Jul 26, 2018
Executives
Ray Threlkeld - President, Chief Executive Officer Paula Myson - Chief Financial Officer Cory Atiyeh - EVP of Operations Ankit Shah - Director of Corporate Development
Analysts
Rahul Paul - CanaccordGenuity David Haughton - CIBC Anita Soni - Credit Suisse Don MacLean - Paradigm Mike Parkin - National Bank Dan Rollins - RBC Capital Markets Steven Butler - GMP Securities Wayne Lam - RBC Capital Markets
Operator
Good morning. My name is Jamie and I will be your conference operator today.
At this time I would like to welcome everyone to the New Gold Inc., Second Quarter Results Conference Call. (Operator Instructions).
Thank you. Ankit Shah, Director of Corporate Development, you may begin your conference.
Ankit Shah
Thank you, Jamie and good morning everyone. We appreciate you joining us today for New Gold’s 2018 second quarter earnings results conference call and webcast.
On the line today we have Ray Threlkeld, President and CEO; Paula Myson, CFO; and Cory Atiyeh, EVP of Operations. Should you wish to follow-on the webcast, please sign in from our homepage at www.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 three 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 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 Ray.
Ray Threlkeld
Thank you Ankit and good morning everyone and thank you for joining us today. Slide four provides a summary of the key operational and financial highlights from the quarter.
Our second quarter of start-up production from Rainy River enabled the company to produce consolidated gold production of 109,000 ounces of gold and copper production of approximately 20 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 second quarter we generated $66 million of cash flow or $0.11 per share, finishing the quarter with cash and cash equivalents of $167 million. As a result of our start-up challenges experience at Rainy River over the last six months, we have lowered Rainy River’s 2018 outlook.
During the second quarter we completed an updated Rainy River life-of-mine plan and will be releasing the technical report in early August. As a result of completing the updated life-of-mine plan and lowering Rainy Rivers 2018 outlook, we reported an impairment charge of $282 million at Rainy River.
Paula will provide additional details on our financial results in a few moments. Slide five provides a summary of our mine-by-mine operating results.
At Rainy River, mining activity continued to progress during the quarter with the operation mining a total of 3.3 million tonnes of ore. 1.5 million tonnes of ore was processed at an average grade of 1.24 grams per tonne with recoveries of 87%.
This resulted in quarterly production of 55,000 ounces. Operating results and all in sustaining costs during the quarter were higher than our guidance ranges, primarily due to the lower than planned second quarter production.
At New Afton, gold production decreased compared to the prior year quarter as planned decrease in mill throughput and gold grade was partially offset by an increase in gold recovery. Copper production was also lower relative to the prior year quarter due to a planned decrease in mill throughput, partially offset by an increase in copper 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 due to higher by-product revenues and lower sustaining costs.
Based on our first half performance, we are on track to meet the full year guidance at New Afton. At Mesquite, gold production decreased in the quarter due to a planned decrease in ore tonnes mined and placed.
Both operating expenses and all in sustaining costs increased in the quarter due to an increase in process solution flow on the leach pad and lower gold sales volumes. We are on track to meet full year guidance at Mesquite, as tonnes placed on the pad are currently on plan.
Slide six provides additional information on the ramp up at Rainy River. During the quarter the process facility continued to improve, however operational and mechanical challenges consistent with start-ups impacted availability.
We completed a detailed review of the various issues encountered during the quarter and we have begun to implement design improvements to further reduce equipment wear and increase operational stability. Earlier in the quarter we replaced the carbon streams and have seen a steady improvement with recoveries of 87% during the quarter.
We expect to see an increase in recovery during the second half of the year. The crushing and grinding circuit is robust and operating consistently.
Process facility continues to demonstrate its operational potential with throughput rates achieving over 24,000 tonnes per day. As previously discussed we engaged in an external engineering firm to evaluate the potential to increase Rainy Rivers throughput to a steady state of 24,000 tonnes per day.
We are now implementing this plan, which involves adjustment to the recovery section of the process plant for a relatively minimal cost. Expansion to 24,000 tonnes per day is now expected to be completed by the beginning of the fourth quarter.
