeting costs Because of the contractor cost and for the shutdown, but when it will be behind us in the second half of the year, these costs will go back to normal.

Speaker 2

So and we are in control we're in total control of our G and A. So we are pretty lean as an organization at Rainy. So, basically in terms of ASIC, it's not a proportional going forward now.

Speaker 5

Okay. No, thanks. That's helpful. I guess I was

Speaker 8

focused a little more on OpEx because I figured that there was some CapEx accounting moving over into the ASIC category there, but Just more on the OpEx because that was already running ahead of your guidance for the year despite the strong production in the Q1. So maybe I can just follow-up on that. But unless I misheard you, I'm surprised to hear that you're Cost to come down, were you saying you're expecting costs to come down in the second quarter from Q1 levels? Or is it really just a second half

Speaker 2

It's always question of denominator too, but I think you should look at this on the next quarter not on 1, I think 2 Because we have some LOD in an open pit, so compared to an underground mine. So I think if you just target Q2, it's a mistake. So we need to you need to look at the cost Going forward, I'm expecting a strong second half in terms of the cost per ounces produced in 2023.

Speaker 8

Okay. Thanks for that. Maybe I'll just switch gears a bit, just a little bit on strategy. In your wrap up slide, you talked about your second priority being advancing your organic growth opportunities. Patrick, can you talk to us a little bit about what those organic growth opportunities are?

Speaker 8

Is that the C zone and underground at Rainy River? Or is there Something else to be considered in that organic growth bucket.

Speaker 2

So it's mainly this. It's the first is the Cezanne, so Cezanne, it's an opportunity for us because it's an opportunity. It's not an opportunity, it's our mission actually. And we have a strong vision on the copper price going forward. And we want to be fully efficient At the end of 2024, sorry, when the copper price is expecting to increase.

Speaker 2

So and for us is the execution of the C zone in terms of development, construction, achievement, the hydraulic radius It's important because it's a nice opportunity for us to be well positioned to serve on the copper wave at the end of 2024. In term of Rainy River, it's an opportunity to increase efficiencies, maximize what we get from the geology And to see how we can in addition to the reserve, how we can address the resource on the ground. And actually, it's what we are looking at and we are We're still seeing this as an opportunity to create more value on an NAV point of view.

Speaker 8

Okay, thanks. And then maybe just the last question for me. At the beginning of the call, you talked about strengthening your balance sheet. I believe you sold your ARTEMIS shares in the quarter. You pushed back your date on your credit facility.

Speaker 8

I'm just wondering why the I mean, obviously, it's always good to have a good balance sheet or strong balance sheet, but I'm just wondering why the focus here, it looks like your Covenants positions are in good shape. It looks like your balance sheet is in relatively good shape. So I'm just wondering What's driving the focus on strengthening the balance sheet, focus on starting in Q1 of this year?

Speaker 3

Yes. I think it's just driven by good housekeeping and optionality and just keeping ourselves in good shape and ahead of the game.

Speaker 2

Nothing specific. Okay. All

Speaker 8

right. Perfect. Thanks.

Operator

Thank you. The next question comes from Eric Windmill of Deutsche Bank. Please go ahead.

Speaker 9

It's actually Scotiabank, but thank you very much. Yes, thanks for taking my question. I think a lot of what I was going to ask has already been addressed, but maybe just quickly on Rainy and the underground, any additional details there in terms of Maybe quantum and tons are great or what you're seeing there in Q1?

Speaker 2

Can you talk about the past production or you talk looking forward?

Speaker 9

Well, I guess both actually. Any additional details you could provide?

Speaker 2

So, if I'm looking, so just not sure that I understand clearly the question. But the first part, I think, on We modified the we changed our mining method. I think we are pretty efficient now. I think and we are what I'd like To say is that, Rene, we are reconciling the grade and the tons. So that's it's always, I would say an overhang when you start an operation on the ground like this, I think it's giving to us confidence.

Speaker 2

Looking forward, As I explained to you, I will be in a better position to explain in the Q2 at the end of in Q3 where we are positioned with the optimization of the underground mine. Actually, it will be really subjective and not realistic because when I will we will present to you numbers And on the efficiency of the onion numbers that we will stand behind and actually I cannot talk about this.

Speaker 9

Okay, great. Thank you. And then maybe one more quick one on New Afton. In terms of additional ore purchase 3rd party, should we assume that will be the same throughout the balance of the year or any sort of guidance there?

