Feb 14, 2019
Operator
Good morning. My name is Jessa, and I will be your conference operator today.
At this time, I would like to welcome everyone to the New Gold Fourth Quarter 2018 Results and 2019 Outlook 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. Ms.
Anne Day, Vice President of Investor Relations, you may begin your conference.
Anne Day
Thank you, everyone and good morning. We appreciate you joining us today for New Gold's 2018 fourth quarter and year-end earnings results and 2019 guidance conference call and webcast.
On the line today, we have Renaud Adams, President and CEO; and Rob Chausse, CFO. Other members of the management team have also joined us and will 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 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 that is found on the presentation. Today's commentary includes forward-looking statements relating to New Gold.
In this respect, we refer you to a 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 2 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 material presented. I will now turn the call over to Renaud Adams.
Renaud Adams
Thank you, Anne, and thank you all for joining our conference call and webcast today. The fourth quarter was a turning point for the company, as operation at Rainy River continue to improve and as we repositioned this operation for efficient and sustainable mining.
The New Afton mine delivered another quarter of solid performance. As a result, new Gold reported a very encouraging fourth quarter and we will build on that success in 2019.
We began 2019 with the renewed vision for the future of this company. That is supported by a focus on driving profitable mining at all of our operation, and we remain committed to create sustainable value for our shareholders.
During 2019, we will complete all remaining construction and mill upgrades at Rainy River, advance the development of the C-zone at New Afton, and renew our focus of organic growth by launching exploration program at both operations. Please note that this session is not intended to be a full technical session, but we are committed to hosting full technical session at both operations before the end of Q2.
Now I will turn the call over to Rob Chausse, CFO for a quick review of our Q4 and year-end operational and financial results.
Rob Chausse
Thanks, Renaud, and good morning. Before I get started, I just like to note that throughout this presentation, I will be speaking to our classified operations, specifically New Afton and Rainy River.
Slide 5, the company produced 97,000 gold ounces and 20.8 million pounds of copper in the fourth quarter. Gold production primarily consisted of 77,000 ounces from Rainy River and approximately 19,000 from New Afton.
Higher gold production as compared to the prior year quarters, primarily due to having a full quarter of operations at Rainy River. Operating expense per ounce at Rainy was 55% lower than the prior year quarter due to improved operational performance.
Consolidated all-in sustaining cost for the quarter were 688 per ounce, 4% lower than the prior year again due to improved operating results at our sites. Moving to Slide 6, for the full-year, production was 315,000 gold ounces with Rainy River producing 227,000 gold ounces and New Afton contributed 77,000 gold ounces.
New Afton has also produced 85 million pounds of copper in '18. As noted for the quarter, higher gold production for 2018 as compared to the prior year.
It's primarily due to a full-year of operations at Rainy River. Operating expense per ounce was 42% lower than the prior year and again result is due to a full-year of operations and improved performance during '18.
Operating expense per ounce for the full-year at New Afton was 7% lower than the prior year. Improvement was primarily related to higher recoveries.
Full-year operating expense and all-in sustaining costs for New Gold's continuing operations was $648 per ounce and $961 per ounce, respectively. Both were higher than the prior year periods due to start up challenges experienced at Rainy River during 2018.
Turning to our financial results on Slide 7. Fourth quarter revenue from continuing operations was $157 million, driven by sales of approximately 84,000 gold ounces at an average price of $12.30 per ounce, and sales of 19.7 million pounds of copper at 2.96 per pound.
Q4 revenue was 24 -- 27% higher than the prior year quarter due to production increases related to the ramp up at Rainy River, partially offset by lower copper production and lower realized gold prices. Full-year revenue was $604 million, higher than 2017 due to increased production from Rainy River.
Operating cash flow before working capital adjustments was approximately $75 million or $0.13 per share for the quarter and $265 million or $0.47 per share for the full-year. Both higher than the prior year quarter and full-year due to full operations at Rainy River.
The company recorded a net loss from continuing operations of approximately $728 million or $1.26 per share during Q4 compared to a net loss of $0.34 per share in Q4 '17. Full-year loss was $2.12 per share versus a loss of $0.19 in 2017.
Included in the Q4 loss was an impairment charge $671 million. This amount is comprised of a charge at Rainy River of $453 million and at Blackwater $218 million.
Rainy River's evaluation was impacted by revised operating and economic parameters, specifically increased CapEx and the application of the lower in-situ value. The Blackwater charge resulted from applying an in-situ metric valuation approach for reserves and resources.
This approach incorporated values based on recent comparable market transactions. Detailed disclosures of the company's impairment losses are included in the consolidated financial statements and related notes.
After adjusting for these one-time charges -- for one-time charges, particularly the impairment, net earnings were $22.7 million or $0.04 per share compared to a net loss of $21.5 million or $0.04 a share in the fourth quarter of 2017. Q4 adjusted earnings also includes a $21.4 million non-cash tax recovery related changes to our deferred tax balances.
When compared to the prior year, the company's adjusted net earnings were primarily impacted by an increase in operating margin, offset by higher depreciation. Again, our MD&A has additional details on any of the non-GAAP measures that I have discussed.
Slide 8 provides a breakdown of our 2008 (sic) [2018]capital expenditures. Our total sustaining capital for the quarter and year respectively was $31.7 million and $179 million.
Spend was primarily related to tailings work and capitalized mining costs. Growth capital was focused on project development.
Moving to Slide 9 and discuss liquidity. At December 31, 2018, we had approximately $104 million in cash and no outstanding balance on our facility.
The outstanding balance was paid off with proceeds from the Mesquite sale. And with the completion of the Rainy River security requirements, our liquidity is approximately $393 million.
Lastly, in Q4, the company implemented a hedging strategy where we entered into gold and copper price option contracts to reduce exposure to fluctuations in gold and copper prices during the completion of the remaining mine construction at Rainy River, and the relaunch of the development of the New Afton C-zone. With that, I'll pass the call back to Renaud.
Renaud Adams
Thank you, Rob. As per my opening comments, I’m not -- this is not intended to be a full technical session.
I believe the company has released this morning pretty details and notes on the press release on outlook and guidance for 2019. So I would rather limit my comments on the keynote to help you better understand our plans and strategy as we move forward in 2019.