Slide seven provides an update on our 2018 outlook. As previously discussed, due primarily to the variability in Rainy Rivers process facilities start-up performance during the first six months of the year, we are lowering the 2018 production guidance for Rainy River.
Rainy River is now expected to produce between 210,000 to 250,000 ounces of gold. As a result, consolidated gold production for 2018 is expected to be between 415,000 to 480,000 ounces of gold.
Annual copper production remains in line with our original guidance of 75 million to 85 million pounds. Costs are also expected to increase as a result of lower gold sales volumes and higher sustaining capital.
Now, I would like to turn the call over to Paula to discuss our financial performance. Paula?
Paula Myson
Thanks Ray and good morning everyone. We’ll start on slide eight for the financial summary and I’ll just provide a few additional comments on some of the key elements in the financial results.
So revenues are shown on a continuing operations basis, which to remind you, that excludes our Peak Mine which we sold last year and revenues increased by $52 million or 36% during the quarter. That was mainly due to the higher gold sales volume, higher gold and copper prices.
Higher gold sales were largely attributable to the contribution from Rainy River in 2018 versus 2017. The operating margin also shown on a continuing operations basis increased by $17 million, driven by the increase in revenue, which was only partially offset by some higher operating expenses.
We reported a loss from continuing operations of $302 million or $0.52 cents per share. That was after an impairment charge of $282 million relating to Rainy River and after finance cost of $18 million and $8 million in a pre-tax foreign exchange loss.
I want to expand a bit on the impairment charge. In accordance with our accounting policies and IFRS, we look at internal and external indicators of impairment on assets every reporting period.
And as Ray mentioned, in July we completed an updated at Rainy River life-of-mine plan and will be filing a technical report by the first week of August. That new life-of-mine plan contains changes to the sequencing of production and updated per unit cost.
So the change to the life-of-mine plan and the increase in the cost estimate, both at Rainy River constitute what we consider indicators of impairment. We have more detail on the methodology and the assumptions in the impermanent analysis in the MD&A if you want to delve into those details, but for the period ended June 30 we recorded an impairment loss net of tax of $282 million.
So our adjusted loss from continuing operations was $2 million or nil on a cents per share basis. The decrease in earnings relative to the prior year quarter was primarily due to a $24 million increase in depreciation and a $17 million increase in finance costs.
These were partially offset by the previously noted $17 million increase in operating margin and a $4 million decrease in exploration business development and G&A expenses, in addition to a $9 million increase in income tax recovery. The change in finance costs I mentioned is more appropriately described as a recategorization.
It relates to a change in capitalized interest relative to the prior year period. Just a reminder, we ceased capitalizing interest to our qualifying development property, which was Rainy River in November of 2017, when we began commercial production.
So basically the interest charge that was on our balance sheet at 2017 instead now flows through the income statement going forward. New Gold generated operating cash flow from continuing operations of $66 million or $0.11 per share.
The increase relative to the prior year quarter was due to the increase in operating margin (inaudible) and an income tax refund, partially offset by the increase in stockpile inventory at Rainy River. Now we’ll move to slide nine, which is our liquidity position.
I just want to explain a few events during the quarter that had an impact. We ended the quarter with $167 million of cash and $103 million undrawn on our credit facility for a total liquidity at $270 million.
In addition to the impact of our normal business operations, there were a few related but non-recurring events in the quarter that had an impact on our liquidity. So during the quarter we receive the remaining $55 million in proceeds from the Peak sale, and as a reminder, we sold Peak for $58 million.
We received a $3 million deposit last year and the remaining $55 million was paid in April. So in addition to the receipt of the final proceeds, we were able to release letters of credit that were associated with Peak’s Reclamation obligations; those amounted to $15 million.
So that resulted in increase in availability under our credit facility. And finally, with the proceeds from the Peak sale we reduced the outstanding amount on our credit facility by $50 million.
So with that, I’ll turn the call back to Ray.
