New Gold Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2024

There are 8 speakers on the call.

Operator

Good morning. My name is Lara, and I will be your conference operator today. Welcome to New Gold's First Quarter 2024 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 of Strategy and Business Development. Thank you.

Speaker 1

Thank you, Lara, and good morning, everyone. We appreciate you joining us today for New Gold's Q1 2024 earnings conference call and webcast. On the line today, we have Patrick Odenne, President and CEO Joanne Bouchard, our COO and Keith Murphy, 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 our cautionary language related to forward looking statements found on Slide 2 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. Slide 2 provides additional information and should be reviewed. We also refer you to the section entitled Risk Factors in New World's latest AIF, MD and A and other filings on SEDAR Plus, 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

Speaker 2

the call over to Pat for some opening remarks. Pat? Thanks, Sanket, and good morning, everyone. We had a good start to the year with the Q1 delivering as planned. We continue to see excellent health and safety performance at both operations through our Courage to Care culture campaign.

Speaker 2

Renewable surpassed 3,000,000 hours before the lost time injury and New Afton surpassed 1,000,000 hours. Our operation delivered on their quarterly plans as outlined in our operational outlook release from February. New Afton delivered strong first quarter production results. Rainy River made excellent progress on the planned waste stripping program, which will lead to unlocking higher grade ore in the second half of this year. We are 1 quarter away from securing the substantial increase in production and cash flow expected in the second half of the year.

Speaker 2

We also made excellent progress on key growth projects, including the 1st concrete 4 at Cezanne Jurati Crasher and we set a record on the quarterly development advance rate at Winnie River's underground main zone. Our exploration efforts continue to ramp up as planned. At New Afton, the company made great progress on the exploration drift, which is expected to be operational for drilling in May. Q1 exploration focused on drilling D zone and starting drilling T Zone from current infrastructures. At Trinity River, the exploration program is ramping up with newly identified target and an additional $4,000,000 will be allocated for 20 to 24 to drill these new targets.

Speaker 2

Four drills are expected to be turning at Rainy River during Q2. New Gold is well positioned to achieve our guidance targets and deliver on our plan of sustained free cash flow generation starting in a matter of months. We are entering in a very exciting period for New Gold. With that, I will turn the call over to Keith. Keith?

Speaker 3

Thank you, Pat. I'm on Slide 6, which has our operating highlights. Q1 was another solid quarter. We produced 70,900 gold ounces and £13,300,000 of copper. Brady River produced approximately 52,700 gold ounces as planned, which is based on our annual guidance breakdown calling for a forty-sixty split over the first and second half and while advancing waste stripping.

Speaker 3

In fact, taking the midpoint of our 2024 guidance range, our Q1 performance represents exactly 20% of production for the year. New Afton produced approximately 18,000 200 gold ounces £13,300,000 of copper. This represents an 11% increase in gold and a 29% increase in copper production compared to Q1 2023. This is as the C zone ore is processed. Consolidated all in sustaining costs for the quarter were $13.96 per gold ounce on a by product basis, in line with our plan.

Speaker 3

We expect cost to trend lower in the second half of the year. At New Afton, all in sustaining costs for the quarter of $2.41 per gold ounce were lower than the prior year period due to increased copper production and sales. We expect cost to trend lower throughout the year as copper sales catch up. At Rainy River, costs will be higher in the first half of the year as the pit focuses on waste stripping in line with the plan. Costs benefited positively from an approximately $8,000,000 inventory write up gain driven by increased gold prices.

Speaker 3

This positively impacted costs at Rainy River by approximately $150 per ounce. Turning to our financial results on Slide 7. 1st quarter revenue was approximately $192,000,000 Q1 revenue was lower than the prior year quarter, primarily due to planned lower sales volumes, partially offset by higher gold prices. Cash generated from operations before working capital adjustments was $73,000,000 or $0.11 per share for the quarter. The company recorded a net loss of approximately $44,000,000 or $0.06 per share during Q1.

