Nov 12, 2021
Operator
Good morning, ladies and gentlemen. And welcome to the New Gold Inc.
Third Quarter 2021 earnings call and webcast conference call. At this time, all lines are in listen-only mode.
Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please for the Operator.
This call is being recorded on Friday, November 12, 2021. And I would now like to turn the conference over to Mr.
Ankit Shah, Vice President, Strategy in Business Development. Please go ahead.
Ankit Shah
Thank you, Operator. And good morning, everyone.
We appreciate you joining us today for New Gold's Third Quarter 2021, Earnings Conference Call and webcast. On the line today, we have Renaud Adams, President and CEO, and Rob Chausse, CFO.
Should you wish to follow along with the webcast, please sign-in from our Homepage at newgold.com. Before the team begins the presentation, I'd 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.
To our caution 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 could cause actual results to differ. In addition, at the conclusion of the presentation, there are a number of end notes that provide important information and should be reviewed in conjunction with the material presented.
I will now turn the call over to Rob.
Robert J. Chausse
Thanks, Ankit, and good morning. Slide 5 provides our operating highlights for Q3.
The details on that slide are consistent with our October production press release. During Q3, the Company produced approximately 105,600 gold equivalent ounces.
The amount consisted of 15.6 million pounds of copper and 58,600 gold ounces from Rainy River, and approximately 13,600 gold ounces from New Afton. Total gold ounces of approximately 72,000 ounces.
The overall equivalent gold production as compared to the prior-year quarter is primarily due to lower tons processed at Rainy River and New Afton. The operating expense per equivalent ounce was higher than the prior-year quarter, due to the strengthening Canadian dollar, and the Canadian weight subsidy received in the prior quarter.
Consolidated all-in sustaining costs for the quarter were $1,408 per equivalent ounce, higher than the prior-year quarter, primarily due to the higher operating expenses previously noted, partially offset by lower sustaining capital. Turning to slide 6 for our financial results.
Our third quarter revenue was approximately $180 million driven by sales of 66,982 gold ounces at an average realized price of $1788 per ounce and sales of 14 million pounds of copper at 428 per pound. The Q3 revenue was 4% higher than the prior-year quarter, primarily due to higher metal prices.
Operating cash flow before working capital adjustments was $81 million or $0.12 per share for the quarter in line with the prior-year quarter. The Company recorded a net loss of $11.3 million or $0.02 per share during Q3, compared to earnings of $0.02 per share in Q3 of the prior year.
After adjusting for certain charges, net earnings were $23.4 million or $0.03 per share in Q3, compared to net earnings of $12.4 million or $0.02 per share in the third quarter of 2020. This difference is driven by higher metal prices and lower finance costs.
Our Q3 adjusted earnings includes adjustments related to unrealized adjustments on our Rainy River Stream mark-to-market and our free cash flow royalty at New Afton, Our MD&A provides additional details on the non-GAAP measures discussed in this presentation. With regards to capital expenditures, our total CapEx for the quarter was $58 million.
$34.9 was spent on sustaining capital and $23.1 on growth capital. Sustaining spend was primarily related to planned tailings work at both operating assets, and B3 mine development at New Afton.
Growth capital was focused on project development, specifically the C-Zone and the Thickened and Amended Tailings Project at New Afton, and the underground Intrepid Zone at Rainy River. Slide 7 provides our capital structure.
Cash-on-hand as at September 30th, 2021, was $151 million, and liquidity at the end of the quarter was $477 million. With that, I will now turn the call over to Renaud.
Thank you.
Renaud Adams
Thanks, Rob, and thank you, everyone for joining us today. So first, let me start by saying that I had the chance recently to spend quality time at , and I really continue to be amazed by the tremendous level of hard work and commitment for our employees and contractors as we continue to build our Company on a solid foundations and core values.
In term of our third quarter, on a consolidated basis I believe that we responded very well to the challenges experienced in the third quarter, positioning us to meet our updated guidance. I'm really pleased with the global reductions of our all-in sustaining costs of over 9% compared to the first half of the year, with improving by almost 16% and I really want to thank everyone at New Gold for their continued effort.
on Slide 10. Another quarter of nearly 150,000 tons per day mine, in line with our objective to achieve approximately 151,000 tons per day for the year.