So I'm on Slide number 11. And just as a keynote, although 2018 has been a year with practically no drilling at our site.
We are very pleased that we have practically replaced our reserve at the New Afton and the Rainy River from our last release. The Rainy River mostly as a result of updating -- slightly update on our open pit design, but also because we move to the gold equivalent basis rather than just gold basis.
And at New Afton, it's a result of continued optimization of the block cave and B and C-Zone. The block cave as we worked very hard in optimizing our plan for the development of the C-Zone.
On Slide number 12, one very key note here I like to point out the direct processing reserve for open pit at Rainy River of nearly 66 million tons at 1.2 grams a ton. We will speak later on of the medium and high grade.
The 66 million ton at 1.2 grams, this is enough basically to provide -- to supply the mill with 24,000 tons a day for nearly 8 years. This is a key aspect as we continue and we will talk more later about what strategically this means for us.
In the underground, while the grade is relatively lower, 3.5 grams a ton, need to understand that this is comprised of very low grade zone that nearly cutoff grade of 2.2 grams a ton, but also better zone at the continuity of the higher grade zone. So again we will speak more about it.
So in seeking for a key element that really differentiates Rainy River from the other asset, I think is the ability to fully extract and mill the average grade of the 1.2 grams a ton of the medium and high grade. So I would leave you with a question remark.
What would be today be for from the logic operation, if they would be operating at 1.2 grams a ton for the next years to come. On Slide number 13, just a quick note on the New Afton to help understanding the lower grade of 2019.
As you can see the reserve are separated between the A, B-zone and the C-Zone. You could appreciate that the C-zone shows a pretty bright future with nearly .8 grams a ton of gold and about .8% of copper.
But meanwhile, we will have to continue to deplete the B-zone with a focus in 2019 on the B east cave that has approximately 30 million tons, but about a .45 grams ton and .8% copper. This is the main supply for 2019 and explain the lower grade after 2019.
I’m on Slide number 15. We will speak more about the gold build of each asset.
But as a general comment on Slide 15, the really key message here is that 2019 is really and truly a favorable year for the company, as we were positioned for the long-term success. We do appreciate that we are presenting to our shareholders fairly aggressive plan, but I would also call a little bit of an expensive plan.
But I think on the back of the last two months, the success of both assets were very encouraged by the future of this company. And while it is an aggressive plan, it is also considered necessary as we really reposition those assets for success and will reposition New Gold for long-term success and deliver also shareholder value.
One of the key highlight, we could summarize in the very, very limited points. At Rainy River, it is really a result of the lower grade and a higher strip ratio has the transition to the Phase 2, that drives a higher operating cost.
We will speak more about the sustaining capital, very aggressive sustaining capital that drives the higher all-in sustaining cost. The strategy here is really to put behind all those construction item and really return as we could appreciate in the Q4 2018, the very promising numbers when you combine grade, lower cost and less sustaining capital that drive profitable value.
At New Afton, the key aspect is slightly lower grade in gold than 2018 will drive a higher operating cost. As we launch the C-zone comes the need to also lounge the B3-Zone, we access the C-Zone, but first we have to go through the B3-Zone.
The B3 being a sustaining item and the C-zone is a non-sustaining item. As a result, our all-in sustaining cost at New Afton would also be higher in 2018 and a combination of the growth capital of $40 million $45 million as we lounge the C-zone as well.
On a global consolidated basis, the increased gold production at Rainy River will be somewhat offset by the lower gold production at New Afton for about the same gold production of our operating assets in 2018. But overall, all-in sustaining cost as we discussed as a result of more capital deployed at both assets.
On Slide number 16, we will speak more about each of those points. But basically the 16 summarize the main 2019 key objectives for Rainy River.
All in all, our 2000 plan for Rainy River will address every single aspect from the completion of all the construction item as part of our capital program, optimization of our pit and the mill operation. We are definitely going to relaunch the drilling program with a view to extend the mining, life of mine rather than just reclaiming stockpile.
And we are going to relook at our life of mine to optimize and deliver, we believe, as a room to optimize the over -- the overall outlook of this asset. On Slide number 17, I've already spoken of the main key driver for the production and operating costs in sustaining capital for our Rainy River for [indiscernible].
But a quick note on a open pit operation for 2019. The total tons mined in pit to increase by nearly 20% compared to 12% for 2018 as we would continue to improve the productivities and we continue to increase the mine fleet.
The total ore mine will slightly decrease over 2018 as we will be focusing more on moving more ways as we transition to the Phase 2, it is very important that we prepare and expose the ore for future success, starting in 2019 -- 2020. As a result, an increased strip ratio is planned for 2019, as we transition to the Phase 2 and which is the main focus of this stage.
One key point though is the mine has been unfortunately, I should say, but as a result of the change of the design and the tailings comes the need for much more providing more rock of the non-acid generator. And as a result of mine has been the main provider of that rock which has been a significant distraction for the mine.
Even though we are mining outside the pit to provide that rock for detailing, it has been a distraction while we try to optimize a pit. [Indiscernible] unfortunately this practice will continue in 2019, which -- but will provide more tons from outside of the pit with nearly 5 million tons that would be mine outside of the pit.
We will speak more about the plan as we move forward in '19. But it is definitely a priority for us.
The resource for more non-acid generating rock outside of the pit as we move forward. So we could operate and maximize the pit operation.
As a mine operation and not a quarry to provide rock for the tailings. On Slide 18, this is really the key slide for Rainy River that drives the most value.
We’ve talked a lot about the achievement of the Q4. We still have a lot of work to do.
I would say we will speak first on the availability. This has been from far the main issue at the Rainy River.
With significant downtime, I don’t want our main equipment all over the year and Q4 was no exceptions with significant downtime around the SAG mail and the ball mill. We will disclose and talk plenty about it in our disclosure of Q4.
We have now replaced the trunnion [ph] of the ball mill. This was completed last week.
And we continue to address some other issues and continue to optimize as we advance with the objective to reach 90% plus availability in the second half of the year. And again, this is the most important aspect because as we disclosed in Q4, we really don't believe there is an issue with the capacity per se of the mail.
We’ve about saved nearly 26,000 tons a day of run rate in the Q4 and this was done basically with using only about 70% of the power available at the side of the ball mail. Furthermore, we have the pebble crusher not was not even used.
