Apr 26, 2018
Executives
Hannes Portmann - President, Chief Executive Officer Paula Myson - Executive Vice President, Chief Financial Officer Cory Atiyeh - Vice President, Operations Ankit Shah - Director, Business Development
Analysts
Matthew MacPhail - Canaccord Genuity Anita Soni - Credit Suisse Mike Parkin - National Bank David Haughton - CIBC Don MacLean - Paradigm Capital Dan Rollins - RBC Capital Markets Steven Butler - GMP Securities Jacques Wortman - Eight Capital Frank Duplak - Prudential Matthew Fields - Bank of America Merrill Lynch Michael Temple - John Bridges - JP Morgan
Operator
Good morning ladies and gentlemen. My name is Julie and I will be your conference operator today.
At this time, I would like to welcome everyone to the New Gold Inc. First Quarter 2018 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.
If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key.
Thank you. I would now like to turn the call over to Ankit Shah, Director of Business Development.
Mr. Shah, you may begin.
Ankit Shah
Thank you, Julie, and good morning everyone. We appreciate you joining us today for New Gold’s 2018 first quarter earnings results conference call and webcast.
On the line today we have Hannes Portmann, President and CEO, and Paul 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 related to forward-looking statements found on Slide 3 of the presentation. Today’s commentary includes forward-looking statements relating to New Gold.
In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in the presentation. You are cautioned that actual results and future events could differ materially from those expressed or implied in forward-looking statements.
Slide 3 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 Portmann
Thanks Ankit. Good morning everybody and thanks for joining us.
Slide 4 provides a summary of the key operational and financial highlights from the quarter. Our first full quarter of production from Rainy River coupled with higher production from Mesquite resulted in consolidated gold production of 97,000 ounces.
In addition, copper production increased 8% to approximately 22 million pounds. Costs during the quarter were higher than 2017 due to planned higher operating expenses at Rainy River as the mine continues its ramp-up.
In the first quarter, we generated $50 million of cash flow or $0.09 a share, finishing the quarter with cash and cash equivalents of $191 million. Subsequent to the end of the first quarter, we completed the sale of Peak Mines which further strengthened our liquidity position by approximately $60 million.
Slide 5 provides a summary of our mine-by-mine operating results. At Rainy River, mining activity continued to progress on plan during the quarter with the operation mining a total of 3.3 million tons of ore.
The mine processed 1.6 million tons of ore at an average grade of 1.1 grams per ton with recoveries of 81%. This resulted in quarterly production of 39,000 ounces of gold with an incremental 5,000 ounces added to gold inventory in circuit at the quarter end.
Operating expenses and all-in sustaining costs during the quarter were higher than our guidance ranges primarily due to the first quarter being our lowest production volume quarter of the year. At New Afton, gold production remained consistent with the prior year quarter as a planned decrease in ore mined and processed was partially offset by an increase in gold recovery.
Copper production increased relative to the prior year quarter due to an increase in both grade and recovery. Operating expenses decreased relative to the prior year quarter due to higher relative copper revenues 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 and placed, and an increase in process solution flow on the heap leach pad which resulted in the accelerated draw-down of leach pad inventory.
Because of the increase in tons mined and processed and higher process solution flow on the leach pad, both operating expenses and all-in sustaining costs increased in the quarter. Slide 6 provides additional information on the continued ramp-up at Rainy River.
During the quarter, we encountered challenges with the process facility during its first months of operation that impacted both the availability and recoveries. Some of the items that impacted availability included plugged apron feeders, failure of the cyclone feed pump, and additional time required for replacement of SAG mill liners.
Recoveries during the quarter were lower than we had planned mainly due to these process interruptions, as well as the performance of our carbon screens. While these challenges were disappointing, the process facility did demonstrate its operational potential as throughputs rate averaged approximately 22,500 tons per operating day.
In early April, we replaced the carbon screens and we expect to see higher recoveries in the remaining three quarters of the year. Our focus in the second quarter remains on both increasing and stabilizing the process facilities’ availability as well as recoveries.
We are already starting to see some more positive momentum built. Both availability and recoveries have increased over the past few weeks.
Through April 23, gold recovery has increased to over 87%, resulting in month-to-date production of approximately 15,700 ounces. As previously disclosed, Rainy River’s 2018 production profile is expected to increase quarter over quarter as both gold grade and recoveries continue to increase.
In addition, during the quarter we engaged an external engineering firm and we are currently finalizing a study that evaluates the potential to increase Rainy River’s throughput to a steady 24,000 tons per day. Importantly, this potential 15% increase in throughput can be achieved with adjustments to the back end of the mill and for relatively minimal cost.
We plan to finalize the study this quarter and we will provide further details as part of our second quarter results. I would now like to turn the call over to Paula to discuss our financial performance.
Paula?
Paula Myson
Thank you, Hannes, and good morning everyone. We’ll start on Slide 7, our financial summary slide, and I’d like to provide a few additional comments on some key elements in the results.
Revenue shown on a continuing operations basis - that means it excludes Peak Mines, increased by $68 million or 55% during the quarter due to higher metal sales volumes and higher gold and copper prices. Operating margin, also shown on a continuing operations basis, increased by $14 million driven by the increase in revenue, which was only partially offset by higher operating expenses.