The mine is now on average a 150,000 tons per day for over a year, and is now well set for further optimization, as we progress towards 2022. It is now about redirecting our efforts in 2022 from ramping up in stabilization to continue to deliver volume, but in a more optimized way, unlocking further opportunities for cost reductions, improved OAE, I'll link it to our mobile maintenance capital program.
As originally planned, the mine executed on a much lower strip ratio of 1.83 to 1 in the quarter, in line with our objective to average approximately 2.7 to 1 for the year. So accordingly, we expect to remain at the low strip ratio in the fourth quarter.
The highlight of the quarter at Rainy was sure around the negative grade reconciliation and the East low per part of the pit, forcing revised production guidance. But September responded very well to our short-term adjusted grade approach for the zone, and our overall production was -- for the quarter, was in line with our revised plans.
With a much lower contribution from the East Low plan for the fourth quarter, we expect an increase grade in the fourth quarter over the 0.89 grams a ton achieved in Q3, which was already approximately 10% higher than the first half of the year. In term of grade controls, we continued to see in line reconciliations for zone outside of the east low area, reconfirming our confidence when looking at our future production profile.
The second RSV drill arrived on site and the margin drilling if they can place to continue to assess the East Low area and prep for 2022 production plan. The mill averages 25,245 tons per day, lower the same period of last year of 27,000 tons per day, mostly due to extended maintenance in the crushing area.
But looking forward, I'm very confident that the mill will return to its permitted capacity of 27,000 tons a day. But also, I'm looking forward to seeing potential improve recovery as we continue to optimize the grinding gravity in back-end circuits.
With completion of all deferred construction work in 2020, the mine achieved a reduction of sustaining capital in Q3 compared to the same period of 2020, contributing to lower all-in sustaining costs of $13.7 per gold equivalent versus the $14.69 achieved for the same period of 2020. But also, reductions of nearly 16% compared to the first half of the year.
So, we remain on track to meet our updated production and cost guidance. The underground development of the Intrepid Zone continues during the quarter, with the objective to initiate long-hole stopping mining.
And in late 2020, once the first long-haul panel is fully developing in waste and oil. We also continue to advance or optimize underground mine plans study, that will potentially include additional conversion of underground mineral resources into mineral reserve, all located directly below the pit.
The results of the study are expected to be released in the first quarter of 2022, along with our year-end mineral reserve and mineral resources update. At New Afton, I'm on slide 12, as a result of the delay and receiving the B3 permit in 2021, the contribution of tons mined from B3 Zone was lower than originally planned, resulting in a lower ton mined compared to same period of 2020.
Other contributor to lower tons mined, included the limited mining capacity on the recovery level. As marking activities come to in remote mode, following the events of last February.
As we complete 2021, and enter in 2022, our focus remains on: first, safe and efficient ramp of with the B3 Zone. This is really important to us as it will be the main contributors of 2022.
A safe mining of the recovery level reserve prior-year transitioning to the in-pit tailings plan for 2022 so we don't leave anything behind us. And of course, the safe and efficient exhaustion on the east cave area.
The overall grade for the quarter were comparable to the same period of 2020 as the grade mine from the east gape come to new to perform super well in the quarter. The middle recoveries of the mail were also comparable to slightly better for Gold to the same period of 2020, despite an increase supergeing our volume mill.
The average of nearly 13000 tonnes per day mill was lowered apparent the same period of last year, but in line with our mining rates in the quarter in our plan to optimize metal recovery while processing higher volume of Super Gene 4. Overall, we remain on track to meet our goal equivalent production guidance within all-in sustaining costs expended to be in the higher range -- on their high year end of the guided range.
Our C-Zone underground development advanced by nearly 800 meters in the third quarter. And the taken amended tailings facility was nearly commissioning at the quarter end.
In terms of exploration, we have 6 more holes totaling nearly 3,900 meters that were completed in the quarter, in the Cherry Creek trend, to explore for deep porphyry style system. The drilling program is expected to be completed by the end of the fourth quarter.
Following the very encouraging and exciting results of our underground drilling program testing artificial intelligence target, more drilling was added, and should also be completed by year-end. Really looking forward to our next exploration update to market in the first quarter of 2022.
This will complete the presentation portion of the call. So, I would now hand it back to Operator for the Q&A portion of the call.
Operator.
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session.
. You will then hear a greet on prompt acknowledging your request and your question will be pulled in the order that they are received.
. And if you are using a speakerphone, please lift the handset before pressing any keys.