Ray Threlkeld
Thank you, Paula. As most of you know, I took the role of President and CEO almost three months ago.
During this time I spent a great deal of time with our management team and at our sites, and I can tell you that I’m impressed with the commitment and dedication to New Gold that I find at all of our locations. Also, we have welcomed three new members to our board and the entire board has shown a great deal of support and involvement in the company over the last quarter.
During this time our team has worked very hard to develop a new Rainy River license mine plan and required us to revise our guidance assumptions for 2018. We are committed to achieving the revised outlook and remain focused on the operational execution.
Thank you again for joining us today and for your continued support in New Gold. This concludes our presentation and now we will be happy to answer your questions.
Operator
(Operator Instructions) Your first question comes from Rahul Paul from CanaccordGenuity. Your line is open.
Rahul Paul
Hello everyone! You indicated the increase in all in sustaining costs at Rainy to $1,016 (ph) and onto the first nine years from the 875 providers at the beginning of the year, that’s a big change.
What were the key drivers and what I’m wondering is what changed in the last six months or so?
Ray Threlkeld
Hi Rahul. This is Ray.
I’ll partially answer that and I’ll give it over to Paul for some of the details. Most of that is related to tailings.
We had some carryover from 2017 in to 2018 on construction costs in the Tailings Dam. We also had a large amount of – we had almost $100 million of sustaining capital that actually moved from development capital into sustaining for this year as we are in operation and it’s all related to finishing the Tailings Dam.
We expect to see some of that follow-through through the next year and a half where we have another list of tailings to do and complete the entire facility. Do you have any more?
Paula Myson
Yeah, there was a – on the OpEx side there was also some increases in terms of the mining costs and the processing costs in particular in some of the inputs that we were seeing. It was a combination of some price increases that we were seeing in same price (inaudible) and our consumption rates are changing.
We’ve noticed over the past six months what our real consumption rates were rather than theoretical, so we’ve adjusted those accordingly. Those have all flowed through and had an impact.
Rahul Paul
Okay, thanks and then if I could, one more question. You also spoke about the planned increase in throughput to 24,000 tonnes a day from 21,000.
Why would you not wait to get to 21,000 sustainably before going ahead with the expansion to 24,000?
Cory Atiyeh
Thanks to all. This is Cory Atiyeh.
Yeah, it’s a good question. That’s pretty much where we are at right now, trying to gain stability in the mill.
We’ve run fairly well when we’ve operated, but we’ve had a lot of process interruptions with various items taking us down. So the planned increase to 24,000 is going forward, but we also need to make sure we get some stability in order to achieve that.
If you look at the – in July we’ve operated every day in July and the last 10 days were over almost 23,000 tonnes per day at about 94% availability, so we’re making progress. It’s just been a long a long trip.
Rahul Paul
Fair enough. Thanks there.
And then it looks like you’d go from 24,000 to 25,500 in a couple of years down the line. Does that require any addition in capital or is that all reflected in your all in sustaining cost?
Cory Atiyeh
There’s a little bit of extra capital in there. I believe we’ve got about $20 million associated with that increase, life-of-mine.
Rahul Paul
Okay, thanks. That’s all that I had.
Operator
Your next question comes from David Haughton with CIBC. Your line is open.
David Haughton
Good morning Ray and team. Thank you for the update.
So what I can here is that you’ve got the issues through the mill. It’s interesting to see though that your mining rates are still pretty decent, so that’s encouraging.
Can you just talk about some of the things that you can see that’s holding you back on your mill throughput at the moment and what you’ve done to address those.
Ray Threlkeld
Yeah, where we’re at in Q2 is kind of similar to Q1. We’ve just had numerous issues in the metallic splurged (ph), some problem with removing carbon, some electrical instrumentation, some component failures with gear boxes and (inaudible) scrub tank destructing, and we’ve had some increased maintenance due to wear.
Wear is quicker than what we has planned. It’s kind of a potpourri of items, just no single thing.
The crushing and grinding circuit itself runs like a champ. It’s just all the other components around that process current.