New Gold reported a loss from continuing operations of $29 million or $0.05 per share. This was primarily due to a $20 million non-cash foreign exchange loss which was partially offset by a $10 million pre-tax gain on the revaluation of the company’s copper price option contracts and Gold Stream obligation.
The company reported an adjusted loss from continuing operations of $16 million or $0.03 per share. The decrease in earnings relative to the prior year quarter was primarily due to a $22 million increase in depreciation and a $16 million increase in finance costs.
The changes in depreciation and financing costs were partially offset by the previously noted increase in operating margin. The change to the financing costs was primarily related to a change in our ability to capitalize interest.
Just a reminder, we ceased capitalization of interest to our qualifying development property, Rainy River, in November 2017 when we began commercial production there. Moving on, New Gold generated operating cash flow from continuing operations of $50 million.
The decrease relative to Q1 2017 was due to the prior year quarter, including the benefit of a $21 million outstanding concentrate receivable at New Afton and this quarter having higher working capital at Rainy associated with the increase in the stockpile inventory, which amounted to approximately $7.5 million, and supplies inventory of $5 million. On Slide 8, we give an overview of our liquidity position.
At the end of the quarter, we had $191 million in cash and $34 million undrawn on our credit facility. Combining these, we had $225 million in liquidity.
In addition to this, in early April we completed the sale of Peak Mines, which adds approximately $60 million in additional liquidity in Q2. That is in addition to the cash flow that will be generated from our current operations.
Of that $60 million increase in liquidity, approximately $45 million in net cash from sale after closing adjustments is enhanced by $15 million to $16 million in liquidity from the cancellation of the Peak Reclamation LC. With that, I’ll turn the call back to Hannes.
Hannes Portmann
Thank you, Paula. In closing, Slide 9 highlights New Gold’s investment thesis which we believe underpins our ability to generate long-term shareholder value.
We are fortunate to have a portfolio of assets that are primarily located in Canada, deliver us strong margins, and provide us with future growth opportunities. By combining these portfolio attributes with our focus on Rainy River’s successful ramp-up and the continued strong performance at New Afton and Mesquite, we are well positioned to deliver on our targeted per-share growth in production, EBITDA and free cash flow.
Thank you for joining us today and for your continued support of New Gold. That concludes our presentation, and now we would be happy to answer any of your questions.
Operator
[Operator instructions] Your first question comes from Matthew MacPhail with Canaccord Genuity. Matthew, your line is open.
Matthew MacPhail
Hi Hannes and Paula. A quick question on the stockpile at Rainy.
You mentioned you have a sizeable mid to high grade stockpile in front of the mill there. Do you have an idea of the grade, and is it segregated by midgrade and high grade or is it one large stockpile?
Would you be able to give us an idea of the grade of that stockpile?
Hannes Portmann
Yes, sure Matthew. I’ll walk you through sort of all the components - it’s Hannes speaking.
So starting with the low grade stockpile which is earmarked for processing at the end of the mine life, there we have 2 million tons of 0.5 gram material, so that’s the low grade. Then what we term the medium and high grade collectively is the 1.3 million tons which have a weighted average grade of about 0.9 grams per ton.
Splitting that out, which we do, to your question, it’s about 1.2 million tons of 0.7 grams, and then about 100,000 tons of 1.2 gram material.
Matthew MacPhail
Okay, great. That’s really helpful.
Another question that I had was overall mining rates, open pit mining rates were in the spotlight earlier in the year. I’m wondering if you could provide how the mining rate looked in Q1 of this year.
Did you benefit from the harder ground, the frozen ground?
Hannes Portmann
Yes, sure. In total, waste or overburden, some of the various outcrops we mine and sources for construction material, we moved about 11.5 million tons of total material in the quarter, which equates to a little under 130,000 tons per day on 100% basis, and then adjusting for equipment availability, etc.
it amounts to about 145,000 tons, factoring in sort of mid-80% equipment availability for trucks and shovels, which is right where we need to be. I guess I should have started with that - our tons moved is exactly on plan.
Matthew MacPhail
Great, that’s good to hear that it’s on plan. That’s good to hear.
Could you give any incremental updates on the tailings in [indiscernible] construction? I know with the sheet piling that was topical last year, has that all been completed on budget and on schedule?
Hannes Portmann
Yes it has, and we are still utilizing for the time being the very end of the first cell and transitioning to the second cell, which is the one that was closed off with the sheet piling. Then the broader full foundation, which is the focus of our construction activities through the spring, summer and into early fall, is scheduled to be completed in October of this year, so that’s the full outer cell.
That’s all on schedule.
Matthew MacPhail
That’s good to hear. All right, thanks.
That’s everything from me.
Hannes Portmann
Okay.
Operator
Your next question comes from Anita Soni with Credit Suisse. Anita, your line is open.
Anita Soni
Hi, it’s Anita. Good morning.
A couple of questions have been answered. Another question that I had was in terms of the grades that you’re delivering right now to the mill, I thought the expectation was somewhat higher, maybe in the 1.3 to 1.4 range.
