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New Gold Inc (NYSEMKT:NGD)
Q1 2020 Earnings Call
Apr 29, 2020, 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 First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentations, there will be a question-and-answer session. [Operator Instructions]

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

Anne Day -- Vice President, Investor Relations

Thank you, operator. And good morning, everyone. We appreciate you joining us today for New Gold's first quarter 2020 earnings conference call and webcast. And I hope everyone is well and staying safe. We will begin today's session with Rob Chausse, CFO of New Gold present our Q1 financial results and then follow with Renaud Adams, CFO to present our operational results. After the presentations have been completed, we will open the lines for a brief Q&A period. Before the team begins the presentations today, 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. And 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 two and three provide 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 the U.S. dollars. In addition, included in 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 Rob Chausse.

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

Thanks, Anne. And good morning. I will turn you to slide five which provides our operating highlights for Q1 2020. The details are consistent with our April production press release. Overall, our quarter was impacted by lower grades and higher sustaining capital when compared to prior year quarter. During Q1, the company produced 103,435 gold equivalent ounces. The amount consisted of 18.5 million pounds of copper, 50,381,000 gold ounces from Rainy River and 16,409 gold ounces from New Afton. Total gold of 66,790 ounces. Lower gold production as compared to the prior year quarter is primarily due to planned lower grades at Rainy River and the 12 days at the Rainy River Mine was suspended. Operating expense for our equivalent ounce was higher than the prior year quarter due to lower metal grades and lower sales volumes. Consolidated all in sustaining cost for the quarter were $14.46 per equivalent ounce, 33% higher than the prior year quarter due to lower grades and lower sales volumes.

Turning to our financial results on slide six, first quarter revenue from continuing operations was $142 million, driven by sales of approximately 68,800 gold ounces at an average realized gold price of $14.58 per ounce and sales of 17.7 million pounds of copper at $2.56 per pound. Q1 revenue was 15% lower than the prior year quarter due to lower grades, partially offset by a higher gold price. Operating cash flow before working capital adjustments was $47 million or $0.07 per share for the quarter. Lower than the prior year quarter, again primarily due to lower grades. The company recorded a net loss of $28.3 million or $0.04 per share during Q1, compared to a loss of $13.4 per share in Q1 2019. After adjusting for certain charges, net loss was $17.8 million or $0.03 per share in Q1, compared to net earnings of $0.00 per share in the first quarter of 2019. Our Q1 adjusted earnings includes adjustments related to our inventory writedown and other gains and losses including the unrealized adjustments on our gold price option contracts and the stream mark-to-market. Our MD&A has additional details on the non-GAAP measures that discussed here. Slide seven provides a breakdown of our Q1 2020 capital expenditures. Our total sustaining capital and leases for the quarter was $49.1 million. Spend was primarily related to tailwinds work and wick drains. Growth capital was focused on project development at New Afton. As at March 31, 2020, we had approximately $400 million in cash and approximately $600 million liquidity.

And with that, I'll turn the call over to Renaud.

Renaud Adams -- President and Chief Executive Officer

Thank you, Rob. And good morning, everyone. I am on slide 10. Before we touch base on the operating performance, I would like to discuss some aspects of the Covid-19. At the early stage of the pandemic or crisis, we created our common goal objective along the preserving and protecting the health and safety of our people, the environment and community while preserving the viability and integrity of our mines and business. Thanks to the tremendous commitment and involvement of all. We've been pretty successful to-date to deliver on that statement. When it comes to the protection of all of our employee, contractors and community health and safety, while this is where really the tire has to roll and the true sustainability takes place. As CEO of New Gold, I am extremely proud of what we have been achieved to-date. While we are physically separated, I truly feel much closer than ever to our employees and communities. I won't go through the details of everything that has been in place. I would summarize by saying that, I really feel that both sites and at the corporate level, working with the local governments and health agency recommendation that we've put in place every single aspect of what we consider to be the best practice currently in place and as per the rules.