So all in all, we are already seeing a pretty interesting and high rate -- run rate at the mill. We are not using all the power available.
It is really the ability for us to reach a steady stage and a high availability, which will really drive our average throughput of 24,000 tons a day plan. And again, we don't see any issues with the capacity.
It's our ability to stabilize the operation that would drive the average throughput. The biggest achievement to date has been definitely on the recovery side.
We thought that providing this bar chart at the bottom of the Slide 18 will help -- in the understanding. Both aspects are very important.
We need to continue to improve the losses in solid so we reduce, which is mainly a result of our ability to grind finer and to maintain -- and maintain the carbon, the load on carbon within the circuit. On the solution side, it has been the main aspect of improvement over the last few months as you could appreciate in the dark brown.
We have significantly reduced the losses in solutions. We are not done yet.
We’ve seen already a 91% recovery achieved in January. And quite frankly, we still see some improvement possible and continue to review the solution -- losses in solution and as we use the more power available to us towards grinding finer rather than more throughput, there's also another opportunity to continue to reduce in the solids.
So very promising. A lot achieved to date, but much more to come.
On Slide 19, before we move to the reconciliation, we thought we would -- we speak of that in the Q3 disclosure. And just to put a little more color and understanding around how we minded that.
I think it's fair to say that in the first half of the year there was a bit of a misunderstanding of the ability of the pit to deliver at a high grade. There is a difference between not capable to reproduce the high grade from understanding that it's impossible to selectively mine strictly the high grade or strictly the medium grade.
We will show it about on the reconciliation side, but this slide provide a better understanding. In 2018, there was enough high grade in term of ton to provide to supply the mill, but as we could see on this slide, it is impossible to selectively separate only the high grade from the medium and lower grade.
This is all reserve. It all has to be mine in mill at some point in time.
So we're not talking about further dilution, we’re just talking about that typically when you try to put the dig shape around the high grade, there will be always a percentage of medium and low grade that will be part of that design -- the dig shape and eventually blast. So if we move on to the Slide number 20, this provide really the detail of the reconciliation of the full-year.
But how you should be looking at those numbers, the first row, the first series of the table is to compare the Grade Control Block model with the Resource Block model. So basically we could appreciate from the high grade, medium and low grade, an overall 13.6 million ton at 0.2 grams a ton compared to the block model of 2.2 grams -- 12.2 million tons of .05 grams a ton.
So, all in all, it reconcile extremely well from the -- the blast hole grade control to compare with the block model, there is pretty much a bang on reconciliation. Then comes the -- putting the dig shape around those block before blasting.
And again, as we could appreciate in the high grade, we actually beat the model in term of quality and grade in total ounces. The overall dig shape in the reality compared to the block model also show some gain in term of ounces in tons.
So, all in all, the mill process 6.5 million tons at 1.25 grams a ton over 2018. And this compare with a depletion of block from block model of 7 million at 1.25 grams a ton.
So again, we do not see any issues or fundamental issues with the resource model or the ability to mine these deposit at the reserve grade. There is still further upside as we continue, we believe we continue -- we can continue to improve our dig shape reduced dilution as we move forward and this is mostly our ability to build on -- in information prior to climbing and execution of the pit, mostly by increasing our drill inventory using RC drilling or just improving our current operations with the drill, the blast drill.
So more to come, but I thought it would be important to provide. As I made the comment on the reserve of the 66 million available at 1.2 grams a ton comes the need or to secure or improve our belief that we could actually deliver, it is great in the future.
I’m on Slide 21. So all in all, what we will be doing here is provide the summary of the key strategic item to be the focus on as we continue and work hard in 2019 to improve our life of mine, and we optimize.
The starting point is really to take the 66 million ton at 1.2 and truly optimize the pit design and the pit operations to focus first on delivering a life of mine over the next years that would optimize the outcome of this 1.2 grams a ton at a reasonable strip ratio. That will continue to optimize the sustaining capital.
So looking at this 66 million ton, what is really required and only required to mine process and dispose the tailings on those 66 million ton. So with the idea to provide a basic foundation of profitability coming from those ounces.
Then we will continue the review of the underground mining where we will be looking at optimizing the extractions of the possible stokes from underground that would fit within this plan, and only if we could enhance -- further enhance the profitability of the plant. All in all, we believe that using the best practice in the -- the best practice of the industry, relooking at the most important component of sustaining capital namely the constructions of the dam, everyone knows that back in time that these change, significant increase in the rock needs and cost to build the stages of detailing, and we believe we could optimize those as we move forward.
But all in all, we are very encouraged and excited with the support needed to relook at the life of mine and deliver an updated plan before the end of the year, and preparation for 2020 exercise with the objective to start delivering free cash flow in 2020. I’m on Slide 22.
Not much more to say, I think the slide is pretty self-explanatory. Again, very important to understand that about 75%, 22%, three quarter of our total capital in 2019 is really to complete what we call the construction capital.
What do we call construction is at this stage of this operation, all those item should have been already done. When you operate an asset and you see profitability and you seek efficiency, those item should have been already done and behind us.
And we should be looking at the second part on the sustaining capital. And as you could again look at and compare with the Q4, what would be this asset to be at the higher grade, lower sustaining capital and efficient operation.
This is what will be driving in the future. I’m on Slide number 23.
Just quickly on the C-zone as we move forward, C-Zone and the New Afton story. Our 2019 key objective, we will kind of continue to operate this asset in a very profitable way.
The big item, of course in 2019 is the decision to launch the C-zone -- the C-zone plan and develop and protect our future. I like to remind everyone that the New Afton generated over 800 million tons of -- $800 million of free cash flow over the last six years.
So it is really our intention to continue and protect this business and improve this business as we move forward. We believe that this asset has much more to offer beyond the C-zone, but we need to start somewhere.
And we put the plan together that we believe make the most sense for our shareholders where we will be executing the development of the C-zone, where we believe we will be doing it in a way that the cash flow generating by the asset will be sufficient to cover for the need of capital. We will speak more about each of those planned item on this -- on the 2019 key objective in the next slide.
On Slide number 24, this speaks of the guidance of the 2019. Again, in 2019, we will continue to deliver strong operational and financial results.
As discussed, our high grade will be -- gold grade will be slightly lower in 2018 -- '19 compare to 2018. But all in all, unit cost will remain in the neighborhood of 2018.
