Oct 26, 2017
Executives
Barry O'Shea - Vice President, Business Development Hannes Portmann - President and Chief Executive Officer Paula Myson - Chief Financial Officer Cory Atiyeh - Vice President of Operations
Analysts
Rahul Paul - Canaccord Genuity Mike Parkin - National Bank David Haughton - CIBC Capital Markets Don MacLean - Paradigm Capital Matthew Fields - Bank of America Anita Soni - Credit Suisse John Bridges - J. P.
Morgan Steve Butler - GMP Securities
Operator
Good morning. My name is Casey, and I will be your conference operator today.
At this time, I would like to welcome everyone to the New Gold Third Quarter 2017 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers’ remarks, there will be a question-and-answer session [Operator Instructions]. Thank you.
Barry O'Shea, Vice President, Business Development, you may begin your conference.
Barry O'Shea
Thank you, Operator, and good morning, everyone. We appreciate you joining us today for New Gold’s 2017 third quarter earnings results and conference call and webcast.
On the line today we have Hannes Portmann, President and CEO and Paula Myson, our CFO, Cory Atiyeh, our Vice President of Operations will also be available during the Q&A period at the end of the call. Should you wish to follow along with the webcast, please sign in from our homepage at newgold.com.
If you are participating in the webcast, you may type your questions online through the interface. Before the team begins the presentation, I would like to direct your attention to our cautionary language relating to forward-looking statements found on slide three of our presentation.
Today’s commentary includes forward-looking statements relating to New Gold. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in the presentation.
You are cautioned that actual results and future events could differ materially from those expressed or implied in forward-looking statements. Slide three provides additional information and should be reviewed.
We also refer you to the section entitled Risk Factors in New Gold’s latest MD&A and other filings available on SEDAR, which set out certain material factors that could cause actual results to differ. In addition, at the conclusion of the presentation, there are a number of end notes that provide important information and should be reviewed in conjunction with the material presented.
I will now turn the call over to Hannes. Hannes?
Hannes Portmann
Thanks Barry, good morning everyone and thank you for joining us today. To begin, I wanted to note the new image on the front cover of today's presentation where you can see a picture of one of Rainy River's gold pores.
It represents a proud moment for our Company, and I think everyone involved for their contribution in getting us to this key milestone. Slide four provides a few of the highlights from the quarter.
Higher production from Mesquite offset planned lower production at New Afton, Peak and Cerro San Pedro, which resulted in consolidated gold production of 82,000 ounces and 26 million pounds of copper. As indicated in our second quarter announcement, the third quarter was scheduled to be our lowest production quarter of the year before we turned into the fourth quarter, which is scheduled to be our strongest of the year.
Costs during the quarter were higher than 2016, largely due to a higher proportion of gold sales from Mesquite. Despite the increase, the Company generated a robust margin of $494 per ounce or 38%.
As a result of our strong year to date operating performance, we expect to achieve the midpoint of our gold production guidance of 380,000 to 430,000 ounces. And we expect to be at the high end of our previously lowered all-in sustaining cost guidance of $760 to $800 an ounce.
Paula will walk through our financial results in greater detail in a moment. But in summary, our strong operational results drove similarly solid financial results.
We finished the quarter with over $200 million in cash and recently further increased the Company's 2018 cash flow certainty with some copper option contracts. We are particularly pleased to announce that Rainy River achieved commercial production ahead of schedule.
Importantly, for the period October 1st to 24th, the processing rate averaged approximately 18,500 tons per day or 88% of the 21,000 ton per day nameplate capacity. Additionally, the Schedule II amendment was received ahead of schedule further derisking our operation.
Capital expenditures at Rainy River were $130 million during the quarter and the capital costs estimate remains in line with our January budget. Slide five provides a summary of our third quarter consolidated and mine by mine operating results.
Please note that as we are in the midst of the sales process, Peak has been classified as discontinued operations in the period and therefore, its costs are excluded from the gold operating expense measure. However, the all-in sustaining cost measure continues to include the Peak mine.
At New Afton, gold production decreased relative to the third quarter of 2016 due to a planned decrease in grade and recovery, partially offset by an increase in throughput. Copper production was higher than the prior year quarter due to higher throughput and copper grades.
