New Gold (NGD) Q1 2021 Earnings Call Transcript

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New Gold (NGD 12.23%)
Q1 2021 Earnings Call
May 05, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and thank you for standing by, and welcome to New Gold's first-quarter 2021 earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ankit Shah, VP of strategy and business development. Please go ahead.

Ankit Shah -- Vice President of Strategy and Business Development

Thank you, Michelle, and good morning, everyone. We appreciate you joining us today for New Gold's first-quarter 2021 earnings conference call and webcast. On the line today, we have Renaud Adams, president and CEO; and Rob Chausse, our CFO. Should you wish to follow along with the webcast, please sign in from our home page 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 2 and 3 of 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.

Slides 2 and 3 provide additional information and should be reviewed. We also refer you to the section titled 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. In addition, at the conclusion of the presentation, there are a number of end notes that provide important information and should be reviewed in conjunction with the material presented. I will now turn the call over to Rob.

Rob Chausse -- Chief Financial Officer

Thanks very much, Ankit, and good morning. Slide 5 provides our operating highlights for Q1. The production details are consistent with our April production press release. During Q1, the company produced 96,000 gold-equivalent ounces.

Amount consisted of 13.8 million pounds of copper; 54,600 gold ounces from Rainy River; and 11,994 ounces of gold from New Afton, a total of 66,650 gold ounces. Lower gold production as compared to the prior-year quarter is primarily due to lower grades and lower throughput at New Afton. Our operating expense per equivalent ounce was higher than the prior-year quarter due to lower sales volumes and a strengthening Canadian dollar. With regards to the impact of the U.S.

dollar/CAD FX rate in the first quarter against our FX rate, our guided FX rate of $1.28 impact was around $2 million. Going forward, in on a sensitivity basis, a $0.05 change in the U.S./CAD FX rate represents about a $9 million impact on our operating cash flow. Our consolidated all-in sustaining costs for the quarter were $1,550 per equivalent ounce, 7% higher than the prior-year quarter, primarily due to lower sales volumes. Turning to our financial results on Slide 6.

First-quarter revenue was $164.9 million, driven by sales of approximately 63,500 gold ounces at an average realized gold price of $1,788 per ounce and sales of $13.3 million pounds of copper at $3.83 per pound. Q1 revenue was 16% higher than the prior-year quarter due to higher metal prices. Our operating cash flow before working capital adjustments was $63.7 million or $0.09 per share for the quarter, higher than the prior-year quarter, primarily due to higher metal prices. Company recorded net earnings of $15.1 million or $0.02 per share during Q1, compared to a loss of $0.04 per share in Q1 2020.

After adjusting for other certain charges, net earnings were $8.1 million or $0.01 per share in Q1, compared to a net loss of $18 million or $0.03 per share in the first quarter of 2020. Difference is driven by higher revenue and lower depreciation. Our Q1 adjusted earnings includes adjustments related to our unrealized adjustments on the Rainy River stream, mark to market and the free cash flow royalty. Our MD&A has additional details on the non-GAAP measures discussed.

Capital expenditures on the next slide were around $56.4 million in the quarter. $37.9 million was spent on sustaining capital and $18.5 million on growth capital. Sustaining capital spend was primarily related to planned tailings work at both operating assets and B3 mine development at New Afton. Growth capital was focused on project development, specifically the TAP project at New Afton.

We remain on track to achieve both operating and capital guidance. On Slide 7, it provides our capital structure. At March 31, '21, we had $131 million in cash and $435 million in liquidity. With that, I'll turn the call over to Renaud Adams, our CEO.

Renaud Adams -- Chief Executive Officer

Thanks, Rob, and thanks again, everyone, for joining us today. I'm on Slide 9 for additional comments on sustainability and ESG. Aside our health and safety global efforts, New Gold has has four sustainability focused areas: indigenous people, tailing management, water and climate, all of which will be fully addressed in our upcoming sustainability annual report. We have adapted our sustainability effort to align with the most pressing ESG issues facing our company in the mining industry.

As we look forward, it is not about presenting a new way of operating but looking at what we are currently doing and looking for areas to improve, we can build on. We are currently working on our 2030 road maps with ambitious goals to reduce our emissions while continuing to create value to our host community in the area we operate. Our side, we've implemented employee-driven programs that help generate ideas for energy efficiency to help achieve our overall carbon footprint. Both slides have environmental management systems that include water, climate, tailing risk on our operation.

