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New Gold Inc (NGD) Q4 2019 Earnings Call Transcript

By Motley Fool Transcribers - Feb 14, 2020 at 10:02AM

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NGD earnings call for the period ending December 31, 2019.

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New Gold Inc (NGD -3.01%)
Q4 2019 Earnings Call
Feb 13, 2020, 12:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Ladies and gentlemen, thank you for standing by, and welcome to New Gold Q4 Earnings Call and Technical Session. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Anne Day, Vice President, Investor Relations. Please go ahead.

Anne Day -- Vice President, Investor Relations

Thank you, operator, and good morning, everyone. We appreciate you joining us today for New Gold's fourth quarter 2019 earnings conference call and webcast, as well as our Technical Session webcast where we will discuss the updated life of mine plans for both our Rainy River and New Afton Mines that we released this morning.

The order of events will be as follows. Rob Chausse, CFO, will present our Q4 and year-end financial results. Following which we will open the lines for a brief Q&A. Once we complete the call, we will pause for a brief five-minute period as we reset for the Technical Session. The Technical Session will be led by Renaud Adams, CEO, along with other members of the management team.

But before the team begins the presentation today, I'd like to direct your attention to our cautionary language related to forward-looking statements found in the presentations. 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 this 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 the New Gold's latest MD&A and other filings on SEDAR, which set out certain material factors that could cause the actual results to differ. And please note that all amounts are presented in US dollars. In addition, included in the presentation, there are a number of end notes that provide important information and should be reviewed in conjunction with material presented.

I'll now turn the call over to Rob Chausse.

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

Good afternoon and welcome. I am going to touch on the 2019 year, and I'll do this in a brief fashion as the most important part of the day is looking to the future.

Slide 2 on our operating highlights shows details are consistent with our February press release, our pre-production press release. Both sites performed well with results within guidance for the year. And so, I'll spend more -- a little bit more time on Q4. Overall, our quarter was impacted by planned lower grades as we shifted and spent the entire quarter in Phase 2 of the open pit at Rainy River as we had exhausted Phase 1 of the pit. I mean, that was released with our Q3 results, and also higher sustaining capital. Our capital intensity for the quarter was planned, and it came in at around $80 million of sustaining capital. And I'll get into more details on that on the slide shortly. And that is expected to continue by the way into the first quarter of next year or so, and I'll hit on that as well in our guidance presentation.

During Q4, the company produced 101,000 ounce gold equivalent ounces, lower than 2018, primarily due to the lower grades that I just mentioned. Higher cost resulted from those lower grades and the higher sustaining capex spend. Again, on the year, we were in line with guidance on all consolidated production and cost metrics.

Turning to Slide 3, our financial results. Fourth quarter revenue was $139 million, driven by sales of 72,000 ounces of gold at $1,366 an ounce, and 17.3 million pounds of copper at $2.69 a pound. Our revenue was 11% lower than the prior year quarter due to lower grades, offset by higher prices in the prior-year term. Operating cash flow before working capital was $0.06 or $39 million for the quarter, again, lower than the prior quarter primarily due to lower grades and the higher strip at Rainy. Company recorded net earnings from continuing operations of zero cents or $300,000 compared to a loss of $1.28 last year. Last year's loss included an impairment charge at Rainy.

Adjusted for certain charges, the net loss was $28 million or $0.04 a share compared to $0.01 in the fourth quarter of '18. Our adjusted earnings includes adjustments related to the inventory writedown that's been noted in our disclosure, along with other gains and losses, including unadjusted -- or unrealized adjustments on our gold price option contracts and our stream mark-to-market. A lot more detail in our MD&A on any of those measures.

Our capex. This provides a breakdown, and you can see, as I said, it was an intense quarter, we spent $90 million. The majority of that work was finishing up some tailings when some wick drains equipment components and also some camp in other refurbishments. Our growth capital was primarily at New Afton focused on C-zone as we start to move and ramp up that project. Liquidity at year-end, and cash balance was $83 million with approximately $335 million in total liquidity.

Consolidated [Phonetic] guidance, as presented in our press release this morning and will be talked to in detail in the next next session, I am not going to dig deeply into it as Renaud will be in a few minutes. But as a company, we're expecting to produce between 465,000 and 515,000 equivalent ounces in 2020 at lower cost than in 2019. When compared to 2019, sustaining capital is decreasing and our growth capital is increasing, again due to work at C-zone. More to come on guidance as I've mentioned.

