New Gold Inc.
Q4 2020 Earnings Call Transcript

Published: 19 Feb 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the New Gold Fourth Quarter 2020 Earnings Conference Call. . It is now my pleasure to turn the call over to your speaker today, Ms. Anne Day. Ma'am, please go ahead.

[Anne Day:]

Thank you, operator, and good morning, everyone. Thanks for joining us today for New Gold's fourth quarter earnings conference call and webcast. We have with us today Renaud Adams, CEO; and Rob Chausse, CFO. Rob will present our Q4 operational and financial results, followed by Renaud, who will discuss our operational results. After the presentations have been completed, we will open the lines for a brief Q&A period.

[Robert Chausse:]

Thanks, Anne. Good morning. Renaud, did you want to open up with something?

[Renaud Adams:]

No, that's fine. Go ahead, Rob.

[Robert Chausse:]

Okay. Good morning. Just jumping straight into Slide 5, which provides our operating highlights for Q4 and year-to-date, details are consistent with our January production press release. During Q4, the company produced 120,567 gold equivalent ounces. The amount consisted of 18.5 million pounds of copper and 66,734 gold ounces from Rainy River and 16,362 gold ounces from New Afton, totaling 83,096 gold ounces. The higher gold production as compared to the prior year quarter is primarily due to higher grades at Rainy River and New Afton. Operating expense per equivalent ounce was lower than the prior year quarter due to production and sales -- higher production and sales volume. Consolidated all-in sustaining costs for the quarter were $1,491 per equivalent ounce, 20% lower than the prior year quarter, primarily due to lower sustaining capital at Rainy River. Moving to Slide 6 and our financial results. Fourth quarter revenue was approximately $199 million driven by sales of approximately 86,500 gold ounces at an average realized price of $1,623 per ounce and sales of 17.5 million pounds of copper at $3.34 per pound. Q4 revenue was 43% higher than the prior year quarter due to higher metal prices and higher grades. Our operating cash flow before working capital adjustments was $95 million or $0.14 per share for the quarter, higher than the prior year quarter, primarily due to higher metal prices.

[Renaud Adams:]

Thanks, Rob, and thank you, everyone, who's joining us today. I'm on Slide 11. And before I start, it's with a mixed feeling that I'm addressing you today. The year started on a tragic way at New Gold with the fatality that occurred at the New Afton mine. And when I looked at the New Afton team, the New Afton family, I see a very, very strong group of people so committed to the health and safety and well-being, a favorable one working at the New Afton. And we've come along for operating the block cave at New Afton and delivered so much over the years, including tremendous milestone achieved in the health and safety. The mine ended the year with more than 3.6 million hours worked without LTI injuries. This represents over 1,050 days, significant milestone, reductions in every aspect of frequencies and an incident trending way below the Canadian industry. And as a company, in general, we've reduced over 45% our overall frequencies and incidents. New Gold comes with a significant commitment. And as per the Slide 11, when you look at everything we do from the environment and social and our 4 main area of focus on the water tailings and climate and indigenous, this is all, in fact, at the end of the day, going back to one thing, it's our tremendous commitment to the health, safety, environment and well-being and everything that has an aspect of people in it. But the mine was hit on February 2 with a mud rush that occurred at the recovery level, resulting in a fatality. And this hit the whole family of New Afton, family, in particular, and more families and the whole group of New Afton and New Gold. It hit hard because it hits you right in the middle of where it hurts the most, your core value and people. And with the same strength and solid foundations and commitments, we have to get back on our feet and move on and find a way to move on, understanding the tremendous hurt of an incident like a fatality like this. But it doesn't take away that we have been and will remain always focused on the health, safety and put our people first. And we're going to learn from this accident. And as we've done in the past when it comes to adversity, we'll overcome and continue to move on, on our solid commitment. When I turn back as a CEO, and I said it's a mixed feeling, when I turn back and I look at 2020, I see only tremendous achievement in everything we did, in everything we do, the significant progress and turning and repositioning this company. And it started with the health and safety, as I said.

[Operator:]

. Your first question comes from Anita Soni from CIBC World Markets.