One moment, please, for your first question. Your first question comes Anisha Soni from CIBC World Markets, please go ahead.
Ms. Anisha Soni?
Anita Soni
Hi. Good morning.
I'm sorry I didn't hear you. Sorry I'm switching from the webcast of the phone, there's some delay in styling.
And I was just wondering in the Rainy River, did you give us any current -- could you give us an update and some color on the amount of East Low material that you expect to see next year and perhaps into 2023 if there's any?
Renaud Adams
What I can say at this stage Anita as you would appreciate that we continue to assess and optimize our plan. But if you refer to the 43-101 and quite frankly, the plans remain somewhat pretty similar.
You have about 25% of the ore mine for '22, and '23. Completion in the second half to '23, on the east low area.
As we advance and complete, we'll -- obviously, in our guidance early in 2022, we'll update all our plans. But this is what you could see so far as per the 43-101.
Anita Soni
All right, Could you comment on the inflationary pressures that you guys are, if any, that you are seeing, and just give us some color on the magnitude overall, and then, where are the sources of that in terms of labor and consumables.
Robert J. Chausse
Sure. There are no material inflationary pressures -- we have any sort of major capital items and components related to steel, etc.
were ordered and received pre - this inflationary period, if you will. Ultimately, I think our inflationary pressures come down to access to maybe contractors, etc.
And labor is within line, that 2% to 3% that we're seeing. As it stands right now, we're not seeing any material impacts on our business related to inflation.
Anita Soni
Okay. Thank you, I'll pass it over to someone else.
Robert J. Chausse
Thanks.
Operator
Your next question comes from Josh, Josh Wilson from RBC. Please go ahead.
Ankit Shah
Hey, Josh, you might be on mute.
Josh Wilson
Sorry about that. For the upcoming optimized mine plane at Rainy River, you mentioned looking at opportunities for upsize resource conversion.
Are there any changes in sequencing that we should potentially expect or is there any ability to maybe incorporate some upside more near-term rather than my life extensions?
Renaud Adams
The purpose of this study really is to create some sort of standalone underground mining, Josh, as we complete the stock buyout that is currently 2028. So, it's really a continuity because if you look at the current plan in the 43-101, we had already incorporated the top part of the center zone below the pit and the 43-101 together with the stockpile.
So really the study is a continuity of the mining standalone with a continuity and just keep mining deeper in the central zone and all the as already in the reserves. So, it's not so much about, as you say unfortunately, in corporations at the early-stage, more than creating an extended life-of-mine beyond 2028.
There will be some here and there opportunity but the main purpose of this study is an extension of life-of-mine beyond 2028.
Josh Wilson
When the initial East Low issues that come out, there was some discussion maybe of looking at mining some of that material underground. Is that something which could still make sense or are that could be incorporated in this plan or is that not a priority right now?
Renaud Adams
It's not a priory right now. There is not much of the East Low in the open left to complete in '22 '23, I think we were -- as I said previously, we continue to refine and optimize our plan as we have been towards '22, but at this stage, I think, it's fair to say that it still makes more sense to catch it open pit and carry our underground plan as previously planned.
Josh Wilson
And last question, when you're looking at year-end reserves for Rainy, first off, I guess, what sort of price assumptions are you expecting to incorporate? And then, how should we think about the impact of East Low, as well as maybe some exploration efforts that have materialized this past year?
Renaud Adams
The -- we're looking at use of $1400 for our reserves exercise of that year end. And the exploration at Rainy is still somewhat at the early stage.
So not expecting an impact from the exploration program of '21. But as we come to new in '22 and '23 and so forth, we'll see and continue to hope for additional resources out of our exploration program.
But this will not be the case for '21.
Josh Wilson
And then to understand the impact for East Low, is it fair to assume some loss of answers just from that and depletion?
Renaud Adams
Very -- honestly, Josh, this is exactly the assessment that is taking place. No, we're not.
We're decoupling completely. First of all, we're decoupling completely the open pit from the underground.
It's a different complete mining as you know, and approach, and then, the mining, the systems rather than on the volume and in bulk. So, it's a complete different.
We're not mixing both here. And for the remaining ounces of the East Low, that's exactly the assessment we're doing with more drilling in our C and so forth.
And that we'll prepping in for our 2022 guidance. But I don't have all of those answer, as we speak.
Josh Wilson
Okay. Those are all my questions.
Thank you.
Renaud Adams
Thanks.