Is there a reason why it’s down at the 1 gram per ton, the 1.08 in the last couple quarters?
Hannes Portmann
Yes Anita, it’s always been our expectation that for the year, we would be up in that 1.4 gram average range, but the progression of that grade profile was always scheduled to increase, so the 1.1 grams in the first quarter is in line with our plans, and as we move deeper into the pit, we get into the higher grade areas of the ore body, so that’s the nature of that sequence.
Anita Soni
So at one point this year, you should be somewhat--I’m just backing into these numbers and getting to, say, a 90% recovery rate and 21,000 ton per day, you would have to average about 1.26 for the year, so that would imply something around 1.6 at the end of the year, 1.7. Is that achievable?
Hannes Portmann
Yes, it is. We do have periods where we’re through the 1.5 range, per our plans.
I also think while your 21,000 tons is of course what we will have as a nameplate capacity, as you would have seen and as I mentioned during the call, we are looking at an opportunity to increase the throughput through some minor modifications at the back end of the mill, so we see scope to actually see higher tonnage in the second half of this year, which of course then would allow for the grade to be slightly lower, and still achieve those targeted daily production rates.
Anita Soni
Yes. I mean, the 21 I was using was an average for the year - you’ve started the year at 17.5 right now, so presumably higher would have to mitigate that.
Hannes Portmann
Yes.
Anita Soni
Secondly, can you just explain what’s--you know, I’m doing these numbers and I would have gotten to, say, 44,000 tons of recovered material, but it was 40,000, just simply using the grade that you reported, the tonnage and the recovery rate. Is there something else going on that I’m missing in this equation?
Hannes Portmann
Yes Anita, you’re exactly right, and as I mentioned on the call, there was 5,000 ounces of incremental gold in circuit. The way we report produced is actually gold poured, whereas--and I don’t know what every other company does, but taking tons times grade times recovery does get you to 44,000 ounces, but by the end of March we had poured 39,000 ounces, so that is what we report as production.
But there is that incremental 5,000 ounces that would have been in circuit inventory.
Anita Soni
So then how you calculate your recovery rate?
Cory Atiyeh
Anita, this is Cory. Basically, recovery is calculated after we reconcile everything in the mill at the end of the month.
We know how much carbon is in the system, we know how much gold is on the carbon, we know how much gold is in the EW cells, and basically what you pour and the difference between the cumulative amount of all of those calculations is what you have left in circuit inventory, and obviously that number goes back upstream to--go ahead?
Anita Soni
One last question and then I’ll get back in the queue. Just on the unit costs, do you have an idea what the unit costs are achieving at this point?
That guidance is not given, so I’m just trying to back into your actual cash cost number for the quarter.
Hannes Portmann
Sure, Anita. On a mining cost per ton basis for the quarter, we averaged $3.30.
That was certainly higher than where we expect to be going forward, and embedded in that $3.30 in March, which I’d say is a more representative number, we’re at about $2.70 a ton, which I think is more reflective of where we’re headed going forward. Processing cost was $13 a ton - again, a little higher due to some of the areas that we are addressing that were noted in the news release and on the call, and of course also influenced by the lower than expected tons processed.
Anita Soni
Okay, and G&A?
Hannes Portmann
G&A, give me one moment.
Anita Soni
And also, is that Canadian or U.S. dollars?
Hannes Portmann
U.S. dollars.
The G&A was $9 million.
Anita Soni
U.S. dollars, right?
Hannes Portmann
Yes.
Anita Soni
Okay. Thank you very much.
Operator
Your next question comes from Mike Parkin with National Bank. Mike, your line is open.
Mike Parkin
Hi guys. Just following up on a couple of those questions, can you give us a sense of how the processing costs have changed for the month of March as well?
Hannes Portmann
Yes, we can. Give me a moment, Mike.
Mike, they were actually a bit higher than the $13 in March because we did have planned downtime in March that of course impacted the denominator, so we were closer to $15 a ton in March, but very much denominator driven.
Mike Parkin
Okay. Could you give us a sense of either a range to expect for the mill grade for the next few quarters?
You’ve indicated it would be going up, but is there any color you could kind of expand on that?
Hannes Portmann
Sure, Mike. We would expect right around--well, a range, 1.35 to 1.45 grams in the second quarter.
It’s a bit higher than that in the third quarter, and then more like that again in the fourth quarter.
Mike Parkin
In your guidance for Rainy, there is obviously a range in the production. Does the upper end assume a milling rate beyond 21,000 tons per day?
Hannes Portmann
Yes, certainly with the slower than planned start to the year, to get up to that high end of the range, we would have to see the milling rate really improve. I would say we’re more looking towards the mid to lower end of the range for Rainy, based on the slightly slower than planned start to the year.
Mike Parkin
Okay. With the SAG mill liners, I was kind of surprised to see those are getting replaced.
Was there any premature failure, or is there any kind of design profile that you’re looking to implement with the new ones?
Cory Atiyeh
Mike, this is Cory. The replacement of the SAG mill liners was planned.
It was replaced as scheduled. It just took us longer to replace the liners than what we had estimated.