It will continue to deliver strong results. Our sustaining capital was slightly increased compared to 2018 as a result of launching the B3 development, which is part of our sustaining.
But also -- and I will discuss the decision to launch the development of the C-zone, which is captured at the non-sustaining capital. On Slide number 25, one of the key item of New Afton has been the tremendous commitment of the team to always challenge themselves and improve the assets and find a way to reduce the cost and improve profitability.
The ore sorting strategy is one of them. It's an example.
I had a chance to visit and look at it myself, very impressed. Of course, as any other mine, the team is focused to optimize the underground operation by splitting the course, the high grade from the lower grade as the mine has mined in excess capacity of the mill, but also this ore sorting which is a device installed on the belt of the ore coming from underground is also and will continue to contribute to an improved grade.
So we're just showing on this Slide 25 an approximate improvement of the copper grade as a result of using the ore sorting. It's not up to speed, it's not perfect yet.
We will continue to optimize in 2019 and as we move forward, but this is one of the example of what the team is committed to create as a continuous improvement strategy. On Slide 26, just a breakdown of our capital.
Not much more to say, more than an increase -- an increase slightly on the sustaining and a non-sustaining. But I think this is pretty clear.
I would rather spend more time on the Slide number 27 to discuss the C-zone development. This -- the launching of the C-zone if you -- everyone recall, in 2015 the company released a 43-101 that was including the development of the C-zone.
Since then nothing has been really done in term of development itself or pushing the decline on the ground, but a lot of this time has been used to optimize our plan compared to the 2015 approach. So we're not up -- we are not releasing today a 43-101.
We're making a decision on launching the C-zone and is starting to execute in 2019. All the underground aspect of the decline that would eventually brings us down to the C-zone will continue to obviously to work in optimizing our plan on surface, derisking.
But all in all, the most important aspect of it is we believe that the team has found a way to execute the C-zone and been capable to pay for it using the cash flow generating by the mine before we reentered a very strong free cash flow once we're done and start operating and extracting from the C-zone. You remember from the reserve slide, the C-zone has a better goal grade, a pretty interesting and higher copper grade and will provide a lot of free cash flow for this company.
But meanwhile in understanding the financial situation on New Gold, it was very important for us to launch this development of the C-zone with a strong belief that the asset is capable to pay for it. So, all in all, using a 450 million assumption of the non-sustaining for the C-zone and a total sustaining capital, approximately 185 million for the total life of mine, remaining life of mine, we believe that at a metal price of 12.75 of gold and 2.50 copper pound, at an exchange ratio of 1.3 that the asset will be capable to generate over a period of 19, 24, enough cash flow to convert the cost of fully implementing the sustaining and non-sustaining capital.
So therefore at a current spot price not only we will be capable to generate enough cash flow, but we'd also be in position to generate some free cash flow. So all -- how this cash flow will generate, we will speak more about the optimization and release of an updated life of mine.
But using the detailed 2019 plan and the best assumption and approach of how we would deplete, we could say that a gross capital of 19 is estimated for the 40 million to 45 million and which consist basically of underground activities, exploration decline, purchase of equipment and infrastructure. The gross capital in 2020 will be pretty much consistent with 2019 as during those year expected to deliver strong free cash flow and the gross capital is expecting to then increase significantly for a period of '21, '22, '23 which at some -- at which point we could be a cash flow neutral and the operation is then expected to return to positive cash flow as we come -- we deplete the remaining of the gold capital of $450 million in '24, '25.
On the sustaining capital side, we -- capital requirement for the B3 zone in 2020 will be pretty similar to 2019. With the remaining one-third of the capital requirement of the B3 to be spread over '24, '25.
So, all in all, with -- the plan has been done, so in '19, '20 we continue to generate free cash flow out of the asset potentially neutral cash flow for a period of two, three years, and then we return to the free cash flow as we move forward. On Slide 28, this will be the complete the operating section before we talk about.
So it is obviously our intention to release or to update our technical report in 2019. So, all in all, we will take -- the new approach is really fully integrated compared to the 2015, which was somewhat a decoupling of the C-zone from the B and the [indiscernible].
So the approach here is to really optimize the whole integration of the C-zone, so we minimize our cost and capital as we execute. We will have an updated geotechnical study update that would address the subsidence and corrective actions, and we feel very strong about all progress that's been done.
The improvement of the cave and improvement of the control of subsidence. The tailings update.
The in-pit disposal using a thickened and amendment tailing approach will be also part of the plan. And we would update as well on stabilization of current and old tailings.
Of course 2019 is a big focus on the permitting and timeline and we will continue on the capital and OpEx optimization with a view to release a new updated mine plan somewhat towards the end of 2019 in preparation for the 2020 plan. On that, for the 2019 exploration.
In the next couple of slides, I would introduce you and ask Michele Della Libera to go through the next couple of slides and speak of our plans of exploration for 2019. Michele?
Michele Della Libera
Thank you, Renaud and good morning to everybody. The plan for 2019 for exploration is to resume in aggressive manner the activity.
We had ISOs during the last couple of year on exploration, but we progress on really a conceptual study and definition of target and I’m pleased to restart drilling this here in particular to Rainy River where we’ve already defined a target close to the mine and the mill site that there is a Intrepid North which could help to unlock resource for the life of mine at Rainy River, and in particular we are looking at a similar architecture -- geological architecture North of Intrepid that could be similar to this the stacked lenses that we have at [indiscernible] mineralization ODM, HS and 433 that we’re already starting to mine. And we are also 38,000 hectares of pre-molding around the mine and we are working hard to define new target, addition of target that would be ready at the end of this year, in particular, to the North where we -- a historic mine file [ph] show occurrences of really high grade gold which maybe related with [indiscernible] mineralization with high grade up to 98 to 100 gram ton gold.
Moving to New Afton. After the successful delineation of C-zone we are planning to drill underneath C-zone and see if the mineralization down plans of the C-zone or body is still consistent and we are optimistic that we can expand the mineralization down deep and down plunge of the known C-zone mineralization.