Operating expenses decreased relative to the prior year quarter due to higher relative copper revenue compared to gold. All-in sustaining costs decreased in the quarter as the benefit of lower operating expenses and higher byproduct revenues was only partially offset by higher sustaining costs.
At Mesquite, gold production increased in the quarter due to higher ore tons mined in place, as well as an increase in the process solution flow on the heap leach pad, which resulted in a drawdown of leach pad inventory. As a result of the increased process solution and increased ore tons mined and processed, quarterly operating expenses increased, while Mesquite’s all-in sustaining cost decreased, primarily due to no waste stripping being capitalized in the period.
At Peak, gold production decreased relative to 2016 due to a decrease in gold grade. Copper production decrease due to an expected decrease in copper recoveries, as well as tons processed.
All-in sustaining costs increased during the quarter, primarily due to lower gold sales volume. As previously noted, Peak’s third quarter production and costs were impacted by lower grade.
For our plans, grade is projected to increase in the fourth quarter and Peak remains on track to meet both the full year production and cost guidance. As planned, Cerro San Pedro’s gold production decreased as the mine finished active mining late in the second quarter of 2016, and has since transitioned into residual leaching.
I would now like to turn the call over to Paula to discuss our third quarter financial performance. Paula?
Paula Myson
Thanks Hannes. Starting on slide six, our financial summary slide.
I’d like to provide some additional commentary on the key elements, driving the financial results. Revenues shown on a continuing operations basis, so excluding Peak, increased by $27 million or 24% during the quarter due to the higher metal sales volumes and higher copper prices.
Operating margins, also shown on continuing operations basis, increased by $11 million driven by the increase in revenue, which was only partially offset by the higher operating expenses. New Gold reported net earnings, shown on the total operations basis of $27 million or $0.05 per share.
This included a $31 million non-cash foreign exchange gain and the $7 million pre-tax loss on the revaluation of the Company’s gold price option contracts and copper forward. The Company reported adjusted net earnings of $4 million or $0.01 per share.
The decrease in earnings relative to 2016 was primarily due to an increase of $3 million in exploration, business development and corporate in general administrative expenses, as well as $5 million increase in adjusted income tax expense. During the quarter, we generated cash flow of $66 million from continuing operations or $0.11 per share, which represents a 22% increase from the prior year period.
Moving to slide seven. We provide an overview of our liquidity position.
In the quarter, we drew an additional $100 million on our credit facility. At the end of the quarter, we had $207 million in cash and $73 million remaining undrawn on our credit facility.
Combining these, we have $280 million in liquidity coupled with the cash flow that will be generated from our current operations. For perspective on cash flow generation, for the first nine months of the year, including Peak, our operations generated approximately $163 million in after-tax cash flow less sustaining capital.
Moving to slide eight. Here we outline the new copper option contracts that Hannes mentioned.
On October 18th, we executed an option based copper collar for the purpose of further increasing our cash flow certainty. The collar guarantees a minimum of $3 per pound and a maximum $3.37 per pound for approximately 60 million pounds of 2018 copper production.
And with that, I’ll turn the call back to Hannes.
Hannes Portmann
Thank you, Paula. Slide nine identifies the key objectives that we set at Rainy River back in January.
Of note, all of these key milestones that were set regarding mining rates, earthworks and processing plant commissioning, have either being completed on time or ahead of schedule. Though Rainy River’s development certainly came with some challenges, I'm very proud of the team of people that came together early this year in the face of those same challenges and delivered on the plans that we laid out.
Slide 10 provides more detail on some of the key achievements at Rainy River. Full commissioning of the processing facility was completed, and as planned, production started in mid-September with first gold port on October 6th.
We are particularly proud that commercial production was achieved in mid-October, approximately two weeks ahead of schedule. Over the first 30 days of operation, we successfully processed over 455,000 tons of ore.
Further, in the first 24 days of October, the processing rate averaged 18,500 tons per day or 88% of the nameplate capacity. Mining activities have also progressed well during the third quarter.
I'm pleased to report the mining rate averaged over 130,000 per day, which was in line with our updated plan and represents 13% increase compared to the average mining rate of 115,000 per day in the second quarter of 2017. The mining rates for October continues to track on plans and has enabled the mines to deliver the scheduled quantities of ore to the mill.
