Nov 6, 2019
Operator
Ladies and gentlemen, thank you for standing by and welcome to the New Gold’s Third Quarter Earnings Call. At this time, all participants are in a listen-only mode.
And after the speakers presentations, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.
[Operator Instructions] I’d now like to hand the conference over to your speaker today Anne Day, Vice President, Investor Relations. Please go ahead Ms.
Day.
Anne Day
Thank you, operator, and good morning, everyone. We appreciate you joining us today for New Gold's third quarter earnings conference call and webcast.
On the line today, we have Renaud Adams, President and CEO; Rob Chausse, CFO; and Michele Della Libera. 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 website at newgold.com. Before the team begins the presentation, I would like to direct your attention to our cautionary language related to forward-looking statements found in 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 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. Please note that all amounts are presented in the U.S.
dollars unless otherwise indicated. In addition, at the conclusion of the presentation, there are number of endnotes that provide important information and should be reviewed in conjunction with the material presented.
I will now turn the call over to Renaud Adams.
Renaud Adams
Thank you, Anne. And thank you everyone for joining us today.
We are very pleased to report a fourth consecutive quarter of improving operational and cost performance from both assets as we continue to advance our short-term operational plan and reposition the company for long-term success. Highlights for the quarter include improvement in our performance has underpinned the completion of a strategic equity financing which allowed us to reduce our long-term debt position by $100 million.
The Rainy River Mine achieved a significant milestone delivering the first full quarter of milling rate above the 24,000 tonnes per day. Also, when following the debt repayment of $100 million, the company had maintained available liquidity of $421 million, including $135 million in cash and cash equivalent.
We have maintained and will continue to maintain a diligent approach on managing our capital execution with the objective to complete substantially all remaining construction project at Rainy in order to reposition the asset for efficient and profitable mining, as we also continue to advance the development of the C-zone at New Afton. On the mid long-term note, we continue to advance our updated life of mine plans for Rainy River and New Afton, which are now expected to be released at the latest, the mid-first quarter 2020.
Also, we have advanced on our global exploration plan in order to position strategic drilling as one of our main focus in 2020. I will now pass the call over to Rob Chausse, CFO for a quick review of our third quarter financial results.
Rob Chausse
Thanks, Renaud, and good morning. With details that are consistent with our early October production press release, Slide 5 provides our operating highlights.
Also, data discussed today is on a continuing ops basis. During Q3, the company produced 129,000 gold equivalent ounces.
The amount consisted of 20.1 million pounds of copper, approximately 75,000 gold ounces from Rainy River, and 16,000 gold ounces from New Afton, giving us a total of approximately 91,000 gold ounces. The higher goal production as compared to the prior year quarter is primarily due to higher productivity at Rainy River.
Operating expense per equivalent ounce was 15% higher than the prior year quarter due to an increase in the operating waste tonnes mined during Q3 at Rainy River. All-in sustaining costs at Rainy River and New Afton for the quarter were $1,593 per equivalent ounce and $869 per equivalent ounce respectively.
Amounts are higher than prior year quarter due to higher sustaining capital spend. Consolidated all-in sustaining costs for the quarter were $1,318 per equivalent ounce 20% higher than the prior year quarter due to higher sustaining capital spend and the increased OpEx per ounce.
Turning to our financial results on Slide 6, third quarter revenue from continuing operations was $168 million, driven by sales of approximately 86,000 gold ounces at an average realized price of $1,383 per ounce, and sales of 20.6 million pounds of copper at $2.62 per pound. Q3 revenue was 14% higher than the prior quarter due to production increases related to the ramp-up of Rainy River and higher realized gold prices partially offset by lower copper sales.
Operating cash flow before working capital adjustments was $67.4 million or $0.11 per share for the quarter, lower than the prior year quarter, primarily due to the higher strip at Rainy during Q3 2019. The company recorded a net loss from continuing operations of $24.7 million or $0.04 per share during Q3, compared to a loss of $0.00 per share in Q3 2018.