Speaker 2

Yes, you can assume that, yes. We were looking at this as an opportunity. And I think as we have a strong team, The metallurgists at New Afton are having a lot of skills, experiments, credibility and capacity. So we have an excellent mill and the recovery factors are excellent. We have a lot of maturity and we want to maximize the value of our impresurers and people with that.

Speaker 9

Yes, great. Okay, thank you very much. Really appreciate it.

Operator

Thank you. Our last question comes from Mike Parkin of National Bank. Please go ahead.

Speaker 10

Hi, guys. Thanks for taking my question. Just a follow-up there. The regional ore purchases from third parties, was that factored into the original guidance?

Speaker 2

No, it was not.

Speaker 10

Okay. And then with respect to drilling off Some extensions at the Rainy River Underground. When could we expect you guys to be like from what I understand, you guys Looking to resume that from underground drill stations rather than from more costly surface locations. If that's still the case, When do you think you'd be in a position to start that up?

Speaker 2

So we did definition drilling at That is business as usual this year. For the exploration, it will be it's difficult for us to drill from the pit Because as you know, we have any activities and we can be in conflict and you can't conceive the issues. But we are actually looking at this our transition to develop drilling platform to drill in advance, it's probably something that will be ready to go in 2024.

Speaker 10

Okay. And then just skipping around, with respect to Targeting your commercial production rates at New Afton, when do you what Percentage of full capacity, are you basing that off like 14,500 tons per day mill capacity or Something else. What do you what's your baseline here?

Speaker 2

It's a bit so. Usually, the definition of commercial When you achieve 70% of your mill rate during 30 consecutive day. In the block caving, it's a bit different. It's when it start to cave by itself. So when you reach the Hydratikidius and So just to create the opening, it's you have the case that is already initiated.

Speaker 2

In our case, It's pretty particular because we're only 2 mining companies who are doing blockading in Canada. But the way that they establish The trigger to be in commercial production is when we reach the regions where it came by itself. So for us, it can be actually, I think it's an average of 12 to 16 drawbell. I'm not sure the exact amount. It can vary.

Speaker 2

It can change. It can be 2022 or it can be just 10, but in our case, it's where we call it directly this commercial production. So when we will start to extract C zone, we cannot each dropout is having a capacity. So we will not be able to extract at 14,000 tons per day C zone, but we have B3 that is Operating at the same time and it's where when C zone is coming, C zone overtopping B3 and we have a progression up to the moment that we reach 14,500 tonnes per day. So and season will be at maturity, if I'm right, it will be in 2025.

Speaker 10

Okay. And just following up on that, could you give us a sense of What percentage of your operating costs at New Afton are kind of fixed versus variables, thinking you've got Quite a significant step up in tonnage coming, but that probably doesn't translate into a steady state cost per ton from where we are today. That likely drives a significant drop with fixed cost being spread out over a bigger number. Is it a little too early to ask that question or

Speaker 3

It is a bit early, but I could start to give you a range of between 70% to 80% fixed. It's a high fixed Component as you know, it's but it will be in that 70% range, but we haven't done the math recently, but should be in that spot.

Speaker 2

That's good enough.

Speaker 10

And then has there been any chat with Ontario teachers in terms of what their intention is With the Q2 2024 decision to either take a direct interest in New Afton or maintain their Interest in the free cash flow.

Speaker 1

Hey, Mike, it's Ankit here. We have a great relationship with teachers that buyback Provisions a year out, so we maintain open dialogue, but there hasn't been any specific discussions around the buyback that's a year away from now.

Speaker 10

Okay. All right. That's it for me. And Rob, congrats on your retirement. Hope you get out on a sailboat or something.

Speaker 1

Thanks, Mike.

Speaker 5

Thanks, guys.

Operator

Thank you. There are no further questions. I will turn the call back to Ankit Shaw for closing remarks.

Speaker 1

Thanks, Michelle. And again, thanks to everybody who joined the call today and asked Those great questions. As always, should you have any additional questions, please feel free to reach out to us by phone or email. Have a great day.

Operator

Ladies and gentlemen, this does conclude the conference call for today. We thank you for participation and ask that you please disconnect your lines.

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Earnings Conference Call
Omnicom Group Q1 2023
00:00 / 00:00
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