The construction of the water management ponds and tailings management area start-up sell was completed in the quarter. Approval for the design and construction of creek closures using sheet piling was also received in August and the schedule to amendment was received in September ahead of plan.
Achieving commercial production is a major milestone for New Gold and specifically the Rainy River team. With the hard work, dedication and commitment of our workforce and the strong support of our local communities and indigenous partners, we are now focused on continuing to successfully ramp up the operation through the balance of the year.
In closing, slide 11 highlights New Gold's investment thesis, which remains intact and directly supports our objective of long-term shareholder value creation. We are fortunate to have a portfolio that has three key characteristics.
Our assets are low cost, our assets are in great jurisdictions, and our assets provide us with growth opportunities. But combining these key characteristics with a focus on execution, we continue to be well positioned to create long-term shareholder value.
Thank you again for joining us today and for your continued support of New Gold. That concludes our presentation.
And now, we would be happy to answer your questions.
Operator
[Operator Instructions] And your first question comes from Rahul Paul from Canaccord Genuity. Your line is open.
Rahul Paul
With the mining rate where they are now, are you able to carry out the stock piling side of EBITDA envisioned in the original feasibility plan?
Cory Atiyeh
We are always with where the mining rates are at this point in time in the stock piles are in place to continue processing lower.
Rahul Paul
And then you've indicated that the mine is ramping up possibly even better than -- quicker than you planned originally 130,000 tons in Q3, 135,000 in October. And that, on an annualized basis, would be around 49 million tons per year.
The feasibility plan if I recall had you hitting 53 million tons in the first full-year, increasing to 68 million tons. Are you still comfortable you can continue to ramp up to hit those targets?
Cory Atiyeh
I'm comfortable with that. We continue to ramp-up mine operations.
And ultimately we’ll get to 150,000 to 160,000 tons a day.
Rahul Paul
And then last question, now that the Schedule II amendment is complete. Could you maybe talk us through the timelines to complete the larger tailing facility, i.e.
the different components and when you plan to get those done?
Hannes Portmann
So, as we noted through the various previous quarters, we have the starter cell, which is of course the one we are currently using now that we've begun processing ore and generating tailings. And that has capacity through April of next year.
We will then continue or we are continuing to construct the broader tailings, and that construction will be ongoing and put us in a position to transition from that starter cell to the next cell in spring of next year. But we will be constructing the tailing cell through the majority of next year and then of course over time we'll have to do additional lifts.
Rahul Paul
Actually, let me put it this way. So what was the critical part item be here in order to ensure that you stay on track, so you can switch over to the larger facility when you run out the smaller facility.
Assuming, you'd have to get it done by ideally sometime in April?
Hannes Portmann
Understood, and I apologize if my first response didn't answer your question. Really the only remaining item is the closure of the creeks using the sheet piling, so we anticipate having that done very early next year so in the January timeframe so well in advance of the April.
Operator
Your next question comes from the line of line of Mike Parkin with National Bank. Your line is open.
Mike Parkin
Couple of questions, following up on the rules. Could you just give us a sense of what you would expect your CapEx spend to be at Rainy for Q4, and I guess budgets having been finalized for 2018, but if you could even just give a general sense of where you see that trend for Q1 of next year?
Hannes Portmann
I mean, as we said, our budgets are in the midst of being reviewed and ultimately in the coming month or so finalized. So I can provide you directional guidance.
But obviously, with those not being yet completed can’t be too specific. In terms of Q4, you would have seen that part of our news release we did increase the projected all-in sustaining cost for Rainy for effectively November and December, being the two months of operating period.
And that was driven by a decision that we made to treat what's scheduled to be $11 million of spending on continued tailings construction in those two months that at the beginning of the year when we set our guidance, we classified as growth capital effectively to continue the completion of the ultimate tailings dam. But we felt that in the spirit of being a bit more conservative and now that the mine is operating to treat that as sustaining capital and that's what you see and we're taking $11 million over what is roughly 40ish thousand ounces, has a pretty big per ounce impact before we fully ramp up.
In terms of capital for next year we, as I mentioned, are going to continue constructing the broader tailings so relative to the life of mine run rate sustaining capital annually, we would expect next year, of course, to be higher as we do finish that tailings construction but in terms of the specific number, given the budgets aren’t finalized, I am not in a position to know that.
