Feb 5, 2015
Executives
Hannes Portmann – Vice President, Corporate Development Randall Oliphant – Executive Chairman, Brian Penny – Chief Financial Officer, Executive Vice President David Schummer – Chief Operating Officer, Executive Vice President Mark Petersen – Vice President, Exploration Robert Gallagher – President, Chief Executive Officer, Director Peter Marshall – Vice President, Project Development
Hannes Portmann
Good morning ladies and gentlemen, and welcome to the 2015 New Gold Investor Day. My name is Hannes Portmann, and on behalf of the entire New Gold team, I would like to thank all of you for joining us today whether here in person or via the webcast.
As this event is being webcast simultaneously, there are few items I would like to address to ensure the day go smoothly. As in previous years, we will leave time for questions at the end of each speaking session as well as at the end of the overall presentation.
For those in attendance we ask that you ask your questions using the two microphones located in the middle of the room such that everybody on the webcast can hear your questions. For those on the webcast you can also type your questions through the interface, as this is the case on our earnings calls and we will address those as well.
Upon the conclusion of the presentation there will be an additional Q&A period, and after that for those of you that are here in Trono, please feel free to stick around and join us for a light lunch. As most of you have seen in our news release from yesterday evening, we have a lot of exciting news to cover today.
Our speakers include our Executive Chairman, Randall Oliphant, who will provide an overview of the company as well as his perspectives on the gold market. David Schummer, our Chief Operating Officer and newest member of our Executive Management team, will provide an overview of the operational results of 2014, as well as our outlook for 2015.
Mark Petersen, our Head of Exploration, will cover the reserve and resource update as well as our exploration plans for 2015. Robert Gallagher, our President and CEO who'll provide you an overview of our exciting growth projects, as well as an update on Blackwater and El Morro specifically.
Peter Marshall, who heads our Project Development team, will walk you through the update on the New Afton mill expansion, as well as the C-zone scoping study results that we out yesterday. Paul Hosford, who is the Director and oversees the development of Rainy River, will provide you an update on that asset, and then finally, Randall will have some closing remarks.
As we will be making some forward-looking statements as it relates to both our 2015 guidance and some of our projects, we would ask that you familiarize yourself with this cautionary note as well as the endnotes at the conclusion of the presentation. And with that, I’ll pass it on to Randall.
Randall Oliphant
Thank you, Hannes and good morning everyone. Thanks for taking time to hear our story.
We’ve got a lot of interesting developments happening in New Gold, and we’d like to talk to you about them, and hear any questions or comments that you have. I think my first slide address us who we are as a company, and what it is we inspired to become.
We like operating in politically secured jurisdictions and as you’ll see our reserves are increasingly growing here in Canada. We have about 18 million ounces of reserves and we have lots of potential to expand them.
Secondly, in order to be successful, we think we need to have the right team. We’re very proud that the team we’ve assembled in each year that seems to be stronger than the year before, but the team is really hear a shareholder ourselves.
Collectively, we own about $75 million worth of stock, and in the past year while gold shares were weak, we bought another million shares. We like being low cost because we’re a business, we like generating healthy margins and we’re pleased to report that our cost in 2014 was the lowest in the history of our company, and our plans are in place to keep those cost lower, and the new mines that we’re bringing on-stream are lower cost than our current portfolio.
We think we’ve got the a pure leading growth pipeline, big significant projects, much larger scale than what we have today in terms of lives, in terms of production size, in terms of exploration potential and their ability to generate cash. And most importantly, we’ve got a history of creating value in the gold business.
In terms of some of the highlights of 2014, our production was 380,000 ounces; our copper production exceeded our guidance with the 102 million ounces, which is the highest we’ve ever had, and silver came in about 1.5 million ounces. Our cost as I mentioned were $312 ounce on the cash cost basis, $779 ounces on all-in sustaining cost basis which gave us the ability to generate significant margins.
In terms of our balance sheet, we have $371 million of cash at the end of the year despite a lot of the work that we are doing to develop our asset base. But we also have a $300 million revolver, so lots of liquidity available to the company.
New Afton, the C-zone is one of our new projects, I will tell you about in more detail, but there we were delighted to increase the resource by over 50%. We also completed the scoping study which we can tell you about in the mill expansion, which will come on-stream in the middle of this year it's on schedule, and on or below budget.
In terms of Rainy River, we’ve recently announced that we received both the Federal and Provincial approvals of our environmental assessments, which allows us to get going on the project and we significantly advance the engineering there. In terms of our team, I mentioned it’s gotten stronger in the past year, and Dave Schummer, who’ll you hear from in a minute is the key addition to our team.
As you know we’ve got four operating mines, we’ve got three development projects, we are also developing one of our operations New Afton, expanding the mill, and then now we’ve got the C-zone, there is a tremendous amount to do and we’re glad that we’ve got a stronger team. Our Board are remarkably committed to this company, as I mentioned before their shareholders are becoming more significant shareholders based on the excitement that we see in the potential of the company.
In terms of our assets, as I mentioned earlier, they are all located in politically secured jurisdictions. Our operating mines are New Afton, which Dave will tell you more about Mesquite, Cerro San Pedro and Peak.
In the development projects our most immediate Rainy River followed by Blackwater and our interest in El Morro. This is a business we are very focused on costs, and it’s nice to see their costs were the lowest in our history.
We also think that we can generate robust margins even at today’s gold prices led a loan our optimism for gold going forward. You can see the cash margins that we’ve generated for the year and for the quarter, and also that gives us a margin of $477 ounce.
The role of our operating mines is to generate free cash flow, and if we did nothing, this company could distribute a tremendous amount of cash, but rather than do that, what we are doing – doing is focused on developing these longer lived, lower cost and more significant assets. So, what do we do with that money, a lot of it went into the New Afton mill expansion, because for $45 million we think, we can increase the annual cash flow by $25 million a year, and generate significant returns.
Rainy River represents about 75% of our entire production base today, which will become our most significant producer. Blackwater is even bigger than that, it will produce about 120% of what our four mines do today.
Then of course the C-Zone is pretty exciting at New Afton because that’s our most significant cash flow generator and to be able to generate that cash for a longer period of time gives our company a lot more horsepower and significantly more cash flow. In terms of what we’re going to do in 2015, we see production of gold, copper and silver all going up, gold by about 8%, copper by about 4% and silver by about 28%.
Our cost will remain low, although they were $312 ounces in 2014; we are targeting $340 to $380 ounces. The reason for that slight increase it's due to our copper price assumption, because we realized $3.2 pound in 2014.
We’ve guided a $2.75. In fact, if we had the $3.2 number our cost would be $80 ounce lower than what we have guided to.
With basis on $1.25 Canadian to the U.S dollar which is above where the market is today. $1.25 Australian to the U.S dollar and the Australian dollar is a bit weaker than that, and while the current copper price is about $2.57 we think that’s – that copper will do well over the course of the next few years.
Details on how we get to our all-in sustaining costs of about $765 ounce, you can see our cash cost were about 360, our sustaining capital is about $295 ounce, and SG&A is a little under $100, and then our sustain our exploration is about $15. In terms of financial position, I mentioned the cash that we had, the available revolver our company has about $617 million available to us.
We thought about $800 million left to spend to Rainy River, but over the course of the 2.5 year construction period, we’ll generate about a $500 free cash flow from our operation free cash that we produced. So if we produced about $100 million ounces over that 2.5 year period that’s about $500 million of cash flow available to us.
One of the things that I should mention as we’ve done a comprehensive review of our carrying values of our assets in all the seasons completed yet. We expect to take provision of about $350 million to $450 million against our assets primarily at Blackwater By looking beyond 2015, in terms of what we are going to generate particularly during the construction period of Rainy River we can see further increases in our margin per ounce.
At New Afton, it’ll continue to produce at above reserve grade well through 2018. And we’ll also have the benefit in 2016 of the expanded mill.
Mesquite, the grade will move back up to reserve grade in 2016 and 2017, which will enable us to go back to a historic production rates and we see sustaining capital decreasing by about 70% from where we are this year over that period. At Peak it should continue to be a steady producer for us will probably have lower sustaining capital of about $25 million a year.
And at Cerro San Pedro this will be at last year of active mining it will generate a lot of money in 2015 and beyond that and through the construction period the residual leach revenue should exceed the money that will spend on reclamation. Another thing that we announced last evening was to delay the – the commencement of Rainy River by about six months.