Our operation actively seeks our partnership and work with local communities to understand the cultural and traditional aspect for progressive reclamation and environmental monitoring on an ongoing basis. Going forward, we will implement a more comprehensive climate action plan that also outlines opportunities for electrification and energy efficiencies. This will help us achieve our emission-reduction goal. Meanwhile, New Afton has already added its first electric equipment to its underground mobile fleet.

Our objective continues to be very clear. We want to create value, minimize environmental impact and do our part in achieving larger global objectives in climate, water, tailings management and indigenous relations, all while to continue to protect the health and safety and well-being of our people and the people and the community in which we operate in. Just to quickly and touch base on the COVID update. The company was the first, really, to bring the private testing to the Rainy River and Northwest Ontario area and has worked with the Northwestern Health Unit in its implementation.

The on-site PCR testing provides results within three hours of testing. Individuals with positive results from our on-site PCR testing are directed to take a second test administered by the Northwestern Health Unit, which confirm a positive result with a separate test. This positive in case -- in-house cases have previously been referred to as a nonnegative, which was really a terminology to public health, at the early days. So only public health results were officially considered positive.

However, going forward, cases that were previously referred as nonnegative will be referred as presumed positive cases and will continue to be treated as such as the majority of the positive cases really have been detected on site. Contact tracing is also performed by the site team and through public health to isolate any infected individual and limit further exposure. There are currently only two active cases at the Rainy River mine. All prior cases, including the 10 individuals referred in our April 21 news release, all of them were confirmed as positive cases by the Northwestern Public Health have recovered following the applicable quarantine period.

And I'm also very pleased to report that there are currently no active cases of COVID-19 at the New Afton mine. Moving to Slide 10. Reinvesting in our future continue in the quarter. The map shows all minority positions currently held by New Gold across Canada, including a significant 8% gold stream in the Blackwater development mine owned by Artemis Gold.

Recently, the company added three new positions in Harte, Talisker and Angus. Our 14.9% in Harte is really an opportunity to invest in a good grade underground mine in Canada. It's a unique opportunity for New Gold, given the team's strong skill set toward underground mines, including in that part of Canada. We like the new management in place that has been recently joined the company, significant under explore land package, more than 1 million ounces of gold resources over 10 grams a tonne and the potential to expand to over 100,000 ounces of production a year.

With regard to our 14.9% in Talisker, this is a significant land package in the neighborhood of the New Afton mine that we own in B.C. Their experience to explore, opportunity to leverage from a historic goal mine and prospective land package and also potential for multimillion ounces resources. With regards to our 9.9% in Angus, which was really a smaller investment for New Gold, this is a prospective land package in Noranda mining camp, experience explorer with this very strong track record of value creation in Canada. So we're very pleased with the landscape and the strategic and minority investment we've been capable to put together over the last quarter.

Moving to operational performance. I'm now on Slide 11 for additional comment on Rainy River's first-quarter performance. First, I would say that I'm extremely pleased with the overall performance. While it was a lower-grade quarter, which wasn't planned, we've seen again the mining mill achieving another good quarter of productivity.

The open-pit mine achieved nearly 151,000 tonnes per day, in line with our '21 target of also 151 tonnes per day. And this compare really with roughly 127,700 tonnes per day at the same period last year. The mill did extremely well as well, achieving 26,300 tonnes per day. This compares with 18,400 tonnes a day last year, so a significant improvement over the same period last year, considering the winter conditions and so forth.

The thing that I'd like to point out and that really speak of our overall improvement year over year, in the same period last year compared to the period of 2021, the production achieved a 10% improvement over the same period last year and really despite the fact that the grade in Q1 '21 was roughly 20% below last year period at the same time last year. So a significant improvement, 10% more productions over a 20% less grade. Same on the cash costs were slightly below the same period last year despite, as I said, a much lower grade despite a stronger Canadian dollar. So all of which, when you really compare both the period of Q1 last year and this year, it speaks for itself.

It speaks of the significant improvement we've made that the asset has and we would continue to improve further down the road. The average grade of 0.8 grams a tonne was a low grade. It was planned as such. Our mine plan, as previously discussed, is considered lower grade in the first half of the year and a slightly higher strip ratio.