Potentially it's also as at Rainy River on the regional, on our regional claim holdings and we did a lot of work during the last couple of year to unlock and target definition regionally and we are thrilled to start reading, in particular, in the Cherry Creek zone, that is only 3.5 kilometer to the West of the mine, New Afton mine where we found really strong geochemical and geophysical signature for both the high grade, [indiscernible] mineralization and [indiscernible] copper, gold porphyry. That's really the highlight of the exploration that we will start this year.
And thank you for your attention.
Renaud Adams
Thank you, Michele. And now that complete the technical presentation part of the call.
So I would turn the call back to the operators for the Q&A portion of this call. Operator?
Operator
Thank you. [Operator Instructions] Your first question comes from the line of Dan Rollins from RBC Capital Markets.
Please go ahead.
Dan Rollins
Yes, thanks very much. Renaud, just a couple of quick questions from my end.
The Rainy River cost that you’ve outlined on Slide 17, are those Canadian or U.S dollar?
Renaud Adams
They’re U.S dollars and they pretty much reflect the achievement in the Q4. So, of course we will continue to improve and work hard in reducing our cost.
But it was important for us to put out the plans that we feel strong that we could deliver. And again, somewhat like a reflection of the Q4 [technical difficulty].
Dan Rollins
Okay. If you take a look at that the reporting of 75% exchange rate on that mining costs seems to be quite high relative to where your peers are.
I understand your ramp up phase, you’re still moving a lot for coring basically for the tails, but if you can get …
Renaud Adams
I can tell you that they were quite higher than this. Q1 and Q2 [indiscernible].
So we are very positive that we would continue to improve. But again no false promises and make sure that we could deliver it.
Dan Rollins
Okay. And then again just get some clarity on this later in the year, but not to go back to the previous economic study that was released last year for Rainy river, but based on your commentary about the ability to sort of mine the high grade and the medium grade at Rainy River together.
Now there is a couple of years in that model where the direct open pit feed is North of 1.7 gram a ton. Is that still a reasonable estimate for the street to assume?
Renaud Adams
Well, part of the optimization definitely for us is to relook at this mine plan and find a way to smooth. If you are raging 1.2 out of the medium high grade, the last thing you want is to move from a 1 to a 1.5, 1.6, I think there is not much we could do for 2019 as we are now transitioning to the Phase 2, but part of the optimization is really to try to smooth towards the next years, the extraction processing to a smoother -- rather smoother grade closer to the average reserve grade rather than up and down every year.
Dan Rollins
Okay. And then maybe one for, Rob.
Obviously, I know Renaud made comment about the assets potentially being cash flow breakeven in 2020. When do you see yourself as a company given the corporate overhead, the exploration spend in the interest that you’re accruing now.
When do you see yourselves as a company generating positive free cash flow?
Rob Chausse
I would suggest probably closer to the end of 2020, and into '21. That’s the objective.
Dan Rollins
Right. And any thoughts about rolling the protective hedges if we further out into 2020 to give yourself a little bit more comfort in case we do see some more relativity in the gold price and to protect the balance sheet?
Renaud Adams
Yes, sure. We will continue to assess and as we develop our plans this year and see what capital and what our objectives are, we will assess and take the -- take prudent steps to protect the downside where necessary.
Dan Rollins
Okay. Thank you very much.
I appreciate the color.
Renaud Adams
Thank you.
Operator
Your next question comes from the line of Anita Soni from CIBC. Please go ahead.
Anita Soni
Hello.
Renaud Adams
Hello?
Anita Soni
Hello. Currently I'm on speakerphone, sorry.
So my question is with regard to the segregation of materials. You mentioned that you are not going to be able to segregate these materials and there was a misconception last year.
What you’re envisioned as your mining rate for next year -- sorry, for 2020? And the types of grade that you will be able to deliver going forward?
Renaud Adams
The -- we're very positive that again like if you go back to the mill is really the driver here more than the mine. I mean, we’ve been adjusting the mine more than the other way around to be frank.
24,000 tons a day average is what we are comfortable the mill using a 26, 26.5 run rate, 90%, 91% availability we will give you. So you go back to the mine, is the mine capable to deliver that 24 average, segregating -- somewhat segregating the lower grade, yes.
So that’s the fundamental for the open pit. It's been able to deliver 24,000 tons a day average of medium, high grade starting in '20, and continue to segregate the lower grade and waste of course from the total tons.
We should be and we have to be capable to average the reserve grades of the medium high grade over the next years to come as an average grade to the mill. The underground is on the excess of that and the underground will have to have the capacity to enhance the profitability and free cash flow over a short period of time where we’re going to be in for integrating the best [indiscernible].
And I really want to make sure that the underground is part of the mining and doesn’t come the main contributor or return this asset into an underground mine once the open pit is depleted. That has never been the idea here and where I’m not a strong believer in that plan.
So you could deliver 24,000 tons averaging the 1.2, this is the objective from 2020 and on. And anything and beyond that will be contribution from the underground, should the plan make sense.
Anita Soni
That’s good. My second question in terms of the write-downs you took and the reserve statement as it stands, there wasn’t really a huge impact to the reserve statement for Rainy River given the write-down.
But when you look at the carrying values of what you are -- when your financials that you filed, there isn't much that's allocated to the depletable assets, the reserves left at Rainy River. So I’m having trouble trying to understand the disconnect between the fact that reserves were somewhat untouched, but the value of the reserve in the financial has been taken down.
Rob Chausse
Yes. So, I'll speak to the in-situ valuation which are ounces outside of our current life of mine plan.
So we took those down to $75 an ounce, and that's what's being carried on the balance sheet from a in-situ value. And then obviously there was the CapEx impact of tailings cost increases etcetera.
Impact on from reserves, that centers in on it?
Renaud Adams
Yes. And as we discussed in the research side like Rob said like big impact on the impairment has been the revaluation of the in-situ portion of that which are outside of the reserve.
And the second is as explained, we’ve been capable to slightly, pretty much accept the depletion by moving to the gold equivalent basis. So, all in all, we view the depletion basis for the December 21 as we continue to improve the plan in 2019, we will see the potential impact.
But I'm very comfortable that using a depletion moving to the gold equivalent and we are adjusting the value of the in-situ as it was the right way to do it.
Anita Soni
Okay. So then I'm a little -- still a little confused then, because the -- are the remaining $75 an ounce included in the PP&E category or is that what would be in the depletable, non-depletable because it seems like you’re …
Renaud Adams
No, we are talking about the exclusive -- the $75 an ounce applied to the MI, and inferred that are exclusive of the reserve.