Mike Parkin
Okay. All right.
Just maybe an update, I know you’ve mentioned previously in past discussions we’ve had with you the spring thaw was going pretty good with kind of freezing overnight, thawing during the day. Has there been any change to that, or has it been fairly good in terms of the water inflow into the pit?
It looks like you don’t have much water by the picture in the presentation.
Cory Atiyeh
Mike, this is Cory again. The thaw has actually been beneficial for us.
It’s been fairly slow and steady. We’ve had some warmer temperatures in the last couple weeks, but we don’t have near the water that’s gathered in a short period of time as we did last year.
Mike Parkin
Okay. All right, that’s it for me.
Thanks guys.
Hannes Portmann
Thanks Mike.
Operator
Your next question comes from David Haughton with CIBC. David, your line is open.
David Haughton
Good morning, Hannes and team. Thank you for the update.
You’re sticking with your full-year guidance of 525,000 to 595,000 ounces for the year. It looks like Rainy will struggle to get to 300,000 ounces.
Did you think about pulling back your guidance for the year, given the start that we’ve seen?
Hannes Portmann
Yes David, as I mentioned, I think we acknowledged that Rainy is off to a slower than planned start due to some of the downtime challenges we’ve had, but we still see scope to getting Rainy to, as I mentioned, the sort of low end to, if things go well, the midpoint of its guidance. Then I think we have to remember we have other assets, and I think New Afton sees scope to move towards the high end of its guidance, and Mesquite the same, so the consolidated picture still leaves us in a place where we’re very confident that we’ll be in that guidance range.
David Haughton
One of the challenges of relying on New Afton, which is a really solid performer, is that if you start pushing the tonnage, then you start shortening the life, which means that your preparation for Zone C has got to be accelerated, and that’s not really where you’re at, at the moment though, is it?
Hannes Portmann
Yes David, while your point is accurate, it’s not pushing tonnage that we’re looking to do. What we’ve had at New Afton is actually more success with some ore segregation activities that we had implemented, that is enabling us to bring higher grade to the mill than planned.
So we’re not mining the cave any faster, we’re just getting better grade to the mill.
David Haughton
Okay. Just jumping back to Rainy, it does look for you to hit the kind of targets of getting anywhere near 300,000 ounces, you really would have to get that expansion up to 24,000 tons a day underway.
If you got all the green lights, when could you see the plant operating at that kind of throughput level?
Hannes Portmann
David, it would be in the early Q3 timeframe, so July-ish. What you’ll see is--I mean, for example, we’ve changed out a number of our chemex [ph] screens, which has been what has driven the step change in recoveries here through the first two-thirds of April, so there are things we can begin to implement as we move through the coming months.
This isn’t you do one thing and all of a sudden you pop up 15%, so what we’ll endeavor to do is migrate towards that higher rate by making adjustments to the back end of the mill, and of course it’s not a capital intensive endeavor so we can just chip away at it as we move through. But I think as we head into Q3, we see scope to be operating at that higher rate.
David Haughton
Given the stats that you’ve given on the mill unit costs, it sounds like there’s a very high fixed cost component to it, so that as you have the higher throughput, you’d expect for that $13 per ton to come down quite dramatically, I would expect.
Hannes Portmann
Yes, that’s exactly right. It’s highly fixed costs.
Once we get these challenges in our rear view mirror, obviously that impacts the numerator positively but it’s really the denominator that we’re focused on, and we continue to see a path to getting our process costs under $10 a ton, which is our longer term target.
David Haughton
Thinking about that fixed cost component, and this will be my last question, would you say that it would be--what sort of percentage of the unit cost do you think it would be? Would it be like a third of what we’re seeing, given the numbers that you’ve provided us, as fixed costs, or a higher proportion?
Hannes Portmann
I would say more, David, in the 70% range.
David Haughton
All right, thank you, Hannes.
Hannes Portmann
Thank you.
Operator
Your next question comes from Don MacLean with Paradigm Capital. Don, your line is open.
Don MacLean
Morning, gang. Just a few foundation questions that tie into some of the other questions that have been asked.
Can you talk a bit about the grade reconciliation, Hanes, how that’s coming along both in terms of the grade and the tons compared to the reserve model?
Hannes Portmann
Yes, sure, and I’ll let Cory add his thoughts, too. So far, so good.
I mean, we planned on, as I said, having Q1 grades to the mill of the 1.1, so the model is hanging together. As I say to anybody that asks, it’s something we monitor very closely and we acknowledge that we’re five or six months into mining this ore body, so it’s something that we’ll certainly keep a close eye on.
I think, Cory, you can maybe add that we’ve seen actually a bit of positive ore waste reconciliation, so maybe touch on that.
Cory Atiyeh
Yes Hannes, thanks. We have seen an increase in the amount of ore tons encountered at the top of the ore body.
It’s in the lower grade, lower grade sections, but overall the model has performed very well. Again, it’s like we’ve said previously - we’re still pretty much early days in this ore body too, and we expect, as Hannes said, the grade to increase as we get deeper, but so far no big surprises.
Don MacLean
Okay, great. That’s important.