Typical start up issues really, but probably more of them than we expected obviously.
David Haughton
So, most of that wear then that you’re referring to, is that in the mill and you’re testing out different liners to be able to address that ongoing or can you just explain a little bit.
Ray Threlkeld
Yeah, we are doing some increased wear in the mill and we are looking at our line of packages right now. The more of the acute issue right now is on screens and piping, cyclones and that type of thing.
It’s not necessarily in the mill itself.
David Haughton
And when we are looking at Q3, can we expect sort of similar throughput to what we’ve seen in Q2, and I presume it may be in Q3 and into Q4. You’d have possibly some tie-in implications if you are moving to the 24,000 tonnes a day.
Ray Threlkeld
Pardon, I didn’t catch your last part of the question.
David Haughton
Okay, Q2, should we be thinking something similar to – sorry, Q3 something similar to Q2 and then moving into Q4, would we have some further down time with potential tie-in of items required for the expansion.
Ray Threlkeld
I think in the forecast going forward we expect some improvement Q3 and Q4 as far as mill throughput and like I said over the last 10 days and throughout July, we’ve operated fairly consistently. So I see that throughput increasing from Q2 as we get into Q3 and Q4.
David Haughton
Okay, and again rail had looked at the all in sustaining costs. You had mentioned Ray that there is a carryover obviously of the tiles there for the next 12 to 18 months.
Are you also considering the expansion as your sustaining CapEx?
Ray Threlkeld
Yes, we would. Any expansions are sustaining CapEx.
David Haughton
Okay, thank you very much.
Operator
Your next question comes from Anita Soni with Credit Suisse, your line is open.
Anita Soni
Hi, good morning Ray and Paula. So my first question is with regard to the mining rates.
As David had mentioned, you are I think double of what the throughput of the mill is, and I’m just trying to understand when you talk about mining of ore, are you talking about the lower grade stuff that also gets stockpiled and I’m asking this question because your guidance on the Q1 call was for 1.35 to 1.45 grams per tonnage. I think you did 1.2, and given that your money nearly doubled what the mill can take, I would have expected the grade to at least hold up.
Ray Threlkeld
Yeah, this is Ray. The grades that we have mined in the third quarter were lower because of pit sequencing and as we move toward – in the pit we move towards where we thought higher grade should be, we attained a grade of 1.24 in the second quarter.
We have not seen the very high grades in places that we expected and this is an issue that we’re addressing. Now when we look at our total reconciliation over the last six months, that reconciliation shows a positive variance from the block model through the blast hole, through the mill.
So we are mining the ounces, but we’re not seeing the high grade. That is, we’re getting more lower grade ounces than higher grade ounces.
Now we’re very early in the pit sequence, we’re very early in our mining sequence and we do have higher grades below this and we’ll be moving towards that, and the reason we’re upping our throughput is to try and make up for some of the loss we had and you know should the grades remain slightly below what were mentioned in the last quarter call, we will have throughput to take that, to carry that. That’s the reason also for the increased OpEx and sustaining cost; it’s really the denominator and the grade.
Anita Soni
Okay, so that leads me to two follow up questions. The next question I guess, the mine plan for this asset was based, was contingent upon basically being able to do a low grade stock piling system.
I think it was like an actual strip ratio of 7:1, but you know the mill feed is 4:1. So the question I guess is, how is the tailing facility going to handle that extra volume if you go to 24 tonnes per day, because I know you’re in a pinch on the tailing side of the equation.
And secondly, how does the underground – I mean, like how do you fill the mill with the underground later on. I’m not quite sure well it’s going to work – pan out.
And I think the third question is, do you have an idea of what the impact to 2019 is now given that you’re filing a technical report in a few days?
Ray Threlkeld
Yeah, I’ll answer the last question first, because we are releasing a technical report within the next few weeks and all of the annual production figures will be released. I can tell you this, that in relation to – the over tailings have sufficient capacity.
The tailings was built upon total reserve and there’s no change to the total reserve, there’s no change. There’s a 200,000 ounce change to the total ounces mined over the next 14 years, which is in my mind is somewhat of a rounding error, because things change as we move along and we get deeper, we find higher grades in different areas; we find more lower grade.
