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New Gold Inc  (NYSEMKT:NGD)
Q3 2019 Earnings Call
Nov. 06, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the New Gold Third Quarter Earnings Call. [Operator Instructions]. I'd now like to hand the conference over to your speaker today Anne Day, Vice President, Investor Relations. Please go ahead, Ms. Day.

Anne Day -- Vice President, Investor Relations

Thank you, operator, and good morning, everyone. We appreciate you joining us today for New Gold's Third Quarter Earnings Conference Call and Webcast. On the line today, we have Renaud Adams-President and CEO, Rob Chausse-CFO and Michele Della Libera, Director Exploration, other members of the management team have also joined us and will be available during the Q&A period at the end of the call. Should you wish to follow along with the webcast, please sign in from our website 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 in 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 MD&A and other filings available on SEDAR, which set out certain material factors that could cause actual results to differ. Please note that all amounts are presented in US dollars unless otherwise indicated. In addition at the conclusion of the presentation, there are a number of end notes that provide important information that should be reviewed in conjunction with the material presented. I will now turn the call over to Renaud Adams.

Renaud Adams -- President and Chief Executive Officer

Thank you, Anne, and thank you everyone for joining us today. We are very pleased to report our fourth consecutive quarter of improving operational and cost performance from both assets as we Continue to depends on our short-term operational plan and reposition the company for long-term success. Highlights for the quarter include improvement in our performance as underpin the completion of a strategic equity financing, which allowed us to reduce our long-term debt position by $100 million. The Rainy River Mine achieved a significant milestone, delivering the first full quarter of milling rate above the 24,000 tons per day.

Also, and following the debt repayment of $100 million, the company had maintained available liquidity of $421 million including $135 million in cash and cash equivalent. We have maintained and will continue to maintain a diligent approach on managing our capital execution with the objective to complete substantially all remaining construction project at Rainy in order to reposition the asset for efficient and profitable mining, as we also continue to advance the development of the season at New Afton.

On the mid long term note, we continue to advance our updated life of mine plans for Rainy River and New Afton which are now expected to be released at the latest in the mid-First Quarter 2020. Also, we have advanced on our global exploration plan in order to position strategic drilling as one of our main focus in 2020.

I will now now pass the call over to Rob Chausse,CFO for a review of our 3rd quarter financial results.

Robert J. Chausse -- Executive Vice President and Chief Financial Officer

Thanks, Renaud, and good morning. With details that are consistent with our early October production press release, Slide 5 provides our operating highlights. Also data discussed today is on a continuing ops basis. During Q3, the company produced 129,000 gold equivalent ounces.

The amount consisted of 20.1 million pounds of copper, approximately 75,000 gold ounces from Rainy River and 16,000 gold ounces from New Afton giving us a total of approximately 91,000 gold ounces. The higher gold production, as compared to the prior year quarter is primarily due to higher productivity at Rainy River.

Operating expense per equivalent ounce was 15% higher than the prior year quarter due to an increase in operating waste tonnes mined during Q3 at Rainy River. All-in sustaining costs at Rainy River and New Afton for the quarter were $1593 per equivalent ounce and $869 per equivalent ounce respectively.

Amounts are higher than prior year quarter due to higher sustaining capital spend. Consolidated all-in sustaining cost for the quarter were $1318 per equivalent ounce, 20% higher than the prior year quarter due to higher sustaining Capital spend and the increased OpEx per ounce. Turning to our financial results on Slide 6, third-quarter revenue from continuing operations was $168 million driven by sales of approximately 86,000 gold ounces at an average realized price of 1383 per pound, and sales of 20.6 million pounds of copper at $2.62 per pound. Q3 revenue was 14% higher than the prior year quarter due to production increases related to the ramp up of Rainy River and higher realized gold prices, partially offset by lower copper sales.

Operating cash flow before working capital adjustments, was 67.4 million or $0.11 per share for the quarter, lower than the prior year quarter, primarily due to a higher strip at the Rainy during Q3 2019. The company recorded a net loss from continuing operations of $24.7 million or $0.04 per share during Q3, compared to a loss of 0 cents per share in Q3, 2018. After adjusting for certain charges, the net loss was $10.3 million or $0.02 per share in Q3 compared to a loss of $0.01 per share in the third quarter of 2018.