I guess the second thing is the gold solubility in the cyanide, is that recovery fundamental as predicted at the specified grind? Are you getting the kind of solubility ore that you were expecting to see, or is that a part of the issue with the lower recovery?
Cory Atiyeh
No, the lower recovery, I’m not overly concerned. Obviously we want higher recovery, but I think what’s happened with the upsets in the circuit going up and down, and then the issues that we’ve had with some of the screens on the back end, along with some carbon handling issues, are what’s impacting that.
We are getting the grind size, and what we see in the test work indicates that the 90%-plus recovery is achievable. We actually saw that when we first started the mill in November and December.
Don MacLean
Great. On that, the grinding characteristics of the ore, is the hardness and the abrasiveness, are they looking as they were?
Mike, I think it was, pointed out how quickly the linings had to be replaced in the SAG.
Cory Atiyeh
Well again, that was a planned change out of the liners, but the hardness and abrasiveness of the ore, we haven’t really seen a lot of difference between what was estimated.
Don MacLean
Okay, good. Then just lastly on the coarse gold side of it, how is that recovery coming along?
That can be elusive.
Cory Atiyeh
Well, right now on the gravity circuit, it’s performing well at this point in time. The way the plant was designed and built, though, it’s difficult for us to sample exactly what’s coming off the gravity circuit, so we are in the process of getting some systems set up to be able to tell us how much gold we’re pulling off the gravity circuit.
But all indications are it’s working fine.
Don MacLean
Okay, great. Last question, with all the issues in the quarter, how is the sustaining capital budget for 2018 hanging in?
Paula Myson
Hi Don, it’s Paula. We’re looking at a lower sustaining capital for 2018 than we would have anticipated, probably about $30 million to $40 million, and it’s a combination of deferrals and eliminations.
Hannes Portmann
As well, Don, what we’ve seen is some of that in the order of $25 million of it would be a re-class from capitalized waste stripping to opex as a function of, as Cory mentioned, seeing some more admittedly low grade ore, but that was previously modeled as waste, so of course that precludes us from capitalizing it. That’s just a movement in cash.
Paula Myson
Yes, it’s a re-class.
Don MacLean
Right, but in terms of if we look at this is how much--was it $195 million was planned to be spent for sustaining capital this year, how much of a true savings do you think you could have?
Paula Myson
Twenty million range would be expected.
Don MacLean
Considering the challenge in the first quarter, that’s impressive. Good going.
Okay, thank you everyone.
Paula Myson
Thanks Don.
Hannes Portmann
Thanks Don.
Operator
Your next question comes from Dan Rollins with RBC Capital Markets. Dan, your line is open.
Dan Rollins
Yes, thanks very much. Just on that last point, Paula, I was wondering if you can confirm, just noted that there’s about $30 million to $40 million lower sustaining capital; of that, $25 million is a re-class of capitalized waste to opex, but then you noted there’s another $20 million or so of savings?
Paula Myson
No, there is $20 million in savings from the 195 number net, so the other 25 is just a re-class. So it’s the 20 plus the 20.
Dan Rollins
Is that savings deferral--is that $20 million being deferred to 2019?
Paula Myson
Yes. The majority of it, yes.
Dan Rollins
Okay, and that’s why--because I think on the Q4 conference call, Hannes, I think you had mentioned that around 40% of the sustaining capital for the year was going to be driven in Q1. Company-wide, it looks like you’re about 25% of that.
I assume that’s where some of the savings are coming?
Hannes Portmann
Yes.
Paula Myson
Yes.
Dan Rollins
Okay, perfect. Then maybe Cory, I don’t want to harp on the recovery issue, but I know obviously you had some issues with the grade so you’re probably recycling some carbon that was loaded back into the circuit; but I am surprised, given the lower throughput in the front end of the plant, that push from the front end would not be as aggressive in the back end, so you’d actually have higher retention time, so I’m surprised the recovery has really dropped down to 81%.
Is there something else that needs to be done in the back end of the plant to get to that 90% recovery level, beyond just the screens?
Cory Atiyeh
It’s more about a lot of carbon and solution handling in the back end. For instance, it takes us much longer to transfer carbon from tanks to elution than what was estimated, and that knocks down retention time a little bit.
As Hannes mentioned, we replaced some screens in the carbon leach tanks which actually wore a little bit faster than what we had planned, and so we lost some carbon. It’s kind of a multitude of issues in the back end of the mill that are all either have been addressed or are in the process of being addressed.
Like we pointed out, even with the screen changes, we went from low 80s right up to 87 in April, so I don’t really see this as a long-term issue that can’t be addressed.
Dan Rollins
So is it a pumping issue between the tanks? You just sort of need to put in wider diameter piping or just get more power into the system, or--?
Cory Atiyeh
No, it’s more of a screening issue. As you transfer carbon, all of this stuff has to go through screens to get rid of the trash and stuff like that, and that process has been notably much more time consuming that what we had planned.
Dan Rollins
Okay. Obviously you’ve provided the grades, you’ve mentioned that you’re confident to get to that low end of guidance at Rainy River.
