Aug 11, 2021
Operator
Good morning. My name is Sylvie (ph) and I will be your conference operator today.
Welcome to the New Gold's Second Quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise.
Please be advised that today's conference call and webcast is being recorded. After the speakers remarks, there will be a Question-and-Answer session.
[Operator Instruction]. And I would like to turn the conference over to Ankit Shah, VP of Strategy and Business Development.
Please go ahead, sir.
Ankit Shah
Thank you, Sylvie and good morning, everyone. We appreciate you joining us today for New Gold's Second Quarter 2021 Earnings Conference Call and Webcast.
On the line today we have Renaud Adams, President and CEO, and Rob Chausse, our CFO. Should you wish to follow along with the webcast, please sign in from our homepage at newgold.com.
Before we begin the presentation, I would like to direct your attention to our cautionary language related to forward-looking statements found on slides 2 and 3 of the presentation. Today's commentary includes forward-looking statements relating to New Gold.
In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in the presentation. You are cautioned that actual results and future events could differ materially from those expressed or implied in forward-looking statements.
Slides 2 and 3 provide 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 cause actual results to differ.
In addition, at the conclusion of the presentation, there are a 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 Rob.
Rob?
Robert J. Chausse
Thanks, Ankit, good morning. Slide 5 provides our operating highlights for Q2.
Production details are consistent with our July production press release. During Q2, the Company produced approximately 105,700 gold equivalent ounces.
The amount consisted of 18.2 million pounds of copper, 52,900 gold ounces for Rainy River and 14,088 gold ounces from New Afton totaling approximately 66,900 gold ounces. Higher equivalent gold production as compared to the prior-year quarter is primarily due to higher tons and grades at Rainy River and higher copper production at New Afton.
Operating expense per equivalent ounce was higher than the prior-year quarter due to planned higher costs at New Afton, a strengthening Canadian dollar and the Canadian wage subsidy received in the prior period. Consolidated all-in, sustaining costs for the quarter were 1,551 per equivalent ounce, higher than the prior-year quarter primarily due to higher operating expense as previously noted, and increased in sustaining Capital at New Afton.
Turning to our financial results on Slide 6, second-quarter revenue was a $198 million driven by sales of 68,000 gold ounces at an average realized gold price of 1,817 per ounce, and sales of 16.9 million pounds of copper at 4.43 per pound. Q2 revenue was 54% higher than the prior quarter primarily due to higher sales volumes and metal prices.
Operating cash flow before working capital adjustments was 84.7 million or $0.12 per share for the quarter, higher than the prior-year quarter, primarily due to higher sales volumes and metal prices. The Company recorded a net loss of 15.8 million or $0.02 per share during the quarter compared to a loss of $0.07 per share in the prior-year quarter.
After adjusting for other certain items, Net earnings were 26.7 million or $0.04 per share in Q2 compared to a Net loss of 3.3 million or $0.00 per share in the second quarter of 2020. The difference is driven by higher sales volumes and metal prices.
Our Q2 adjusted earnings includes adjustments related to unrealized adjustments on our Rainy River stream mark-to-market and the free cash flow royalty at New Afton. Our MD&A has additional details on the non-GAAP measures discussed here.
Next slide covers -- sorry, on the bottom of this slide covers the capital expenditures, our total capital expenditures for the quarter were 82.4 million. 49.2 million was spent on sustaining capital and 33.2 million on growth capital.
Sustaining spend was primarily related to planned tailings working at both operating assets and B3 mine development at the last-in. Growth capital was focused on project development, specifically the C-Zone, and the Thickened and Amended Tailings project at New Afton, and the underground and tropic zone at Rainy River.
Slide 7 provides details of our Capital structure. At June 30th, 2021, we had a 138 million in cash and 464 million liquidity.
Adding to liquidity will be the receipt this month of the remaining $50 million CAD payment related to the Blackwater sale. With that, I'll turn the call over to Renaud.
Thank you.
Renaud Adams
Thank you, Rob. And again, thank you, everyone for joining us today.
I'm on Slide 9 on Rainy River. So let me start by saying that they are currently no active COVID cases that rainy and the mine guns you need to use a rapid testing.
And as also implemented vaccination clinic at slide, the asset performed extremely well during the second quarter and was very well-positioned at a quarter-end to enter the second half of the year, which was to be focused on high grade and lower strip ratio. The mining operations continue to execute very well during the quarter with over a 158,000 tons per day mined, a third consecutive lode (ph) at or above the operational target of 151,000 tons per day.