Our Q3 adjusted earnings includes adjustments related to other gains and losses that include unrealized loss on our gold price option contracts and our stream mark to market. Our MD&A has additional details on the non-GAAP measures that discussed. Turning to slide seven on our CapEx, this slide provides a breakdown of our Q3 2019 CapEx. Our total sustaining capital and leases for the quarter was $56.3 million and the spend was primarily related to tailings work and the purchase of the Rainy River Cat facility. Growth capital was focused on project development at New Afton. Slide eight, as Renaud mentioned during the quarter, we completed the repurchase of 100 million of bonds in early October and with that, we had 135 remaining cash and approximately 420 in liquidity. With that, I'll turn the call back to Renaud.

Renaud Adams -- President and Chief Executive Officer

Thank you, Rob. I'm now on slide ten. The Rainy River Mine reported increase of gold equivalent production of 76,092 [Phonetic] ounces for the quarter and is on track to achieve the lower end of annual production guidance despite the lower grade plan for the fourth quarters of between 0.8 and 1.0 grams per tonne, a lower through put achieved in October as a result of managing water in the tailings area and as we continue to focus on the waste mining in order to better position the asset for the short term, mid-term objective. Total cash cost per gold equivalent announces of 922 for the quarter or 877 for the 9-months period on track to achieve the annual guidance 70 and $950 per gold equivalent ounce.

Sustaining capital and sustaining lease payment increased to $46.3 million in the 3rd quarter or $110 million for the 9-months period. Sustaining capital and sustaining lease payments are now estimated to be between 175 and 100, $190 million for the year. While we are deferring approximately $20 million to 2020, we are also very pleased that we have achieved a net reduction of approximately $15 million related to the tailings area and rescoping of the maintenance and warehouse facilities. As I mentioned in my opening remarks, we have and will continue to maintain a disciplined approach with regards to capital execution with focus on positioning the assets for the future while we continue to manage our short-term financial position. As a result of lower estimated sustaining capital for the year and all-in sustaining capital are now expected to achieve the lower end and are below the annual guidance . O Slide 11 during the quarter, approximately 1.7 million ore tonne and 8.5 million waste tonnes were mined at an average strip 5:1 as Phase 2 stripping continue to be prioritized. Additionally 2.6 million tonnes of out-pit mine material were mined in preparation for dam raise over the balance of the year.

The mill achieved a significant milestone in the 3rd quarter, delivering a full quarter above the design criteria of 24,000 tonnes per day. While maintaining the recovery at approximately 91%, the effort continue on achieving additional circuit optimization. The operation experienced significant rainfall in the 3rd quarter and into October. During the month of October, the mill operated at the lower capacity in order to manage of water levels in the Tailings area. Also, scheduled maintenance plan for the 4th quarter were completed in October. In late October, the plan $2.5 million raise was completed which provide now approximately 7 to 8 million cubic meters of additional capacity in the tailing area. We are very pleased to report that the mill facility managed to operate an approximately 18,000 tonne per day in October and is now expected to operate at full capacity over the balance of the year. While we may not achieve a new mark in 4th quarter, we remain very positive to achieve a potential 24,000 tonnes per day considering expected higher availability and throughput in November and December. On Slide 12, while the asset continue to face some challenges with regards to require stripping over the next 4 years, which include dealing With overburden of 30 m to 60 m and related free handling and need for additional work at the waste dump, we are now turning our focus on significant opportunity for improvement. With the Stage 2 downgrades [Phonetic] nearly completed and the reduction of out-pit material requirement plan for 2020, the mine will now enter a phase of optimization, which will include commissioning of the new far drill to improve performance, the wider benches in Phase 2 and 3.

