Alphabet Q2 2023 Earnings Call Transcript

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July 27, 2023

There are 6 speakers on the call.

Operator

Good morning. My name is Michelle, and I will be your conference operator today. Welcome to the New Gold Second 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 are 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 Shaw, EVP of Strategy and Business Development. Thank you.

Speaker 1

Thank you, Michelle, and good morning, everyone. We appreciate you joining us today for New Gold's Q2 2023 Earnings Conference Call and Webcast. On the line today, we have Patrick Oden, President and CEO and Keith Murphy, our VP, Finance. If you wish to follow on 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 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 that 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 annual information form, 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 for some opening remarks.

Speaker 2

Thanks, Ankit, and good morning, everyone. I want to welcome Keith Pete, our VP, Finance to the call. Pete will cover the quarterly results going forward, and we are excited to have him joining us. I want 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.

Speaker 2

I note on our Q1 call that Q2 will see planned major maintenance performed at Rainy River. I also note that that time that our team prepares for the worst, but we plan for the best. I'm proud to say our team showed great resilience. Because of the proactive measures taken at site, Rainy River not only complete the amendments on schedule, but also delivered a strong production results During the quarter, we have no lost time injuries at both of our operations. And both sides reached more impressive milestone with New Exceeding 1,500,000 hours since its last lost time injury and Rainy River surpassing 2,000,000 hours.

Speaker 2

I want to take a moment to further recognize the team at New Afton for receiving the GT Ryan CT award for British Columbia and UConn as well as British Columbia's Safest Large Underground Mine Award. These two awards are incredible recognitions to New Afton's hard work and to our company commitments to safety of all 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 continue to make progress advancing our growth 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 expand on the coming slides.

Speaker 2

And seasonal development at New Afton continued well in the quarter. Our development rate increased over the Q1 and I remain confident in our ability to achieve first production or during the Q4 with commercial production plan for the second half of twenty twenty four. With that, I will turn the call over to Keith.

Speaker 3

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.

Speaker 3

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 £12,000,000 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 9 40 ounces from the ore purchase agreements.

Speaker 3

Operating expense 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 for $16.57 per equivalent ounce. This decrease compared to the prior year quarter Turning to our financial results on Slide 8. 2nd quarter revenue was $184,000,000 Driven by sales of over 74,200 gold ounces at an average realized gold price of $19.70 per ounce 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 2nd quarter revenue split saw gold contribute around 80% to our quarterly revenue and copper around 20%.

Speaker 3

Cash generated from operations before working capital adjustments was $65,000,000 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 $2,600,000 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 other charges, net earnings was $11,500,000 or $0.02 per share in Q2, an improvement compared to a net loss of $16,700,000 in the Q2 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.

Speaker 3

Our Q2 adjusted earnings include adjustments related other gains and losses. Our MD and A has additional details on the non GAAP measures discussed here. Our total capital expenditures for the quarter were $72,000,000 with $36,000,000 spent on sustaining capital and $36,000,000 on growth capital. The decrease over the prior year periods 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 dam raise.

Speaker 3

And at New Afton, it's primarily related to tailings management and stabilization activities. Growth capital was invested in the C zone at New Austin 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 $174,000,000 and our liquidity was 547,000,000 We have $373,000,000 available on our credit facility. We continued to execute short term hedges on CAD and fuel and our hedge at 75% on both for Q3.

Speaker 3

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.

Speaker 2

Thank you, Keith, and welcome again. Slide 11 provides additional details on the Q2 at Rainy River. During the quarter, the mine and mill performed well and delivered solid production increase over the Q2 of last year. The Rainy River team complete all previous discussed plant maintenance activities in the quarter. Rainy River's open pit mining sequence was optimized To maintain a consistent production profile throughout the year, leading to ounces being a minor ahead of schedule.

Speaker 2

As a result of the production ounces pull forward in the quarter, we now expect production in the second half to be approximately 50% of annual production. Group was in line with the Q2 from last year and an increase from the Q1 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 ton, well above the Q2 from last year. The grade normalized from the Q1 as expected.

Speaker 2

Turning to the underground, development advanced 5 24 meters in Q2. Production in the quarter include over 99,000 tons of ore from the Interpid underground zone at a grade of 3.11 grams per tonnegold equivalent. Underground production continues to ramp up and tons and grade continue to reconcile well. As I mentioned in my opening remarks, development of the underground main zone commenced 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.

Speaker 2

This will allow for efficiencies and further optimization of the existing open pit for its remaining mine life. This will reduce all its distance by allowing us to use the North Lobe as an in pit waste storage facility. In addition to facilitating access to the underground main zone, this will allow us to prioritize underground exploration activities between the Interpid 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's 2nd quarter results.

Speaker 2

The underground mine averaged over 8,500 tons per day of ore mined in the quarter, an increase over the prior year period as V3 is now comfortably Operating at a steady state mining rates, plus completion of construction activities in 2022. The mill averaged over 8,300 tons per day, relatively in line with the daily mining rate incorporating B3 ore mine exclusive And New Afton remains well positioned to meet its annual production and cost guidance set out at the start of the year. T zone development continued to advance with 1415 meters in the quarter. Completion of the ventilations rates in the 2nd quarter contribute to increased development rates substantially higher than the 1st quarter. Development on the extraction level to achieve first drawdown was completed in the quarter, positioning the company well for 1st production ore in the 4th quarter with commercial production planned for the second half of twenty twenty four for season.

Speaker 2

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 key priorities for the company. 1st, continue to stabilize our operations. The open pit and underground at Trinity River continue to reconcile well and the New Athens B3 is operating to plan. 2nd, continue to advance our organic growth opportunities. We made good progress at the underground main zone at Trinity River and C zone at New Afton.