So the focus really remains on the further operations and cost optimization as we move forward and advance in [Indiscernible].
Robert J. Chausse
The mill had performed at a slightly lower availability this quarter, but we expect the mill to deliver its maximum permit capacity of 27,000 tons a day in the second half of the year. The processing milling rate has been maintained at an interesting average and nearly up 26,500 ton per day over the last 4 quarters.
This compared with the permit of 27,000 tons a day. Very important is on the Intrepid.
The Intrepid zone is the first underground bar to located East of the pit.
Renaud Adams
So the Intrepid decline advanced by another 616 meters. We have now reached a second level in ore, and we're in the process now to implement more definition drilling as we resume and develop in ore.
The ramp will continue to advance in the third quarter with the objective eventually to have a full per span all totally developed in ore prior to initiate productions in the later part of 2022, while we would have also advanced the second panel. So parallel to Intrepid development is the full study that would eventually target the conversion of a significant portion of their resources into a reserve from their resources located below the pit.
The Intrepid, as previously discussed, the fall Intrepid zone was now incorporated in the reserve at the December 2020, and we have now completed a more detailed mine plan that would be incorporated in our next generations of life of mine. So we're now busy to do the major size, the current reserve as of December 2020 contemplates only the upper portion of the underground resources located below the pit, and we're now in the process and the use of $1,400 reserve price to complete the study to prove the conversion of those resources and to reserve for incorporations on our next life of mine, which is targeted to increase the life of mine and the evaluation of the asset.
I will now refer you to a short extract of our MD&A and press release with regards to this [Indiscernible]. and the challenge that -- for the grade in July 2021.
So in July 2021, the production was primarily from the eastern area of the ODM called the East Lobe. And the realized gold grade from this area was below the expected gold grade in this period.
So the East Lobe represent approximately 50% of the planned productions for the second half of 2021. So if the realized gold grade continue to thrive below the expected gold grade, it will negatively impact the amount of ounces we expect to produce in the second half of 2021.
So the extent of the impact is not yet known, but there is a risk that Rainy River may not achieve the low enough fiscal equivalent production guidance range of 2,000 and 75,000 to 295,000 ounces. All the high-end of this all-in sustaining cost guiding range of $11,25 to $12,25 per gold equivalent ounce.
So I'm now turning to the Slide 10. We appreciate that this situation of July is very recent, but I would like to provide some additional comments at this disclosure.
But let me start by giving a bit of the background here. So the resources at Rainy are categorized in three groups; the high, medium, and low grade, they're called the HGO, MGO, and LGO.
So the combination of the HGO and MGO form what we would call the direct feed to the mill, while the LGO is stockpiled for future use. So in other words, the combination of the HGO/MGO is really what you're targeting to feed the mill at a 27,000 tons a day.
While the HGO are stockpile for future [Indiscernible] with the underground as we move and transition to the underground. So the reconciliation of the HGO/MGO is really what drive the performance of the mine.
So as you could see on the table, historically, the mine has reconciled extremely well with the HGO and MGO in the last 3 years, as you could see, we have successfully mined and delivered on a neutral to positive reconciliation to total ounces when compares with the resource model. With that in mind, the plan 2021 production was done using the reserve of December 2020, which was based on, of course, the resource and the fate and the reconciliation.
So as mentioned, the East Lobe represents about 50% of the ton to be mined in the second half. So as we initiate the second half of the year at the higher grade plan, and that the production was primarily from the East Lobe and that represents the 50% of H2.
So our acrostic situation was highlighted. But the situation of July 2021 is very early stage.
There's a quite a bit of work to be done. I'd like to mention that the East Lobe represent approximately only 15%, 15, 15% of the remaining open pit of the HGO/MGO post-2021.
So we're not talking about something of the 50% range in the remaining life of mine, but this represent a significant portion of the H2 and therefore, the situation is taken obviously extremely seriously. So it is really early stage to predict the behavior of the East Lobe in the future months to come, but we've been in situations very similar in the past.
So not because we have reconciled on a yearly basis extremely well in the last 3 years, that every day, every month, every moment was perfect. So we've been in situations before where we've seen similar situations where we had some reconciliation on a sporadic basis but again, because of the importance of the East Lobe in the second half, this was highlighted in the early stage.