Overall equipment utilization improvement in order to enhance the productivity from the mining fleet. The mining fleet availability and maintenance performance and optimization of cost driver, including both operational and procurement practices. We will remain focused on improving the mill availability which will result in potential higher throughput from the current 24,000 tonnes per day. Company plans to use external consultants in 2020 to support all optimization effort. With regards to our strategic review and the new life of mine plans to be released at the latest in mid First Quarter 2020, I will summarize the Slide 13 and 14 as follow. We have now landed on a final scenario, which will include open pit and underground mine. The elevated cutoff grade in order to focus on medium high grade ore which strategic approach to recover the low grade ore during the open pit mining. While the new pit shell will focus on our high medium grade, some low-grade mine -- ore will be mined and effort will be made to benefit from them. The maximizing of the high and medium grade ore during the open pit mining, but with potential ounces of high medium grade mine as an underground mining approach which will support overall strategic approach of significant reduction of waste mining requirement. Reductions of mining, milling and G&A unit cost through cost reduction efforts. Focus on managing capital requirement to include the completion of 2019 construction project stripping requirement for open pit mining, tailings requirement eliminations of need for the West-Waste dumps stabilization and and the capital component of open pit mining while minimum capital requirement for underground will be the priority. The reduced footprint for overall closure cost is also an area of focus. Plan to be based on the reserve gold price, which will imply open pit scenario to be locked in at the reserve price and the upside on the gold price to be kept to enhance the profitability from the open pits scenario The underground scenario to include scenario upsides at higher gold price defining further debt and capital intensity at higher prices. On Slide 15 with regards to New Afton, the mine produced 52,807 gold equivalent ounce for the quarter and nearly 100,8000 gold equivalent ounces for the nine months and is on track to achieve annual production guidance of 215,000 to 245,000 gold equivalent ounces. The cash cost per gold equivalent ounces was 682 for the quarter, of 596 for the nine months period. While the gold and copper production coupled with operating expenses per gold and per copper basis remain well-positioned to achieve our annual guidance, the cash cost per gold equivalent ounces are now expected to achieve the high-end of annual guidance mainly due to the lower copper price impact on a per gold equivalent basis. Sustaining capital and sustaining lease payment increased in the third quarter but are now expected to be slightly below our annual guidance of $45 to $55 million due to the improved cost efficiency realized under development meter as well as the deferral other capital project payment of this project now expected in the first quarter of 2020.

The mining and milling performance were in line [Indecipherable] and the gold and copper recoveries were kept-- are at or above 88% mark despite the lower grade achieved in the quarter. The lower grade achieve were mainly due to some short-term operational underground issues and the lower than anticipated performance of ore segregation during the quarter. The grades are expected to improve in the fourth quarter. Gross capital increase in the third quarter mainly due to improved development rates but the growth capital for the year are now expected to be slightly below our annual guidance of 40 to 45 million, mainly due to realize cost efficiencies and development meter and some payment now planned for Q1 2020 .

On Slide 16, our in channel key objective for 2019, the B3 and C-Zone development rates significantly improved in the third quarter with the total of 2,400m achieved showing some good realized cost efficiencies. The mill recoveries continue to perform well with commissioning of Phase II mill upgrade, plan for the fourth quarter in order to deal with supergene ore. There are scanner in order to improve the mill grade via ore segregation with commission and improved performance are expected over the next Work on updated life of mine plan continues in the third quarter with release plan at the latest mid-first quarter 2020. The updated plans to focus on the geotechnical study update with regards to the subsidence in corrective actions, the tailing updates with the use of in-pit disposal using thickened and amended tailings to increase the stability, while we would provide an update on stabilization of current and old tailings area, The updated permitting timeline and the capital and opex cost optimization.

On slide 17, the reevaluation of the Blackwater project continues in the third quarter. The new project potential plans to include higher grade above 1 grams a tonne while maintaining a low strip ratio targeted at 2.1. The lower operating cost structure on a pit ounce basis resulting from higher grade while mining costs will potentially continue to benefit from low strip ratio, a lower initial capital resulting from potential revaluation of project sizing. More to come on the Blackwater project as we advance in 2020.

I will now pass the call over to Michele Della Libera, Director Exploration for a quick review of our ongoing exploration efforts Michele.

Michele Della Libera -- Director, Explorations

Thank you, Renaud and good morning everybody. Slide 19 is the exploration program highlight at Rainy River. We break on near-mine opportunity and district level opportunity. Today so we drilled seven hole on what we call the Intrepid North target area and we are now closing the drilling because we had a mixed [Phonetic] as a result and we need to readdress and reinterpret the geology and the alteration system there and we may resume the drilling in 2020. And we move our exploration team now on the district level regional reconnaissance and where we are developing and progressing our survey grid geochemical surveys that will be done before winter to have all the data and to refine the drill ready targets for 2020.

