New Gold (NGD) Q1 2024 Earnings Call Transcript

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New Gold (NGD 7.76%)
Q1 2024 Earnings Call
May 01, 2024, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Lara, and I’ll be your conference operator today. Welcome to New Gold’s first quarter 2024 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 instructions] I would now like to hand the conference over to Ankit Shah, executive vice president of strategy and business development. Thank you.

Ankit Shah — Executive Vice President, Strategy and Business Development

Thank you, Lara, and good morning, everyone. We appreciate you joining us today for New Gold’s first quarter 2024 earnings conference call and webcast. On the line today, we have Patrick Godin, president and CEO; Yohann Bouchard, our COO; and Keith Murphy, our 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 would like to direct your attention to our cautionary language related to forward-looking statements found on Slide 2 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.

Slide 2 provides additional information and should be reviewed. We also refer you to the section entitled Risk Factors in New World’s latest AIF, MD&A, and other filings 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 Pat for some opening remarks.

Pat?

Pat Godin — President and Chief Executive Officer

Thanks, Ankit, and good morning, everyone. We had a good start to the year with the first quarter delivering as planned. We continue to see excellent health and safety performance at both operations through our Courage to Care culture campaign. Rainy River surpassed 3 million hours without a lost time injury and New Afton surpassed 1 million hours.

Our operations delivered under quarterly plans, as outlined in our operational outlook release from February. New Afton delivered strong first-quarter production results. Rainy River made excellent progress on the planned waste stripping program, which will lead to unlocking higher-grade ore in the second half of this year. We are one quarter away from securing the substantial increase in production and cash flow expected in the second half of the year.

We also made excellent progress on key growth projects, including the first concrete work at C-zone gyratory crusher, and we set a record on the quarterly development advance rate at Rainy River’s underground main zone. Our exploration efforts continue to ramp up as planned. At New Afton, the company made great progress on the exploration drift, which is expected to be operational for drilling in May. Q1 exploration focused on drilling D-zone and starting drilling T-zone from current infrastructures.

At Rainy River, the exploration program is ramping up with newly identified target and an additional $4 million will be allocated for 2024 to drill these new targets. Four drills are expected to be joining at Rainy River during Q2. New Gold is well-positioned to achieve our guidance targets and deliver on our plan of sustained free cash flow generation starting in a matter of months. We are entering in a very exciting period for New Gold.

With that, I will turn the call over to Keith. Keith?

Keith Murphy — Chief Financial Officer

Thank you, Pat. I’m on Slide 6, which has our operating highlights. Q1 was another solid quarter. We produced 70,900 gold ounces and 13.3 million pounds of copper.

Rainy River produced approximately 52,700 gold ounces as planned which is based on our annual guidance breakdown, calling for a 40-60 split over the first and second half and while advancing waste stripping. In fact, taking the midpoint of our 2024 guidance range, our Q1 performance represents exactly 20% of production for the year. New Afton produced approximately 18,200 gold ounces and 13.3 million pounds of copper. This represents an 11% increase in gold and a 29% increase in copper production compared to Q1 2023.

This is as the C-zone ore is processed. Consolidated all-in sustaining costs for the quarter were $1,396 per gold ounce on a byproduct basis, in line with our plan. We expect cost to trend lower in the second half of the year. At New Afton, all-in sustaining cost for the quarter of $241 per gold ounce were lower than the prior year period due to increased copper production and sales.

We expect costs to trend lower throughout the year as copper sales catch up. At Rainy River, costs will be higher in the first half of the year as the pit focuses on waste stripping in line with the plan. Cost benefited positively from an approximately $8 million inventory write-off gain, driven by increased gold prices. This positively impacted costs at Rainy River by approximately $150 per ounce.

Turning to our financial results on Slide 7. First quarter revenue was approximately $192 million. Q1 revenue was lower than the prior-year quarter, primarily due to planned lower sales volumes, partially offset by higher gold prices. Cash generated from operations before working capital adjustments was $73 million or $0.11 per share for the quarter.

The company recorded a net loss of approximately $44 million or $0.06 per share during Q1. The increase in net loss as compared to the prior year quarter was primarily driven by lower revenues and a higher unrealized loss on the Rainy River, Gulfstream obligation, and the New Afton free cash flow obligation. After adjusting for certain other charges, net earnings was $13 million or $0.02 per share in Q1 compared to an adjusted net earnings of $18 million in the first quarter of 2023. The decrease in adjusted net earnings were primarily due to planned lower revenues.

Our Q1 adjusted earnings include adjustments related to other gains and losses. Our total capital expenditures for the quarter were approximately $61 million with $26 million spent on sustaining capital and $35 million on growth capital. Exploration expenditures totaled approximately $3.5 million before exploration tax credits, which we received. At Rainy River, total capital increased over the prior year period due to higher growth capital spend.

Sustaining capital is primarily related to capitalized waste, capital components, and tailings management and construction. Growth capital is related to the underground development as the underground main zone continues to advance. At New Afton, total capital decreased over the prior year period, primarily due to lower growth capital spend. Sustaining capital primarily related to tailings management and stabilization activities, while growth capital primarily related to the C-zone underground development.

At the end of Q1, we had cash on hand of $157 million and a liquidity position of $530 million. We continue to execute short-term hedges on CAD and fuel and are hedged at 75% for Q2 2024, 50% for Q3, and 25% for CAD in Q4. To sum up, we remain in a very healthy financial position, all while continuing to invest in our growth projects. Our operations are well-positioned to leverage the higher metal price environment and generate significant free cash flow.

Now, I’ll turn the call over to Yohann to walk through our operating highlights.

Yohann Bouchard — Executive Vice President, Chief Operating Officer

Thank you, Keith. While starting with Rainy River on Slide 9, Rainy continued to perform well, achieving another quarter in line with our plan. On the mining front, waste stripping was a focus during the quarter. This is expected to continue in the second quarter and will ultimately provide access to greater quantity of high-grade ore early in the second half of the year.

In the underground mine, extraction from the intrepid zone continues as planned, and the development to main zone is on schedule for first ore in the second half of 2024. In fact, Rainy achieved a record quarterly development advance rate of 950 meters in the first quarter. The mill performed very well, processing over 25,000 tonnes per day, almost 12% higher than Q1 of last year. The team has made tremendous progress in improving mill performance at no additional capital requirements.

The right side of the slide reiterates our outlook for 2024 and the previously guided split between first and second half. This is excellent information to highlight that the first-quarter performance was according to plan. We remain on track for second-half production, representing approximately 60% of our annual production, mostly due to the open pit mining sequence. We have successfully transitioned from Phase 3 to Phase 4, and we’ll continue to reclaim some lower-grade stockpile in Q2, while we release higher-grade ore in the pit for the second half of the year.

Sustaining capital related to waste stripping will be elevated in the second quarter before trending down in the second half of the year. Lateral development meters in the underground will ramp up throughout the year-end. We access additional underground mining zone and more adding become available. Slide 10 outlines progress we’ve made underground.

The underground main zone remains on track for first ore in the second half of…