So I would like as well to notice that the RC drilling was incorporated to our strategy in 2020 and fully incorporated into our operational strategy in 2021. So I'd like to mention as well that the RC drilling that took place below the 4.33 and the ODM early year this year has [Indiscernible] sources as planned, but our RC drilling program for the East Lobe was not yet completed and will be advanced as we amend overtime over the next week.
So we'll keep informed as new information comes to us. And there is some potential modification of the mine plan as well, if needed, to mitigate a portion of the 2021 impact.
But again, early-stage and more analysis are required at the advance -- in time. I'd like to move on to Slide 11 in the New Afton.
So globally, I'm extremely, extremely pleased with the New Afton. Solid performance of the second quarter, with approximately 50,500 gold equivalent ounces produced, with including a copper production of PS18.2 million.
Unfortunately, we had two recent active cases of COVID and New Afton but basically the mines operated the [Indiscernible] water after 0 active cases. I'd like to mention as well as you're probably following in the news, the wildfire situation in British Columbia, remains active.
And at this time, there has been no impact to the operation in New Afton or to the supply chain. But New Afton has an active fire management plan in place, and the number of precautionary measure has been implemented in the event the risk to our employee, contractor, community, and infrastructure increase considerably.
Again, we're monitoring the situation. We have a very strong plan, but no impact has been noted to date of the asset.
The mining mill performed within the plan while the copper grade outperformed in the second quarter, resulting in a very strong quarter for us. The C-Zone development advanced by 5 -- 919 meters during a quarter, and the site continued to focus on delivering our future on time and on budget.
While later than originally plan, the B3 permit was received during the quarter and the extraction has started and will continue to ramp up over the second quarter of 2021 and 2022. But as a result of the delay, there will be less than from B3 available in our second half of the year and therefore, a portion of the ore will be replaced by lower grade ore from the Lift 1 and/or stockpile.
But overall, we continue to expect to meet our gold equivalent guidance with -- as strong as the midpoint of the copper guidance. A point as well to know, a very important point of New Afton is that the reserve of December 2020, which serve of course, for the 2021 mine plan.
We're estimating using a gold price of $1400 but also a copper price as low as 275 a pound. So with occurring metal prices significantly above the reserve pricing, New Afton is evaluating a potential for additional short-term opportunity using a lower cut-off grade.
We continue to maximize the total value of the asset as we transition to the seize-all in 2023. This completes the presentation portion of the call and then I would now turn it back to the Operator for the Q&A portion.
Operator.
Operator
Thank you, sir. [Operator Instructions].
And your first question will be from Anisha Soni at CIBC. Please go ahead.
Anisha Soni
Hi. Thanks for taking my question right now.
And thank you for the disclosure on the reconciliation with that East Lobe. Can you just give us an idea what grade was expected and what your -- I guess, if you tell us the grade that was expected we can, from the math there, figure what you're actually getting or what you're reconciling to.
But I just want the actual relative -- the reference point for what grade you were expecting the East Lobe.
Robert J. Chausse
We never really disclose on a detailed basis. But what I could say, as you know, we've been performing in the point -- averaging, 0.8 to 0.85 in the first half and we're expecting a full-year around the 1 gram.
So obviously we're expecting in the second half something along the 1,1.21 grams a ton and 50% of the tons in order to achieve that is from the East Lobe. Again, without breaking down into the detail, the performance of the East Lobe in achieving 1 to 1.2 grams in the second half of the year contributes for about 50% of that.
Anisha Soni
Okay. Thank you.
And then just moving onto New Afton with the B3 Development rates. You have indicated to the second half of this year, you're a little bit behind on that.
Can you just give us an idea of what kind of ore sources and what kind of grades we should perhaps be thinking about going into Q3? And then is it fair to say that this -- can you just give us an idea of how far behind this receipt of performance was.
I'm looking at the technical report. You were supposed to have started developing at the beginning of this year, so I would estimate what, 3 or 4 months behind.
And is that a fair assumption to compare with the access in the B3 zone?
Robert J. Chausse
Yeah, the -- it's a fair assumption. I mean, we were as this lowest priorly disclosed, so we were hoping for the B3 permit in the first quarter.
Of course, in all last year, we were really hoping for early in the year. And then as you know, we were hit with the fatality.
And quite frankly, our communities and BC government has been extremely challenge over the last short while so we knew that there were some pending conversations to close. So we were patiently waiting, but unfortunately, really, we were planned for maybe the first quarter, and that was extended to the second quarter.