Mike Parkin
And then on the copper hedges, are they fairly equally weighted through 2018 per month?
Paula Myson
Yes, Mike, they are.
Mike Parkin
Any sense on the starting to throw on community and dollar hedges, are you fully exposed for 2018?
Paula Myson
We’re still in the budget process. So we’re looking at that might, but we’ll consider all of our options.
Mike Parkin
And then is there any major mill outages at Rainy scheduled for Q4?
Cory Atiyeh
This is Cory, Mike. There is small downtime schedule, but nothing major.
Mike Parkin
One question if I can. In terms of the material going to the tailing facility in Q4, would that be expense to kept on it that would get a sense of deep being capitalized coming out of the pit?
Hannes Portmann
No, Mike. We’ll be expensing that material.
Mike Parkin
Okay. So mining costs would probably look high in Q4 until that tailings dam is complete?
Hannes Portmann
Yes, that’s fair.
Operator
Your next question comes from the line of Dan Rollins with RBC Capital Markets. Your line is open.
Dan Rollins
I know Rahul asked about the mining rates on the ability to stockpile. But in the 2016 slide presentation, you did note that you’re looking at doing about 1.3 gram a ton in year one and then 1.5 from the open pit to the mill in year two.
Are you guys still comfortable with those numbers based on what you’ve seen to-date with the mining in the open pit?
Hannes Portmann
Dan, we do remain comfortable. Of course with the stockpiling strategy, it would be cognizant that some slightly lower grade may end up coming into the mill.
And of course then given the specificity of being able to do that cut off, maybe a slightly higher grade goes to the stockpile and we’ll keep as close an eye and that as we possibly we can. But certainly, the overarching theme of the higher grades in the early years is one that we remain very comfortable with.
And based on the reconciliation of the mine, it’s been a month. But the grades are reconciling bang on our plans through this commissioning period.
Dan Rollins
And then again mining cost around 220 a ton, I know you won’t be there yet right now. But are you guys still comfortable that once you get the pit at steady state, you get the contractors out of there that 220 CAD number is still a reasonable run rate to assume?
Hannes Portmann
Yes. Dan, we’re about 250, 260 U.S.
a ton right now, which is as you know burdened with some of those things like contractors still working through the last of the first layer of the [indiscernible] [20.46] and the Peak. But our objective is to continue to shave 10% to 15% off of that current number as we hit steady state and our productivity is up, and just continue to improve.
Dan Rollins
And then Cory just on the throughput of the mill. Obviously, it’s been a very quick start-up and congrats on getting that done as well as you have.
But are you still, what type of volatility you’re seeing on a daily basis right now. Are you still seeing fairly big swings, or are you now starting to be able to fine tune where you’re now going to be able to take that last push to go from, say 90% to 100% over the next one to two quarters?
Cory Atiyeh
Dan, this is Cory. Actually, over the past month in October, we've seen a pretty steady state of mills during the ramp-up push.
There has not been a lot of big swings.
Dan Rollins
Should you be able to get the 100 fairly soon, and I guess relative to some of the start-ups we've seen?
Cory Atiyeh
I expect we will, yes.
Dan Rollins
Perfect. And then just Paula could you just confirm is there any plans that continue to capitalize any interest expense post the November commercial start-up there at Rainy, or there’ll still be a little bit capitalized just given what you’re spending at the sea zone at New Afton?
Paula Myson
It's a very small amount, nothing significant.
Operator
Your next question comes from David Haughton with CIBC. Your line is open.
David Haughton
Just back to Rainy again, I know that you’ve been building a sizeable stockpile. What was the sizing grade could you say of the stockpile at the end of last quarter?
Hannes Portmann
Yes, David and I'll give you even more up to date number being through mid-October here. So in total, we have about 900,000 tons stock piled but two thirds of that is that low grade stockpile running at about 0.5 to 0.55 grams that's earmarked for processing at the end of the mine life in conjunction with the higher grade underground material.
And then the remaining 300,000 that’s stock piled and is intended to be processed some days where we’re more heavily focused on waste stripping has a grade of about 0.8 to 0.9, and that's intentional because that's the type of material we wanted to be mining and processing through the commissioning period and then of course putting in the better grade material once the mill was fully humming.