I’m just wondering, what we have seen with many of these ramp-ups is expectations are usually, let’s call them very robust out of the gate. Many companies, many engineers see themselves being able to get 100% throughput in two, three quarters.
Our work says that’s a tough gain - it’s usually 10 to 12 quarters to hit steady state. Where are you in finding more bottlenecks?
Usually when you get through some of these challenges, you re-start up, things go well, and then you find another bottleneck. Through April, have you run into any additional bottlenecks that need to be addressed, or do you think you’re pretty well smooth sailing from here on?
Cory Atiyeh
This is Cory again. I think we’ve pretty much identified--you know, if you look at the front of the mill from a crushing and milling standpoint, we have plenty of capacity remaining.
In fact, we haven’t utilized the pebble crusher at this point in time since we started, and getting the grind size out of the mill, so that doesn’t appear to be a bottleneck whatsoever at this point. It’s more on the back end of the mill, which is carbon handling and solution handling, stripping, and within this study that we noted, for very minimal capital we can actually upgrade those systems.
Dan Rollins
Okay, so my last question, the 24,000 ton a day expansion, do you need any additional tanks at the back end or is it really just the components within the back end that need to be sort of upsized or changed out?
Cory Atiyeh
Yes, it’s just the components within the carbon and the solution handling system. The only thing that is towards the end of the system which may require an additional tank for minimal cost would be the cyanide destruct, but right now it looks like we have the capacity in that system to go to the 24.
Dan Rollins
Great. Thanks very much, and good luck on the ramp-up guys.
Hannes Portmann
Thanks Dan.
Operator
Your next question comes from Steven Butler with GMP Securities. Steven, your line is open.
Steven Butler
Thanks, Operator. You’ve largely addressed, guys, but just a question, Hannes, for you guys, or Cory.
The 22,500 tons per operating day, is that a measurement of the quarterly throughput on an operating day basis, just of course adjusted for lower availability than you would have liked, down around the 80% level, is that correct?
Hannes Portmann
Yes, that’s exactly right, Steve. That’s a reflection of when our mill runs for 24 hours a day, or a series of 24-hour days, that’s what it’s capable of, or was capable of in Q1, and I think for some of the things that Cory has already mentioned, we see scope to get that number better.
But of course, it’s the number of 24-hour days that we want to see increased and is the core focus of stabilizing and increasing that availability.
Steven Butler
Sure. So Hannes, in the first 23 days of April here, really live numbers which we appreciate, was it a benefit from a bit better grade, or was the tons per operating day a much better number in the first 23 days this month?
Hannes Portmann
Well, the most acute change, Steve, was of course the recovery, going from Q1 average of 81 to 23-day average of 87, so that was key. We are beginning to see some higher grades come through, particularly in the last week.
We’ve seen numerous days of 1.4, 1.5 gram material, and the throughput again is moving up. We did have a planned downtime earlier in the month, so that would of course impact our tons processed through the first 23 days, but I’ll say it’s bits of everything but most dramatically is the step-up in recovery.
Steven Butler
Great. Hannes, was the availability factor in your 21,000 ton per day original target in the range of 90 to 93%?
Is that about right?
Hannes Portmann
Yes, about 90%.
Steven Butler
Okay. Thanks very much, guys.
Operator
Your next question comes from Jacques Wortman with Eight Capital. Jacques, your line is open.
Jacques Wortman
Thanks Operator. Good morning.
Maybe a question for Paula. Can you speak to your maximum leverage ratio on your revolving credit facility, which approached the new limit of 3.5 to 1 at the end of March?
Can this be relaxed again to 4 to 1 if it’s required, and what would be involved to secure that?
Paula Myson
Okay, so actually the leverage ratio that we had to meet at March 31 was 4 to 1. It now goes down to 3.5 to 1 going forward.
The wording is a little hard to discern, but that’s the limit that we reach. If we had received the Peak proceeds, which we anticipated in Q1, we would have been at 3.1 to 1, which was where we left 2017.
But given what we’re anticipating in terms of Rainy’s performance and the cost profiles going forward, we do believe that the ratio will continue to go down this year, and we’re still looking at it being around the 2, 2.5 times by the end of the year. I don’t want to give a--you know, it will be a range in there, but we don’t anticipate the 3.5 to 1 to being a problem, so we don’t anticipate having to change that at all.
Jacques Wortman
Okay, thanks very much.
Paula Myson
You’re welcome.
Operator
Your next question comes from Frank Duplak with Prudential. Frank, your line is open.
Frank Duplak
Yes, just a couple of questions. Have you guys used the Peak proceeds now to pay down the revolver by a like amount, or what’s the plan there?
Paula Myson
Hi, it’s Paula. We actually used those proceeds to reduce the revolver just on Monday, so that’s what the use of funds has been.
Frank Duplak
And how much did you reduce the revolver by?
Paula Myson
Fifty million dollars, approximately.
Frank Duplak
Then again, I don’t know that I saw anywhere that you’ve reaffirmed your capex guidance, but we talked about a $20 million reduction in the sustaining at Rainy River net and then we had this growth to 24,000 tons, so if we try to guess how big that is, is that incremental $20 million in timing now become the cost of the growth to 24,000 tons? Can you help us, give some guidelines as to how much capital that could be?