Speaker 3

The increase in net loss as compared to the prior year quarter was primarily driven by lower revenues and a higher unrealized loss on the Rainy River Goldstream obligation and the New Afton free cash flow obligation. After adjusting for certain other charges, net earnings was $13,000,000 or $0.02 per share in Q1 compared to an adjusted net earnings of $18,000,000 in the Q1 of 2023. The decrease in adjusted net earnings were primarily due to planned lower revenues. Our Q1 adjusted earnings include adjustments related to other gains and losses. Our total capital expenditures for the quarter were approximately $61,000,000 with $26,000,000 spent on sustaining capital and $35,000,000 on growth capital.

Speaker 3

Exploration expenditures totaled approximately $3,500,000 before expiration tax credits, which we received. At Rainy River, total capital increased over the prior year period due to higher growth capital spend. Sustaining capital is primarily related to capitalized waste, capital components and tailings management and construction. Growth capital is related to the underground development as the underground main zone continues to advance. At New Afton, total capital decreased over the prior year period, primarily due to lower growth capital spend.

Speaker 3

Sustaining capital primarily related to tailings management and stabilization activities, while growth capital primarily related to the C zone underground development. At the end of Q1, we had cash on hand of $157,000,000 and a liquidity position of $530,000,000 We continue to execute short term hedges on CAD and fuel and are hedged at 75% for Q2 2024, 50% for Q3 and 25% for CAD in Q4. To sum up, we remain in a very healthy financial position, all while continuing to invest in our growth projects. Our operations are well positioned to leverage the higher metal price environment and generate significant free cash flow. Now I'll turn the call over to Johan to walk through our operating highlights.

Speaker 4

Thank you, Keith. Well, starting with Rainy River on Slide 9, Rainy continued to perform well achieving another quarter in line with our plan. On the mining front, waste prepaying was a focus during the quarter. This is expected to continue in the Q2 and will ultimately provide access to greater quantity of high grade ore early in the second half of the year. In the underground mine, extraction from the Intrepid zone continues as planned and the development to main zone is on schedule for 1st ore in the second half of twenty twenty four.

Speaker 4

In fact, Rainy achieved a record quarterly development advance rate of 9 50 meters in the first quarter. The mill performed very well processing over 25,000 ton per day, almost 12% higher than Q1 of last year. The team has made tremendous progress improving mill performance at no additional capital requirements. The right side of the slide reiterates our outlook for 2024 and the previously guided split between first and second half. This is excellent information to highlight that the first quarter performance was according to plan.

Speaker 4

We remain on track for second half production representing approximately 60% of our annual production, mostly due to the open pit mining sequence. We have successfully transitioned from Phase III to Phase IV and will continue to reclaim some lower grade stockpile in Q2 while we release higher grade ore in the pit for the second half of the year. Sustaining capital related to waste stripping will be elevated in the second quarter before trending down in the second half of the year. Lateral development meters in the underground will ramp up throughout the year end. We access additional underground mining zone and more heading become available.

Speaker 4

Slide 10 outlines progress we've made underground. The underground main zone remain on track for first ore in the second half of twenty twenty four. The priority for 2024 is to establish the primary ventilation circuit and access mining zones. These two events will be key to ramping up mining rate to 5,500 tonne per day by 2027. So I'd like to take a moment to address each.

Speaker 4

First, the team at Rainy did an excellent job advancing underground lateral development, A quarterly development advance rate of 9 50 meters was a quarterly record at the site. As additional heading opened and additional underground mining equipment is delivered, development rates are expected to increase throughout the year. 2nd, raised boring of a 5 meter diameter, 4 20 meter long fresh airways has commenced in the second quarter. In addition, the construction of the in pit portal offering a second mean of egress and decreased oiling distance will commence in the Q2 of this year. Turning now to New Afton on Slide 11.