And more, when it comes to more specifically at Rainy, we have adapted to the current situation. Wehave adapted a transportation as well. But very key, we have created as well some community based consultation which has been absolutely key to-date. And this is how I feel. I really feel that under this crisis that we have significantly raised the bar when it comes to. You could see more on our website under the Covid-19 under the New Gold website. Just in terms of the supply chain a continuity, as well. Somewhat surprised, but very happy to see that truly the supply chain has not been impacted. We have the proper inventory on hand and required quantity been maintained. Our long-term schedule item as well remains as plan. Creative business continuity plan both sites are fully modernized with the response team. We have different scenarios in the ramping up and ramping down and adjusting has we continue to address the operations and ramp up and bring in more as we needed for capital execution as well. We've talked that large on our financial status as well. So, under this Covid-19 crisis, while our two mines are currently operating of course, but feel that we have significantly raised the bar with regards to financial properly funded to go through this crisis.

The only release suspend and site activities to-date has to do more with the exploration -- regional exploration program as a result of more priority from government been currently focused on the more operating permit and more pricing. So we are expecting a bit of a delay there, but nothing material to our plans and we continue to believe we'd execute. And of course, a key as well as the spring comes it will be important execution of our capital project timelines as well and execution and again, we've been adapting this item as per the COVID. As a closing remark, I would say that we are currently actively engaged in initiatives to bring some testing capacity at our site which we believe is crucial to significantly improve our health and safety protocol as we continue to increase the amount of activity. On slide 11, on February 13, we released our new updated 43-101. The release was pretty detail. I will be going through in our presentation. The results were on a year-by-year basis. So, I am looking at our quarterly plans that serve to build the 2020 year one of the plans and I would say that I am very pleased with our production resulted for Q1 considering the 12 day suspension at the Rainy River as a result of the COVID.

With the cash cost and all-in sustaining cost also aligned with our plan and somewhat below, while we have withdrawn our guidance, we definitely continue to focus on executing our dispose plant which remains, for the time-being our internal scorecard. Operational -- operation restarted at Rainy River in April 3 and after a total of 14 days of suspension and is currently ramping up on operating capacity, but also and equally important in terms of capacity for capital execution, it is all about to safely reincorporating some orders, currently using mostly the local workforce which is about 70% of the total workforce. But as we advance, we need to bring more specialized employees and contractors. So we could execute our capital project and also continue to ramp up operation back to normal. The mill has been operating super well and for the restart using direct feed of stockpile generating in-line with our plan. On slide 12, in terms of key performance indicators for Rainy River Mine. The highlight is the great performance of the mine in terms of total tonnes, efficiencies and unit cost when compared to our plan prior to suspension, the open pits was operating at an average of 140,000 tonnes a day and we were very pleased with that performance. Our strip ratio was lower in Q1 compared to last year as planned.

The mill did well in terms of ability -- availability and recovery. Maybe the only spot on our fall in Q1 at Rainy if any was the ramp of the mill to 24,000 tonnes a day at much harder rock. By February, we were there, but it was more difficult at start. In January, we worked on improving fragmentation in the pit. They commissioned a pebble crusher properly and improved on plan as a result that mill is now performing very well. Capital project advanced in the Q1and as planned we are anticipating some increase in Q2 and Q3 as the core of the TMA, the Tailing Management and the wick drains and the water management will be completed potentially, up to Q4. I am on slide 13. At New Afton, we also released on February 13 a new technical report updating the capital execution in operations of the B3 and C-zone bringing the life of mine to 2030. We are very pleased with one of our work achieved at New Afton where operation was uninterrupted during the quarter and continued while COVID -- while the remaining COVID K3. One action taken, which we believe are what's key was the implementation of the 14, 14 schedule rather than 7, 7, which provide for proper self-isolation every 14 days and for 14 days. While our guidance was withdrawn, we continue to focus on execution of our new plan.