After adjusting for certain charges, the net loss was $10.3 million or $0.02 per share in Q3 compared to a loss of $0.01 per share in the third quarter of 2018. Our Q3 adjusted earnings includes adjustments related to other gains and losses that include unrealized loss on our gold price option contracts and our stream mark-to-market.
Our MD&A has additional details on the non-GAAP measures that discussed. Turning to Slide 7 on our CapEx, this slide provides a breakdown of our Q3 2019 CapEx.
Our total sustaining capital and leases for the quarter was $56.3 million and the spend was primarily related to tailings work and the purchase of the Rainy River camp facility. Growth capital was focused on project development at New Afton.
Slide 8, as Renaud mentioned, during the quarter, we completed repurchase of $100 million of bonds in early October and with that we had $135 million remaining in cash and approximately $420 in liquidity. With that, I'll turn the call back to Renaud.
Renaud Adams
Thank you, Rob. I am now Slide 10.
The Rainy River mine reported increases of gold equivalent production of 76,092 ounces for the quarter and is on track to achieve the lower end of annual production guidance. Despite the lower grade plan for the four quarters of between 0.8 and one grams per tonne, the lower throughput achieved in October as a result of managing water in the tailings area.
And as we come to focus on the waste mining in order to better position the assets for the short term, midterm projected. Total cash costs per gold equivalent ounces of $922 for the quarter or $877 for the nine months period, on track to achieve the annual guidance of $870 and $950 per gold equivalent ounces.
Sustaining capital and sustaining payment increased to $46.3 million in the third quarter, a $110 million for the nine months period. Sustaining capital and sustaining lease payments are now estimated to be between $175 million and $190 million for the year.
While we are deferring approximately $20 million to 2020, we are also very pleased that we have achieved a net reduction of approximately $15 million related to the tailings area and rescoping of the maintenance and warehouse facilities. As I mentioned in my opening remarks, we have and will continue to maintain a discipline approach with regards to capital execution, with focus on positioning the asset for the future, while we continue to manage our short-term financial position.
As a result of lower estimated sustaining capital for a year, our all- in sustaining capital are now expected to achieve the lower end or below the annual guidance. On Slide 11, during the quarter, approximately 1.7 million ore tonnes and 8.5 million waste tonnes were mined at an average strip ratio of 5:1, as Phase 2 stripping continued to be prioritized.
Additionally, 2.6 million tonnes of out-pit – out-pit material were mined in preparation for dam raises over the balance of the year. The mill achieved a significant milestone in the third quarter delivering a full quarter above the design criteria of 24,000 tonnes per day, while maintaining the recovery at approximately 91%.
The efforts continue on achieving additional circuit optimization. The operation experiencing significant rainfall in the third quarter and into October.
During the month of October, the mill operated at lower capacity in order to manage water levels in the tailings area. Also scheduled maintenance planned for the fourth quarter but completed in October.
In late October, the planned 2.5 million raise was completed which provided now approximately 7 million to 8 million cubic meters of additional capacity in the tailings area. We are very pleased to report that the mill facility managed to operate an approximately 18,000 tonnes per day in October and is now expected to operate at full capacity over the balance of the year.
While we may not achieve a new mark in fourth quarter, we remain very positive to achieve the potential 24,000 tonnes per day considering expected high availability and throughput in November and December. On Slide 12, while the asset continue to face some challenges with regards to require stripping over the next four years, which include dealing with overburden of 30 meters to 60 meters and related re-handling and need for additional work at the waste dump.
We are now turning our focus on significant opportunity for improvement. With the stage 2 dam raise nearly completed and a reduction of out-pit material requirement plan for 2020, the mine will now enter a phase of optimization which will include commissioning of the new four drills to improve performance, the wider benches in Phase 2 and 3, overall equipment utilization improvement in order to productivity – to enhance the productivity from the mining fleet.
The mining fleet availability, and maintenance performance and optimization of cost driver including both operational and procurement practices. We will remain focused on improving the mill availability which will result in a potential higher throughput from the current 24,000 tonnes per day.
The company plans to use external consultant in 2020 to support all optimization efforts. With regards to our strategic review and the new life of mine plans to be released at the latest and mid-first quarter 2020, I will summarize the Slides 13 and 14 as follows.