We will mine all of our stockpile as originally planned. Right now our life of mine, our stockpile inventories grow a little bit.
They grow from 30,000 ounces to 99,000 ounces over the life of the mine. It doesn’t mean they all get stacked up.
It means that we utilize that material as to support throughput. So no change to facility, except for going to the 24,000 tonnes per day and eventually up to 25,500 in 2021.
Anita Soni
So how much tailings capacity do you have built now ahead of you for the next sort of 18 months to two years?
Ray Threlkeld
For the next 18 months will be all of next year’s production. So probably around 9 million tonnes of tailings capacity currently and then we’ll be starting a list in 2019.
Then that list will take us through I think three more years or four years of production.
Anita Soni
Okay. And then the last question was, any impact right now to 2019 numbers.
I think we were sitting out the… (Cross Talk)
Ray Threlkeld
There’s obvious impact to 2019 numbers. I don’t know if we’ve ever given any guidance on that, but…
Anita Soni
You had mine tour guidance for sure. So I mean there was definitely a number…
Ray Threlkeld
I’m sorry.
Anita Soni
There were definitely a number of technical reports put out previously.
Ray Threlkeld
Okay, yes so I believe you can look in the technical report that comes out. That will cover all of the costs and all of the production information for the life of the mine on an annual basis.
Anita Soni
Alright, I’ll leave it at that and let someone else ask questions. Thank you.
Ray Threlkeld
Thank you.
Operator
Your next question comes from Don MacLean with Paradigm. Your line is open.
Don MacLean
Hello! Good morning Ray, Cory and Paula.
Just to carry on from Anita’s comments on the grades, you know those are pretty serious words in the quarterly. So you have an 11% shortfall of grade in Q2.
So maybe, can you give us a little more color on this sense of you know what proportion of that was due to dilution and what proportion of that is due to the high grade just not being where it was suppose to be and talking about where the high grade is or isn’t? (Cross Talk) about the selectability.
Ray Threlkeld
Okay, the dilution increased at least 5%. There was about 4.5% dilution in the block model and probably 5% in the mine, so you’re looking at 9.5%.
What really caused the issues in the mine, yes the grade was a little bit lower, but that was apart from the sequencing for the last six months. The mill availability reduced gold production from the previous plan by about 35,000 ounces.
That is the real thing. Recovery was about 8,000 ounces from the original plan; dilution and we call it dilution.
That is lower grade being applied next to the high grades to reach our throughput was about 17,000 ounces. So, you know we are very good on our year-to-date variance production based upon reconciliation to the model.
In fact we’re somewhat ahead of ounces mined out of the pit than originally planned. So yes, that doesn’t answer your question specifically about high grade versus grade going forward.
We expect and we put into the plan the grades going forward are slightly lower than what was originally projected for the project, but the total ounces mined remain the same. What does that do?
It increases the operating cost; it increases our all in sustaining cost slightly. We are working on and doing studies as we speak.
On the sampling protocols that we have from blast hole, we’re looking at sampling protocols through the mill. We need to look at every aspect of that to make sure that the ounces – we can assure the ounces going and the sure ounces coming out.
We know what the ounces coming out are, but we need to reconcile back and reconcile a little bit better.
Don MacLean
Maybe can you talk a bit about the additional work that’s been done as you try to figure out whether or not there was a – because this is a nuggety deposit whether there was a grade bias in the reserve calculation or whether it’s just the sort of a selectivity of the situation.
Ray Threlkeld
A bit of both there. We have consultants looking at it now.
We’ll be looking at – walking in and looking at wire frames. We’re looking at every aspect of our resource.
Our resource calculations are very good. We’ve looked at them in a number of ways.
All the gold is there. It is just sequencing and clearly throughput to realize the annual productions that we previously had guided to.
We’re looking at you know the sampling studies; we’re looking at mine selectivity improvements; we’re looking at cut-off grade improvements, every aspect of it. So we have seen some improvement.