On Slide 19, the exploration program at New Afton, the underground drilling done during this year, that was completed at the end of October was related with infill [Indecipherable] on the SLC sub-level cave area with good results so that will be incorporated into the 2019 mineral resource and reserve update At the same time, we define a new zone that is parallel to the B3 C-zone known plunge of the old body with interesting result that we are planning to follow-up during 2020 and we call this area is expansion target to that is becoming one of the key target underground for the next year. D zone, we drilled 5 holes, completed in this week and we defined the edge of the mineralization under new C-zone and also these results will be incorporated in the rest of statement for 2019.

On the regional exploration program that we are focusing on the Cherry Creek corridor, which has the both potential for epithermal gold close to surface and underlying deep porphyry and copper-gold target. We define with coincident geochemical and geophysical anomalies [Indecipherable] 7 target ready to drill and we are planning there to start drilling in the next weeks and the first 7 hole will be the first phase going toward the end of the year. Thank you. And now I am turning back to Anne Day.

Anne Day -- Vice President, Investor Relations

Thanks, Michele. We are going to move to the Q&A section of this call. So I'm going to turn it back over to the operator.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from the line of Matthew Fields with Bank of America. Go ahead please. Your line is open.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Hey, everyone. I appreciate the progress you made on deleveraging the balance sheet in the quarter with the equity raise and a partial repayment 2022 [Phonetic]. On the slide 8 it still says additional debt optimization scenarios currently under review. Can you just give us an idea about what additional plans, you still have to deleverage or term out the balance sheet.

Robert J. Chausse -- Executive Vice President and Chief Financial Officer

Yeah. Unless. And I think as I've mentioned in previous calls and meetings-- we're looking at all strategic and capital markets options available to us and assessing opportunities as they come. One of the things I'll say in addition to that is we paid off $100 million, we've still got $420 million As of liquidity available. So it allows us to be disciplined and prudent around any of the options but again we're looking at many options and alternatives and how we can strategically use our assets or options within capital markets, but nothing, nothing more specific than that.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Okay. As just a follow-up is -- now that you've paid down $100 million, is the focus more on terming out or further absolute debt reduction, the focus of that .

Robert J. Chausse -- Executive Vice President and Chief Financial Officer

Yeah, I think our focus is to improve our balance sheet. Again, the market will present options and we'll decide as we move along, but we would like to see an improved balance sheet as we move-- move along .

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Okay, thanks very much.

Operator

[Operator Instructions] Your next question comes from the line of Nick Jarmoszuk from Stifel. Go ahead please. Your line is open.

Nick Jarmoszuk -- Stifel -- Analyst

Hi, good morning. Question for you on Rainy River. The grade guidance was maintained for the year at 1.1g per tonne that's lower than what we're looking at year-to-date. Should we anticipate a decline going into the fourth quarter or should we expect it to be relatively flat. What we've seen year-to-date.

Robert J. Chausse -- Executive Vice President and Chief Financial Officer

No, definitely we're planning a lower grade in the fourth quarter as it was actually discussed after the second going toward a third and the fourth quarter, I mention in my remarks on the Rainy River. So, we see a potentially the fourth quarter to be in the 0.8 to 1g, so on the overall, the year we have maintained our 1.1 approach from currently trending above but you add one quarter [Phonetic] below one and potentially below one, and we'll feel comfortable to maintain our 1.1 target.

Nick Jarmoszuk -- Stifel -- Analyst

OK. And then looking forward into 2020, you granted the updated 43-101 aren't out yet, but when you think about the capital required for Rainy River, New Afton and potentially the Blackwater, do you view those projects of development there being funded through internally generated cash flows and liquidity that you currently have or do you think you're going to have to go out and raise additional capital .

Robert J. Chausse -- Executive Vice President and Chief Financial Officer

I wouldn't comment at this stage on the Blackwater because obviously at this stage --as our short-term priority is definitely around completing the short term mid-term capital execution and we'll deal, first of all just to land on what could be the potential scenario for Blackwater So we're not there yet. We will come to near Blackwaters to improve our plans as we have mentioned, 2020. With regards to Rainy and New Afton, will be a mix of use of our current liquidity and also internal cash flow what at the New Afton --this remains our priority and objective.