We could have build this in the original two-year period that was in the feasibility study, but we elected in this environment and with these prices to be more conservative in the timing to enable us to generate more cash that we could fund this internally. The feasibility study had commissioning starting in late 2016, now we think it will happen in the middle of 2017.
The development capital of $885 million has come down to about $877 million that watch we got $808 million to spend. We will walk you through in detail what’s been going on there.
In terms of the capital that we are going to spend into 2015, it’s down by about $120 million which gives us a much more comfortable financial position. But the one thing that we found with this decline in the Canadian dollar is the dramatic impact that is had not only on the capital cost of our projects, but on our operating costs.
In both our studies for Rainy River and for Blackwater the costs are down by about $100 ounce. So with more than $3 million recover down is that Rainy River that’s over $300 million of additional cash flow just based on the exchange rate, and at Blackwater it’s about $700 million more.
Some of the highlights on Rainy River, because of the combination of starting with about reserve grade Open Pit, and then bringing on our underground of higher grade. You can see that leverage above 1.5 grams per tonne over the first five years of the project.
The rate of return based on $1,300 goal it's 13.7% after tax, but of course that assumes if we don’t find anymore ounces of the gold price doesn’t go up over the course of the 14 year production period both of which I think are highly unlikely. The sustaining all-in sustaining costs of $658 ounce it's significantly below where we are today.
But we’ve got a lot of growth initiatives happening. We’ve got the New Afton mill expansion that I mention it will come on-stream in the middle of this year.
We are starting the construction of Rainy River which will give us 325,000 ounces of gold a year. We’ve got the permitting going on a Blackwater which we expect be completed later this year and of course we're already started engineering to those C-zone, which will extend the life at New Afton and then El Morro, we have that as a significant option for our company.
So there are many different initiatives happening and many different options to grow the company. So from a shareholder perspective of which on a significant one, we’ve done pretty well over the last six years.
You can see how New Gold is done relative to the gold price and the reason why we picked the six year period is that’s where the company came together in its current form. We’ve been able to outperform all the indices, outperform gold and we think that we’ve got plans in place to be able to continue to do that.
In terms of gold itself, many of you may know that I’m also wearing another hat which is Chairman of the World Gold Council. I got to tell you it’s a very exciting time in the world for gold.
This is really become very much in Asian business where India and China combined more than 55% of gold consumption and they have 2.5 billion people in those two countries who happened to love our product in that growing economy is a pretty good business to be in. I was in China in September as part of their China - first ever China Gold Congress, which is a fascinating event because it wasn’t just investors, it wasn’t just producers, but it was the Chairman of the Shanghai Bullion Exchange was there who [Indiscernible] that is going to turn it into the number one bullion exchange in the world.
The Chairman of the Shanghai Singapore Bullion Exchange was also there, who has determined to try and compete with Shanghai and have people like that trying to become more significant it was pretty exciting, the jewelry industry was there. And across the spectrum there is an off a lot of people in the world who like gold.
As you know central banks have gone from sellers of gold to buyers of gold and the reason why they’re buying today is the same reason why they’ve sold 15 years ago, it was European Central Banks largely who are overweight gold in their portfolios on average about 80% and try to rebalance that and now the countries that are accumulating lot of reserves, find that there are underweight gold and have become significant buyers [ph]. And so whether it’s investment demand, jewelry demand and with flat production in our industry I think that the years ahead are going to be very good for the gold business and the gold price.
With that I’d be happy to answer any questions at this stage about what’s going on, where we’re going. If not, I would like to pass it to Dave Schummer.
As I mentioned, we think, he is a terrific addition to our company, Dave spent 22 years with Newmont, he has done almost everything in the company from operating equipments to running their U.S. operations to running their operations in Africa, building mines successfully in Africa and I couldn’t be more excited to have Dave as a member of our team.
Dave?
David Schummer
Thanks very much Randall. I joined New Gold in September of last year.
And I have to say, I’m extremely pleased that I made that decision. I have had the opportunity to visit each of the sites once, some of them two times and some even three times, and I have to say I’m extremely pleased with what I’m seeing.
I knew as I joined, it was an organization that had significant opportunities, profitable opportunities to grow the company in the future. I understood that we had the funding to support those efforts.
I understood we had a strong leadership team in engaged port. I understood all those things, but I really have to get on the ground to assess what we have in the field.
And what we have in the field are some really strong operators and some really committed people. People committed to continuous improvement, and they go into work every day and figuring out how they can do their work better and that that was really exciting for me, because continuous improvement is something close to my heart having led departments in – over my carrier in the past.
And when I see that kind of appetite to do things better, and I feel like it brings instructions and some methodology and some resources around that, and it bodes well for higher levels of efficiency for us going forward. So I’m quite excited I’ve joined again – like what I’m seeing out in the field.
With respect to Health, Safety and Corporate Responsibility we received a number of recognitions last year, which really serves to validate the tremendous amount of work and effort we put into these areas. A particular achievement that sticks out for us is that our CSP mine in Mexico was able to surpass two million hours without a loss time accident and similarly at our projects Blackwater and Rainy River.
it surpass the million hours without a loss time accident. And that’s not just pushing paper around and sending e-mails they'd had a lot of drills trending up there, a lot of work going on, so hats off to them.
Now looking forward we really need to put a focus as many of you will know with respect to achieving our agreements or completing our agreements with the First Nations for Blackwater, and getting all of the environmental assessments completed. And in Mexico as you are aware this is the final year of mining operations.
So we have to work towards efficiently bringing that mine into its first stage of closure. As Randall mentioned we achieved our gold production, our silver production and we outperformed guidance with respect to copper with respect to cash cost and all-in sustaining costs.
Operationally we did very well last year has evidenced in our operation scorecard, if you look at tonnes processed, we hit the market New Afton and at Mesquite. If you look at Peak, we came in just under the range, but we also encountered higher grades and as we pursued those grades, we ended up with slightly less ore tons but a net zero impacts on.
At Cerro San Pedro with same issue less ore tons encountered, but that’s higher than expected grades really net zero impact between those two as well. Looking at copper grade, silver grade and gold grade all came in as expected.
As did recoveries across the various sites with the exception of New Afton, but that’s actually a good story, because again in the spirit of continuous improvement, we continually evaluated opportunities throughout the year to improve our throughput, same cognizant course of the impacts to recovery and what’s the proper brand sizes and those types – those relationships, that’s really what we spend a lot of our time doing at these sites is understanding how to maximize value today considering those factors, so slightly lower recoveries, but higher throughput netting our higher middle production in revenue. Looking at the sites individually, first column looking at fourth quarter, as expected Mesquite and CSP are more heavily weighted for the fourth quarter in terms of production.
Looking at the full-year production essentially Peak and New Afton were in the expected range, if you look at Mesquite and CSP both of which are mainly on our leach operations. We actually placed the planned amount of recoverable ounces at each of those sites.
But again have been heavily weighted towards the fourth quarter, they replaced a little bit later than optimal to actually produce that gold in 2014, if those purely timing and timing at Mesquite was driven by some equipment availability issues that we had and we’ve spent some remedies through our strategies around the components and adding some additional equipments. So I don’t expect that to be a problem going forward.
But I just want to reiterate that the grades refine, the metal was there, the metal was placed within 2014. And I think that board’s well, it does for increased confidence level and our ability to produce at Mesquite and CSP this year.
And we are seeing ounces come out in January at Mesquite, in particular that weren’t expected – weren’t in the plan. You’ll also note that below the main table, we showed New Afton from a co-product cost end point as well because I know people like to look at the cost of New Afton in different ways.
But I think the main story is, it looks good whether you look at as a byproduct basis or co-product. Now looking forward, as came out in the release, we’ve got growth all across all the metals, gold, silver and copper, the cost coming in quite reasonably and comparable to what we did last year with some adjustment for copper price and it has the corresponding impact to the byproduct credits as you all aware.
At New Afton, increased production is really on the back of the mill expansion, cost inline and we’ve given you some sensitivities there to look at, I expect the same level of production in the 90,000 ounce range, 90 million ounces – 90 million pounds of copper in 2016 and 2017. We’ve got a very strong team there, a very energetic and focused team.