David Haughton
You had mentioned underground going forward. Where you are lagging in thinking that the underground?
I know you've just got the mill up and running? And now I am asking what next?
But what is your thinking about the start-up of the underground?
Hannes Portmann
It's your job doubts what's next, so don’t worry about it. So we continue to be looking at the underground development to begin the late 2018 early 2019.
And really that's informed by the fact that the underground development will take about two years and then it will take a few more years after that to get to the full 1,500 tons per day. And of course the grade of the open pit, while starting at an elevated grade, will begin to move down towards the one gram life of mine reverse grade.
So it's kind of tough tailing those two things to keep the overall head grade elevated at that roughly 1.3 to 1.4 level for the first 9 or 10 years of the mine.
David Haughton
So it looks like it's still staying on plan then?
Hannes Portmann
Yes, that's the intent.
David Haughton
Over to Peak, I know it's in the process of the sale, essentially time I guess with negotiations. But what's the level of interest in that asset?
Hannes Portmann
Yes, David, quite robust, I think Peak represents an interesting asset for a whole host of potential buyers because it has fairly the gold component, which is what new gold has been focused on primarily. But a lot of the exploration success that Mark Peterson and his team have been able to identify over the last two or three years, it's demonstrating quite healthy copper and lead and zinc rate.
So base metal type focused companies are also interested in it. And then finally, I think it's at the scale where some of the more, I'll say, private equity like mining outfits could take a look at it as well.
So we have had robust interest and the process has gone well so far, and we anticipate being in a position to announce something here later in the fourth quarter.
Operator
Your next question comes from Don MacLean with Paradigm Capital. Your line is open.
Don MacLean
Good morning guys and thanks for the update and well done on the Rainy River startup. Most of my questions were answered, but maybe we could get a little bit more color Cory or Hannes on the milling cost per ton and the G&A cost per ton.
How things are looking on that basis?
Hannes Portmann
Don, thank you. I would say that candidly it’s probably a little early days to have any real sense of the milling costs per ton relative to our plans, because we're 30ish or maybe 40 days into it.
But we continue to anticipate processing cost per ton to be in that $8 to $9 range, the G&A on a run rate basis to be in that $20 million a year range, so none of those numbers are causing us any concern. I just think that until we are steadily milling and getting a real look at what those are, then we can reconcile back.
But there's no reason to believe that we shouldn't hit those projections.
Don MacLean
Perfect, we all understand its early days, but that's helpful color. Thanks Hannes.
Operator
Your next question comes from the line of Matthew Fields with Bank of America. Your line is open.
Matthew Fields
Just wanted to ask couple of questions, I know it’s too early for any kind of 2018 guidance. But you want to try to think about your 2018 cash cost.
It seems like they have to be coming down for a few reasons; one, Rainy River costs will come down as production ramps up. Peak will be out of the mix.
And then you've got copper 3 to 3.37 now, which is much higher than 2017. Is it the right way to think about it or are there things going to be offsetting that move downward?
And then can you give us an order of magnitude that we should expect.
Hannes Portmann
Matthew, it’s Hannes. Again, we've for the last eight years, always provided our fulsome guidance in January early February of the year that we're guiding for.
So I'm reluctant to provide soft guidance when we are still in our budgetary process. I think qualitatively, you are in general terms, thinking about it the right way.
But of course, due to changing grades of all the different assets, et cetera, not really a everything isn't going to be the exact same as it was in 2017. And I mentioned the Rainy River sustaining capital associated with the continued tailings construction.
So on a cash cost basis, you're quite right. But then there is capital programs at the mines that impact the all-in sustaining costs.
Matthew Fields
And then thanks for the color on the Peak mines process. I just wanted to get a sense of how the bidders are potentially valuing the asset.
Is it like a five year life of mine plus some option value? Is it -- are they bidding basically on only the proven reserves or can you talk about the theoretical evaluation exercises that these guys are coming at you with?
Hannes Portmann
Matthew, I mean candidly, it might be a better question to ask to bidders. I don’t really ask them.
But methodology they’re using what we see is a mine that has an incredible track record of reserve replacement. And so, we would anticipate that part of the value is a reflection of that, as well as my comment earlier of the exploration potential and resources that were identified by our exploration team and the longer term potential of the mine.
