New Gold (NGD) Q3 2022 Earnings Call Transcript

New Gold (NGD)
Q3 2022 Earnings Call
Nov 03, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Atos and I'll be your conference operator today. Welcome to the New Gold's third quarter 2022 earnings conference call. [Operator instructions].

Please be advised that today's conference call and webcast are being recorded. [Operator instructions] I would now like to hand the conference over to Ankit Shah, VP of strategy and business development. Thank you.

Ankit Shah -- Vice President, Strategy and Business Development

Thank you. And good morning everyone. We appreciate your joining us today for New Gold's third quarter 2022 earnings conference call and webcast. On the line today, we have Renaud Adam, president, and CEO; Rob Chausse, our CFO; and Pat Godin, our COO.

Should you wish to follow along with the webcast, please sign in to our home at newgold.com. Before the team begins the presentation, I'd 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.

There are cautions 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 and 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'll now turn the call over to Renaud.

Renaud Adams -- President and Chief Executive Officer

Thank you, Ankit, and good morning, everyone. Before we proceed with our third quarter update, I do have some sad news to share. I'm deeply saddened to announce that Suresh Kalathil, our general manager at Rainy River, passed away in his home in Emo Ontario late last week. Suresh has been with us for the past two years and made tremendous contributions during his time at the company.

We extend our deepest condolences to Suresh's family, loved ones, and colleagues during this difficult time. The strong and committed team that Suresh worked to build and develop in his two years with us will continue to execute this vision for Rainy River. With mine manager Gord Simms stepping up as an interim general manager and with the continued support across the whole New Gold organization. Thank you, Suresh.

Slide 5 provides a summary of our third quarter highlights. During the quarter, we continue to advance on our long-term priorities. At Rainy River, we achieve a significant milestone with the start-up on the ground with solid production from the Intrepid Zone. As we move forward, we're focused on ramping up the mining from the main ODM zone and starting to feed the mill with underground material.

At New Afton, B3 development was completed and our focus now is to ramp up the mining rates to 8,000 tonnes per day. Receiving the C- Zone [Inaudible] was a great milestone for the team in New Gold and we continue to move our project activities along with, the first-year plan for the second half of the year. In addition, at New Afton, the exploration results we previously released are very encouraging. During the next quarter, we will continue to advance our organic growth initiative to further increase the value of our asset base.

Lastly, the third quarter delivered to plan and significantly improved versus the second quarter in both production and cost. And we are on track to achieve our 2022 updated guidance. I will not pass it to Rob to provide an update on our operating and financial results. Rob?

Rob Chausse -- Chief Financial Officer

Thanks, Renaud. And I'll start with Slide 7, which provides our operational highlights. production details are consistent with our October production press release. During Q3, the company produced approximately 91,000 gold equivalent ounces.

The amount consisted of 8.5 million pounds of copper, 58,700 gold ounces from Rainy River, and 11,400 gold ounces from New Afton, giving us a total of 70,147 gold ounces. The lower gold production, as compared to the prior year's quarter, is primarily due to the lower copper grade and tonnes processed out of New Afton. Our operating expense per equivalent ounce was higher than the prior quarter, primarily due to lower production and therefore sales volume. Consolidated all-in sustaining costs for the quarter were 1,637 per equivalent ounce higher than the prior-year quarter, primarily due to lower sales volume at our operations and higher sustaining capital spend.

We continue to invest in sustaining capital at our operations during the third quarter with the impact of sustaining capital spend per ounce being $460 in the quarter. During Q3, we experienced inflationary challenges that have been experienced across the industry, particularly with regard to fuel, electricity, grinding media, and cyanide. The financial impact of the above-noted categories on inflation was approximately $100 per ounce or 6% on [Inaudible] for the quarter. As noted in previous quarters, we continue to work on minimizing any inflationary impacts and realizing benefits with our currency, Canadian currency.

Turning to Slide 8, for our financial results. The third quarter revenue was $151.2 million, driven by sales of approximately 68,800 gold ounces at an average realized price of $1,727 per ounce and sales of 9.9 million pounds of copper at 342 per pound. The Q3 revenue was lower than the prior-year quarter, primarily due to lower copper sales of sales volumes, and prices. Our operating cash flow before working capital adjustments was $43.6 million or $0.06 per share for the quarter, again lower than the prior-year quarter due to lower sales volumes and metal prices.