We’ve got a strong general manager there that’s worked at CSP and the Peak Mines and demonstrated the ability to make significant improvements at both of those sites along the way and [Indiscernible]. At Mesquite, expect higher production in 2014 in 110,000 ounce to 120,000 ounce range driven by a higher grades and tonnes process, we are expanding the leach pad as in the steep, which is driving the all-in sustaining cost at $1,300 approximately.
What that allows us to do is really provide some, really profitable years in 2016 and 2017 where we expect to be back in the 150,000 ounce range at cost of approximately 800 from an all-in sustaining cost basis. And I’ll just add that we have a very strong general manager there, as well a person I’ve known in the past for many years, a person that mines and then operated mines for more years and like anybody New Gold with the exception of Bob and he is an quite an extreme cost – strong cost focused down in the cost management as well.
So I was happy with what I saw there. The Peak Mines there is nothing really changed in operational lease from a throughput, standpoint or any other operational issues.
We are just moving closer to the reserve grade, so expect similar production over the next year or two. Capital, again as I mentioned comes down, sustaining capital down to about the $25 million per year mark.
Cost in line with what they were last year, really strong general manager down there as well. So like myself Greg are up entry level miner or through operating equipment various levels of supervision and management, he is now the general manager, he knows the business, he knows where to find opportunities and how to put them in the motion and realize benefits, lot of confidence in the team down there.
At Cerro San Pedro, this is the year where we are going to make significant gold production - and several production at the mine as this is the final year, we spent a lot of time last year stripping, we are now fully into the Phase 5 horizon as exposed and we’re placing a lot of gold on pad right now. Cost in $1,000 and $1,045 range, obviously minimal capital expenditures expected at CSP.
Another strong General Manager I worked with in the past that it was the time the largest heap leach operation in the world the Yanacocha mine in Peru. Ango [ph] was the process manager there, if someone you want running our each operation it’s certainly Ango [ph] he’s got the strong team around him, so I really like to [Indiscernible] as well.
Looking at capital, we’re going to go through capital side-by-side and project-by-project. So I’ll just call out that at the $455 million, $120 million is sustaining capital across the various operations and $335 million is development capital predominantly, our investments at Rainy River.
I won’t get into too much detail on Rainy River, I guess, we’ll go through again a bit later, but of the $300 million, a $190 million is mining infrastructure and process facilities and the balance owners cost and indirects. At New Afton here is where maybe I can add a little more of it, it’s not in the presentation.
If you look at the $80 million the bulk of it is developments and its drawbell developments et cetera. It’s a lift on tailings, but additionally, it’s some work we can do to further optimize the mill.
So in the spirit of continuous improvement about the end of the third quarter last year, early fourth quarter, the side put together a max throughput trial or test on the plant for about two weeks and identified opportunities to further debottleneck the plant and increase throughput, so the short version that exposed of everything it was done as I would be expecting much closer to 15,000 tonnes per day by the end of this year or at the end of this year than 14,000 which is what the mill is going to bring us too. At Mesquite’s pretty straight forward, we need to finish the leach pad expansion and then we’ve got some additional capital on major components again related to improving the best availability that I mentioned earlier.
At the Peak Mines pretty straight forward is $15 million in development and $10 million in equipment replacements three trucks and a cable [Indiscernible] that into their economic life. Blackwater’s comprised the permitting environmental studies and support and very minimal capital at CSP.
So with that, I’ll open it up to any questions, if you have any.
Q - Unidentified Analyst
[Question Inaudible]
David Schummer
We’re constantly looking at that relationship, typically, when you see higher throughput, I think, it’s the point you’re making, you have a corresponding hit on recoveries, so there will be a slight here on recovery that expecting 1% or 2% range, but on the net basis it will be obviously significantly more metal produced. Not into production and – no.
We’re going to – that’s a little bit further out and when we go through the seasonal project in detail, I think we can give you a better feel for what that schedule looks like.
Unidentified Analyst
So in terms of the overall grade as we get out into 2018, and the production levels are they expected to decline beyond to the 90,000 that you are looking at for 2016 and 2017.
David Schummer
I think what I heard Jeff earlier as well as – what the season do to the great profile. So, yes, you will see us up through 2018, will be above reserve grade, and then you will see reserve grade slowly decline but there is opportunities to improve that.
Unidentified Analyst
Okay, thank you.
Unidentified Analyst
May be just on the - Dave on the C-zone, can you tell us how it dug tails with the throughput from the rest of the project, I mean are we looking at an incrementally higher overall tonnage going through the mill, or do you keep basically the same tonnage?
David Schummer
Basically the later – the same tonnage as we work through the current B2 and B3 and C-zone comes in as a supplement to that, but its not incremental – its not incremental tons that require higher throughputs. It’s more of the same in that 14,000, 15,000 range.
Unidentified Analyst
Okay. And there is quite a large resource in addition to the reserve and I’m not sure, what at point this is the right time to talk about it or whether it’s Mark, it should be talking about it.
But you’d be good to get some of that addressed as you how much of that other resource; I think it’s over 80 million tons so it’s one and a half times, what the size of the reserve is? How much of that might we expect to convert overtime?
David Schummer
It’s a good question, and I think would Mark coming up, he can give you an accurate answer and between Mark’s presentation and actually going through the C-zone, you’ll get answer for that question. Thanks.
Unidentified Analyst
Yes, I got a question on the heap first, just looking at the total cash costs that are $925 to $965, it seems pretty high for heap leach, but then the all-in cost $1,290 to $1,330, is that because being the leach pad expansion, you’ve got some extra stripping to do, and I guess the question is this, what does the strip profile look like next few years because the production sounds pretty good at 150, but I just wonder if the strip stays elevated and that all-in numbers stays elevated as well?
David Schummer
Our strip from the sheet [ph] this year is 3.1 to 3.2 and I don’t have the exact number for year-by-year going forward, but you should see the strip declining as we go forward as we’re placing a lot more ounces on the pad to produce 150,000 expected in 2016 and 2017.
Unidentified Analyst
Okay. And just on the summary if I can.
There it looks like - that I might assume the current plan stays in the 1.25 Canadian diversities. Is that the FX rate that’s been pushed through the life of mine economics that we see here on the page?
David Schummer
To the best of my knowledge at this point, yes, yes, not from Brian, so yes.
Unidentified Analyst
Okay. And are you guys - presumably you’ve got a lot of U.S.
dollar type costs for this year when you’re buying equipment, the capital equipment that will be USD and then you know I will call it 2016, 2017 how many Canadian dollar costs as far as the CapEx goes?
David Schummer
I think, it’s a better question for – I think I’ll let Brain.
Brian Penny
Is it on? Basically, if you look at the Rainy River capital about 20% is denominating U.S.
dollars, 80% is in Canadian dollars. And in the U.S.
component, there is obviously the few burned during the construction period because although we pay in Canadian dollars it’s triangulated through the NYMEX price, so really its denominating U.S. dollars.
So that’s the splits. And obviously as time goes on, we’ll know more about this, but that’s what we think we’re going to lined up.
Unidentified Analyst
I got it, thanks.
Brian Penny
Okay, thank you.
Mark Petersen
Good morning everyone and thanks for joining us this morning. In our next section, I’ll give an update on our year-end reserves and resource estimates, mineral, and the details of those are appended to the presentation that you all have.
And then I’ll give a brief summary update on our exploration activities from last year and what we see in our plans for 2015. As we’ve done in – as we do each year.
We update our mineral resource and reserve estimates according to consensus commodity pricing assumptions as well as updated costs if there are any updated cost foreign exchange rates et cetera. So for the year-end 2014 we’ve lowered our gold price assumption by a $100 over a year-end 2013 to $2,100 per ounce and our silver assumption by $4 from $22 to $18 per ounce.
We held our copper price assumption constant at $3. Also this year and going forward, we’re now in a position to be able to state our measured and indicated resources exclusive of mineral reserves.
That provides a bit more clarity and we’ll be able to do that going forward each year now. Between the last year and the prior year, the primary drivers to our change in mineral resources or mine depletion during 2014 the lower price assumption of course and in some instances updates to our detailed site mine plants.
Specifically going to the various sites at New Afton, it was primarily the change to reserves was primarily a result of mine depletion and as well our team has done a great job as since they’ve done before of trying to strike a strong balance between a good healthy operating margin and long-term mine life. And so they’ve actually dropped a few of the lower grade draw bells out of the mine plant.