Anita Soni
Okay. Well, I think we will probably have to take that discussion offline, but I will leave my questions at that one.
Renaud Adams
Absolutely happy to follow up with you offline because we could probably [multiple speakers].
Anita Soni
Yes, thank you. I will take [multiple speakers].
Renaud Adams
Happy to do it. Okay.
Thanks.
Operator
Your next question comes from the line of Nick Jarmoszuk from Stifel. Please go ahead.
Nick Jarmoszuk
Hi. Good morning.
Question for you on the 2019 Rainy River sustaining CapEx. It's higher than what was in the 43,101 last year.
It looks like some of that was being pushed from 2018 and 2019. Was there any pull from 2020 into this year as well or where there some new incremental sustaining CapEx items?
Renaud Adams
A little bit to a certain degree. When you really look at the phase of the construction, I think it's fair to say that the experience of 2018 have shown us that the tailing construction is more expensive than the wet -- the technical report has addressed.
I think we're learning a lot from the experience of 2018, we feel. Then you look at all the items there is still some sort of a gross capital, the wet drain for instance, the stabilization of the -- we've learned as well a lot from '18.
We have started to execute that aspect. So all in all, those two items when it come to the geotechnical aspect, we've learned from 2018, we've -- we felt that we needed to adjust the capital aspect.
That's why we want to put this behind us, move to the sustaining capital, but you’re absolutely right. We see some optimization as well maybe the tech report was -- wasn’t addressing enough capital at the mill to continue to properly commissions and improve as a result can we beat the technical report as we move forward in time of mill performance we will see.
But those are the items that has been adjusted, if you will, in 2019. As we move forward and you return to the sustaining, should you be capable to optimize the further stages of tailings as I discussed.
We’re comfortable that we would be returning to a more -- much more reasonable sustaining capital moving forward.
Nick Jarmoszuk
So, to be clear, can the 2020 sustaining CapEx be lower than originally budgeted or was there generally cost inflation within the tailings estimates?
Renaud Adams
Well, the -- again, we need to go through the optimization of the life of mine to perfectly answer that questions. But as we discussed, if you do your Stage 2, if you do your water treatment plant, if you do your stabilization and you built all your infrastructure and you increase your fleet, and if you’re capable to optimize your mind, the answer is yes, you will be capable to limit the need of sustaining capital for the mining of those open pit -- on the open pit to medium high grade.
The answer is yes, but you need to put all this capital behind and you need to keep improving every aspect. So you really focus to what is absolutely needed, a sustaining capital to maintain extract mine, mill and dispose of those tons as we move forward.
Nick Jarmoszuk
Okay. And then just another question.
In terms of the liquidity profile, what's the minimum amount of liquidity that you’re comfortable with and is there a point at which you started thinking about raising some equity?
Rob Chausse
I kind of found -- I [indiscernible] expecting that. Look, the -- we're not here to discuss the raising of liquidity at this stage.
I mean, our commitment here is truly to deliver the maximum per share value. For those of you that are familiar with my approach, my commitment is to maximize the per share value.
This is really the ultimate commitment to our shareholders. So the use of equity here will be in our case, in our view, the last resource to continue to unlock the value.
I think it's fair to say that we would never want to see our liquidity even close to be below the $100 million, that is for sure. And we're more than satisfied that we could execute all of 2019 and maintain our objective.
We will see as we move forward.
Nick Jarmoszuk
So then just a follow-up on that. The raising equity is the last option.
Would you consider looking to liquidate the company as an option instead?
Rob Chausse
We're too early-stage or this is definitely not the call to the discuss our detailed plan. We did put the comment.
I mean, we know we’ve done some liquidation of asset. We believe that the future of this company is number one, make your asset profitable, make your asset capable to generate cash, make your asset capable to pay for the investment and strategically we look at how you address the debt, not the other way around.
Not liquidate, not cut your -- the corner not run the asset inefficiently. So this is a focus of my team.
And if we’re capable to deliver on our plan, the future will look completely different of the current outlook of this company. And then we could sit down and talk about how we address the future.
Nick Jarmoszuk
That’s all I had. Thank you.
Renaud Adams
Thank you.
Operator
Your next question comes from the line of Mike Parkin from National Bank. Please go ahead.
Mike Parkin
Hi, Renaud and team. Thanks for taking my questions.
Just a couple here. You mentioned the Wick Drains are kind of underway.
Can you give any update in terms of how they’re performing and how basically the geotechnical kind of project improvement is overall, kind of trending. Are you changes are, how do you approach it.
Yes, very, very encouraging. I think the team has done a very good job.
We've used mostly the waste dump experience to learn and build that above the geotechnical. We all know what happened in the past, I'm not going back there.
This triggers like a significant change in the design and then it was about do the right thing right and then learn from it. And we've done quite a bit of work in the geotechnical work and I can tell you that from the approach or the vision of a year ago, the stabilization looks much more promising.
The spacing of the Wick Drain has been optimized. So it looks better than it was looking probably like six months ago or even a year-ago, ago.
And on that, we will build on that to partner with experts to readdress and relook at the tailings aspect as well. So it is not worse off, that’s for sure.
It's slightly improving as we move. And again on the wet grind.
The design has been optimized and looks better than it was looking like 12 or 6 months ago.
Rob Chausse
And we will use that a lot Michael to return and address the design and the tailing as well. I’m firm believer and I cannot assure that.
Of course, this is a very important aspect. When I’m a firm believer.
Now there is a way to optimize or telling us backed as well.
Mike Parkin
Okay. And then just over the new apps and with the ore sorting program there, is there any improvement on the kind of focused on the copper?.
Is that how the ore sorting kind of works to identifies rock that is higher copper content or is there any improvement on the gold grade mine versus mill or that just tend to be fairly stable.
Renaud Adams
I would say there's a slight chance, right? I mean, the reading is and the optimization is on the rating on the copper side.
As you improve the copper, there's probably an upside here as we move, and as we improve absolutely. But at this stage, the strategy is around the copper and depending on the source and where it comes from, there is definitely a chance that you improve on the gold side as well.
Mike Parkin
Okay. That’s it for me.
Thanks very much guys.
Renaud Adams
Thank you.