Our gold production cash cost and all-in sustaining costs were aligned with our plans, production was below our plans due to lower grade milled than planned. Sustaining and growth capital were slightly below than originally planned, but nothing specific to discuss more than timing of certain activities. Our capital spend also expected to increase in Q2 and Q3 as more schedule will take place. On slide 14, in terms of key performance indicator for our New Afton Mine, again, when compared to our plan, I would say that I am very pleased with our underground mining and milling productivities both recovery for gold and copper were as planned despite lower copper grade milled in the quarter. We are reviewing some potential operational aspect causing the higher dilution than expected in Q1 and resulting in the lower copper grade. We are pleased with the 1,231 meters of B3/C zone development achieved in Q1. But believe that the new safety protocol put in place will in short-term slowdown a bit the productivity. The BC government stated that prior to what we gave into this for the time-being to more pressing and operating permits, so we are expecting some delays with regards to regional exploration permit. On slide 15 and on the Blackwater, just a quick comment.

We've now completed our internal scoping study. We like the results and we like to hopefully make a decision before the end of Q2 with regards to the next step which could lead to a new 42-101 compliance study based on the new scoping. So more to come as we advance on our Q2. As a closing remark on slide 16, sure lot has been done over the last 12 to 18 months with regards to repositioning New Gold. We've now on a clear path forward to achieve operational profitability and growing free cash flow and closing of our recent strategic deal with prior strategic deal with Ontario Teachers' significantly improve our financial position and balance sheet, while exploration and revaluation at Blackwater continue to provide optionality to our shareholders.

This will close the formal presentation and we will turn the call back to operators for the Q&A portion of the call. Thank you.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Matthew Fields from Bank of America. Your line is now open.

Matthew Fields -- Bank of America -- Analyst

Hi. Understand the expectations are probably not where you wanted to be coming into the quarter, but under the circumstances, I wanted to ask about your balance sheet, now that you have the extra $300 million of cash from the Ontario Teachers' transaction. Is there a priority toward doing some kind of refinancing transaction on those 22s, maybe using some of those proceeds for that purpose?

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

Yes, certainly, well as you mentioned, the market is an interesting one as we sit here. So, it's definitely a priority to take care of the 22 bonds which are still 2.5 years away from maturity. So, I think we can be patient and prudent as we address those bonds and watch the markets form beneath them and then be opportunistic when we see the market come around. So, certainly, we want to reduce our debt level and then also deal with any stubs that are out there through an opportunistic capital markets move.

Matthew Fields -- Bank of America -- Analyst

Okay. I mean, just for the record, maybe the market was not there a month ago at the end of March, but your bonds have certainly rallied back pretty hard along with the rest of the markets. So I would say the market is there and lots of other metals and mining companies are trying to come to the market now, because they don't know if the market is going to be available in the future. So, I am not a leverage finance banker, but they would usually say, you take the money when it's available, not when it's the right time. But, good luck and hopefully you can address those short-term maturities to buy yourself more time in case recovery isn't as quick as people think. Thank you.

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

Thank you.

Renaud Adams -- President and Chief Executive Officer

Thanks.

Operator

Your next question comes from the line of Fahad Tariq from Credit Suisse. Your line is now open.

Fahad Tariq -- Credit Suisse -- Analyst

Hi, good morning. Thanks for taking my question. Just a modeling one for me. On Rainy River, how should we be thinking about grades in the second quarter given that a proportion of the mill feed will be from the reduced mining, but then also stockpiles? I am just trying to get a sense of are we back at Q4 levels for grades? Any color there would be helpful. Thanks.

Renaud Adams -- President and Chief Executive Officer

Yes, good question. Reason why we are -- I am not trying to be -- to avoid the question here. But you would understand that we've withdrawn the guidance for a reason. I think we are ramping up as we speak. It's all about how rapidly we could get back to feeding the mill with basically a 100% from the mine. Even though our original plan was considering the use as well of mid-grade stockpile in the blending. And so, it's all part of the plan. But, yes, so, technically, if we were to stay at about 70%, 75% of the capacity of the mine, you are absolutely right. You should expect a lower grade, because we'll be feeding the mill with more than originally planned. But, at what level? I think as we advance and as we explained, we will be in better position later on in the quarter two to come on. But, yes, technically, if you want to keep the mill running and the mine is not capable to produce a 100% of it, you would be using lower grade stockpile and therefore you could be down to lower level, maybe similar to Q4.

Fahad Tariq -- Credit Suisse -- Analyst

Okay, great. That's helpful. And just a quick follow-up. I might have missed this earlier. But is there a change in the cadence of the capex at Rainy River for Q2 to Q4? Or is that kind of hasn't been really impacted...