The company recorded a net loss of $4.2 million or $0.01 a share during the Q3, compared to a net loss of $0.02 per share in the previous year's quarter. After adjusting for certain items, the net loss was $13.4 million or $0.02 per share in the quarter, compared to $0.03 earnings of $0.03 in the prior-year quarter. The loss increases primarily due to lower revenues. The Q3 adjusted earnings include adjustments related to our gains and losses, which include unrealized adjustments on the Rainy River stream mark-to-market and the free cash flow royalty at New Afton.

Our MD&A has details on these non-GAAP measures. Our capital expenditures and leases for the quarter were $72.7 million, $42.4 million was spent on sustaining capital, and $30.3 million on growth capital. The sustaining spend was primarily related to planned tailings work at both operating assets, capital stripping at Rainy River, and B3 mine development at New Afton. Our growth capital was focused on project development specifically to seize on that New Afton and underground Intrepid zone at Rainy River.

Slide 9, provides details on our capital structure. Cash on hand at the end of the quarter was $247 million and liquidity was 620 million. The decrease in cash from the prior quarter is primarily due to the continued capital investments in our operations. And with that, I'll turn the call over to Pat.

Pat Godin -- Chief Operating Officer

Thank you, Rob. Slide 11 provides a summary of third quarter highlights for our Rainy River mine. Within the quarter, we opened an average of 12,000 tonnes per day. It increased over the previous year.

As we are shifting our focus to minimize the amount of material we are feeding the mill and the impact of our deepwater being in the fort during the quarter. In Q3, 85% of the [Inaudible] were indirectly shipped from open pits and the compliance with the mine plan was close to perfection at 97%. This average of approximately 24,400 tonnes per day is slightly lower than last year, partly as a result of processing part of the fort from the North Lobe. The effect of the complete mining from the North Lobe in the first half of 2023.

Quarterly production increased significantly compared to the second quarter and was in line with the last year. We remain on track to achieve our updated guidance. An Intrepid fort mining and development advancement of plans in the quarter replied the first open September gold rate from the first of those positive, and the position will ramp up over the coming months. As often advance and additional hit on the tributaries during the quarter, with the main decline round reaching the 200-meter level ahead of the plan during the final quarter of the year.

I will focus on Rainy River and will be ramping up open pit mining on the year -- on the main ODM zone, and getting the high-grade underground material found into the mill. Slide 12 provides a summary of third quarter highlights for our New Afton mine. During the quarter, the underground mine has led 6,500 tonnes per day. The decreases over the prior year are due to the planned completion of Lift 1, mining activities, and the closure of the record level for safety reasons.

As planned, the mill is approximately 7,700 tonnes per day and we complete the processing of the lower-grade surplus stockpile to supplement the [Inaudible] mine are on the beginning of the third quarter. At B3 development in driving construction is now complete. We're currently extracting ore solely from B3 and expect the mining rate to reach a target of 8,000 tonnes per day in early 2023. C-Zone development advanced an additional 998 meters during the quarter and we continue to remain on track for the first orders from C-Zone in the second half of 2023.

Ramping up B3 and continuing to develop C-Zone on time remains the key priority for the remainder of the year. I will pass it back to Renaud.

Renaud Adams -- President and Chief Executive Officer

Thank you, Pat. And I am on Slide 13, which provides a summary of our key priorities. Of the company and concludes this presentation, to building upon the significant progress and milestone achieved in the third quarter, we continue to work very hard to assess all possibilities to increase the underlying value of our asset base, and we're focused on achieving all of our key catalysts for the remainder of the year. This concludes our presentation and I will now turn it back to the operator for the Q&A portion of the call.

Operator?

Questions & Answers:

Operator

Thank you, sir. [Operator instructions] Your first question comes from Trevor Turnbull with Scotiabank. Please, go ahead.

Trevor Turnbull -- Scotiabank -- Analyst

Yeah, thank you. I just wanted to ask for a little bit of clarification on the guidance you mentioned at Rainy, the glacial material that you're stripping would be about 2.4 million tonnes, and it seemed like that would imply more like a 1:1 strip ratio. But then in the commentary, it said something about the strip ratio staying below 3:1, and I'm just wondering if I'm mixing something up there.

Pat Godin -- Chief Operating Officer

The strip ratio going forward is will be 3:1. And what is remaining to strip from the overburden is mostly the tonnage talked about 3.4, -- 2.4, 2.5 million tonnes is something that will be completed. If I'm just -- I think it will be around the second half of the year next year is something that we are pushing back as we are getting there. But, going forward, what is more, important for us is all the crawler equipment is working on rocks.