Operator
Your next question comes from the line of Josh Wolfson from Desjardins. Please go ahead.
Josh Wolfson
Thank you. First question is on New Afton C-zone.
In the slide it says assuming the project CapEx of 450 and sustaining CapEx of 185, are those the numbers that the company expects to incur for the project?
Renaud Adams
So far I would say from the optimization to date, there is some aspect we will continue to work. John and his team, like it's -- it's a nonstop and in progress optimization.
But as we speak and as after like a 1.5 years of optimization this is what we see will be potentially achievable. We hope to not have to increase that number.
We hope that we can continue to optimize, but this is the assumption at this stage and the starting point of optimization this is the assumption that this stage and the starting point of optimization to deliver the updated life of mine towards the end of the year.
Josh Wolfson
Okay. And for Rainy, the current view that the asset will be generating free cash in 2020, is that assuming the underground mine plan recommences construction, I guess late this year or at some point next year.
Renaud Adams
Well, this is exactly the question mark here. I mean, that the reason why we delayed or postponed the plan for underground is the need to return to the fundamental.
The fundamental for me is the mining has to occur during the mining and then there is an extension of the life of mine that should be mostly an organic profile rather than a reclaiming of the low grade stockpile. So, we will answer this question as we move forward.
But I'm a firm believer that the open pit only is more than capable to generate free cash flow and when it comes to the underground, we will have to find a way to execute those plan where we don't have to write a check, as Rob said, with the view to deliver really free cash flow starting in '20. We have to, this is the ultimate objective here.
Josh Wolfson
Okay. So just more simply, is there capital, project capital associated with the underground in 2020?
Renaud Adams
As we speak, yes, but that has to be further confirmed with the optimization of our life of mine in 2019.
Josh Wolfson
Okay. And then, last question, your comments beforehand on the financial position and I guess the view of raising equity.
Has the company been in discussions to potentially relieve covenants with its debtholders and royalty streamholders for 2019?
Rob Chausse
Well, our facility is at 4.5, and that was done in the fourth quarter. And so, no, there hasn't been any further discussions beyond what we did and what’s disclosed in our financial statements and where our leverage ratios and so on we expect to be in line with our current covenants and requirements.
Josh Wolfson
Okay, got it. Thank you very much.
Renaud Adams
Thank you.
Operator
Your next question comes from the line of Don MacLean from Paradigm Capital. Please go ahead.
Don MacLean
Hello. Good morning, guys.
And, I guess, I recognize there is a lot of influx here. Maybe one number that would be helpful.
What is the current book value now for Rainy River post the write-down?
Rob Chausse
It's approximately $640 million.
Don MacLean
Okay. And everything being influx, that must been an interesting discussion how to come up with that value with the auditors.
Can you give us a little color on that?
Rob Chausse
Actually the discussion, we ran our life of mines in our budgets and we took in the views of the technical groups into the model and the number came out as it was and we certainly on the in-situ values relied on market values in previous transactions and everything -- all of our estimates, assumptions, economic or otherwise were well within the range of the market. So, yes, it really wasn't a difficult discussion at all.
We stuck to the plan -- the current plans and facts.
Don MacLean
Good. Good.
And just on the unit cost going forward, Renaud, you talked about 2019 being sort of based on Q4 actual, but if we look at 2020 and onwards, are those numbers for 2019, are they reflective of what you would expect going forward after 2019 or do you expect to [multiple speakers]?
Renaud Adams
No, definitely not, Don. I mean, we can't.
I mean look at where we -- we started the year compared to where we ended the year, the open pit is definitely not optimized yet. We’ve done a lot of progress.
Well, remember, I would tell you that we’ve started much higher than that. We landed where we are now.
We build out 2019. Absolutely I’m more than optimistic that we will continue to optimize.
You are well aware of the peers numbers, they are double in size so there is a bit of an economy of scale here. But as we optimize, decouple the pit from the need of the tailings and we really focus on optimizing the pit, we get the mill up to speed with the total tons benefit the economy of scale and optimization, absolutely optimistic that this cost will continue to reduce and optimize for 2020 onwards.
Don MacLean
Okay. That's great.
And then another sort of big picture number. The sustaining capital in the August 2018 study I believe was CAD$1.34 billion and there is $230 million in 2018.
So, that would leave CAD$1.1 billion in 2019 onward. If you kind of look at the plan now, there's been a shift of more capital into 2019, but is the overall number liable to be in the same general ballpark?
Renaud Adams
You know what, this is the main focus to be frank of the 2019 optimization, Don. I believe there's a lot of capital build in there that could be optimized so I’m really, really looking to optimize this capital as a part of the exercise.
I believe that a lot of this capital is depleted for ounces that are maybe question mark about what they really bring. So we will be very diligent and I’m with you on that, I'm looking at the total.
When I joined this company, I look at the tech and look at the tech report and looking at the total capital and didn't really like it.
Don MacLean
Big number.
Renaud Adams
Yes, feel pretty comfortable we can optimize this plan. But the priority at this stage if you want to optimize an asset, and I've been there, I've done this just a long time enough.
You cannot optimize if you do not build the side once for good for success. The tailings is currently not as it should be.
You don’t have a warehouse and maintenance facilities, but you want to optimize your maintenance practices. It's all linked, built properly, I'm not saying the world-class, I'm not saying like the best of all, we are talking about provide your employee, provide this asset with the proper infrastructure and optimization will come.
That I feel strong. With optimization will come as well the need for less capital and the need to doing things like a better way without the need to deplete massive capital.
Optimization of the use of the mining fleet will trigger the need for less equipment. This is how -- where I’m coming from.
This is what I like and capable to do and I’m with you, way too many much capital in this plan.
Don MacLean
Great. And then one just last question on the recovery at Rainy River.
Once you’ve addressed your in-solution losses and you are talking about a finer grind and you get your 90%, 92% availability, so you have a stable mill. Do you think you can achieve the 92%?
Renaud Adams
Of the recovery or on availability?
Don MacLean
Yes, [indiscernible].
Renaud Adams
Well, you see like if you look at the technical report -- if you look at the technical report at the grade of more or less the grade of the Q4, the technical report refers with the metallurgical testing and about 91% recovery, which we’ve already achieved. So theoretically speaking, if January you would have your solution down to maximum 0.5% losses on the total recovery and you would have been grinding finer, you would have outperformed the technical report.