Renaud Adams -- President and Chief Executive Officer

Not, not so much to be -- I mean, like, of course, you know, like something would happen in this situation with that would get worse then -- and they will be implying like a suspension of operation, things will be adjusted. But this is not what we are looking at. We are looking at ramping up. We are looking at execution. So, we hope that we would be executing most, if not all the capital that we had originally planned for 2020. Maybe a little bit of delay or what maybe we could somehow expand to the Q4 and remember that our original objective was to turn into free cash flow at $1,300 by Q4. So, we are not necessarily interested in postponing and then pushing everything toward the end of the year. But there is some ramp up activities, as well. We are working very closely with the community how we are going to do this knowing we have to potentially bring people from outside the zone. So, in short, maybe a little bit of a timing issue. But the objective remains to execute our plan.

Fahad Tariq -- Credit Suisse -- Analyst

Thank you.

Renaud Adams -- President and Chief Executive Officer

Thanks.

Operator

Your next question comes from the line of Anita Soni from CIBC Bank. Your line is now open.

Anita Soni -- CIBC Bank -- Analyst

Hi guys, Anita Soni. So, I know this the deal closed on March 31 for the Ontario Teachers' pension. So does that mean that...

Operator

Anita Soni from CIBC Bank. Your line is now open.

Anita Soni -- CIBC Bank -- Analyst

I am on. Can you hear me? Hello?

Renaud Adams -- President and Chief Executive Officer

Sorry, operator. I am sure it's the same for you, but I -- we can --hear the question.

Anita Soni -- CIBC Bank -- Analyst

Hello. Hello.

Operator

I don't hear anything either. Should I move on?

Renaud Adams -- President and Chief Executive Officer

Yes, please.

Operator

Your next question comes from the line of Don MacLean from Paradigm Capital. Your line is now open.

Don MacLean -- Paradigm Capital -- Analyst

Pretty close operator on the name, thanks. And thanks guys for having the call. I just was hoping you could give us a little bit more color on the dilution of the New Afton Mine. What can you do? Given as a block cave and how important is that particular source of feed for the overall production profile?

Renaud Adams -- President and Chief Executive Officer

Good question. Don, I mean, there is definitely more to look at. So there is two things, right. There is the -- like you are saying, remember that we are now in the timing of between the B3 and completing the east cave and west cave and you have some pillars recovery as well and rehab. And so there is a lot of -- I would say, component to look at as we speak. So, absolutely -- absolutely agree with you when it comes to a block cave. You already had like, so, but, is it like, radio all across, is there more dilution all across, this is like more spotty. What about the pillars recovery? What about the plan? What about the mandate throughput as well? I mean, there is a lot to look at, too early stage if we were in a position to give more details, we would. But we are not. But there is a few things that are clearly didn't work as planned in Q1 with regards to the copper grade and will be and we are as we speak, you know, are looking at more. I would be in better position later on in the Q2 to be more specific about that. For the moment, I would say, there is maybe four, five parameters we can look at and that we are going to all -- we are going to go through the detail for future then and hopefully correct the situation.

Don MacLean -- Paradigm Capital -- Analyst

Okay. So, I guess, the bottom-line or the takeaway is that, you are optimistic that you have enough parameters and levers to pull that you can address at least partially this extra dilution?

Renaud Adams -- President and Chief Executive Officer

Yes, I think it's a fair comment at this stage.

Don MacLean -- Paradigm Capital -- Analyst

Okay. Great. Thank you.

Renaud Adams -- President and Chief Executive Officer

Thank you.

Operator

Your next comes from the line of Mike Parkin. Please state your company and your line is open.

Mike Parkin -- National Bank -- Analyst

Hi, thanks for taking my question guys. Mike Parkin from National Bank. Just following up, can you give us an idea of what the New Afton Q1 budget grade was?

Renaud Adams -- President and Chief Executive Officer

Very, very, pretty much aligned with the full year, when you are looking at our technical report, as a reference, you are like in the very low 80s or 0.8% and we did -- we are looking at the details here assessing grade, yes. So, we are somewhat, like maybe a 10% below what we were hoping.