We have now landed on the final scenario which will include open-pit and underground mining. The elevated cut-off grade in order to focus on medium, high-grade ore with strategic approach to recover the low grade ore during the open-pit mining.
While the new pit shell will focus on a high medium grade, some low grade mine ore will be mined and effort will be made to benefit from them. The maximizing of the high and medium grade ore during the open-pit mining or with potential ounces of high medium grades, mined as an underground mining approach which will support our overall strategic approach of significant reduction of waste mining requirements.
Reductions of mining, milling and G&A unit costs through cost reduction efforts. Focus on managing capital requirement to include the completion of 2019 construction project stripping requirements for open-pit mining, tailings requirement, elimination of need for west waste dump stabilization and the capital component of open-pit mining while minimum capital requirement for underground will be a priority.
The reduced footprint for overall closure cost is also an area of focus. Plan to be based on their reserve gold price, which will imply open-pit scenario to be locked in as a reserve price and the ops side on the gold price to be kept to enhance the profitability from the open-pit scenario.
The underground scenario to include scenario upside at higher gold price defining further debt and capital intensity at higher prices. On Slide 15, with regards to New Afton, the mine produced 52,807 gold equivalent ounces for the quarter and nearly 180,000 gold equivalent ounces for the nine months and is on track to achieve annual production guidance of 215,000 to 245,000 gold equivalent ounces.
The cash cost per gold equivalent ounces was $682 for the quarter, up $596 for the nine months period. While the gold and copper production coupled with operating expenses per gold and per copper basis remain well positioned to achieve our annual guidance, the cash cost per gold equivalent ounces are now expected to achieve the high end of annual guidance mainly due to the lower copper pricing pack on the per gold equivalent basis.
Sustaining capital and sustaining lease payment increased in the third quarter, but are now expected to be slightly below our annual guidance of $45 million to $55 million due to the improved cost efficiencies realized on development meter, as well as the deferral of other capital projects payment of these projects now expected in the first quarter of 2020. The mining and milling performance were in-line with planned levels and the gold and copper recoveries were kept at or above 80% mark, despite the lower grade achieved in the quarter.
The lower grade achieved were mainly due some short-term operational underground issues and the lower than anticipated performance of the ore segregation during the quarter. The grades are expected to improve in the fourth quarter.
Growth capital increased in the third quarter mainly due to improved development rates, but the growth capital for the year are now expected to be slightly below our annual guidance of $40 million to $45 million, mainly due to realized cost efficiencies in development meter and some payment now planned for Q1 2020. On Slide 16 our internal key objective for 2019, the B3 and C-zone development rates significantly improved in the third quarter with a total of 2,100 meters achieved showing some good realized cost efficiencies.
The mill recoveries continue to perform well with commissioning of Phase 2 mill upgrade planned for the fourth quarter in order to deal with supergene ore. The ore scanner in order to improve the mill grade via ore segregation was commission and improved performance are expected over the next quarters.
Work on updated life of mine plan continues in the third quarter with release plan at the latest mid-first quarter 2020. The updated plan to focus on the geotechnical study update with regards to the subsidence and corrective actions; tailing updates with use of in-pit disposal using a thickened and amended tailings to increase the stability while we would provide an update on stabilization of current and old tailings area, the updated permitting timeline and the capital and OpEx cost optimization.
On Slide 17, the reevaluation of the Blackwater project continues in the third quarter. The new project potential plan to include higher grade above one grams a tonne while maintaining a low strip ratio targeted at 2.1.
The lower operating cost structure on a per ounce basis resulting from higher grade while mining costs would potentially continue to benefit from low strip ratio, lower initial capital resulting from potential reevaluation of project sizing. More to come on the Blackwater project as we advance in 2020.
I will now pass the call over to Michele Della Libera, Director of Exploration for a quick review of our ongoing exploration effort. Michele?
Michele Della Libera
Thank you, Renaud and good morning everybody. Slide 19 is exploration program highlights at Rainy River.
We break on near-mine opportunities and district level opportunities. Today, we drilled seven holes on what we call the interactive north target area.
