New Gold Inc. (NYSE:NGD) Q3 2022 Earnings Conference Call November 3, 2022 8:30 AM ET
Company Participants
Ankit Shah – Vice President, Strategy & Business Development
Renaud Adams – President & Chief Executive Officer
Rob Chausse – Chief Financial Officer
Patrick Godin – Chief Operating Officer
Conference Call Participants
Trevor Turnbull – Scotiabank
Mike Parkin – National Bank
Operator
Good morning. My name is Erik, and I’ll be your conference operator today. Welcome to the New Gold Third Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background nose. Please be advised that today’s conference call and webcast is being recorded. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions]
I would now like to hand the conference over to Ankit Shah, VP of Strategy and Business Development. Thank you.
Ankit Shah
Thank you and good morning, everyone. We appreciate you joining us today for New Gold’s Third Quarter 2022 Earnings Conference Call and webcast. On the line today, we have Renaud Adams, President and CEO; Rob Chausse, our CFO; and Patrick Godin, our COO. Should you wish to follow along with the webcast, please sign in on 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.
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 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’ll now hand the call over to Renaud.
Renaud Adams
Thank you, Ankit, and good morning, everyone. Before we proceed with our third quarter update, I do have some sad news to share. I’m deeply saddened to announce that Suresh Kalathil, our General Manager at Rainy River passed away in his home in Emo, Ontario late last week. Suresh has been with us for the past two years and made tremendous contributions during his time at the company. We extend our deepest condolences to Suresh’s family, loved ones, and colleagues during this difficult time. Our strong and committed team that Suresh worked to build and develop in his two years with us will continue to execute on his vision for Rainy River. With mine manager Gord Simms stepping up as Interim General Manager and with the continued support across the whole New Gold organization. Thank you, Suresh.
Slide 5 provides a summary of our third quarter highlights. During the quarter, we continue to advance on our long-term priorities. At Rainy River, we achieve a significant milestone with the startup of underground production from the entry pit zone. As we move forward we’re focused on ramping up from the mining from the main ODM zone and starting to feed the mill with underground material.
At New Afton, B3 development was completed and our focus now is to ramp up mining rates to 8,000 tons per day. Receiving the C-Zone permit was a great milestone for the team in New Gold and we continue to move all project activities along the first ore plan for the second half of the year.
In addition at New Afton, the exploration results we previously released are very encouraging. During the next quarters we will continue to advance our organic growth initiatives to further increase the value of our asset base.
Lastly, the third quarter delivered to plan and significantly improved versus the second quarter in both production and costs and we are on track to achieve our 2022 undated guidance.
I will now pass it to Rob to provide an update on our operating and financial results. Robert.
Rob Chausse
Thanks, Renaud. And I’ll start with slide 7, which provides our operation highlights. Production details are consistent with our October production press release.
During Q3 the company produced approximately 91,000 gold equivalent ounces. That amount consisted of 8.5 million pounds of copper, 58,700 gold ounces from Rainy River and 11,400 gold ounces from New Afton giving us a total of 70,147 gold ounces.
The lower gold production as compared to the prior year quarter is primarily due to the lower copper grade and tonnes processed at New Afton. Our operating expense per equivalent ounce was higher than the prior year quarter primarily due to lower production and therefore sales volume.
Consolidated all-in sustaining costs for the quarter were $16.37 per equivalent ounce higher than the prior year quarter primarily due to the lower sales volume at our operations and higher sustaining capital spend. We continue to invest in sustaining capital at our operations during the third quarter with the impact of sustaining capital spend per ounce being $460 in the quarter.
During Q3, we experienced inflationary challenges that have been experienced across the industry, particularly, with regards to fuel, electricity, grinding media and cyanide. The financial impact of these above-noted categories on inflation was approximately $100 per ounce or 6% on AISC for the quarter. As noted in previous quarters, we continue to work on minimizing any inflationary impacts and realize benefits with our currency — Canadian currency.
Turning to slide 8 for our financial results. The third quarter revenue was $151.2 million, driven by sales of approximately 68,800 gold ounces at an average realized price of $1,727 per ounce and sales of 9.9 million pounds of copper at $3.42 per pound. Q3 revenue was lower than the prior year quarter, primarily, due to lower copper sales volumes and prices.