[Anita Soni:]

Rob and Renaud, and I'm just wondering about the capital numbers that you've provided for both New Afton and Rainy River. There's a bit of a range on that -- quite a wide range, particularly on the New Afton. So can you just give me an understanding, like in what cases you would spend a lower amount, in what cases you would spend the higher amount? Like why is that range there?

[Renaud Adams:]

Well, you see like the capital project for New Afton is a 4-year project, right, so there is -- as we experienced in 2020 at Rainy River, for instance, where we were in position to accelerate some '21, for instance. And so you look at the New Afton, generally speaking, we make -- we made our estimate based on average productivities and time line around, but because most of it is all about development, and there is always a possibility where you could improve on your performance and you want to do maybe more development or maybe you advance more stabilization than planned. And because those activities occur over 4 years, so you have a lot of room based on performance. And we -- and equally important, we're doing very well on the COVID as well. We're case-free in New Afton and Rainy as we speak. But there are some aspect out there that sometimes you don't 100% control. So we thought -- we feel comfortable with guidance being set in the mid-range of what we could achieve, but we have a bit of room should we better perform to increase some aspect as well. Rainy River is somewhat more focused on the tailings, so we have a good handle on that one. Stripping-wise, looking at the gold price and so forth, so there's maybe a bit of flexibility around how we want to operate the pit as well. Maintenance-wise, there is -- depending how it goes is it can reaccelerate a bit some aspects. So I would say that, that would be the thinking behind, Anita. And again, if you look at our mid-range of capital, it's probably where we feel comfortable to achieve, but we have the proper room should be better perform or maybe something out there slowing us down a bit.

[Anita Soni:]

Yes. I'm just wondering if capital allocation, an eye to sort of hitting that free cash flow inflection point, I think, as most people had expected this year was part of planning. Like do you really have any kind of focus on whether or not you go free cash flow negative? Or are you trying to maintain positive?

[Renaud Adams:]

It's all about the price you apply to it, but if you look at Rainy River today, beside the CAD 10 million, CAD 12 million of accelerating the Intrepid, you're in an AISC slightly below the 1,200. So it's a significant margin, right, and will bring a lot of free cash flow. And we have the second payment this year as well for Artemis then. So yes, we remain very confident that will be. Again, we don't control the metal prices. We all know what's happening with the copper as well. New Afton is all about achieving a self-funded approach over the 4 years, no doubt. But globally, Anita and all, when I look at the current prices and the work we have to do at New Afton, can we be close to the neutral cash flow and benefit from the Rainy and the second payment? So definitely, we're targeting free cash flow this year.

[Anita Soni:]

Okay. And then another more technical question typical of me is just can you give us an idea of where your mining, milling, G&A costs are hitting for both of those assets.

[Renaud Adams:]

I don't have this handy right now, but I would say if you look at Rainy River, you're looking at our plan for the year, and you're looking at, for instance, the 43-101, where we have shown on a year-by-year basis. I would say it remains a very good reference when it comes to Rainy. New Afton is a bit of a different situation considering the new plan. So again, if you use the 43-101 reference on a year-by-year, yes, we would be unit cost higher as the current situation, but we should be back on our feet in 2022. So I don't have the answer, but please refer to the 43-101.

[Anita Soni:]

Sure. And then on the unit cost, as you mentioned for New Afton, would that be a little bit on the -- I noticed you said remote mucking. So I was increasing that by a little bit because it's only about 10%, 15%. And then also the processing side, looks like the processing rate is a little lower than what you were pushing last year. So -- similarly, is it a little bit less -- a little bit higher on that side if you took the ratio of...

[Renaud Adams:]

It's more on the unit -- on the unit, -- yes, it's on a unit basis, right? So when you do a recovery zone at plan and remote mucking at 1,700 tonnes a day, when you were supposed to do manual mucking at 3,000, 4,000, there is an impact there. There is an impact, obviously, and a global incident and ramp-up and the impact of the downtime, of course, globally. But once you're back on your feet in term of, let's say, Lift 1 productivities in the second half, what we have planned for the B3 unit cost, again, all reference to 43-101, we still feel very strong. Fuel-wise, I think we could achieve better than usually planned -- than originally planned. So we'll be very close in some aspect. But unfortunately, we'll be impacted a bit on our unit cost for the underground as a result of what's happening there.