And we are now posing the drilling because we had mixed asset result and we need to readdress and reinterpret the geology and the alteration system there. And we may resume the drilling in 2020.
And we move our exploration team on the district level regional reconnaissance and where are developing and progressing our soil auger geochemical surveys that will be done before winter to have all the data and to refine the drill-ready target for 2020. On Slide 19, the exploration program at New Afton, the underground drilling done during this year that was completed at the end of October was related with infill designation on the SLC sub level cave area with good results that will be incorporated into the 2019 mineral resources and reserves update.
At the same time, we defined a new zone that is parallel to the B3, C-zone known plant of the ore body. With interesting result that we are planning to follow-up during 2020 and we called this area is the expansion target that is becoming one of the key target underground for the next year.
C-zone we drilled five holes completed in this week. And we define the age of mineralization under mid C-zone and also these results would be incorporated in the resource statements for 2019.
On the regional exploration program in New Afton, we are focusing on the Cherry Creek Corridor which has the gold potential for epithermal gold close to surface and underlying deep porphyry and copper-gold target. We define with coincidental geochemical and geophysical anomalies set a target ready to drill and we are planning to start drilling in next week and the first seven holes will be the first phase going towards the end of the year.
Thank you. And now I am turning back to Anne Day.
Anne Day
Thanks, Michele. We are now going to move to Q&A session of this call.
So I’m going to turn it back over to the operator.
Operator
[Operator Instructions] And our first question comes from the line of Matthew Fields with Bank of America. Go ahead, please.
Your line is open.
Matthew Fields
Hi, everyone. I appreciate the progress you made on de-leveraging the balance sheet in the quarter with the equity raised and the partial repayment on the 22s.
Slide 8 still says additional debt optimization scenarios currently under review. Can you just give us an idea about what additional plans you still have to de-leverage or term out the balance sheet?
Rob Chausse
Yes, listen, I think as I’ve mentioned in previous calls and meetings, we’re looking at all strategic and capital markets options available to us and assessing opportunities as they come. One of the things I’ll say in addition to that is we’ve paid off $100 million.
We still got $420 million of liquidity available. So it allows us to be disciplined and prudent around any of the options.
But again, we were looking at many options, and alternatives and how we can strategically use our assets or options within capital markets, but nothing more specific than that.
Matthew Fields
Okay. As just a follow-up is, now that you’ve paid down $100 million, is the focus more on terming out or further absolute debt reduction the focus of that?
Rob Chausse
I think our focus is to improve our balance sheet. Again though the market will present options and we’ll decide as we move along.
But we would like to see an improved balance sheet as we move along.
Matthew Fields
Okay. Thanks very much.
Operator
[Operator Instructions] Your next question comes from the line of Nick Jarmoszuk from Stifel. Go ahead, please.
Your line is open.
Nick Jarmoszuk
Hi. Good morning.
Question for you on Rainy River, the grade guidance was maintained for the year at 1.1 grams per tonne. That’s lower than what we’re looking at year-to-date.
Should we anticipate a decline going into the fourth quarter or should we expect it to be relatively flat what we’ve seen year-to-date?
Michele Della Libera
No, definitely we’re planning a lower grade in the fourth quarter as it was actually discussed after the second going towards the third and the fourth quarter. I did mention in my remarks on the Rainy River.
So we see a potentially the fourth quarter to be on a 0.8 grams to 1 grams. So on the overall the year we have maintained our 1.1 grams approach from currently trending above, but you add one quarter below one and potentially below one and we feel comfortable to maintain our 1.1 target.
Nick Jarmoszuk
Okay. And then looking forward into 2020, you granted the updated 43-101s aren’t out yet.
But when you think about the capital required for Rainy River, New Afton and potentially even Blackwater, do you view those projects the development there being funded through internally generated cash flows and liquidity that you currently have, or do you think you’re going to have to go out and raise additional capital?
Michele Della Libera
I wouldn’t comment at this stage on the Blackwater because obviously at this stage our certain priority is definitely around completing the short term, mid-term capital execution and we’ll deal first of all to land on what could be the potential scenario for Blackwater. So we’re not there yet.