Speaker 4

New Afton has a good start to the year. B3 continue to deliver above 8,300 tonne per day and the C zone ramp up has been going to plan, leading to a 25% increase in tonne milled and a corresponding increase in gold and copper production compared to Q1 last year. The increased copper production is the primary driver of the reduced all in sustaining cost compared to the prior year period. Looking now at the information on the right side of the slide. After 1 quarter, we're trending in line with the annual plan.

Speaker 4

We continue to transition from the B3Ks to C zone and expect to see a significant ramp up in C zone mining rates throughout the year. We continue to expect the higher throughput in 2024 to be partially offset by lower feed grade due to the cave drop sequence, leading to a fairly consistent quarterly gold and copper production profiles as planned. Going forward. As you can see in the picture, we are making excellent progress. The first foundation for took place in February and we've continued to build on our progress since then.

Speaker 4

We also continue to expect the cave to reach hydraulic radius in the second half of twenty twenty four. These two milestones will be transformative for Neu Afton, increasing production and decreasing cost to generate a substantial cash flow. I will now turn the call back to Ath.

Speaker 2

Thank you, Johan. So just to sum up, operationally, we have made excellent progress and delivered the Q1 as planned. We will continue to deliver on our stated strategic goals. For 2024, this includes delivering on production and cost guidance. These results marked the 7th consecutive quarter that we have delivered to our plant.

Speaker 2

Technical excellence and operational discipline are new goals key to ensuring consistent quarter over quarter result. Just want to express all my gratitude to my colleagues for that. I think to be consistent, It means that it's been more than talent. So I'm really proud of their commitment, their teamwork and their leadership. So just wanted to say thank you for that.

Speaker 2

Exploration continues to advance at both sites with the exploration drift progressing as planned at New Afton and drilling ramping up at Trinity River. We continue to focus on both extending our mine lives and in finding new prospective target to achieve our strategic objective of a sustainable production platform of approximately 600,000 gold equivalent ounces per year. With regard to our new Afton buyback, we continue to have ongoing discussion with teachers as we are within our buyback period. We expect to provide market clarity with regard to the New Afton buyback later this quarter. At New Afton, we will achieve commercial production at C zone and commission the crusher and come the year.

Speaker 2

At Renew River, we will reach 1st ore from the underground main zone. As I said at the start of the presentation, we are 1 quarter away from positioning the company for substantial and sustainable increase in production commencing in the second half of the year. This is transformative year for our company and our shareholders. This completes our presentation. I will now turn it back to the operator for the Q and A portion of the call.

Speaker 2

Sarah?

Operator

Thank you, sir. Your first question comes from the line of Mike Parkin from National Bank. Go ahead please.

Speaker 5

Hi guys. I may have missed it, but could you just recap how many drawbells you have complete at C zone and maybe where are you hoping to be around end of Q2? You can be a range if that works and congrats on a good quarter too by the way.

Speaker 4

So we Yes. Thanks, Mike, for the question here. I mean, as of the end of Q2, we had about 4 drawbells, I mean, built. And we have, I think, about 10 that's already, I mean, to be built basically. So we are following the plan on that aspect.

Speaker 4

So development seems to be flat year at a time as well. So we're trending really well. So there's no delay basically as of the end of Q1.

Speaker 5

Great. Thanks very much.

Operator

Our next question comes from the line of Eric Windle from Scotiabank. Go ahead please.

Speaker 6

Hey Pat and team. Nice to see the strong results this quarter. Maybe just a question from me on the Rainy River exploration. Obviously, great to see the exploration budget increasing there. When it comes to open pit targets, any additional comments here on things like ODM East and how that compares maybe to the potential pushback on the Phase 5 and how are you thinking about the open pit targets?

Speaker 2

No, what we are we're progressing well on this. We did we redo the models. So I guided all the work prior to initiate the drilling. So and we'll initiate drilling. It will be a mix of diamond drilling and RC drills and the drills will mobilize, it's the question of few weeks now in the few weeks from now.