Like I said, we went from 1.08 in the first quarter to 1.24 in the second quarter and we expect our grades to come up as well as availability and throughput.
Don MacLean
In the – not to belabor the point, but it is critical. So when you looked at the 1.24 that you got, what would you have expected from the model as opposed to, you know did you mine according to the plan that was going to be…
Ray Threlkeld
We mined according to the plan. What the model – we mined according to the reserve model.
The reserve model is extremely – there is no change in our reserve model. What we didn’t have is we initiated a high grading strategy in the early years of this mine to look at gold grades.
So initially we had somewhat higher grades in the budget. When we put our control shapes on that budget, there was a reduction in grade and what that reduction in grade really resulted in is more ounces and the same amount of ounces that is just distributed from higher grades to lower grade zone surrounding those, what we thought were higher grade pods.
So there is a bit of a smearing apparently. We’re looking into that, but we don’t have any concern about the amount of ounces there.
The amount of ounces are there. They are – the reserve is solid.
We’re just going to have to work through our sampling and work through our bit of a cut off strategy and how we can actually draw shapes and mine higher grade ore.
Don MacLean
Right. Just the last question here, the lower grade implications on the underground.
Ray Threlkeld
There should not be any effect on lower grade assumptions at this stage. The reason being is that we’ve gone to larger stokes and larger sizes to get larger volume, we did that last year.
When we started the intrepid zone, the intrepid zone has been drilled out at a much tighter spacing than anything else. So we are very confident of that grade.
Don MacLean
Okay great. Thank you very much, I’ll pass it along to others.
Ray Threlkeld
Thank you Don.
Operator
Your next question comes from Mike Parkin with National Bank. Your line is open.
Mike Parkin
Hey guys, could you give us a sense of what we should expect for mining million G&A cost per tonne for the second half of the year?
Cory Atiyeh
Yeah Mike, this is Cory. If you look at where we are at from Q1 to Q2, we’ve come down on the mine unit rate and the processing unit rate and the G&A rate.
We were just over $3 a tonne in Q2 for our mining rate. We were a little bit short on tonnes mined, so if you normalize that against what we budged, we were slightly higher than what we panned on the mining side.
G&A is in line with what we’ve panned. We had a higher processing cost in Q2 just short of about $13, but again if you normalize that and have the tonnes through the mill, you’re at about a little less that $9 a tonne, which is in line with our expectations, but a little bit – a little higher due to some increased maintenance which we spoke about and a little bit of labor.
But going forward, as long as we moved to tonnes and mill in tonnes, I think our estimates for unit rates are in line.
Mike Parkin
Okay, sorry I don’t have the G&A number for Q1. Do you happen to have that handy?
Cory Atiyeh
On the unit rate?
Mike Parkin
Yeah.
Cory Atiyeh
It was about $5.90 per tonne, again impacted by the lower mill throughput.
Mike Parkin
Right. You kind of covered off the issues in the plant.
And then in terms of, I guess you kind of answer it. The higher ore and sustaining costs for Rainy for the second half relative to Q2 that would be largely impacted by the increase in sustaining capital that’s being spent to expand the mill, is that correct?
Paula Myson
Its tailing – the expansion of the mill is not a significant capital, so it’s mostly tailings spending. It is sensitive to the capital number.
If you want to look at for 2018, about just a sensitivity metric would be a $30 million change in capital at Rainy, would produce approximately $120 per ounce change in the ASIC.
Mike Parkin
Okay. And then with Ray’s comment about the gold there, so it sounds like basically the New Afton mine plant is going to have a larger tonnage and the reserves lower grade same amount of contained ounces approximately minus 100,000 ounces.
So you can take the strip ratio down by the amount that the reserved tonnes will go up.
Ray Threlkeld
Actually reserved tonnes, there is very little difference. What it is, yeah there is a 4% increase in ore tonnes, that’s all.
What it is, is the reclassification from higher grades in to stockpile material. More ounces go in to stockpile and they do get mined in the future.
Mike Parkin
Okay.