Nick Jarmoszuk -- Stifel -- Analyst

That's all I had. Thank you.

Robert J. Chausse -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Anita Soni with CIBC. Go ahead please. Your line is open.

Anita Soni -- CIBC -- Analyst

Thank you, good morning guys. So my question is with regards to Rainy River --just looking at slide 11 where you've got some of the 2019 estimates and you're showing your year-to-date numbers. I'm just trying to understand, should you be still targeting those estimates, like if you look at ore tons mined --was sort of a 31,000 tons per day and you're running I guess closer to like 18 to 20,000 ton per day on the ore tonne mined and this one only how that plays out for the course of the year.

And secondly, in terms of where the lower strip ratio that you have this year. Again, how does that work into the 4th quarter, should we be targeting that it overall that it averages 3.1 or is that some of that stuff pushed out into 2020

Robert J. Chausse -- Executive Vice President and Chief Financial Officer

Thanks Anita to drive this question and I will need to clarify. I've mentioned, actually in the last quarter. So, to be precise, no, we would not have reached 3.1. So our short-term objective at Rainy is definitely to better position the asset. So as we continue to target to meet our cost and production guidance, any additional capacity to be frank, will be and continue to be focused on waste stripping because this is really what will better position the asset. We understand the extra costs in the short term, but again I'm very pleased to see that so far. After 3 quarters, we have been managing to increase our waste stripping, accelerating the positioning, if you will, ore mining for 2020.

So we will continue to focus on waste stripping in the 4th quarter. Should we see any drop in the grade, we have always the ability to maybe focus a bit on ore but don't expect at 3.1 as much as, we would like to be on the reduced-- we believe that it would benefit us in the future.

With regards to overall rate that has been systematically below the 128,000, yes, you're absolutely right, in the short term, we have not met our objective. But when you add The significant amount of rock that we have mined outside of the pit, and you combine those on the global basis, we have achieved, quite a good mining rate in the global. But as you know --cannot let go the effort on the tailings in 2019-- it was also our priority. And as I mentioned in my, I'm very confident down the road that you would see a significant improvement on the mine that the ex-pit mine [Phonetic] to be frank, as we walked away from the need of material for the tailings, I'm really expecting in the use of the consultant [Phonetic] of optimization. I'm very confident we're going to see a significant improvement

Anita Soni -- CIBC -- Analyst

OK and then. So that leads me is in my next question. So if you're doing the waste stripping and you're focusing on that this year, can we think about the tons that perhaps should have in mined in next year, in the year after as being already done and we shouldn't be worrying about those for next year and then the mining rate are you going to be backing off of doing any of the tailings [Phonetic] or is that the similar kind ex-pit [Phonetic] tons are happening next year.

Robert J. Chausse -- Executive Vice President and Chief Financial Officer

Yeah. First, well, [Indecipherable] when we initiated 2019, we initiated using the current plan. So the current plan was to shoot for a much higher mining rate down the road, because it was based on the fully expanded pit shell scenario. We are now moving toward a reduced pit shell, a reduced total mining requirement.

So, in the short-term, even though we have been mining below the 128,000, we absolutely do not see any impact whatsoever on our short and mid-term plans because the new plans will be to reduce need. With regards to the rock, this year we've done significant amount-- the Stage 2 requirement will be completed next year, not delayed.

I believe that our total requirement for 2020 with regards to material out-pit will be less-- for the material for the tailings will be less than 1 million tonnes and will be internally managed from the pit per se and pretty much potential to no need to go outside of the pit in 2020.

Anita Soni -- CIBC -- Analyst

OK, thank you very much.

Robert J. Chausse -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

And there are no further questions at this time, I would like to turn the call back over to Ms. Day

Anne Day -- Vice President, Investor Relations

Thank you, operator. Thanks, everyone, for joining us today. Should you have any additional questions, please feel free to reach out to us, but with that we will close the call. Thank you,

Operator

[Operator Closing Remarks]

Duration: 32 minutes

Call participants:

Anne Day -- Vice President, Investor Relations

Renaud Adams -- President and Chief Executive Officer

Robert J. Chausse -- Executive Vice President and Chief Financial Officer

Michele Della Libera -- Director, Explorations

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Nick Jarmoszuk -- Stifel -- Analyst

Anita Soni -- CIBC -- Analyst

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