Mike Parkin -- National Bank -- Analyst

Okay. And then you are seeing that continue into the month of April? Or is it Q1?

Renaud Adams -- President and Chief Executive Officer

Well, I mean -- yes, I think, it's fair to say that we don't turn the corner in 24 hours. But it was like I told in the previous questions, I mean, we are very much looking at it. If you recall last year, we did had a couple of quarters where copper was actually lower, but gold was higher in equivalent basis, we run the business on equivalent basis. But this quarter, in Q1, our goal was pretty much aligned with plan, but unfortunately, we saw like copper been below. So, we need to look at it in the early stage, again, if I have more information, I would be providing it. But, yes, we were about 10% below planned in the Q1.

Mike Parkin -- National Bank -- Analyst

And can you just remind me again on the -- there is a period there where you get into super gene copper material. Is that where you are at right now?

Renaud Adams -- President and Chief Executive Officer

We are and it's-we are in the super gene right now. We are producing concentrate like copper separated from the sulphide concentrate. So it's already happening right now and we've been very good to maintain the recovery and adjust the sales and strategy and so forth. So it's already working as planned.

Mike Parkin -- National Bank -- Analyst

All right. And one last question, what's the grade of the medium-grade stockpile at Rainy River?

Renaud Adams -- President and Chief Executive Officer

The medium stockpile is, the medium -- where we got medium stockpile is usually between the 0.5 and 0.9. So, our assumption is that the average is about in the midpoint of it. We have some zones sometimes that are higher, some zones maybe closer to the 0.5. But technically, you are about like the 0.75 average.

Mike Parkin -- National Bank -- Analyst

Okay. All right that's it. That's it for me.

Renaud Adams -- President and Chief Executive Officer

Thank you.

Mike Parkin -- National Bank -- Analyst

Thanks guys.

Renaud Adams -- President and Chief Executive Officer

Thanks.

Operator

Your next question comes from the line of Trevor Turnbull from Scotiabank. Your line is now open.

Trevor Turnbull -- Scotiabank -- Analyst

Yes, thanks, Renaud. Following up on maybe, I think it was Don's question about or someone's question on capex at Rainy

Operator

Trevor Turnbull, your line is now open.

Trevor Turnbull -- Scotiabank -- Analyst

Can you hear me, guys?

Renaud Adams -- President and Chief Executive Officer

Okay. Hoping we are not having an IT issue here. But can hear that one.

Operator

Would you like me to move on to the next question?

Renaud Adams -- President and Chief Executive Officer

Yes, please.

Operator

Your next question comes from the line of Anita Soni from CIBC Bank. Your line is now open.

Anita Soni -- CIBC Bank -- Analyst

So, let's try this again. So I heard Trevor and people could hear me on their calling. So let's see if you can hear me. It's Anita Soni from CIBC. So, can you hear me?

Renaud Adams -- President and Chief Executive Officer

I could hear a little bit of a background here, but again, just like you so, just in case Anita is listening to us. So, why don't you just please reach out directly to Anne after the call and then we will take your question on a one-on-one. Sorry about that. Just can't hear you.

Anita Soni -- CIBC Bank -- Analyst

All right. Thanks.

Renaud Adams -- President and Chief Executive Officer

Well, yes that's it.

Anne Day -- Vice President, Investor Relations

Hello everyone. We are having some technical issues obviously. We are not hearing the calls. So, feel free to reach out to me directly and we'll schedule something offline. So, at this time, we will close the call. If you do need some follow-up, again, please reach out to me and we'll schedule something. Thank you.

Renaud Adams -- President and Chief Executive Officer

Thank you.

Operator

[Operator Closing Remarks]

Duration: 30 minutes

Call participants:

Anne Day -- Vice President, Investor Relations

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

Renaud Adams -- President and Chief Executive Officer

Matthew Fields -- Bank of America -- Analyst

Fahad Tariq -- Credit Suisse -- Analyst

Anita Soni -- CIBC Bank -- Analyst

Don MacLean -- Paradigm Capital -- Analyst

Mike Parkin -- National Bank -- Analyst

Trevor Turnbull -- Scotiabank -- Analyst

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