We will continue at Blackwater to improve our plans as we advance in 2020. With regards to Rainy, to Rainy and New Afton will be a mix of use of our current liquidity and also internal cash flow at the New Afton.
This remains our priority and objective.
Nick Jarmoszuk
That’s all I had. Thank you.
Michele Della Libera
Thank you.
Operator
Your next question comes from the line of Anita Soni with CIBC. Go ahead, please.
Your line is open.
Anita Soni
Thank you. Good morning, guys.
So my question is with regards to Rainy River, just looking at Slide 11 where you’ve got some of the 2019 estimates and you’re showing your year-to-date numbers. I’m just trying to understand should we be still targeting those estimates?
Like if you look at ore tonnes mined it was sort of a 31,000 tonne per day and you’re running, I guess, closer to like 18,000 to 20,000 tonne per day on the ore tonnes mined. And just wondering how that plays out for the course of the year?
And secondly, in terms of where the lower strip ratio that you have this year, how does that – again, how does that work into the fourth quarter should we be targeting that overall that it averages 3.1, or is that some of that stuff pushed out into 2020?
Michele Della Libera
Thanks Anita to drive this question and allow me to clarify.
Anita Soni
Yes.
Michele Della Libera
I’ve mentioned actually in the last quarter, so to be precise now we would not have reached 3.1. So our short-term objective at Rainy is definitely to better position the asset.
So as we consider to target to meet our cost and production guidance, any additional capacity to be frank will be and continued to be focused on the waste stripping because this is really what will better position the asset. We understand the extra costs in the short term.
But again, I’m very pleased to see that so far after three quarters, we have been managing to increase our waste stripping, accelerating the positioning if you will ore mining for 2020. So we will continue to focus on waste stripping in the fourth quarter.
Should we see any drop in the grade? We have always the ability to maybe focus a bit on the ore, but don’t expect a 3.1 as much as we would like to be on the reduce, we believe that it would benefit us in the future.
With regards to overall rate that has been systematically below the 128,000. Yes, you are absolutely right, in the short term we have not met our objective, but when you add the significant amount of rock that we have mined outside of the pit.
And you combine those on a global basis we have achieved quite a good mining rate in the global. But as you know can’t let go the effort on the tailings in 2019, it was also a priority.
And as I mentioned in my – I’m very confident on the road that you would see a significant improvement on the mine with the ex-pit mine, to be frank. As we walked away from the need of material for the tailings, I’m really expecting and the use of consultant, optimization I’m very confident in assessing if we can improve.
Anita Soni
Okay. And then so that leads me to my next question.
So if you are doing the waste tripping and you’re focusing on that this year, can we think about the tonnes perhaps should have been mined in the next year and the year after as being already done and we shouldn’t be worrying about those for next year. And then the mining rate, are you going to be backing off of doing any of the tailings or is that the similar kind of ex-pit tonnes are happening next year?
Michele Della Libera
Yes, first of all, waste tripping to is when we initiated 2019, we had initiated using the current plan. So the current plan was to shoot for a much higher mining rate down the road because it was based on the fully expand pit shell scenario.
We are now moving towards a reduce pit shell, reduced total mining requirement. So in the short term, even though we’ve been – we’ve been mining below the 128,000 we absolutely do not see any impact whatsoever on our short, midterm plans because the new plans will be to reduce need.
With regards to the rock this year we’ve done significant amount. The Stage 2 requirement will be completed next year, not too late.
I believe that our total requirement for 2020 with regards to material it will be less – for the material for the tailings will be less than one million tonnes, and will be internally managed from the pit per se and pretty much potential to no need to go outside of the pit in 2020.
Anita Soni
Okay. Thank you very much.
Michele Della Libera
Thank you.
Operator
There are no further questions at this time. I’d like to turn the call back over to Ms.
Day.
Anne Day
Thank you, operator. Thanks everyone for joining us today.
Should you have any additional questions, please feel free to reach out to us. But with that, we will close the call.
Thank you.
Operator
This concludes today’s conference call. Thank you for your participation.
You may now disconnect.