So at the end of the day, we really left with the reserve that’s really just reflects the difference of our mine depletion during 2014. At Mesquite, again we’ve got the lower price impact but we’ve also really tightened up our mine planning parameters with shallower pit slopes and as well we drilled about 24,000 meters of infill drilling to upgrade the confidence for the areas will be mining this year and going into 2016.
We’re probably be doing more of that kind of confidence improvement infill drilling going forward. And the net impact of that is it has reduced our reserves a bit but we have a much stronger robust mine plant going forward.
At Peak, once again our team has done an excellent job of replacing mine production with the net result of 90% of our production from 2014 has been replaced with new reserves through infill drilling and updated mine plan. And if you actually, net out – backout the impact of the lower metal price, it would be a 100% replacement if we hold prices constant this year.
Another benefit of the bullion exchange rate is that the exchange rate we’ve used for this years’ reserves and resource estimates was 0.9, I think it’s far as around 0.8 today. But we used 0.9, last year it was about at the end of 2013 I think we were at 1.1 within your parity.
So that improvement, relative improvement to the foreign exchange rate has also helped offset changes to reserves and resources related to a lower metal price, we see that at Peak, we see that embedded New Afton and not shown on this slide, but I will mention it. We also see that at our Blackwater and Rainy River where our reserves at both of those projects really haven’t changed as a result of that that upside from the FX offsetting the impact of lower pricing assumptions.
Finally, at Cerro San Pedro, our change in reserves primarily due driven by mine depletion. And as well lower price assumption has caused our mines land to tighten up by drafting out about 4 million tonnes of lower grade marginal material.
So this slide is just a quick breakdown of where our reserves and resources sit and as you can see and I think as most of you know, the majority of our reserves are in Canada, in the U.S. and in Chile at El Morro with the balance at in Australia, and in Mexico all friendly jurisdictions.
Moving over to exploration. Our budget for 2015, our exploration budget breakdown this year $17 million all-in for the year about 55% of that is directed at mine side exploration, delineation and infill drilling at both Peak and at Mesquite, with the balance at Rainy River and at Blackwater.
In contrast to 2014, our budget was about $50 million last year. So we are working with a smaller tighter budget.
But we are going to continue to maintain focus on discipline growth in all our projects. In terms of what we have the – in terms of results for the last year, at Peak as I mentioned, we were very successful in replacing reserves again.
We think, we’re very confident actually, that 2015 will be a similar year, but similar amount of drilling, plan for 2015 as we had last year. Most of that underground drilling we have all of the underground development and access we need to do another year of reservers replacement, maybe even better than we are able to do in 2014.
In addition, we had nice exploration success from surface drilling, further north along our mine corridor at the historic Great Cobar mine, where our team delivered an 11 meter intercept that averaged 6.3% copper and 1.3 grams per tonne gold. We are actively working to step out on that and see what we can do to get as a growth, but that’s a very exciting result, because we don’t have - currently have any reserves at the Great Cobar, but it is a historic producer, produced up until the beginning of the World War II, and there is a resource up there.
So we continue to look forward to exploring that and see what develops going forward. At Blackwater, despite a bit of a challenging summer, there was a very large force buyer [ph] that shortened our field season a little bit, we were still quite successful.
And specifically, we focused our exploration in and around the Blackwater deposited area largely because we acquired a key piece of ground, actually called the key [Indiscernible] just south of Blackwater at the end of 2013, and this year we were able to get out an explore. And really quite exciting, because there is a system of mineralizing pour free that expose themselves, and we know now that they’re directly related to and they’re driving the Blackwater, gold-silver mineralization, that we see.
And to really underscore that point, our team delivered a 145 meter intercept, 0.14 percent moly and 0.19 percent copper. Now the name of our company is New Gold, of course, but that intercept is very significant for a couple of reasons, one, it’s within 2 kilometers of the main deposit and two, we defined with total certainty that the age of that pour free style mineralization is exactly the same age, as our Blackwater gold-silver system so, what we’re dealing with is a pour free epithermal environment that we are exploring in a very familiar territory, for me and my team a great place to be, to be exploring and I’m quite excited about what we’ve got looking forward to - for 2015.
Likewise at Rainy River we’ve pretty much completed all of the surface exploration that make sense to do right within the – made the central mine grade area. We drilled 62,000 meters part of that was to finish up condensation work that’s even been done to support.
Peter and his development team and likewise we did – we targeted some of the areas – within the known deposits to see if we could grow resources a bit. But we pretty much finished what make sense to do for now drilling from the surface.
So looking forward – we kind of where we are at the end of 2012 at Blackwater, looking forward we really stepping our exploration focus outward from being inwardly focused on the mine grid where there certainly will be more resources and more reserve development over the long-term, but we’ve got quite a large land position, they’re only now just beginning to get out and explore. And most recently we’ve recognized a perspective VMS – part of the stereography at the top of the section that hosts the non-resources, and that’s what our focus will be for 2015 as we get out and explore beyond the limits of the central mine development area.
And with that I will just pause for any questions. If there are any?
Unidentified Analyst
When you do your reserve estimate what do you consider the breakeven point at the mine site level or do you embed any sustaining capital or G&A opportunity in that?
Mark Petersen
Sustaining capital is embedded in the reserve site specific to the sites.
Unidentified Analyst
Any opportunity?
Mark Petersen
No
Unidentified Analyst
Okay, thank you.
John Bridges
And then if Mark may be on the Rainy River, may be you can us a sense of what radius you can look at around the Rainy River about that large land package. And what’s the reasonable radius to look at, and basically how much if you already looked at.
Mark Petersen
Good questions John. The reasonable radius is within a few kilometers.
We do have a large Claim Block to the use called off lake that just may be a little bit further out by kilometers, there are high grade visible gold showings out there. But our primary focus for the time being will be pretty much within one to three kilometers and primarily south of the immediate mine development area, in terms of how much has already been done bits and pieces, airborne surveys, some surface geochemical work.
A little bit of drilling, targeting anomalies, but nothing nearly is systematic as we would do or as we have done across our Blackwater property, so looking forward, I think that’s what expect we’ll be heading.
Robert Gallagher
Well, good morning everybody. My name is Bob Gallagher.
It’s good to be here with you again this year, I get the pleasure of presenting this slide which is really illustrates what we believe is a pure leading development project pipeline. These three organic growth initiatives have the potential to increase our production to over $800,000 ounces a year or some 75% increase from where we are today and it truly is our growth pipeline.
We’ve got the Rainy River project, which should start construction in a couple of weeks. Blackwater project, the feasibility study was completed earlier and has a production profile averaging $485,000 ounces per year and as well now well into the permitting process.
We expect to have that project in from a permit basis I think ready by the end of the year or early next year. And finally, our 30% interest in the huge El Morro project in Chile, where our partner and operator Goldcorp is currently optimizing the operating parameters.
With these project New Gold is investing longer life, larger scale and lower cost assets, where our average mine life will increase from 7 to 15 years, our annual production per asset will increase from $100,000 ounces to $400,000 ounces per year and our all-in sustaining cost will decrease from $765 a year up per ounce to $620. Beyond these current plans, all three have substantial and explored land positions in previously undeveloped regions.
Importantly, all three are located in politically favorable jurisdictions where we can control the timing on these projects development. Before getting into the details, where we are with our development plans for New Afton and Rainy River, let me briefly touch on Blackwater and El Morro.
Blackwater is of course located in British Columbia, where we know the landscapes and where we have developed great relationships with both the indigenous communities and non-average communities and the regulators. First two are development and the last and mostly recently the Blackwater project.
We are considered by both as a preferred developer. Most recently exciting is the impact on project economics of the devaluation of the Canadian dollar, which has lowered the capital cost from $1.8 billion to $1.4 billion, increased pre-tax NAV from $991 million to $1.4 billion and increased IRR from 11.3% to 16%, the payback period has been shortened from 6.2 or 4.5 years.
While, we continue to advance permitting to the ready to commence construction under the appropriate market conditions, as Mark indicated earlier, we have multiple newly identified exploration targets on our 1,100 square kilometer land package. El Morro where we are fully carried by our partner, Goldcorp is one of the highest rate undeveloped gold-copper potteries in the world today.
The project team is currently optimizing concepts from those invasions in the project feasibility study. Importantly, relationships with neighboring communities continue to improve with meaningful dialogue established and we’re looking forward to continue those relationships as we go forward.