And with that, I'll close out the year-end discussion and open the floor to questions. I guess I would look -- see if there is any questions in the room first. And if there is, just the microphones are onto the -- after the side of the room. And then we can open up to the phones, if there is any.

Questions and Answers:


[Operator Instructions] Our first question comes from the line of Matthew Fields from Bank of America Merrill Lynch. Please go ahead. Your line is open.

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

Hey. Wanted to talk about kind of 2020 guidance and capex spend over the period, understanding that it's going to be an intense period from a few years at New Afton, but you intend to be self-funding. I mean, I think throwing in your kind of 2020 consolidated guidance numbers into the model yields, a pretty good free cash flow burn over 2020. So I guess the answer is -- the question is, what do you think about your liquidity at this point? Are you comfortable -- do you need to sort of raise more and how would you go about doing that over the course of the year?

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

No, we're very comfortable with our liquidity and meeting our commitments for 2020 and beyond. We see a company, and again I'll dip into the next session. We see two Canadian assets generating free cash starting next year at current pricing or at $1,303 gold -- $1,303 copper. So, our liquidity is fine. We can meet our commitments, we can build our mines and we can get ourselves into the position of generating free cash beginning at the end of this year at Rainy and stay neutral at New Afton as we -- neutral to better at New Afton as we build C-zone. So, our models are -- and our numbers are fine.

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

And as -- I'm just sorry. So at the mine level, you expect to be neutral at New Afton on a free cash flow basis at the mine level after this year? Can you just say the hard part [Phonetic] again?

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

Over the next four years, we're expecting to generate cash. '21 is the year that we come closest to being neutral or slightly below. At current pricing, we're above, but the year is around that. We've got solid cash flow and, like I said, the project will be funded and will have positive cash flow over the four-year period with '21 being the tightest of the four years.

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

And then, at the mine level, you anticipate Rainy River to be free cash flow positive this year too?

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

At the end of this year, yeah.

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

At the end of this year?

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

At the end of this year, we expect it to turn, and we expect to be free cash flowing for the year -- for the remainder of its life.

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

Okay. So, starting in '21. Okay. Thanks very much.


Our next question comes from the line of John Tumazos from John Tumazos Very Independent Research. Please go ahead. Your line is open.

John Tumazos -- John Tumazos Very Independent Research -- Analyst

Thank you for your service to the company and for taking my question. The $700 million of debt, of course, is a good size number. If you wanted to place a priority on reducing it, how would you rank the following five alternatives, I know they're not the only five; selling Blackwater, selling New Afton selling Rainy River, selling stock or selling the company?

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

Or selling everything. Well, I'll answer...

John Tumazos -- John Tumazos Very Independent Research -- Analyst

Some people don't like to work with a lot of debt.

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

Well, there's two ways to solve for our balance sheet, and I'm going to talk to it. There is a capital markets alternative and there's strategic alternative. And again, I'm going to repeat myself later, but the strategic brings money from our heavy cash flowing years. And when you see our cash flows post '24, we're generating a significant amount of it. The other way is to leverage capital markets and move your commitments forward into those cash flowing years. We're going to do a combination of both. We're working very hard and we're active.

Now that we have two plans in place that I can look to and show how we're going to deliver our business in our cash will solve our $700 million bond issue. The immediate issue was $400 million. It's still -- it's doing '22, it's not imminent, but we're going fast, but we're not hurrying in dealing with that issue. And so, ranking and -- it's just not something that I want to get into. There's a lot of alternatives beyond stripping out the company, and we're going to look to those to solve our balance sheet issues, and the '22 bonds that we see.

John Tumazos -- John Tumazos Very Independent Research -- Analyst

Thank you.

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

Okay. I think that's it from -- with regards to the year-end call. So we are going to, as Anne mentioned, shut down for 5 minutes and then come back with a great tech session and explain our future.


[Operator Closing Remarks]

Duration: 170 minutes

Call participants:

Anne Day -- Vice President, Investor Relations

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

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

John Tumazos -- John Tumazos Very Independent Research -- Analyst

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