So, yes, there is a possibility to continue to improve and outperform on the back of what we see today because we are still not optimized and we -- we’ve, but we see fairly good result.
Don MacLean
Okay. Thanks very much.
Renaud Adams
Thank you.
Operator
Your next question comes from the line of Trevor Turnbull from Scotiabank. Please go ahead.
Trevor Turnbull
Yes, Just I guess a question with respect to C-zone and some of the permitting required. Going back through some of the old technical reports, it looked like the C-zone's biggest issue was really just an amendment to the mining permit, but the amendment had to do with whether or not those historic tailings from the old Afton mill would be impacted by the subsidence of the C-zone.
And I just wondered since it's an amendment, can you talk a little bit about what the regulators are going to look at there? Is this something that's been done before where tailings potentially are impacted by subsidence, but if these are dewatered, is that really a big issue, because we get questions on this and it's not clear whether or not this is something to worry about or more a formality on the permitting side?
Renaud Adams
Yes. I have John Ritter and his team online at New Afton, but the short story is that they will be the dewatered now and stabilized in place.
That is what we see today, but John, if you want to add a little more color to this, please go ahead.
John Ritter
Hi. You are correct, Renaud.
We continue to work with our regulators and First Nations partners on stabilization. We’ve been working with them over the past year and they realize that we are taking the right approach for stabilization.
As more information comes in, we feed it to them to be proactive. So right now the question is when is the correct time to stabilize with the regulators.
So we are working on that boundary limit as we speak.
Trevor Turnbull
And maybe just forgive my ignorance, but when you talk about stabilization, obviously, dewatering is a part of that, but what else does that entail? Does that include moving anything or just reinforcing containment?
What's that exactly refer to?
Renaud Adams
Yes. As we advanced from the previous tech report, we had mentioned we may move some tailings from the historic.
We’ve now done a lot of work on Wick Drains and the loading of the historic facility. So, we plan to keep that area intact and just dewater that area.
Trevor Turnbull
And, I guess, just the last question with respect to this. Is there something that’s been done before that you are aware of or in B.C., have these type of situations been amended this way?
Renaud Adams
What we did is the oil sands industry does this quite a bit. So we sent a team up there.
We also went down to Oakland, California, there is a large facility where they do what we experimented with, plus we did our own stabilization program as well. We also have an internal review board comprised of three world experts that bring in other global Wick Drain [ph] opportunities.
So we feel confident in this approach.
Trevor Turnbull
Okay. I appreciate that.
Maybe switching gears, I have a quick question for Rob. Rob, you mentioned with respect to the carrying values at Blackwater that you had moved to, I think $1 per ounce kind of number.
I looked in the MD&A, but couldn't seem to locate it. Can you give me a sense of what that metric is for Blackwater now?
Rob Chausse
Yes, it's $30 an ounce.
Trevor Turnbull
Okay, great. That’s all I had.
Thanks, guys.
Renaud Adams
Thank you.
Operator
Your next question comes from the line of Steven Butler from GMP Securities. Please go ahead.
Steven Butler
Good morning, guys. Question for you on the -- coming back to the tech report and we saw the reference in there to life of mine strip for Rainy River of about 3.7 to 1.
I think that’s obviously still a good number to use. That’s the first question.
The -- and the strip ratio in 2019 in the tech report was expecting to be about 5.66 or call 5.7 to 1 versus you are about 3.1 to 1 here. So is there any key aspects of trying to reconcile that?
I mean, obviously, it's a different number, but is there anything beyond that 3.1 strip that’s actually in capitalized?
Renaud Adams
No, it's not so much of -- it's not so much of that. The -- like the execution, if you will, has been slightly like delays overall.
As we are going to relook at the open pit in 2019 in optimization, we feel that there was no need like to further like push too much on the strip in 2019. I think the 3.1 is well aligned.
We continue to mine outside. So, all in all, we continue to increase the total tons.
We really want to put the 2019 Stage 2 tailings behind us. We feel if you are looking at the grade delivered, the amount of tons that would be delivered to the mill, that's pretty much aligned with the tech report and the total weight.
That’s a mix of optimize plan with a bit of a delay compared to the 2018 execution, but nothing to be concerned about the ability to deliver in the future.
Steven Butler
Okay, Renaud. And then the other question there was on the operating costs.
As you said, you were hoping to reduce your site cost here as you go forward and optimize more fully. The operating costs in the tech report was around $270 per ton and here we are at $325 to $375 for this year.
So is it mainly just productivity improvements that will drive down your expected unit costs? As you said to Don earlier, you do expect to reduce your site costs.
It looks probably -- primarily on the mining side plus I guess the fixed component against processing and G&A, but particularly on the open pit costs, Renaud, what gets you down to a lower level from this year, productivity or anything else?
Renaud Adams
Three main aspects and as we discussed in the press release, the use of the equipment -- the efficiencies and use of the equipment is way, way too low. As we want to optimize, your trucks, your shovels and your drill will have to be operating at the best in class efficiencies, that is key.
You want to compare with the best, you have to operate as good or better than the best. And currently the use of our equipment efficiencies overall, we call [indiscernible] are still way too low.
A lot of that has to do with the distraction of operating the pit as was kind of a mix of feeding the mill, but also almost as a quarry to fill the tailings. So that’s the second aspect we need to decouple this.
The pit has to be designed, has to be optimized and operate as a pit and when you generate, your non-asset generator rock will be contributing to and the difference -- variance will have to come from pit decoupled from the operation, number two. Number three, cost drivers.
Cost drivers is your ability as per the technical report to control your consumption and your price and both are being addressed as we speak. The main cost driver is on the procurement side, optimize our procurement practices using the volume, maybe partnering as well with some peers around.
And the second one is obviously to control your consumption. I would say, we are doing very well on controlling the consumptions, maybe the tire is one of the aspect that as we continue to improve the road.
So all of those three items been optimized knowing that we started the year at a much higher than the $375 as you pointed out. Yes, I’m pretty optimistic that we're going to continue to decrease those cost.
Steven Butler
Okay. Thanks, Renaud.
Renaud Adams
Thank you.
Operator
That concludes today's Q&A session and as well the call. Thank you for participating.
You may now disconnect your lines.