But exactly what methodology they are using and how they’re getting there, I don’t know.
Matthew Fields
And then finally, you’ve got two tranches of high yield bonds. One of which is 300 and one 500, and the near-term tranche is callable basically now.
Have you thought about refinancing this into one longer data tranche, or that will trade much more liquid or do you like the staggered maturities? Can you give us a sense as to when you think you may address the 22’s?
Hannes Portmann
Matthew, it’s Hannes again. I mean that you factor absolutely correctly, it will become callable here in a couple of weeks.
We did refinance what had been the 2020 to 2025 and still to be took advantage of pretty robust high yield market. We have been stead fast in our commentary around our focus on going through a deleveraging process coming out of the Rainy River build here.
But we have no immediate plans on the 2022s. Having said that of course, Paula and my-self and the team will continue to assess the capital structure through 2018 as we move forward.
Operator
Your next question comes from Mike Parkin with National Bank. Your line is open.
Mike Parkin
Just a couple of follow-up question. With Rainy River, is there any sense in terms of the budget of putting together an exploration budget for that asset that’s something that was part of the story?
And you guys have been a bit quite on it rightly, so with the build out. But just wondering if you’re looking to get back to drilling off hopefully more announces?
Hannes Portmann
Mike, it’s an excellent question and we have been intentionally staying out of the construction guys and the mining guys away. And so as we look to 2018 and as our consolidated budgets come together, certainly Rainy’s longer term potential is something we do remain excited about and focused on.
So we’ll work with Mark Petersen and his team to identify where to spend a bit of money to unearth that longer term potential.
Mike Parkin
And then is there any thoughts -- it’s almost the early days. But ramp up seems to be going extremely well with both the mine and the mill.
If the mill were to prove to be also go beyond 21,000 tons per day. Would you, I guess, you guys would obviously look to keep that full rather than stockpile a low grade and just use low grade upfront?
Hannes Portmann
That’s right Mike. And again I want to be very clear to everybody on the phone.
We’re focused on getting the 21,000 tonnes a day steadily before starting to worry about the next thing. But to the extent that that opportunity arises, I think the nice thing is the mining rates and the mining plan, we actually have incremental or that is scheduled to be parked, but if we could just take it and take it to the mill.
So of course that would then bring down our overall grade, but it would avoid re-handle and basically spread your fixed cost base over a much bigger ounce denominator. So certainly, we would do that to the extent that the mill continues to perform and in fact outperformance nameplate.
But for now, let's just run -- walk before we run.
Operator
Your next question comes from Nick [indiscernible] from Stifel. Your line is open.
Unidentified Analyst
Good morning. Hannes, question for you on Blackwater.
Can you walk you through how you think about the time line there, are you getting the environmental assessment now? What do you see happening in 2018-2019?
When do you see the project being green lighted?
Hannes Portmann
Yes, sure. So yes, to confirm what you said, we do anticipate getting the environmental assessments in the first half of 2018.
At which point, we actually have a project that something could be done with, until then we’re just going to stay focused on that. What we are doing is looking at some different options with respect to Blackwater looking at is there a subset of the 8 million ounce reserve that could be incorporated into a mine plan that has a more material reduction, and for example, waste tons moved.
So your overall strip ratio is reduced, and therefore, your mining operating cost, life of mine, would be reduced. So that's one kind of aspect of a relook.
Of course if you do a subset of the 8 million ounces then you could also look at a smaller mill. So instead of 60,000, something less than that that then has a follow-on effect of less tailings to requirement.
So just finding ways to address what is a pretty significant capital cost as currently contemplated at 60,000 ton per day level. So can we do something on the capital cost side, but importantly also, take advantage of things on the operating cost side that have a 15 or 20 year impact and just make a more robust project.
From there, what's the other results of that, which we will have through the course of 2018 and first that will certainly be an internal level study. So we understand conceptually what the price might look like, but then we can carry that forward.
And then we need to assess whether it's something that New Gold, based on the capital can take on itself or whether a partner is the right way to go to de-risk the capital, sharing best practices in all of those things. But what we want to do that with the most robust project, we possibly can't.