Our operating cash flow before working capital adjustments was $43.6 million or $0.06 per share for the quarter again lower than the prior year quarter due to lower sales volumes in metal prices. The company recorded a net loss of $4.2 million or $0.01 a share during the Q3 compared to a net loss of $0.02 per share in the previous year’s quarter.
After adjusting for certain items net loss was $13.4 million or $0.02 per share in the quarter compared to $0.03 — earnings of $0.03 in the prior year quarter. The loss increase is primarily due to lower revenues.
Our Q3 adjusted earnings, includes adjustments related to our gains or losses, which include unrealized adjustments on Rainy River stream mark-to-market and the free cash flow royalty at New Afton and our MD&A has details on these non-GAAP measures.
Our capital expenditures and leases for the quarter were $72.7 million, $42.4 million was spent on sustaining capital and $30.3 million on growth capital. The sustaining spend was primarily related to planned tailings work at both operating assets capital stripping at Rainy River and B3 mine development at New Afton. Our growth capital was focused on project development specifically the C-zone at New Afton and underground Intrepid Zone at Rainy River.
Slide 9 provides details on our capital structure. Cash on hand at the end of the quarter was $247 million and liquidity was $620 million. The decrease in cash from the prior quarter is primarily due to the continued capital investments at our operations.
And with that, I’ll turn the call over to Pat.
Patrick Godin
Thank you Rob. Slide 11 provide a summary of third quarter highlights for our renewal mine. During the quarter, we opened averaged 12,000 tonnes per day. This decrease over the prior year as we have shifted our focus to minimize the amount of free and material we are feeding the mill and the impact from our evolving effort during the quarter.
In Q3, 85% of the mill feed were direct or shipping from the open pit and the compliance plan was close to perfection at 97%. EBITDA average approximately 24,000 tons per day. This was lower than last year probably as a result of us part of the quarter from the north lobe. We expect to complete mining from the north lobe in the first half of 2023. Quarterly production increased significantly compared to the second quarter and was in line with the last year. We remain on track to achieve our updated guidance.
On Intrepid both mining and development advance and plans during the quarter. We flagged the first stope in September gold grade from the first stope as we concern positively and production will ramp up over the coming months. Development advanced and action of 833 meters during the quarter with the main decline around reaching the 200-meter level ahead of plan.
During the final quarter of the year, our focus at New Gold will be ramping up open pit mining on the main ODM zone and getting the high-grade underground material fab into the mill.
Slide 12 provides a summary of third quarter highlights for our New Afton. During the quarter the underground mine average 6,500 tonnes per day. This decrease over the prior year due to the planned completion of Lift 1 mining activities and the closure of the recovering level for safety reasons. As planned the mill averaged approximately 7700 tonnes per day and we complete the processing of the lower grade surface stockpiles to supplement lower tonnes mined are in the beginning of the third quarter.
B3 development and drawbell construction is now complete. We’re currently extracting ore solely from and expect mining rate to reach a target of 8,000 tonnes per day early in 2023. C-Zone development advanced an additional 998 meters during the quarter and we continue to remain on track for first ore from C-Zone in the second half of 2023.
Ramping up B3 and continuing to develop C-Zone on time remains New Afton key priority for the remainder of the year.
I will now pass it back to Renaud.
Renaud Adams
Thank you, Pat and I’m on Slide 13, which provides a summary of our key priorities. In concluding this presentation, so building off on the significant progress and milestones achieved in the third quarter, we continue to work very hard to assess all possibilities to increase the underlying value of our asset base and we’re focused on achieving all of our key catalysts for the remainder of the year.
This completes our presentation and I will now turn it back to the operator for the Q&A portion of the call. Operator?
Question-and-Answer Session
Operator
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Trevor Turnbull with Scotiabank. Please go ahead.
Trevor Turnbull
Yeah. Thank you. I just wanted to ask for a little bit of clarification on the guidance. You mentioned that Rainy, the glacial material that you’re stripping would be about 2.4 million tons and it seemed like that would imply more like a 1:1 strip ratio. But then in the commentary, you said something about the strip ratio staying below 3:1. And I’m just wondering if I’m mixing something up there.