Speaker 2

And we will probably having more quality during Q3. But it's we initiate the program as planned, we're slightly in advance.

Speaker 6

Okay, great. Thanks for that. And maybe just on the crusher at New Afton, so obviously concrete works are ongoing. Any other sort of critical path items or milestones here in terms of getting that up and running?

Speaker 4

Yes, I'm going to take that one here. We're I think it went really well. We did the first 4 in February and it went really well. We're still working. I mean, we still have to do 1 in Q2 and we should be done after that and we're going to pass that up.

Speaker 4

We're going to pass putting the JARU together. But it's we have basically we think that we're slight ahead on schedule on that one. But I mean, we're going to be ready in time and we have all the equipment on-site as well. There's is no problem in the time on the equipment. So we feel really good and we're hitting the milestone one after the other on that.

Speaker 4

So no stress there.

Speaker 6

Okay. That's great to hear. Thanks for the color. Appreciate it. So congrats on the quarter.

Speaker 6

I'll hop back in the queue. Cheers.

Operator

We have our next question coming from the line of Anita Soni from CIBC. Go ahead please.

Speaker 7

Hi, good morning, Patrick and team. So my first question, at Rainy River, the tonnage was a little light on the ore. Is that going to pick up in the second and third quarters, I assume, just because of the some of the sorry, the weather related events there that you have?

Speaker 4

Anita, we were not like thanks for the question. We were not impacted by the weather at all actually, it's rainy. I mean, for sure, I mean, as you know, I mean, the in Q2, we have limited amount of ore runoff mine, I would say that come from the open pit and we have to mix with the stockpile on surface. And I would say Q2 going to be better than Q1. But overall, I mean, we don't see any concern in that aspect.

Speaker 4

In fact, we see basically extraction rate increasing, I would say, in Q2 above expectation. And that's going to put us in excellent position to deliver on our 40%, 60% ratio this year. And I guess, hopefully, it's going to put us a little bit ahead of the game at the end of this quarter. But so feeling good. I think we're managing that risk really well.

Speaker 4

And I think that I'd like to have that, I mean, when we started, I would say Phase 4, the bench were smaller. Now we got bigger and bigger bench. So productivity is much better. And as well to move the drill around, it's easier and we're also having better drilling performance with the same equipment. So I think the toughest part, I mean, to start that phase was really behind us.

Speaker 7

Okay. And then another question with respect to the inventory adjustments at Rainy River. Would that is that going to recur in the following quarters or was that just a one time adjustment?

Speaker 3

Yes. That was an adjustment in the Q1 due to the value we assigned to the low grade stockpile. We use a medium term price and we don't expect there to be mark to adjustment significant throughout the rest of the year.

Speaker 7

Okay. And then lastly on New Afton, the tonnage is running just slightly ahead of, I guess, what I would have expected. It seems like if you continue to deliver an even year in terms of production guidance quarter over quarter, you're going to end up near or a little over the top end on New Afton. Do you expect Q2 to moderate a little bit so that you're closer to that fifty-fifty? Or right now are you sort of is the plant operating better than expected?

Speaker 7

Could we be gearing towards the top end?

Speaker 4

Yes. I mean, in our view, I mean, for sure, we're going to see some fluctuation quarter over quarter, but not so much. But basically, we see a stable production at New Afton, I mean, between the second and the first and the second half of the year.

Speaker 7

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

Speaker 4

And also, don't forget, I mean, we have we do have processing capacity. I mean, so I mean, if we have we can really like manage our grade and throughput and be able to hit the target production without any problem.

Speaker 2

Okay.

Speaker 7

Thank you very much. Congrats on a good quarter.

Speaker 2

Yes. Thank you, Kew.

Operator

Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Shah for final closing comments.

Speaker 1

Great. Thank you, Laura. And to all of you who have joined us today, thanks again. As always, should you wish should you have additional please do not hesitate to reach out to us by phone or email. Have a great day.

Operator

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.

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