Hannes Portmann
Yes Frank, it’s Hannes. As we said, we’ll provide the details of the study, which is still in the process of being completed, but we anticipate that capital being less than $5 million in getting that expansion completed.
Frank Duplak
Okay, so thinking that capex could be more like a 265 number this year, is that a reasonable guess, or are you guys still sticking with the 280?
Hannes Portmann
Yes, in terms of total capex, yes, something in the 260, 265 range is probably the right place to look.
Frank Duplak
Okay. Last one, can you give us any idea what could happen to sustaining capex at Rainy River as we got into ’19, or what would be the longer term target there?
Hannes Portmann
Frank, we’ve sort of provided this reconciliation previously, but taking our budgeted sustaining capital guidance of $195 million, which again just for clarity included about $50 million of capitalized waste stripping, so I’ll say the ex-capitalized waste stripping starting point is about $150 million, again largely attributable to the continued tailings construction of that broader foundation that we’ve talked about, and what you should see is a step-down next year towards 100 and then a further step-down the year after at Rainy towards about 50. That’s about the run rate annual sustaining capital, is in the 40 to 50 range, and the balance of the assets are fairly stable with New Afton being about $40 million a year sustaining capital and Peak maybe about 15--sorry, not Peak, Mesquite.
Frank Duplak
So we think roughly 100-ish for ’19 and 50-ish for ’20, would it be that sort of pace?
Hannes Portmann
At Rainy River, yes.
Frank Duplak
At Rainy River - okay, great. Thanks for your help, guys, I appreciate it.
Hannes Portmann
Thank you, Frank.
Operator
Your next question comes from Matthew Fields with Bank of America Merrill Lynch. Matthew, your line is open.
Matthew Fields
Hey everyone. I just want to ask about extra liquidity sort of freed up from Peak.
In the MD&A, it said there were $16.3 million of LCs associated with Peak. Are we to assume that those go away with the sale and you free up another $16 million on your revolver, or is the amount less than that?
Paula Myson
No, that’s correct. The total liquidity event from the Peak sale is around $60 million - 45 is the net cash, which is the cash proceeds less any working capital adjustments and some tax paid, and 15 to 16 is from the cancellation of the Peak LC, so the net liquidity event is around $60 million.
Matthew Fields
Okay, great. That’s very helpful.
Thank you.
Paula Myson
You’re welcome.
Operator
Your next question comes from Michael Temple. Michael, your line is open.
Michael Temple
Good morning. Two quick questions.
Given the confidence that you have in the leverage rate going lower, can you speak to [indiscernible] your hedging plans going forward? Do you feel you’re in a good enough state that you don’t need or want to place any hedges during this transition period?
Hannes Portmann
Michael, your line was breaking up a bit, so I’ll answer the question I thought I heard you ask around given the confidence in the cash flow and EBITDA growth and the resulting decline in leverage ratio, do we anticipate or plan to do any further hedging.
Michael Temple
Correct.
Hannes Portmann
We did put in place a collar on 75% of our targeted 2018 copper production, so 60 million of the 80 million pounds, so we have a floor price of $3 a pound with upside to $3.37. We have not done any hedging on the gold side and do not have any plans to, and then the last area we do have significant exposure on the cost side is of course the Canadian dollar, and there we are evaluating potentially looking at some rolling hedges to lock in the Canadian dollar at between $1.25 and $1.30.
As a reminder, our guidance was set based on $1.25, so we have not done anything yet but it’s something we’re considering.
Michael Temple
All right, then one more quick follow-up. Obviously Rainy River is the elephant in the room, and I can appreciate that; but can you give us an update or any progress, thoughts on Blackwater and where that stands at this point in time?
Hannes Portmann
Yes, sure. We are doing desktop work to look at a reconfiguration of Blackwater.
As you may recall, we did do a feasibility study back in 2013 which contemplated a 60,000 ton per day bulk tonnage open pit whole ore leach processing facility, so we’re taking those, I’ll call them raw materials and seeing if we can’t reconfigure a mine plan that maybe mines a subset of the 8 million ounce reserve, but that more materially reduces the amount of waste moved so a more compelling strip ratio Also looking at some technological inclusions, so things like ore sorting and just getting the best grade to the mill, smaller mill footprint, smaller tailings footprint. So basically, can we de-risk this project while enhancing the project economics, so that work is ongoing.
It’s being led by our VP of Projects and we’ll see in the back half of this year where that takes us.
Michael Temple
Thank you very much.
Operator
Your next question comes from Anita Soni with Credit Suisse. Anita, your line is open.
Anita Soni
Hi, so I have three quick questions. First, the grade profile over the course of the year, I missed that.
Can you answer that one? Then the strip ratio change given the reclassification that you had from sustaining to opex, is there any change there as a result?
Then also, the third one was the stockpile levels, a breakout from high grade to low grade at year-end, so I just want to track what happened over the course of the quarter.
Hannes Portmann
Sure, Anita. In terms of grade, again I’ll provide some high level ranges.