Operator
Thank you. Your next question is from Dalton Burrito from Canaccord.
Please go ahead.
Dalton Baretto
Sorry. I think I was on mute again.
Can you hear me? It should be a theme on this call.
Good morning. Thank you for taking my question.
My question is also on the East Low. I want to ask; do you understand exactly why you have a great reconciliation issue at this point in time?
Renaud Adams
Well, the only thing I can say is, for the ventures that took place, the mining that took place on ventures and the Q3, I think it's fair to say that you're never exactly right on the model reconciliation day-to-day every hour. But I think it's fair also to say that unfortunately for the Q3 period, the ventures that took place, fortunately, there will be conciliation compared to the resource models.
We're showing less tons announces. Now, why is it like this?
Is it just like localized by both systems? It sometimes happens in some areas for a period of time and then it switches.
So globally, we've been doing extremely well over the last 3 years. All the other areas on the global basis continue to perform very well with the model, but with nearly -- if you look at our Q3, a big portion of the Q3 was really focused on mining in that specific area.
So, when you experience a negative reconciliation and most of your mine plan is from one specific area, it does highlight as a big variance, of course. If it would be more distributed over the year you will have more flexibilities, and so forth.
We really need to complete all this RC drilling to look at this in a global basis because there is nothing telling us that things cannot be even shift it as you go. I've seen those localized situation in my career, and sometimes it's very localized over a few benches, sometimes a little more.
But I think our model has responded very well globally. But unfortunately, that very Far East area, as just not responded well, you know, in terms of tons and grades.
There is nothing really specific more to say. We just need to at this stage to come to drill underneath and assess the remaining ounces and see how does that compare with the model.
But, it's a one resource model apply, to were crossed in all the deposit and sometimes, you have positives, sometimes negative. But if all your efforts on this one area on the queue as we experienced in Q3, unfortunately, the variance left -- hit us stronger.
But let's see with the completion of the RC and I'll definitely be in a better position as we complete the year and enter '22 to have all the specifics to that question.
Dalton Baretto
Okay. Thanks for that.
And then, as a bigger picture question, Renaud. I wanted to ask you about M&A.
It's pretty topical in the gold space right now. On the A side, on the acquisition side, are you seeing anything in the vicinity of Rainy River that could potentially complement the underground once the open pits done.
And then, part B on the M, the merger side, if you were to consider a merger of equals, what would you look for in a partner? Thank you.
Renaud Adams
Oh, thanks for that very specific question on a Friday morning, I can answer the first one. I think, the first one, when it comes to the vicinity, this is an exercise that -- it's a continuous exercise for us to draw our radius around our operations and always look for opportunities for resources that could eventually be.
Unfortunately, at Rainy, I would qualify it like -- somewhat like not really advance volume ounces, pipe of stories. It's still more within our land package that we see the best opportunity.
New Afton is a bit of a different situation considering the very prolific areas and multiple opportunities and resources around the -- around the assets but rainy. And I would -- I would keep my comments for myself when it comes to more specific merger you understand that as we advance, our focus now is really to deliver on our plan.
We see our cash balance that we'd continue to improve over the years. We have the streams and so I think we are extremely well equipped to provide eventually as we advance, add some gross opportunity to our shareholders.
But I would not go any further than that. But thanks for asking.
Dalton Baretto
Thanks, guys. All the best.
Renaud Adams
Thanks.
Operator
Thank you. Your next question comes from Mike Jolene from Bank of Montreal.
Please go ahead.
Mike Jolin
Bank of Montreal. I don't even bank there.
But yeah -- it's still a Bank of America, 32 years. And our overall bank thanks for the call.
I'm actually drawn to Slide 13, your investment proposition, a couple of questions there. I noticed the 25% GOE growth, 2020 versus '22, '26.
By my math, that's about an average of 546,000 ounces for that period. Would that also be guidance for 2022?
Renaud Adams
No. We're not referring.
I mean, this is really for the period like going towards '26. If you look at our production profile at Rainy, you see a constant grade increase over the periods of '22 to '26.
You have the season that it's coming at place. As we advance for, let's say this year towards '22, first step-up increase of Rainy, and you continue to increase over the period going towards the 26, and you incorporate the C-Zone to this.
What we're seeing is in that to increase at the 25% plus at our current situation. That's the way to look at it.
Mike Jolin
The lowest year will be '22, the highest will be '26 of that 5-year period?