[Anita Soni:]

And last question for me is the capital spend. Is there any kind of sort of weighting between the quarters that we should be aware of? Typically, people tend to underspend in Q1 and then really try to make it up in Q4. So I'm just curious if it's an even spread that you're looking at. Or is there -- obviously, New Afton things had to be pared back in Q1. But outside of that, is there anything we should be aware of?

[Renaud Adams:]

No. I think our disclosure addresses well. And as you say, definitely, the second half New Afton will be stronger. And as we ramp up from the Q1, but Q1, Q2, but no, I think other than that, our disclosure is addressing, obviously, every aspect to guide of what's going happen there.

[Operator:]

. Your next question comes from Mike Parkin from National Bank.

[Michael Parkin:]

On Rainy, you're bumping up against the permit limit on your processing. As you're moving into the second half, you've indicated more favorable kind of mining scenario where you're into a lower strip and also better grades. Is there -- can you just give us an update there in terms of what you're thinking about in terms of the permit limit? Are you looking to get that revised? If it -- any kind of details you can shed there?

[Renaud Adams:]

Of course, the conversation was somewhat initiated. If you look at from what we can peak, Mike, I mean, we can peak up to 32, right? And the average is 27. I'm not saying we're peaking 32 every day. Of course, it depends the hardness. But generally speaking, we've been for 2 quarters in a row where you take a little more downtime to not surpass the 27, and then you have the life of mine attached to this as well. So expanding the mill capacity to, let's say, something that would be reducing the 20% between the peak and the average could be eventually possible. Very important is the -- not shorting the life of mine and continue to do so in progress and expand as we also extend the life of mine. So this whole exercise in '21 is very important for us because it's about being more efficient, more profitable, but also continue to grow this enterprise in the region, which is very important to us and to everyone and all stakeholders, including the government. So it's kind of linked to this whole exercise. There is maybe a conversation to be had to increase a bit, but it has to be well captured in all the effort of extending the life of mine as well and bring back more underground as well. And so we'll see where it goes. Second half of the year may be a stretch. I think we want to fully understand potentially how this whole thing is going to reshape and then you go after the optimization of it. So it could be a more conversation in the second half, but I'm not expecting any increase of the milling capacity, if you will, permitted in '21. And we'll see how as we advance in the exercise. Does that deserve a '22 talking? Maybe.

[Operator:]

Your next question comes from Mike Jalonen from Bank of America.

[Michael Jalonen:]

Rob and Renaud, I'm sure you noticed that IAMGOLD just sold a bunch of royalties for up to $47 million net of royalties in production and, obviously, have a stream on Blackwater, which is moving to production. I guess, Franco, they probably haven't forgotten your phone numbers, so just wondering what you're thinking on that stream. Is it something that'd be sold? Do you have buyers?

[Renaud Adams:]

We're definitely not questioning ourselves if we could be a buyer out there without more specific. I think, definitely, as you look at the stream where we own on the Artemis, Blackwater in Canada, solid project on its way to be developed. And so we understand the interest. I think Rob and the team did an unbelievable job in 2020 to restructure this balance sheet of the company and maintaining cash, cash liquidity and so forth, with only $100 million to be repaid, if you will, the 425 and all that. Basically, the whole long-term debt set in '27. So is there any need in the short term to monetize or no? And we sold Blackwater. We sold, if you will, a portion on all of our pipeline and retained very strategic stream on it and some equity and more payment this year. And as we move forward is it would be always a question for us, how do you build more value from those. So of course, we have this very, very solid stream that you could eventually monetize and maybe, down the road, accelerate some debt repayment. But I would think the stream for us represents something more strategic than this. We work hard in repositioning this company and build on the free cash flow with no need to use this stream for any debt repayment. And if you ask me, I would say, we're very pleased to own it, and we're very pleased with the progress of Artemis, and we see the value increasing over time. But my preference would be to not just sell for the sake of, even though there is some interest out there, but be a little more strategic about it.

[Operator:]

I don't see any further questions at this time. I would like to turn the call over back to Anne.

[Anne Day:]

Thank you, operator. Thanks, everyone, for joining us today. As always, should you have any additional questions or require more information, please feel free to reach out. But that completes today's call. Thanks again.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.