Q2 we would expect somewhere in the range of 1.35 to 1.45 grams; Q3, a range higher than that and more in the range of 1.5 to 1.6, and then Q4 more like Q2. In terms of the strip ratio, that is not a number we have right in front of us, but it’s something we can follow up with, so we’ll get you that; but of course, it’s been positively impacted at the risk of stating the obvious.
Then finally in terms of the stockpiles at the end of 2017, we had about 1.7 million tons total in stockpile, but we will have to again follow up with you to get you the breakdown of what was in the low grade versus the medium and high grade. But effectively, we ended the quarter with 3.4 million tons total in all stockpiles.
We mined 3.3 million tons in the quarter, processed 1.6, so by definition we’ve added 1.7 million tons to the stockpile, so it’s doubled but I don’t know exactly which buckets it’s all fallen into.
Anita Soni
Sure. Maybe I’m thinking about this wrong, but when you said the strip ratio would be positively impacted, I guess overall what’s being mined would not really have changed, I just would have thought that the strip ratio on the opex side would have gone up because you’re now classifying stuff that you were capitalizing as actual waste--sorry, as actual ore, so I would have thought--okay, never mind.
Don’t worry about, thanks. I just solved it.
Hannes Portmann
Okay, thanks Anita.
Anita Soni
Yes, I worked my way through it. Thanks.
Operator
As a reminder, if you would like to ask a question, please press star, one on your telephone keypad. Your next question comes from Don MacLean with Paradigm Capital.
Don, your line is open.
Don MacLean
Thanks. Just two quick follow-ups.
I’ll just confirm, that $20 million savings you were talking about, really actually it’s a deferral to next year?
Paula Myson
That’s correct, Don.
Don MacLean
Okay. Yes, sustaining is like clay - it’s pretty hard to shake off.
Paula Myson
That’s true.
Don MacLean
Then the second one was, Cory, just to confirm this 15% increase in throughput, does it have any impact on recovery?
Cory Atiyeh
No, we don’t anticipate anything, Don. Like we said, we’re hitting the grind size and from the test work we’re doing, we don’t really see that that’s going to have an impact on recovery at all.
In fact, I think getting the circuit stabilized at 21, 24,000 tons a day will actually help settle down the recovery.
Don MacLean
Great, okay. Very good, thank you.
Operator
Your next question comes from John Bridges with JP Morgan. John, your line is open.
John Bridges
Hi, morning Hannes and everybody. You mentioned ore segregation at New Afton improving the grade, and then you mentioned ore sorting as well.
Was the New Afton ore sorting situation--you know, what are your hopes for that technology and where do you want to apply it? Thank you.
Hannes Portmann
Sure John, I’ll let Cory answer that question.
Cory Atiyeh
Actually at New Afton, we’ve installed an ore sorter on the belt, which has helped us delineate the higher grade ores. Right now, we’re manually sorting that off the belt with start and stop mechanisms.
We are installing a plow in May that will give us some more automation over the system, which should increase its efficiency even more so. We’re looking at taking that technology to Rainy if possible, and then also some development projects like Blackwater.
Overall, we’ve been very successful with it at New Afton.
John Bridges
Okay. When you said plow, sorry, what do you mean?
Cory Atiyeh
It’s just a mechanism to help us automatically take waste stream off the belt.
John Bridges
How are you separating it then, by size?
Cory Atiyeh
No, we’re separating with a scanner.
John Bridges
Okay, so it’s one of these x-ray things?
Cory Atiyeh
Yes.
John Bridges
Okay, cool. Very interested to see progress on that one.
Thank you.
Hannes Portmann
Thanks John.
Operator
Your next question comes from Dan Rollins with RBC Capital Markets. Dan, your line is open.
Dan Rollins
Yes, thanks. I was actually going to ask about the ore sorting at New Afton.
So just to confirm, are you segregating higher grades from lower grades, or are you segregating higher grades and waste at New Afton?
Cory Atiyeh
Both, actually. You know, with what comes up the belt, we’re taking the highest grade portion to the mill, and then there’s a mid-grade portion that goes to stockpile.
Then if there is waste in that stream from dilution or wherever, it actually gets kicked off into the waste pile.
Dan Rollins
Okay, but you won’t have a lot of waste for the low grades?
Cory Atiyeh
No. It’s not.
Dan Rollins
Okay, and then was 2018 guidance assuming this technology, but you basically [indiscernible] a third of guidance, the top end of guidance at New Afton in Q1, so I’m assuming that this is an additional that should help pick up New Afton for the rest of the year?
Cory Atiyeh
Well at New Afton, New Afton’s original budget and guidance was based on the use of this technology; however, we’ve been a little bit more successful with it than how we planned.
Dan Rollins
Okay, perfect. Thanks for the color.
Appreciate it.
Hannes Portmann
Thanks Dan.
Operator
We have now reached the end of our question and answer session. I will now turn the call back over to Hannes Portmann for closing remarks.
Hannes Portmann
Thanks Operator, and thanks to all of you for all the good questions. We appreciate you joining us, and if you do have any additional questions, as always please don’t hesitate to reach out to any one of us by either phone or email.
Wishing you a good day, thank you.
Operator
This concludes today’s conference call. You may now disconnect.