Before I turn that podium over to Peter Marshall to discuss mill expansion project at New Afton and then I can take any general questions on pipeline, Peter?
Unidentified Analyst
[Question Inaudible]
Peter Marshall
It’s the same prices of $1,300 gold, $3 copper and silver of $16 and $125.
Unidentified Analyst
Thank you very much. Just a reminder, the pricing objective for the New Afton expansion was to increase throughput by 1,000 tonne today and increase recoveries by 2 percentage points to 3 percentage points?
Peter Marshall
On our capital management for the project we spent $20 million in 2014. And we anticipate spending another $20 million in 2015.
So we anticipate coming on just under budget of $45 million. Where we are in the project now all the equipment orders have placed, material orders have placed, all contracts are in position.
And we have AMEC is our EPCM consulting on the project. This is the same on to-date main building and also on our renewable project.
This kinetic shows the addition of a tertiary grinding mill that we’re putting in [Indiscernible] mill and the SFR, Staged Flotation Reactors. And I will see and that’s really where you get that extra cleaning from on the circuit.
Just on the project timelines, we’ve pretty well been spot on our timeline from the beginning of the project. And for 2015 now, we are focused on the Vertimill installation and the flotation cell installation which are underway right now.
We will be hitting the piping, electrical, instrumentation in March, April. Will now leaves us with commissioning in May and then a month for ramp up in June, seasonal project.
It just gives you an idea of schematic of the ore body, you can see where the main zone is with the traction of over 630 and the new zone that were put running, our decline to now the B3 zone is at 790. But what's exciting about this one is the development and I think the emergence of the C-zone really.
And you can see it there and I think to answer to your question Don, you had asked earlier as where is the real upside in C-zone and right now what we are focused on the upside will be expanding this laterally to the west. Just a brief review of where we’re buying those resources on this and kind of congratulations to Mark Petersen’s exploration team.
If you look at where we were at two years ago with this project, we’ve 3.3 million tonnes and 66,000 ounces identified and over the two-year exploration program and a very focused over on exploration program were up to 38 million tonnes in over 1 million ounces in M&I category. And I think if you check our grades in that one to there just slightly trending above our grades in the after C-zone as well.
So taking it from exploration to mining, once again back to your question Don, we are looking at a $21.5 million tonnes in the cave now, so in doing this we’ve got a great team of mining engineers at New Afton in terms of block caving and where they’ve come up with an optimum block for this one in optimum cave, 90 meters wide, 400 meters long, 350 meters high and especially that 350 meters high, if you look at what our upper cave is the main cave, that’s where we are using is that height to the columns area as well so that’s kind of our governing factor right now for how we’re trying to find the geometry to fit in there. So for initial study, where do we see our economics landing, we have a mine license five years, so an additional five years on.
In that five year period, we expect to do 522,000 ounces of gold and $377 million pounds of copper, average gold grades of 0.76 grams per tonne and 0.8% copper, and that’s including a 15% pollution [ph] factor. Note the capital of $350 million initial capital, and if you have a look at that chart down to the right, we regionally have that in and we want to emphasize it a large portion of that capital is for the 4 kilometer decline that’s running down to the C-zone and level development, now we are going to execute a lot of this work with our own equipment and all our own people, we’ve developed a great mining team at New Afton the underground team, so we are going to execute all that work ourselves, so we’re again – we’ll benchmark quite closely of existing cost and what we are doing right now.
Speaking of operating costs, we use $19.24 a tonne for our operating cost, which is about $2 a ton higher than what we are achieving right now at the operation and that allows for an increase in conveying distance, ventilation costs and pumping costs. Finally, the seasonal economics, if you look at our long-term price assumptions.
We have a project that’s a US$138 million after tax NPV, a 5% discount with a 13.5% IRR with three year payback. Opportunities, as I noted on that first diagram, the big opportunity to expand this ore body latterly to the west, and we plan a major or additional drilling in 2016 and just makes more sense to wait then and so we’ve got a decline down – lower down and we can get more economic drilling to extend that ore body at that time.
What we’re going to do in 2015, while we are doing that we’re going to move this up to a feasibility level study and to some major areas that we are going to focus on in 2015. One is test work to confirm the stabilization of tailings within the existing facility through a dewatering and consolidation program.
And we are going to do a fairly significant pad, probably spend about a $2 million program to develop a pad out to prove up that stabilization approach. Ongoing monitoring, modelling and analysis for mining subsidence impacts and we will still go back have another look at the – that the way we designed the cave now and see if we can take up some more those tonnes ounces there.
And I think getting to another question that was asked earlier – what is the timeline look like for this? We anticipate having our feasibility study done this time next year and approximately a year after that we should be in a position to start to decline down to the C-zone area.
That would lead us to first store conveyed in 2023 and achieve full production by 2024. That’s it.
Happy to see if any questions at this point? Absolutely.
Unidentified Analyst
Unit mining cost per tonne was that in Canadian or US dollars for 1924?
Robert Gallagher
That’s been U.S. dollars.
Unidentified Analyst
And could you just elaborate on what stabilization of tailings with the new existing facility in?
David Schummer
Absolutely, so there is an old tailings facility that fits just off of areas where we see subsidence coming now from the underground. So what we are going to do and is go in there with the dewatering program.
And it's pretty standard technology. So the idea is we put in with drains and a pumping system and a pre-loading system.
So it takes a few years for this to be completed, but it’s really just dewatering it down for a level where you don’t have to worry about stabilization of it so. Let’s say, you probably see it, if you are driving down the highway and you see people with these drain sitting out.
You see it as a typical civil application.
Unidentified Analyst
[Question Inaudible]
David Schummer
Yes, there is subsidence in – which is natural from a block cave because that’s what you are doing, if you are extracting that so. We have a very extensive program when we monitor and model and we used an external company called itasca.
It’s one of our major programs this year and it’s – we’ve been very successful on predicting the settlement from the models and what we are experiencing in the field.
Unidentified Analyst
So one of the things that you mentioned that – outlook in New Afton in 2015 is you expects recovery sustain line that what you saw in 2014. My understanding was that as part of the expansion there were some initiatives going on to keep recovery where they aware of move it up higher, possibly so when should we expect to see recoveries go up.
David Schummer
What we ran into it and I wouldn’t say ran into is. We probably see three things happening at the same time was, the mill carrying on some of their optimization programs and increase in throughput.
And at the same time what you are going to see is us bringing this project online midyear. So, I would imagine you will see benefits to those increased recoveries as we work away through this year.
Unidentified Analyst
The 2016
David Schummer
No, mid 2015.
Unidentified Analyst
Mid 2015
David Schummer
No we’ll be commissioned in have this project upfront in 2015 and then we’ll start to get the advantage of the additional grinding out of that treasury Vertimill and then we will have the SFR that to give us additional same capacity as well.
Unidentified Analyst
The other thing that you mention was that you expected processing costs, unit processing costs to go up full of completion of the expansion. Can you just talk a little bit about why you think that would be the case, no economies of scale?
David Schummer
When I was talking about the costs and if that’s the slide you referring to, I was talking about the underground mine cost for C-zone, so that – if that’s answering that question.
Unidentified Analyst
No, actually I was looking at your press release from last night.
David Schummer
Okay.
Unidentified Analyst
And it said, increase in processing cost per tonne upon completion of the mill expansion.
David Schummer
That’s a result of fine grinding refiner. So our unit energy input per tonne on rock is increase, so it raise the cost a little bit but what you get in return of course is higher recovery at the final rent.
Unidentified Analyst
It’s okay. Thanks
Operator
It’s great, when you have a CEO, Robert Gallagher just as well.
Robert Gallagher
Just a couple of questions, how much capital do you need to reinvest in New Afton annually going for. Brain/
A – BrianPenny
It's somewhere around $45 million a year on assist to any basis.
Robert Gallagher
Okay. It is the B3-zone developed there?
Brian Penny
We’ve just started the B3-zone, we’ve actually started ramping down, but that obviously is our focus over the next three years.
Robert Gallagher
And that’s included in the sustaining capital, correct?
Brian Penny
Yes
Robert Gallagher
Perfect. And sorry, one last question Brain, any movement on TCs, this year with the copper or especially in last year?