And as we move forward toward the second half of the year, we're expecting an increase of grade and increase of production, significant reductions in our costs. And the mine remains on track to achieve its guidance. On Slide 12 at New Afton, there was a lower productivity as the mine continued to wrap up and achieve, quite frankly, pretty good productivities in the second half of the quarter following the mud rush incident. We had lower grade, as planned, as we continue to exhaust our current Lift 1 cave.

And the recovery level, as we transition now eventually to the B3 cave and eventually down the road to the C-Zone cave. Now the preparation work on B3 continues over the quarter. We're expecting our permit in the Q2. And then after, we'll initiate the blockade the sequence with the B3 and continue to ramp up over the year.

So more to come as we advance in the Q2. Our C-Zone development and construction plan remains on track for a start of the season, as planned. So both mines are really on track to achieve their guidance. We're very pleased as well with the first pass of exploration results at New Afton.

The first phase of drilling of nearly 10,500 meters has showed us some pretty interesting interpretations on different patterns, pretty similar to the New Afton deposit. And we're now engaged in the second phase, where we're going to be drilling deeper to follow up on those trends. We got some underground drilling program as well that has commenced like focused on the three priority targets, or more to come on this as well, as we have mentioned in the year. So really this is our completing the presentation portion of the call.

I will now turn the call back to the operator to -- for the Q&A portion. Operator?

Questions & Answers:

Operator

[Operator instructions] Your first question comes from Trevor Turnbull from Scotiabank.

Trevor Turnbull -- Scotiabank -- Analyst

Yes. Thanks, Renaud. I had a question, I guess, on the way your accounting for expenditures for Rainy River underground. I read through it pretty quickly, so I might have missed it.

But it looked like you had something on the order of a $1 million in gross expenditures for the underground with the intrepid zone and so forth, but it seems like you've done more work than that. And I'm just wondering is it the way you're accounting for it? Or am I missing something in the way you're going about the work at intrepid.

Renaud Adams -- Chief Executive Officer

No. It's really all captured in gross capital, and I guess the booking and the timeline when the execution but it's all has a gross capital. And as you previously disclose our guidance, we are expecting between the -- within guidance on the gross capital. There was -- the very interesting part now that you mentioned beyond the $1 million of expenses is we're very pleased with the same result.

And I just take advantage of your question here just to clarify that our first level in ore has responded extremely well compared to our block model, and we see some even gain here on the total ounces. And we'll continue to execute our plan. So as we move forward, you will see, starting in the next quarter, the expenses will pick up and we're expecting to within our plan for the year and continue to develop there [Inaudible]

Trevor Turnbull -- Scotiabank -- Analyst

And you talked about having, I think, 16,000 tonnes put able to add to a stockpile. Are you looking to process any of the material that you do develop this year? Or is all this going to be stockpiled for sometime in the future?

Renaud Adams -- Chief Executive Officer

It's really a stockpile. But definitely, this is something we eventually we'll see how many tonnes. I mean, you can imagine when you processed 27 average a day, the first quarter of 15,000-16,000 tonnes is not a lot to impact result, if this is where we're going. But the truth is we're currently stockpiling, and we'll see later in the year.

There are some precautions to be taken, as you can imagine. It comes with some metals and from the underground. So we got to be sure we're well equipped has we decided to do initiate processing.

Trevor Turnbull -- Scotiabank -- Analyst

And obviously because of the higher grade, it's going to be a bit of a shock in a way to the mill the way it's been operating. Is there some sort of plan maybe when the stockpiles built up a bit more to maybe actually batch process a bit just to see how it reacts in the mill or will you probably just blend it?

Renaud Adams -- Chief Executive Officer

At this stage, we're actually continuing in on our study, as previously disclosed we're working on extension of -- potential extension life of mine bringing more. We're looking at the milling aspects. So far, our intentions will be eventually to blend. Would it be any opportunity to improve result by maybe batching? We're not there yet.

Our plan is the basic case is just to blend.

Operator

At this time, we have no further questions in the queue. I will turn the call back over to our presenters for closing remarks.

Ankit Shah -- Vice President of Strategy and Business Development

Thank you, Michelle. To all of you who have joined us today, thank you again. As always, should you have any additional questions, please do not hesitate to reach out to us by phone or email. Have a great day.

Thanks very much.

Operator

[Operator signoff]

Duration: 21 minutes

Call participants:

Ankit Shah -- Vice President of Strategy and Business Development

Rob Chausse -- Chief Financial Officer

Renaud Adams -- Chief Executive Officer

Trevor Turnbull -- Scotiabank -- Analyst

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