So your assumption is good, there is a 3 to 4 months of ramping up that we were hoping in '21 and did not happen, and which extend basically. But on the other hand, as Nelson (ph) mentioned as well, there is numerous support in the [Indiscernible] here to relook at some draw points that we're at the East -- the Lift 1
Renaud Adams
that was stopped or mining in back in time on the use of lower -- of metal prices. So the tons will probably continue to come from Lift 1, Anita (ph), and the Lift 1 has been performing very well in the first two quarters, as you could see from the grade -- copper grade and there is obviously an opportunity to continue to fall beyond their reserve line towards the resource line.
Remember that this block cave has a massive resource envelope around the reserve. So all of that for 2021, you know, we're very confident.
So in terms of grade, if you do that math and you look at our production, so we definitely see
Robert J. Chausse
the goal that we'd probably interrupt, when that point parallel late -- not late but between maybe the 0.35 to 0.40. We're fine to drop the goal grade from the 0.43 you've seen.
We're fine to drop the copper. Now, noted that the copper grade in the first half has been in part performing as well, I'm very pleased, but hasn't outperformed.
So that gives us the opportunity, as I said to go in other area and average maybe more like a 0.65 or so, as was maybe more originally planned. So
Renaud Adams
a lot of opportunities but there is no point in continuing and trying to stretch out to the higher grade and leave opportunity behind. So the first 2 quarters would allow us to maximize the use of lower grade for the second half and still be well-positioned in our guidance.
Anisha Soni
Okay.
Robert J. Chausse
It's a long answer but --
Anisha Soni
And then lower copper grade targeted, would that got also produce some lower gold grades as well?
Robert J. Chausse
Yeah, it will do as well because you cannot decouple both so --
Anisha Soni
Yes.
Robert J. Chausse
By drilling and the lower, but we still expect to meet the goal down, the goal blow end with the combination of a midpoint. Now, remember as well that our equivalent goals are calculated using a 350 copper as well.
We're taking everything into account and we believe that the right thing to do is to maximize the value of the assets as we transition to season.
Anisha Soni
Okay. And then would that imply that maybe you would perhaps fill the mills higher than the run rate so far?
I think that the run rate that you've had was contingent upon the grades that you were seeing in your reserve and from the resource. Will BC, higher tonnage going through as well?
Robert J. Chausse
On that one, I would be very prudent to say that as much as we want to maximize the extractions of the underground and extract the maximum value, we continue to be managing our mill in parallel to the tailings as well as capacity and managing of the water and storage. Remember that as we transition next year to the in-pit tailing, we are ending the life of the current storage.
So it's very important that we do not try to push beyond and then have to manage some tailing situations. So I would say, I'm less fuzzy when pushing the mill more than pushing the [Indiscernible]?
Anisha Soni
Last question, then I'll pass it off. But this is more big picture.
When key theme has been inflation and inflationary pressures, could you talk about your relative exposure in terms of energy of both assets, labor, and other consumables, and what kind of pressures are seeing there at this stage, going into 2022?
Robert J. Chausse
Yeah, I think the two other areas that you'd look at in the case that are fuel and certainly the exchange rates. When we look at fuel, its -- Rainy River is the site that's primarily impacts.
That's where we use most of our consumers of our fuel. So the impact on an annual basis there's about $3 to $4 million when we compare what we -- the pricing of fuel came into at the beginning of the year.
So approximately around $10 an ounce. And as far as FX rate now, we're at about 1.25.
Our guidance was 1.28 and that delta -- that change represents about $30 an ounce for the remainder of this year. Or maybe put another way, $0.05 change in the CAD is around a $10 million impact on New Gold.
Anisha Soni
Okay. And then is there any difference in the Capex, the pressures that you're seeing on -- or impacts on the Capex side of [Indiscernible]?
Robert J. Chausse
Nothing material. We've -- the majority of our, for instance, steel and the Thickened and Amended Tailings for instances, is past -- we've received a lot of that material.
So no major of material impact on our capital projects.
Anisha Soni
Okay. So we shouldn't expect to see the C-Zone development to be escalating into next year then?
Robert J. Chausse
No.
Anisha Soni
Okay. All Right.
Thank you.
Robert J. Chausse
Thanks.
Operator
Thank you. [Operator Instructions].
And at this time, gentlemen, we have no further questions. Please proceed.
Ankit Shah
Thank you, Sylvie. And thank you everyone who joined us today.
As always, should you have any additional questions, please do not hesitate to reach out to us by phone or email. We hope you enjoy the rest of your summer.
Operator
Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today.
Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.