Brian Penny
We have contracts in place for all benchmark we have discussed for the contract so, benchmarks come out to be. But in dealing with half takers, TCRCs are interestingly I’ll focus on that.
But the QP pricing is much more interesting and that’s why you lead money on the table if you are not careful.
Robert Gallagher
Yes great thanks.
Peter Marshall
Okay. Well thank you all very much.
At this point I would like to introduce Paul Hosford, he is our project director and he will be walking in through the Rainy River development sites.
Paul Hosford
Thank you Peter. Well, good morning, it’s particularly exciting time to be talking about Rainy River here we’re in the [indiscernible] is actually starting construction as you all well know there’s a substantial gestation period of any project and we’re right on the top of there.
So this picture is particularly a good one, just give you a feel of the terrain and our Rainy River is flat, this particular picture showed you the core sheds that we’ve kind of constructed near one of the existing offices we actually have on the property. So we’re kind of blessed to have two pretty substantial offices before our operations and construction team just to start off with.
Rainy is also particularly advantaged in that we have very little external infrastructure required, so we have a 17 kilometer, 230 kb power lines tie into Ontario hydro to the north and east and we have a very support of local government and community. This is an area that’s really looking for development and we have had, we’re kind of inundated with local and regional people looking for jobs and opportunities.
Now for those of you as last year and I should remember some of your faces, this picture the layout of the map of Rainy River project site is pretty much as it was where we spend a lot of time and effort over this year, this past year has been on looking at developing the construction management plans in some details. We’ve done a further site investigation work, looking at borrowed [ph] sites in particular, sourcing of material which is of course a cost driver in any project.
But again, flat lane terrain maybe the 60, 40 to 50 meters elevation difference between the highest and lowest across the site and to give you an idea on this map, if we look east, west in terms of the main project sites about 8 kilometers and about 6 kilometers north, south. The key developments through this year and the significant milestones we’ve achieved.
While we have the Federal and Provincial EA improvements and this is a huge achievement for the project, this is the first new project in this new unified Canadian environmental system. We have key impact benefit agreements with the first with the key First Nations in place and working with them already on contract opportunities.
And we’re building a substantial operating team and we have the General Manager on board and he is building a next level of management team underneath him, and I just want to point out a grand thought on this sitting at the table here, a mining engineer from McQuill with 36 years of operating experience through operation, project, start up, and building operation team and a lot of experiencing working with First Nations in this county. He brings the lot to the project and building the team under him that will and building the operational readiness part of the project.
And also through this – through 2014 from when we were here last year at about this time to now we are about 70% engineered over that total project, I know there are more right now actually, but 70%. So the infrastructure portions and down onsite infrastructure like by taking down Rotterdam.
That what I am saying all the civil stuff is completely designed and the process plant is almost completely designed. The beauty of this is that through the engineering process the actual key quantities, the major quantities and cost drivers are all defined.
And so we spend a lot of time also with the construction management planning, how we are actually going to play materials in those areas. The methodology, the sequencing and also the – and where those materials come from, so the kind of the holding.
We also employed and commissioned a major civil contractor to come and do a contractual to do a study for us, looking to come through them, and to come up with our ideas on methodologies and they kind of came back and confirm that the way we are going to do it and how we are going to lay out roads and access these areas where the way they would do it and fit it with our cost. So the current timeline and as we’ve mentioned this timeline where we have commissioning and ramp up in Q2 2017.
And if we go through there, you can kind of see that where with the areas of the mobile equipment has already been ordered and will arrive on flight in about the second quarter of this year and then erecting in the third quarter and then we are starting the limited operations in some of the prescript in the fourth quarter of this year. And clearing and grubbing in the main peering of the main construction areas we will be starting very shortly and we say there in the second quarter that will be kind of complete leading onto the main construction activities.
This and new goals have a discretion on this schedule, we have retained also some flexibility to move portions up, if market conditions or the economic condition of such that we want to do that. So we will have that flexibility within both the contracting plan and the management.
So with the detailed work that we have done, especially on the detailed engineering, filling out quantities, be sure of those major quantities and in a construction planning. We’ve had just to summarize the major areas where we’ve seen changes from the feasibility study of January 2014.
Through further study looking at accommodations of temporary construction workers and we’re looking at a Peak work force of something like 450 something like that coming in. And a lot of the skilled workers not necessarily available in the community or regional area.
So within the essential study of that looking at what were the accommodation actual availabilities in the community and we decided that in terms of de-risking the project from a cost basis and execution basis that we would look at establishing a temporary accommodation facility for workers. Now we’ve been fortunate on this and at the third-party through one of the [Indiscernible] up to provide this facility.
We’ve also included escalation and this is the escalation during construction from the completeness of the – from fourth quarter 2014 through to second quarter 2017. And of course, escalation, estimation isn’t in exact clients [ph], but we work through our engineers and estimated and looked at commodity reports in terms of escalation.
So for example construction steel forecasted about 1% this coming year. Most of that steel will be ordered this year and partially evicted next year, and other key quantities like, cement, rebar, [indiscernible] pipe-work all-in that sort of order at the moment.
One area, where we do see and it is an labor escalation because that will tend to come down much more slowly, so we still carry around about a 3% escalation impact on labor, but we do think this is conservative and we are – what we see right now in purchasing some of the equipments for example, we see some of the escalation actually, in terms of actually purchasing equipments. Some additional costs that came with the construction planning work, mostly with detailed construction access, getting materials in building roads across to the main construction facility.
So there were some additional things there and then in those freights and some temporary facilities. So in the process plant itself, very modest changes, I mean the process plant hasn’t really changed at all months, there is bit of additional civil work maybe if anything.
And these pretty much are Canadian driven cost and so we kind of see that that basically offset by the exchange rate differential. So we stayed US$69 million last year, so the remaining budget of about $808.
A detail breakdown of the capital in a kind of a similar format as before, and we carry in the contingency line we carry escalation as well in that area. And sorry, so you probably if you look in detail there you in the comparisons, you’ll see the some of the civil works as where we’ve seen difference and in the temporary accommodation facility as well.
Program for 2015, as we mentioned before we have a budget of about $300 million U.S. to complete the work for this year, and the major element for that are getting to slight clearing work done, this is already being tended and is in the processing valuation right now, and with desire our plan to start that work within to the four weeks.
We’ve also got the major contracts out for the civil works, so that’s a major bulk work for the water management fund for the plant like itself and the mine rock fund starting those main facilities as well as the concrete in the steel. We also intend to develop as I mentioned the plant site itself.
We’re the main bench for the plant sites and all our facilities. And to complete the foundations, the concrete foundations for the grinding building and erect that grinding fill building in this year, the end of this year.
So that could be in closed with the main peers and the foundations in place. As well as brands and his team will be commissioning the first phase of the mining fleet are kind of a initial thought of fleet which will start the pretty modest pre-stripping this year and building up strength to support the construction needs in 2016 and 2017.
Paul Hosford
Thank you. Happy to take any questions at this stage or later.
Unidentified Analyst
So far there was a feasibility study done for Rainy River a year-ago. And then capital went up $77 million for that, so maybe you can give us, I guess, a bit of a flavor for what was missed in that feasibilities study.
You itemized, what it was, but there is a dynamic I guess we want to try to get some feel for what happened here that was missed in the feasibility study. And then in the press release, you talked about the all-in sustaining costs of $658 and if I remember from the press release, they were $736 ounce for the first nine years.
So that’s a significant decrease in the all-in sustaining costs, but as they gone through the same kind of meat grinder that the capital cost have gone through, so that is - we’ve seen the capital costs go up 9% are we has vulnerable to the all-in sustaining costs once we’re actually really look at them also going on.
Paul Hosford
Okay.
Brian Penny
I’ll take the all-in sustaining cost question.
Paul Hosford
Thank you, Brian.
Brian Penny
First of all, we’ve adjusted by the feasibility study was been in a high exchange rate it’s about a 15% difference. So the effects you see is the effects of the change in the exchange rate.
As far as change in fuel assumptions we felt that constant build in the feasibility study we had a $1.7 a leader, for diesel cost, right now its about $0.90, but we haven’t change yet, during the operating period, we’ve changed it during the construction period, because we think there is an opportunity for gold and fuel prices, as we’re building this, we reduced it to, to about $0.90, I think, spots rate now about $0.80. So I think the costs are conservative, we have adjusted by the exchange rate and I think we are in great shape now.