Then of course you move to your technical drilling detailed engineering. So I would say Blackwater getting into heavy construction subject of course to there being a project with a robust return, is more late 2019 and 2020 type time frame, very roughly speaking.
Operator
Your next question comes from the line of Anita Soni with Credit Suisse. Your line is open.
Anita Soni
Just a quick question on the tailings facility build-out next year. Can you give me an idea in terms of tonnages or tons per day, or tons for the entire year, of how much tail in construction will have to do?
Hannes Portmann
Anita, we may have to get back to you on that question just in terms of the exact tons. I don't have that and I don't think Cory has that at his fingertips either.
Anita Soni
And I guess the question, the reason why I'm asking is, is that over and above the mining rates to feed the mill? Or is there some of the movement that the ways that you’re going to be moving is going to be dedicated towards going to the tailings?
Cory Atiyeh
Anita this is Cory. Most of the material going to the tailings facility will just be sourced from the pit, the pit waste…
Anita Soni
And then also just in terms of back to New Afton, I guess, that's not been asked about much. The reserves that you have there in the A&B zone right now, basically you’ve got four or five years of mine life at those zones.
When do you expect to really put your focus on getting C Zone developed and up and running?
Cory Atiyeh
Anita, as we put it together, our budgets of life of mine plans, that's one of the things we'll be looking closely at. And again with the seasonal new objective would be noted the right time frame that the C Zone has above five or six years left.
Of course, depending on the throughput, we decide to mine it at. We've been mining at for the more 15,000-16,000 tons per day.
So there's some flexibility on the rate at which we mine. But of course, what you would look to do is this is overly simplistic but the day you mine your last B zone ton, is the day your first, or the next day is the day your first C zone ton goes into the mill.
And the development between the decline and then the undercut, in total, would take about five to six years to develop the C zone, so second half of next year, if we were to start would be the timing.
Operator
[Operator Instructions] Your next question is from John Bridges with J. P.
Morgan. Your line is open.
John Bridges
Just a practical question, you're building the second tailings dam in the middle of winter. Obviously, you're mining winter but if you got to construct something that's got to hold up and hold water, are there any issues related to that?
Hannes Portmann
John, it’s Hannes. That is exactly why we moved forward with the engineering and ultimately the approval from the regulators of the sheet piling methodologies.
So this is a method to close those creeks or where their creeks -- intersect our tailings dam that is far less reliant on clay, and clay is to your question, a construction material that does give you challenges in the winter from a standpoint of compaction. So we've accounted for that is really the vast majority of the next tailing cell will be built here in the next month.
And then it's just the creek closures that we'll be doing in the December-January timeframe, which is using that sheet piling and therefore doable in the winter.
John Bridges
So if it’s particularly snowy or particularly cold then that could be an issue or anything we should be looking out for?
Hannes Portmann
No, we're fine with the sheet piling in any weather conditions.
Operator
Your next question comes from Steve Butler with GMP Securities. Your line is open.
Steve Butler
You may have addressed this Hannes, the remaining capital of 100 million for Rainy River. If the timing of that expense is largely Q4 but lingers into early next year as well?
Hannes Portmann
Steve, effectively, I mean we’ve been spending due to round numbers, about $50 million a month. So of course, the $100 million noted was as of the end of September.
So about $50 million will be in October. We will, from an accounting perspective, do their commercial production cut off at November 1st.
But really the remaining $50 million is in the form of just payables, and I mean we’ll pay those as we normally do. So most of that will be all cleaned up in calendar 2017, but whether $5 million or $10 million lingers into early ’18, I don’t know what to talk about payables.
Steve Butler
And next year completion, when we fully complete the tailings entitlement in its entirety?
Hannes Portmann
Around through mid-year to Q3.
Steve Butler
Okay, and…
Hannes Portmann
Remember, I mean, as I mentioned earlier, Steve, there are subsequent left in, and sometimes if you could that the full tailings entitlement will be completed years from now.
Operator
And there are no further questions in the queue at this time. I will turn the call back over to Hannes Portmann for closing remarks.
Hannes Portmann
Thank you, Casey. And to all of you who have joined us today, thank you, again.
As always, should you have any additional questions, please do not hesitate to reach any of us by phone or email. Have a great day.
Operator
And ladies and gentlemen, this concludes today’s conference call. You may now disconnect.