Ray Threlkeld
All the gold remain the same, all the tonnes remain the same. It is a slight increase in tonnes, but there is relatively little change in ounces.
Mike Parkin
Okay, that’s it for me.
Operator
Your next question comes from Dan Rollins with RBC Capital Markets. Your line is open.
Dan Rollins
Yes, thanks very much. So Ray, listening to what you have been saying, it sounds like you’re still going to use the stockpiling strategy.
I was just wondering when you look at the new AISC, the $1,016 for the first nine years, you layer in the impact of the royalty, the gold stream on the realizable margin on the asset and then you take into account the capital that you are going to be putting into working capital for stockpiling that low grade. what is the true AISC of this asset, cash out the door over the first nine years.
Is it closer to $11.50 or where do you stand on that for the mine. I know the ounces are there, but it sounds like the issue right now is the profitability of the mine.
And it’s just not going to generate nearly the free cash flow it was supposed to at the beginning of this year or where it was two years ago.
Ray Threlkeld
Yeah, costs are up. It is profitable, it makes money.
The 2018 and 2019 are not reflective of the life of mine, that’s for sure. We’ve given some life of mine guidance on all in sustaining costs and if you back out those first two years, we were above what we originally planned, but it still is a good mine and still makes good money.
Dan Rollins
Okay, and then just given the change in the free cash flow potential, the company as a whole, where do you stand on the C Zone of that New Afton? Is that still on the table, it’s for a slow build out over the next three years and then incrementally put money in years four, and five from now or is the C Zone sort of off the table right now?
Ray Threlkeld
No the C Zone is on the table. I view the C Zone as a tremendous asset.
We’ve done lots of improvement on C Zone capital costs and we are continually revising that. We’ll be spending some money later this year, probably on starting into that C Zone work.
It’s a very intrical part of our life of mine for the company if you want to call it there.
Dan Rollins
Okay, and then just one last one for me. Just on the AISC for the next nine years, how much of that is just sort of going to the lower grade direct mining ore, because you’re actually moving ounces from direct mining ore into more of the stockpile.
Is that half of the change, 25% of the change? Just trying to get a delta on what the great impact here is on the AISC.
Ray Threlkeld
You know I don’t have those figures in front of me. I can certainly get back to you on those.
I would suspect that there is probably a 10% impact on cash costs and maybe another 10% based upon all in sustaining cost.
Dan Rollins
Okay, great. I appreciate the color.
Ray Threlkeld
Yeah.
Operator
Your next question comes from Steven Butler with GMP Securities. Your line is open.
Steven Butler
Yeah, thanks operator. Good morning guys.
So Ray, you talked about the overall reserve models, works, but of course you went on to say that you will have greater tonnage, 4% more tonnage. So I assume roughly speaking you’ll have a 4% decline in grade; we’ll see that in the tech report.
Is that roughly what we’re talking about or a bit more than that on the grade reduction.
Ray Threlkeld
I think the real number is 2.5%. The average grade I can tell you goes from 1.13 to 1.09 and that includes all of the stockpile in the underground.
Steven Butler
Okay, thanks Ray, we’ll look for that. And then the other one, Paula if you have it, I will look for it in the tech report, but can you let us know if you have it on the top of your mind here, the remaining sustaining capital specifically for tailings dam full on completion over the life of mine?
Paula Myson
Well, we do – just to give you an idea of Rainy sustaining capital break down. When we gave you the last guidance, I’ll go this year and then I’ll go forward next year.
When we’re at 195 in terms of the sustaining guidance, we had about 45 of that was capital stripping, 75 of that was the TMA and 75 with other, which would be your mill maintenance your mobile equipment and small amounts for increasing throughput. Going to the 210 on the sustaining for 2018, our capital stripping has actually gone down.
Our TMA has stayed pretty stable this year at 75. There is about 20 million in water treatment in sediment pond and 85 is now no-maintenance and mobile equipment that other category.