Paul Hosford
The other question?
Unidentified Analyst
[Question inaudible]
Paul Hosford
Yes.
Unidentified Analyst
[Question inaudible]
Paul Hosford
Okay, maybe do with the capital question please. So, two main drivers there, probably one was the worker accommodation, and we took another hard look at that, understood that was a potential risk to the project, especially in terms of execution, the timing, schedule, and cost and when you factored in other potential costs particularly and all we going to have some union work force there, and you pay travel time for that part of the team, and if that team is coming from Francis, I mean, if we get into own devices where they have come from, when you had that pretty substantial.
And particularly from the execution point of view in the schedules, so we kind of took the decision that this was a risk that could be medicated, yes, it’s a cost stood, but we truly believe that its an actually best interested of the project to have this accommodation facility within, I mean, it’s within four kilometers of the project sites that is right there. The other element may be part of the capital increase is in the civil works, and unfortunately, this is always one that is difficult to get it [Indiscernible], so I think that the feasibility team did an excellent job in developing that, and as I say the actual quantities around those main structures haven’t really changed at all.
So the designs have been refined taking into all the other permit requirements you’ve got there, but the actual quantities haven’t really changed and if it’s really being thinking through the methodology and there was an unit rate changes to, when we actually had our construct ore have a look at it. And we kind of really drilled into that to trying to understand what drove that.
Now we think there’s opportunity in all of this to because the market condition have changed now and we see civil contract is calling us, knocking on our door, looking for work and there’s a lot of spare equipments around us at the moment. So we think that, we’ve been conservative in that in putting those moneys in.
Unidentified Analyst
[Question Inaudible]
Paul Hosford
Yes.
Unidentified Analyst
[Question Inaudible]
Paul Hosford
Okay. I mean, it’s been a general update in operating cost in terms of labor, in terms of reagents, in terms of – all the main inputs into that.
And the net effect, I mean it’s within 4%, it was very modest. So in ups and downs, if you look at mining and processing and G&A, there are ups and downs in that, but if you look at that compared to say the number that was in the feasibility study last year.
It’s close.
Unidentified Analyst
How could you give us on the unit costs are assumed in feasibility study, just as a reminder and what – how you are getting to 620? That might be helpful on the operating cost side?
Paul Hosford
Yes. If I recall the feasibility last year had mining at 961, the unit cost of about 205, something like that Canadian per tonne.
But as Brian said that was a Canadian of 0.95, I think stated at that time and. Well, I am looking across I don’t know if I can actually say tell you that in but as I said in the aggregate it really is within 4% of where we were the full.
Brian Penny
So I think the best way to answer that question is as we build the teams they we bring people like we brought grant in as the user view the cost is recently comfortable as of in this nominal inflation that Paul is talked about. We have a new superintendent.
His review can building cost is comfortable with them. We have a maintenance superintendent on site they review the maintenance cost are comfortable with them.
So as we build the team, they are reviewing the feasibilities. I can’t remember the breakdown on the feasibility study.
We’ll get back to you on that if that’s okay. But generally, we are pretty comfortable that there is nothing in there that cause of us any concerned its reasonably cost.
Unidentified Analyst
Probably the main question sitting on most people’s mind now, are you going to pay for?
Brian Penny
I was waiting for that question. Looking at the date picture, over the next two and a half years, we’ve in a decent sell about 1 million ounces of gold.
At yesterday’s price as well 70. I’d know the deal what it is today because I shut my phone off, because I'm a good member of the panel.
And our own sustaining cost is going to average about 765 ounce that gives us the margin of about a $0.5 billion. We close you in 371 million in the bank.
And we’ll have to put some additional letters of credit on Rainy River, but based on the $300 million facilities. We have $200 million available for us.
So it gives us a total liquidity of $1.1 billion. Rainy River capital remaining as 800 million, which are talked about outside of your all in sustaining costs are two and half years of interest which we have the 100 debt, which is about $125 million.
We do have some months sustaining expenditures at Blackwater and C zone of a both $34 million over the two and a half year period. And then the only other item missing in this analysis is what taxes we are going to pay over the next few years.
What I can tell you is that we will not pay any significant taxes in Canada, because of all the shale through we have basically over the next three years we are going to take 2% of New Afton in the form of taxes and sure, we’ll show taxes on the income statement with there all different. So looking at the casual, it’s very insignificant.
[indiscernible] of 30% taxes, because there no books to tax differences. We will not pay another nickel of tax in Mexico.
We’ve actually got back about $10 million this year, as far as overpayments in the past in the Mexican government. So over the next few years the tax component is probably $10 million to $15 million that’s probably significant.
So with that we believe we have added the flexibility. Any of the discussion I had didn’t assume the accordion.
We do have the $50 million reporting on a credit facility. So we are comfortable that we have enough flexibility to build this thing and the timeline and with all we are discussing the company.
Yes, we’ve really excited about flat quarter with the weaker dollar, but at the same time, we got to get Rainy River builds and then we will focus on the next project after that.
Unidentified Analyst
So Brian, I just turn back to the question [indiscernible] as you put your cash cost issue all in is that 765 or 275 [indiscernible]. What is any sensitivity about 25% increase or decrease and what we are [indiscernible]is that in what about its in there, if you got just go to scenario in office about what happens to cash flow?
Brian Penny
$65 down for every $0.25 change in copper prices.
David Schummer
So if you would reduce that million ounces $65 million assuming that $0.25 drops the copper prices over the funding period.
Unidentified Analyst
Correct, correct. And the maybe something [indiscernible] so what - tell me what type, where is that see within portfolio.
And it is a stronger or weaker U.S. to Australian dollar to maintenance more plentiful or is it may if is getting why.
David Schummer
We are probably better than need to talking about the sentiment of Australia, but what we’ve seen is of course with the decline in the Australian dollars, the share prices we are talking about this earlier, really taking of an Australia the gold producers. There are many of them who would like to have the Peak Mine.
They would probably be good long-term of the Peak Mine was part of an Australian company, because it provide our employees with domestic opportunities if you will. And it just a matter of it dividends us money every year that we’ve owned it, because it generates cash and helps us.
We’re very happy with it. And I think the market shown in some of the actual in terms of the stability to replace with the takes out of the ground.
But it’s a the right thing for us to do from our shareholders perspective was to tell it to somebody else to provide some additional capital and additional question in terms of the development of Rainy River are to accelerate the development of Blackwater. We are going to do the right thing, because future of this company is increasing in Canada.
Unidentified Analyst
And then one more on that Blackwater, it’s surprise its unique assay came in at size and it’s in the jurisdiction in [indiscernible] on the straight probably the assets that was jurisdictions and with balance sheets that have, sorry cash. Is there any sort of deal, any sort of potential do the you guys say there over the next few years.
David Schummer
So it’s just deal with do what.
Unidentified Analyst
Deal with Blackwater. Would you open to selling that down always it’s still walk an organic growth project that you guys want to sort of after Rainy River build that for its right the next one to go.
David Schummer
Yes, our plan is to build Blackwater ourselves, but we have lots of options there. And you’ve seen this capital cost come down, the operating cost all in that $500 and something dollars ounce remarkably attract of asset with the ton of exploration potential.
So, yes, we have the option of a bringing in the partner. We have the option its the big producer of silver.
We can tell us silver stream. There is many ways that we could reduce the level of expenditure that New Gold cost to do or what we know was that as we get it permitted and advance the project, it becomes further derisk and therefore more attractive in terms of any deal of who were to do one with better up to and down the roads rather than sale.
Unidentified Analyst
Just couple of financial questions that’s follow up on some of those, on a corporate basis when you’re going to be constructing Rainy River, what you see is being minimum cash balance of insured suggestion liquidity.
David Schummer
As during the build are we managed to about a minimum cash balance of $100 million, so our plan over the next period of time, because money is generated by foreign such has to pay dividends. We’ve optimized that structure to improve the efficiency behind that.
So overtime I think we’ll be able to reduce that minimum cash balance comfortably without putting any additional risk on the company.
Unidentified Analyst
And then in terms of the net debt calculations, when you calculate this visit include the debt attributable to the El Morro asset.
David Schummer
No, the El Morro asset is red circled, doesn’t affect our net debt EBITDA ratios under credit facility and there no guarantees from the parent. So gold corp security is a pledge of the shares and existing.