Patrick Godin
The strip ratio going forward is will be 3:1. And what is remaining to strip from the overburden is mostly the tonnage talked about 3.4, — 2.4, 2.5 million tonnes is something that will be completed
If I’m just — I think it will be around the second half of the year next year is something that we are pushing back as we are getting there. But going forward, what is more, important for us is all the crawler equipment is working on rocks.
So basically it’s the conditions of extraction of the overburden, it’s pretty straightforward for us. And we are a lower risk or totally eliminated compared to the last year when we were struggling with load and stuff.
So basically, are we still having 2.4, 2.5 million tonnes of overburdened material to [indiscernible] as part of the shipping ratio that is incorporated in our forecast?
Renaud Adams
Yeah. I think over would be — just to complete on this is like — I think, I think your question goes on, the glacial quality is not the fall, right? The course, I think the highlight here of the 2.4 million after battling, like over four or five years and ore mining that material is almost done. But of course, it’s not the only and so material waste material.
Trevor Turnbull
Okay.
Renaud Adams
So moving forward, that’s the difference here.
Trevor Turnbull
Right. And so kind of the tonnes of ore mine is going to remain roughly consistent with what you’ve been doing.
Renaud Adams
Yeah.
Patrick Godin
Yeah.
Renaud Adams
Yeah. Yeah, correct.
Trevor Turnbull
Okay. And then just one other quick question, with respect to the copper, your copper output, as we close out the year in Q4, is it correct to assume that now that the B3 zone is starting to ramp up production, that production should start to trend a bit higher, or are there grade considerations that are potentially going to keep the copper from being higher in Q4?
Patrick Godin
So the copper portion, the portion increase because actually, we will — we are ramping up from 65,000 to 8,000 tonnes per day. And in the block cave usually, when you start we are looking at the reserve based on the mining division that is coming from the extraction of the cave.
But when we start keeping that on, usually the grade is much better because the division is coming from the external wall and in addition to that, as I explained during the presentation, we totally exhaust the stockpile load, the low-grade stockpile that we had on the surface. And then actually all the material that is going to the mill is high-quality material.
Trevor Turnbull
Understood, okay. Thank you very much.
Patrick Godin
Pleasure for me.
Renaud Adams
Thanks.
Operator
Thank you. [Operator instructions] Your next question comes from Mike Parkin with National Bank. Please go ahead.
Mike Parkin
Hi, guys. Thanks for taking my question. Sorry to hear about the news of Suresh. With respect to New Afton, noticing that your gold, as well as your copper recovery rates for Q3, have been better than they’ve been for at least two-plus years. Is that something that we could expect to continue into fourth quarter in 2023?
Renaud Adams
Well, if you recall Mike, one thing that we like about the season as we move forward is how clean is the ore and so forth. So, we continue to believe that, as we move forward with more material on the B3, but also the switching eventually to C-zone. I think the guys have been doing that absolute believe about job there at the mill. And yes, we continue to believe that we will benefit for an increased recovery as we move forward.
Mike Parkin
And with that, is that anything to do with the function of the lower throughput as you’re kind of transitioning through this lower tonnage period and then as you ramp up C-zone would that ease off in the recovery, or would you expect that to actually sustain the more elevated levels versus where you’ve averaged kind of in the last couple of years?
Renaud Adams
We’re definitely not pushing as you mentioned the mill to its max capacity. But to be very frank, if you compare with the last couple of years, we were not necessarily pushing the mill any way too. It has to do with the mineralogy of the ore that it will keep improving as we move forward, and also the fact that the Supergene as well, we’ll be reducing as you move forward.
Mike Parkin
Okay. Super. That’s it from me. Thanks very much.
Renaud Adams
Thank you.
Operator
Thank you. There are no further questions at this time. You may proceed.
End of Q&A
Ankit Shah
Great. Thank you, very much, and thanks to everybody who joined us today. As always, should you have any additional questions, please do not hesitate to reach out to us by phone or e-mail. Have a great day.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.
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