Next year, in terms of the TMA spend, we’ll be doing the first, will be doing a lift and that isn’t as capital intensive, it’s about $20 million. And I wouldn’t expect the next left to be – and that’s in 2022, 2023, and it would be in that same magnitude of capital; it wouldn’t be any larger.
Steven Butler
Because it said that, you said that tailing was the main culprit for the large increase in the AISC surfacing and the main reason for the – I guess it was sequencing and costs that were driving the $282 million. It wasn’t necessarily tailings down, lift cost necessarily or sequencing and cost structure or role cost structure I guess.
Paula Myson
It’s a combination of those.
Steven Butler
Okay, got it, will look for that. Thanks very much.
Paula Myson
You’re welcome.
Operator
Your next question comes from Wayne Lam with RBC Capital Markets. Your line is open.
Wayne Lam
Thanks. My question has been answered.
I’ll wait for others in the queue.
Operator
Then your next question comes from Don MacLean with Paradigm. Your line is open.
Don MacLean
I waited quite a while just to let everybody else ask their questions. Paula, what is the current book value now for Rainy River and what was the metal price assumptions and the C dollar assumption?
Paula Myson
So in terms of the carrying value, that’s down to just under a $1 billion, its actually 995 right now.
Don MacLean
And that’s Canadian or American?
Paula Myson
That’s all U.S.
Don MacLean
Okay. And how do you calculate that caring value?
Is that using the 5% discount rate?
Paula Myson
4.5% Don.
Don MacLean
Okay, great. I’m just carrying on from Steve’s question about the sustaining CapEx.
In the Q1 you told 2019 might be $100 million all in and then it would drop to 50 million going forward. Is that profile still pretty similar?
Paula Myson
I think if you were to give a profile with all of the changes in terms of the spending the extra money we are putting it in different areas like the sediment ponds and that, after 2018 which is the 210 on sustaining, I’d say 2019 is more in the 150 range than 100 and that it would include the first lift. And in 2020 underground becomes part of the sustaining number.
So I would say that would be like in the range of 125, 130 and that would include the open pit per mill and the underground. And then on an ongoing basis after that, you get some (inaudible) depending on this and some activity.
But it would go between $40 million and $70 million a year and that’s the sustaining side of things.
Don MacLean
That’s helpful. And then just a couple questions on the New Afton and you know Dan touched on, the C Zone.
How long will the B Zone – what’s the remaining life of the B Zone?
Cory Atiyeh
The is Cory. The A lift or A Zone that we are on right now is that mine life up to 2021 and then the B 3 as we call it or B Zone only has about a two year mine life, two or three year mine life while we get to – while we develop to C Zone.
Don MacLean
So does that – Cory, does that give you to sort of the end of 2023, with…
Cory Atiyeh
Yeah, it will take us out into 2023 and then 2023, 2024 is when C Zone starts ramping up and we’ve got a plan during that period of time where it will be a little bit lower milling rate than where we’re at right now. But we’ve got a couple of things that we can look at as far as filling that gap too.
Don MacLean
So just back to the second quarter, you mentioned that the mill was slowed or was slower. Why was that and how long was that, the slower milling take place.
Are you sort of trying to stretch out the life of the A Zone?
Cory Atiyeh
It wasn’t really a plan to stretch out the life of the A Zone. What we were doing was operating at 16,000, 16,500 per day is we’re stressing the cave a lot and it’s caused some issues with drop points underneath and things like that.
So we slowed down the mining rate a little bit to try to get some cave health back per say and it’s been very successful for us so far, plus we’ve been able to increase recovery at these lower throughput rates.
Don MacLean
Right, and that will benefit your grade in the long run.
Cory Atiyeh
Yeah.
Don MacLean
Okay, good, that’s helpful color. Thank you.
Operator
There are no further questions at this time. I will turn the call back over to the presenters.
Ray Threlkeld
Well, thank you ladies and gentleman. I certainly appreciate all the questions you put forth to us and please don’t hesitate to reach out to us by mail and/or phones and we’ll be certain to get back to you with any questions you may have.
Thank you again.
Operator
That concludes today’s conference call. You may now disconnect.