Both the commercial launch production and generates cash flow, only that cash flow will ever service that debt. We still get 20% from the based first data commercial production.
Unidentified Analyst
Okay. And then in terms of, for the internal calculation at New Gold, what gold price is do you see the company being safe when building renewal or what point would it be – the timeline some degree evaluated.
We’re safe at $1,100 gold. Clearly, we develop a program and a protocol that every time we’re going to led a major contract out.
We are going to have a session; we’re going to look at our spot prices we’re going look for exchange rates or we’re not going to get ahead of results. We have are showing a significant cash balance at the end of this year and the project will be about 45% built at the end of this year.
We’re managing [indiscernible] money because it is our money, we’re all shareholders. And if it comes to the points, where metal prices falls with $1,000 or something and we have to consider its [indiscernible] things done.
We believe we got enough process and control to be able to make that decision before it’s too late, well before it’s too late.
Unidentified Analyst
From an M&A perspective in terms of acquisitions as a right thing that would be at interest of the company in terms of strategic acquisition in a market not specific things but is the company basically active or is that 100% data at this point.
David Schummer
We look at everything that happens out there and as we conclude, I’ll show you some slides on how we believe we can create the most value for New Gold that’s why basically building things like Rainy River, building things like Blackwater where we can get returns that are significantly higher than most of the M&A opportunities you see.
Unidentified Analyst
Good. Thank you.
David Schummer
I’ll turn it over to Randall.
Randall Oliphant
As far as the sensitivity copper - where again we provide an overall sensitivity about $76 million. So, we’re comfortable obviously if you look overtime gold and copper have an inverse relationship.
So, I don’t think we’re going to be situation where we see gold drop and copper drop over recent period of time. Probably on the copper side, because copper is 25% of our revenue; we have a whole bunch more flexibility on that side.
We’re probably good to $2 I’m guessing. As far as it’s an excellent question because as far as the – yes, that the good question for people on the webcast is would you consider hedging?
We do have a substantial U.S. dollar treasury right now, we’ve kept our treasury in U.S.
dollars and it turned out to be a very good decision. We would consider being that 80% of this is the expenditures of Rainy River denominated in the Canadian dollars that overtime, to move some of that in Canadian dollars, so we have a natural hedge for all my bankers in the room that they want to hear that because they love me to put calls and all the fun stuff.
We got a natural hedge that’s probably where we are going to go. We haven’t hedged any inputs.
We haven’t hedged fuel prices, the problem with fuel prices last time I looked at it and we buying on the West Texas price. But since everybody is familiar with WTI or use it as a discussion point.
One of that $48.00 or two year gold prices to $70.00 that’s a pretty steep contango to do anything above. The longer we stay at these prices, I am confident that flat of the curve will get.
But for now we will take advantage of the lower prices and manage it is best as we can. As far as hedging the commodity we are not going to hedge for.
That’s people don’t buy a stock because I think the price of gold is going down. But as far as the byproduct side, I think there is – personally I think there is more upside potential in copper than downsize risk right now.
And so I would and – it’s hard to sell anything meaningful forward and to market that’s into [indiscernible].
Robert Gallagher
Well, thanks Brian. You have been very patience, I just have a couple of slides I’d like to show you to wrap it up and then we will have time for more questions.
And then for those of you who can join us for some lunch. It’s interesting some of the questions that have been asked today about projects going ahead and being, when you have to defer things.
We’re sort of seen this movie before and as we reflect back on where we were five years ago we are producing about 300,000 ounces of gold then it’s 462 ounce and today we are producing a lot more gold than that at significantly lower costs than we were five years ago. Our reserves rate 0.2 million ounces and today it’s more than double that.
But on a per share basis that’s how we measure everything it’s up by 65%. New Afton was two and a half years from commercial production in today, Rainy River is two and a half years from commercial production.
New Afton we have slowed down during the credit crisis, and just as Brian described we are the ones who make the commitments to the capital and have control over the timing of when we spent money to develop our assets. It must have been a big deal or time when New Afton was slowed down during the credit crisis by I can’t remember whether it was six months or twelve months.
But we know where we are today in terms of its contribution to our company. We also heard stories about within our block caves would work whether enough the budget would be right all that sort of thing.
But what we have seen is quite delivering and the teams who built it and we are operating in today, we turned it from an asset that at that time had a value of $200 million to something worth of $1.5 billion today. The interesting thing to me is that we can still grow that $1.5 billion further with what we’ve got going on in this C-zone which wasn’t even on anybody’s radar stream.
I think the same thing is going on at Rainy River today. We are two and a half years away from generating cash, has a value of $300 million, but what we know is that NAV is higher than that and a lot of the money that’s been spent on it – was actually spent prior to us acquiring in.
So we believe that there is a great ability to create value here. Bob talked about the types of assets that we’re developing.
New Gold is increasingly moving to longer lived assets in our new projects have a life today of 15 years, but that assumes that we never find another ounce to any of them which of course hasn’t been the case that any of our operations – they’ve all extended lives well beyond what was on paper when they are brought into production. Our current mine is produced on average about a 100,000 ounces of gold, our projects are going to produce 400,000 ounces of gold.
Our all-in sustaining costs will go down as well because we will be facing out of – we have less waiting towards Cerro San Pedro and Peak ounces and more towards Rainy River and then after that Blackwater. Now I would say that our new assets have far more exploration potential than our current operating portfolio.
In terms of value creation and to address the M&I question, we thought of getting involved in some of the process that happened and most notably at a Cisco. And we say why do we took money that we are going to spend on Rainy River and bought a piece of Cisco and joined in the conversion for that.
When we look at the rates of return, the best rate of return that could see was building Rainy River. We believe that’s by spending this money that we can probably trade above $1 billion for value.
And if you triangulated back to this, this will transaction where a Canadian largest sold for both $3.5 billion, it’s Rainy River in terms of production, it’s about 60% of that and from a production perspective, but lower cost in my mind has far greater exploration potential. Maybe take 60% of the $3.5 billion you can note with something in the order of about $2 billion.
Similarly at Blackwater - the construction cost is now come down to about $1.5 billion, $1.6 billion, we’ll generate significantly more cash than Rainy River. We believe that we can create a lot of value there.
And again this doesn’t take into account going back to the analogy of New Afton where we found the season where we’re expanding the mill, being able to extend the life, we believe having the two newest gold districts in Canada, we will see significantly more gold production ultimately then we built into our feasibility studies. So putting in all together, we’ve got an exciting year ahead of us, it’s already after a good start with receiving the Federal environmental assessment approvals that provincial one at Rainy River.
We are looking forward to getting on with construction of this wonderful project that will really be a game changer for our company. The New Afton mill expansion, you’ve heard about that which will – will make us a better company.
Mark, you heard us enthusiasm for what do you think we can find at both Rainy River and at Blackwater and I’ll give you updates on that. We’ll bring up to speed on how we are doing with permitting the C-zone and also with Blackwater and the feasibility studies that we were put together for the C-zone.
But as we talk this from the beginning, this is all about value creation for our shareholders. And as we reflect back on the six years that New Gold have been in this current form, we look at the performance of gold, the performance of gold equities and the performance of our shares.
And the numbers striking is remarkably interesting. Our golds itself has been going up by about 5% a year over this period and the gold’s shares down by about 5% on a compounded rate New Gold stocks by about 15% a year for that 6 year period.
So it’s our responsibility to say, how do we continue to deliver that. And then I’ve confidence that the projects that we have talked about today the C-zone, Rainy River and Blackwater all generate about 15% rates of return based on what we know in today.
So by executing on these projects, we believe that we can continue the trend that we’ve established for our company. So we appreciate your time, I’m glad that we had a chance to expose more of our team to you, we think we got the right assets, we are very excited about them.
Team we got the right team of people to be able to execute in good decisions, we like being amongst the lowest cost producers in the world because enables us to make more money for each ounce that we produce. We think we’ve got a pure leading pipeline in terms of new projects and we believe that we’ve got a plan in place to continue to execute on our history of delivering for shareholders.
Is there any questions, did anybody would like to ask. If that’s will be in the room and you are welcome to come and talk to any member of our team and there is lot more New Gold people here as well for we have some specialized question about some other area.
But we sincerely appreciate you to taking time to be with us. We appreciate your questions, your interest in the company.
As I mentioned lunch is available and thank you very much.