Speaker 2

3rd, with safety as the highest priority, delivering 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 in the first half of the year, and we will continue to build on these results as we look to the second half of twenty twenty three. This complete 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 conduct the question and answer session. One moment please for your questions. And the first question in the queue comes from Fahad Tariq with Credit Suisse. Your line is open.

Operator

Please proceed.

Speaker 4

Hi, good morning. Thanks for taking my question. 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?

Speaker 2

Not really because it's the opposite. Because first, the ramp To build an input 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 ventilation, etcetera, that is coming from Intrepid. So It's more a saving. On the timing point of view, all our mining crews are based on Trippin, so it centralized the activities.

Speaker 2

And it's mostly the same meters of development. And what is interesting is actually we are at 300 meter deep at 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 Discuss savings and opportunities. The second thing in term of opportunity for us is we have a gap zone. So we have a gap between Intrepid This area and the other saving opportunity for us is that we are using actually Northglobe As a ways down 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 to the pit limit.

Speaker 2

So it's reducing significantly the haulage systems And consequently, the cost and the fuel consumption. So it's a pro for us.

Speaker 4

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 consumable 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. Thanks.

Speaker 2

To be honest, the big jump in terms of inflation and consumable 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 That we were 2 years ago and last year, up to me.

Speaker 2

So we're pretty comfortable with our cost management here. And these costs, these escalations are already included in our ASIC.

Speaker 4

Okay, great. That's it for me. Thank you.

Operator

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

Speaker 5

Good morning, Patrick and team. So my first question, I just want to get an understanding of how the rest of this I think in the original guidance, 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?

Speaker 2

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

Speaker 5

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

Speaker 2

Yes, mostly, yes.

Speaker 5

Okay. Maybe I'll take it offline because I confused myself. And then secondly on Just to 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, I see we're now going further into the bottom of the pit and lower strip ratios then. So does that mean next You might have a lower strip ratio at Rainy than what was previously planned.

Speaker 2

Yes. So the change of the fact that We start 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 average distance. So consequently, it's a huge efficiency Going forward, Anita, we will because the pit It's depleting. Actually, we are doing the Phase 4 pushback. As discussed previously, the mining fleet will deplete Year after year, so actually we are operating we have 20 trucks in the fleet.

Speaker 2

We are operating 17 trucks. It will go full steam ahead up to year end. And in the second half of twenty twenty four, the fleet will deplete And to go down to 5 trucks in the second half in the first half of twenty twenty six. So for sure, going forward, this pit will be well positioned to reduce the cost and it can be and we'll see a cost decrease in Q4 of this year.

Speaker 5

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

Speaker 2

It's either to be honest, I'm not adding this detail actually, but you were trending mostly You have some slight improvement that will be to our advantage. You have the cost increase in the development that will be on the counterpart. So I I think the 40 three-1 101 is still something that is representing what we were facing actually.

Speaker 5

Okay. So you're going to deliver a 40 So you're saying the original 40three-1 101 is still okay or are you going to deliver a new one?

Speaker 2

It's still okay, yes.

Speaker 5

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

Speaker 2

Thank you.

Operator

Thank you.

Speaker 1

Hi, Michelle. Actually, we had a few questions emailed to us because I think a few individuals Had difficulty dialing in, so I'm just going to read a couple of the questions out for the team. The first question is for Pat. What was the underground grade in the Q2 at Rainy River and how is this reconciling to our plan?

Speaker 2

The underground grade at Rainy River was 3.11 grams per ton for 91,000 tons are from scope and 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 Trinity River in Andropid 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%.

Speaker 1

Okay, great. And one more question was also emailed to me. C zone continues to be on track for the 4th quarter, but what other milestones can we look for in the C zone development over the next few months?

Speaker 2

Actually, The first milestone that is important for us is the 1st draw bell. So the first drybail, we complete the development for the undercut and for the extraction level. So it's we are right on time to deliver the first draw bill for Q4, the beginning of Q4 more exactly. So is one of the milestone. We need to continue to be at full capacity in terms of development at C zone.

Speaker 2

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 etcetera. And it's something that we're looking at for Q3 next year to be fully commissioned and operational. And the hydraulic radius with the I would say the trigger for between commercial production and to complete the investment in the We're mostly targeting the second half of twenty twenty four 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 To reach the full capacity at the end of 2025 as planned.

Operator

Thank you. We do have one more question in the queue from Anita Soni from New Gold. Please proceed.

Speaker 5

I'm actually from CIBC, but anyway, so follow-up. I'm sure CIBC I would be pleased to hear there's been 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 ton per annum right now.

Speaker 5

I think you said 91,000 tons this quarter. And then do you ramp to like the 600,000 tons per annum next year and then like 1.2, 1.3 in 2025, Is that still the case at about 3 grams per ton material?

Speaker 2

Yes, you talked all in. The grade all in well because in Phase 3 going deeper, the grade is probably around 1 and we have the grade from underground that is Yes, leading this. Entrepid is mostly 1,000 tonnes per day, Anita. And so and we are bang on the 40,201 the same. So The thing is I think by the I answered previously that the reconciliation is good.

Speaker 2

So basically the grade that we have in the 4,101 is

Speaker 5

Yes, I was just looking at the year to get an idea of the out years like the 2024, 25 years, what they look like.

Speaker 2

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 increasing our capacity to improve our engineering process. And we will provide more details in the 2024 guidance.

Speaker 5

All right. Okay. Thank you very much.

Operator

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

Speaker 1

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.

Operator

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

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