So basically it's the conditions of extraction of the overburden, it's pretty straightforward for us. And we are a lower risk or totally eliminated compared to the last year when we were struggling with load and stuff. So basically, are we still having 2.4, 2.5 million tonnes of overburdened material to [Inaudible] as part of the shipping ratio that is incorporated in our forecast?

Renaud Adams -- President and Chief Executive Officer

I think over would be -- just to complete on this is like -- I think I think your question goes on the glacial quality is not the fall, right? The course, I think the highlight here of the 2.4 million after battling, like over four or five years and ore mining that material is almost done. But of course, it's not the only and so material waste material.

Trevor Turnbull -- Scotiabank -- Analyst

OK.

Renaud Adams -- President and Chief Executive Officer

So moving forward, that's the difference here.

Trevor Turnbull -- Scotiabank -- Analyst

Right. And so kind of the tonnes of ore mined is going to remain roughly consistent with what you've been doing.

Renaud Adams -- President and Chief Executive Officer

Yeah.

Pat Godin -- Chief Operating Officer

Yeah.

Renaud Adams -- President and Chief Executive Officer

Yeah. Yeah, correct.

Trevor Turnbull -- Scotiabank -- Analyst

OK. And then just one other quick question. With respect to the copper, your copper output, as we close out the year in Q4, is it correct to assume that now that the B3 zone is starting to ramp up production, that production should start to trend a bit higher? Or are there grade considerations that are potentially going to keep the copper from being higher in Q4?

Pat Godin -- Chief Operating Officer

So the copper portion, the portion increase because actually, we will -- we are ramping up from 65 to 8,000 tonnes per day. And in the [Inaudible] usually, when you start we are looking at the reserve based on the mining division that is coming from the extraction of the cave. But when we start keeping that on, usually the grade is much better because the division is coming from the external wall and in addition to that. As I explained during the presentation, we totally exhaust the stockpile load, the low-grade stockpile that we had on the surface, and then actually all the material that is going to the mill is high-quality material.

Trevor Turnbull -- Scotiabank -- Analyst

Understood. OK. Thank you very much.

Pat Godin -- Chief Operating Officer

Pleasure for me.

Renaud Adams -- President and Chief Executive Officer

Thanks.

Operator

Thank you. [Operator instructions] Your next question comes from Mike Parkin with National Bank. Please, go ahead.

Mike Parkin -- National Bank Financial -- Analyst

Hi, guys. Thanks for taking my question. Sorry to hear about the news of Suresh. With respect to New Afton, noticing that your gold, as well as your copper recovery rates for Q3, have been better than they've been for at least two plus years.

Is that something that we could expect to continue into the fourth quarter of 2023?

Renaud Adams -- President and Chief Executive Officer

Well, the -- if you recall and Mike, one thing that we liked about the season as we move forward is how famous the ore, and so forth. So we continue to believe that, as we moved forward with more material for the B3 [Inaudible] and the switching events of the C-Zone. I think the guys have been doing an absolutely believable job there at the mill. And yes, we continue to believe that we will benefit for increase recovery as we move forward.

Mike Parkin -- National Bank Financial -- Analyst

And with that, is that anything to do with the function of the lower throughput, as your kind of transition through this lower tonnage period? And then as you ramp up C-Zone with that ease off in the recovery, or would you expect that to actually sustain at the more elevated levels versus where you've averaged kind of in the last couple of years?

Renaud Adams -- President and Chief Executive Officer

Yeah, we're definitely not pushing. As you mentioned, the mill is at its max capacity. But to be very frank, if you compare where the last couple of years, we're not necessarily pushing the mill that way to it has to do with the mineralogy of the ore that it will keep improving as you move forward. And also the fact that the submerging as well will be reduced as you move forward.

Mike Parkin -- National Bank Financial -- Analyst

Great. That's it for me. And thanks very much.

Renaud Adams -- President and Chief Executive Officer

Thank you.

Operator

Thank you. There are no further questions at this time. You may proceed.

Ankit Shah -- Vice President, Strategy and Business Development

Great. Thank you very much. And thanks to everybody who joined us today. 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.

Operator

[Operator instructions]

Duration: 0 minutes

Call participants:

Ankit Shah -- Vice President, Strategy and Business Development

Renaud Adams -- President and Chief Executive Officer

Rob Chausse -- Chief Financial Officer

Pat Godin -- Chief Operating Officer

Trevor Turnbull -- Scotiabank -- Analyst

Mike Parkin -- National Bank Financial -- Analyst

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