Renaud Adams
The '20 -- the period of '24, '26, specifically '25, '26 very similar if you will, but, yes.
Mike Jolin
I'm notching because '22 is in the average, so that's why I was asking.
Renaud Adams
Yes. We're very close to the year -end here, so we'll have a very comprehensive guidance.
And as we complete the underground study for Rainy River and enter the year and complete our year -end reserve resorted -- mineral-reserve resources update, and eventually would update as well our 43-101. So, we'll re-provide a more specific detailed plan for the remaining our life-of-mine.
Mike Jolin
Okay. Maybe going back to Dalton's question on the foreign Gold Company.
I'm looking at slide 13, ongoing. Tridien has gone, well, look, they're located in Canada, 100%.
We should look at New Gold.
Renaud Adams
I appreciate your comment because we're definitely continue to work hard in positioning this Company and we definitely see a very interesting profile down the road. And as we improve the production, put the capital execution behind us and focus on harvesting at the C-Zone.
This could -- this Company has a very interesting profile down the road and in the right jurisdiction. And as you say, would becoming more and more a rare commodity if you want.
Mike Jolin
Definitely. All right.
Well, thank you. And we at Bank for Montreal, thank you very much.
Renaud Adams
Congrats on your promotion.
Ankit Shah
Thanks. Appreciate it.
Operator
Thank you. Your last question comes from John Tumazos, from John Tumazos Very Independent Research.
Please go ahead.
John Tumazos
Good morning. How much of the full-year CapEx is the capitalized stripping account in dollars?
And could you talk a little bit what normal CapEx might be the next several years, please?
Renaud Adams
I just want to make sure that I got your question right with the stripping. Sorry.
If you could, the first portion of question could be match.
John Tumazos
How much is the CapEx is the capitalized stripping in dollars?
Renaud Adams
If we look at Rainy and in particular, you have from the sustaining capital of year-to-date fest $77 million, about a 1/3 of it is around the capitalized item. I'm just confirming that a big portion is obviously the tailing -- the sustaining tailing construction, and the other part has a lot to do with the maintenance -- the maintenance in mobile maintenance and so forth.
So, as we move forward, very important to re-highlight here that by the end of '23, the biggest part of the stripping will be completed. So that's -- it's about $29 million of capitals mining costs so far out of the $77 million for the 9 months.
And as you advance in time, 2 things going to happen. You are going to continue year-after-year up to 2025 to complete the raise at the tailings every year like we did this year, 2022, 2023, and with the last raise in 25 years, stripping exercise and the pit.
Well, l will be mostly completed at the end of 2023 as highlighted again in our SEC report. That would be a further contributor to a quite reduction in our sustaining.
And as we deplete the pit as well and start operating with less equipment, you will have as well as significant reductions on Europe mobile mainland's capital program. We're shorting this year towards like the $100 -- the $110 million.
Next year we have another phase very similar to this year, has highlighted in our plan and as you advanced '23 '24, you'll start seeing and dropping this tripping and the maintenance cost. And the tailings drop in '25 -- at the end of '25.
So that's really the big contributor to the cost reductions as well as we increase our production on a combined basis, it's significant margin down the road for us.
John Tumazos
Are there particular thresholds that investors should look to for New Gold to have a dividend? For example, a particular level of debt reduction or the rainy transition, the underground when the capital needs will be less.
Renaud Adams
To be answered as we advance. I mean, we've received that question quite a bit.
When you look at our presentation and cash --- building in our cash balance as we advance at the current metal prices, you could be an excess of the $1 billion of free cash flow generated over the next '20 to '26 period. And as you know we also have this trains and other and we are cash position.
So yes, we will be building. I think it's important that we keep in mind as well the importance of the growth component in our Company as well.
So, we're not in a position now to answer this with specificity, what's going to exactly happen and how this cash balance will be used towards growth those repayments and dividend and all of that. This is all to come for us.
The most important now is to deliver on our plan. And as we advanced and build, we'll see strategically how this is the best use of our cash position.
John Tumazos
Thank you very much.
Renaud Adams
Thank you.
Operator
There are no further questions at this time. You may please proceed.
Ankit Shah
Great. Thank you so much.
And thanks again to everyone for joining us this morning. As always, should you have any additional questions, please don't hesitate to reach out to us by phone or e-mail.
Have a great weekend.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you very much for participating and ask that you pleas disconnect your lines.