NEW-GOLD Earningcall Transcript Of Q2 of 2024
Pat Godin -- President and Chief Executive Officer Thanks, Ankit. Before discussing the quarter, I would like to take a moment to discuss last week's events when we experienced a fatality at the Rainy River mining. More specifically, we lost the colleague. Our thoughts continue to be with his family and friends. Every quarterly call, I'll start by talking about safety. I'll talk about our Courage to Care culture. I do this because I believe that the key to consistent and disciplined production starts with safe production. It starts with the Courage to Care for our colleagues. Looking out for one another, stopping work if it's not safe, and answering everyone goes on to their family and friends safely at the end of every shift. I've been proud of the health and safety performance by our operations and by the commitment of all employees. We have been able to celebrate the awards and milestone together, but in the instance, we more together with the family, friends and colleagues who have been impacted by this tragic incident. I will now talk about our second quarter. The second quarter's New Gold delivered another quarter as planned. During the quarter, our New Afton Mine won two separate award for having the lowest total recordable injury frequency rate in 2023. The first being the safest large underground mine in BC presented by the BC Ministry of Energy Mines and Low Carbon Innovation; and the second being the John T Ryan Regional Safety Award in Mines in BC and Yukon presented by the Canadian Institute of Mining. I am pleased to take a moment to recognize their accomplishments. Operationally, we delivered on the quarterly plan with a strong adherence to our operational outlook release from February. New Afton delivered strong quarterly production result at low cost. Rainy River made excellent progress on the planned waste stripping program, and the open pit is well positioned to deliver on our increasing production profile for the second half of the year. On our first quarter call, I know that we were one quarter away from securing the increase in production and cash flow expected in the second half of the year. I am pleased to say that only we entered that period when we do so having finished the first half of the year with free cash flow positive. And with the company exiting the first half of 2024, free cash flow positive, I am pleased to see that New Gold has now entered a sustained free cash flow generation period. We also made excellent progress on key growth projects. Importantly, all key growth projects remain on track for completion in the second half of the year. We made significant progress with our exploration efforts at both operations during the second quarter. At New Afton, the company provided a positive exploration update on K-Zone. The team there also completed the exploration drift early in the quarter and immediately began advancing priority near mine targets. At Rainy River exploration drilling continues to make meaningful progress from both surface and underground. Through the first half of 2024, the company has drilled approximately 20,000 meters at Rainy River, testing various high priority targets. We are anticipating providing an exploration update later in the third quarter. The company also achieved a number of corporate milestones in the quarter. We announced the publication of our 2023 ESG report, something the company has published annually since 2015 as well as our 2023 task force on climate-related financial disclosure report. All reports are available on website. As a last point, I'm extremely pleased to underline that we successfully delivered an accretive transaction for our shareholders by increasing our free cash flow interest in New Afton to 80.1%. To sum up the second quarter and the first half of the year met expectations and the company is well positioned to deliver on guidance and sustaining free cash flow generation going forward. 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. Q2 was another solid quarter, produced approximately 69,000 gold ounces and 13.6 million pounds up. Rainy River produced approximately 50,300 gold ounces as planned while advancing waste stripper. New Afton produced approximately 18,300 gold ounces and 13.6 million pounds of copper. This represented a 10% increase in gold and 13% increase in copper production compared to Q2 2023 as C-zone ore processing is ramping up. Consolidated all-in sustaining costs for the quarter were $1,381 per gold ounce on a byproduct basis, in line with plan. We expect costs to trend lower in the second half of the year. At New Afton, all-in sustaining costs for the quarter of negative $433 per gold ounce was significantly lower than the prior-year period due to the increased copper production and sales. At Rainy River, costs were higher compared to Q2 2023 were in line with plan and are expected to trend lower in the second half as production increases. Turning to our financial results on Slide 7. Second quarter revenue was approximately $218 million. Q2 revenue was higher than the prior-year quarter, primarily due to higher metal prices and higher copper production, partially offset by lower planned gold production. Cash generated from operations before working capital adjustments was $90 million or $0.14 per share for the quarter. This is higher than the prior-year period primarily due to higher revenues and positive working capital adjustments. Company recorded net earnings of approximately $52 million or $0.07 per share during Q2. The increase is primarily due to additional revenues resulting in higher metal prices and a net gain on the derecognition of the New Afton free cash flow obligation. In connection with the amended Ontario Teachers' agreement, the liability related to the original agreement that was recorded at fair value was extinguished. The updated agreement did not constitute a financial liability for accounting purposes and was accounted for as a partial disposition of mining interest. The net impact of this was a $42 million. After adjusting for certain other charges, net earnings was $17 million or $0.02 per share compared to adjusted net earnings of $12 million in the second quarter of 2023. Our Q2 adjusted earnings include adjustments related to other gains and losses. Our total capital expenditures for the quarter were approximately $72 million, with $32 million spent on sustaining capital and $41 million on growth capital. 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, tailings management and construction. Sustaining capital is trending lower as a proportion of waste tons are capitalized and a higher proportion remain remains an operating cost with no net impact on ASIC. Growth capital is related to underground development as the underground main continues to advance. At New Afton, total capital decreased over the prior-year period due to both lower growth and sustaining capital spend. Sustaining capital is primarily related to tailings management and stabilization activities. Growth capital is primarily related to the C-Zone underground development. At the end of Q2, we had cash on hand of $184 million, with a liquidity position of $461 million. This is after increasing new goals effective free cash flow interest in New Afton to 80.1% for an upfront cash payment of $255 million, financed with $100 million from our existing revolving credit facility and net proceeds from a concurrent equity financing. We anticipate repaying the credit facility with free cash flow generated in the second half of 2024. Sum up, we remain in a very healthy financial position, all while continuing to invest in growth projects. As we successfully executed on half 1 objectives, we have entered the sustaining period of free cash flow generation, and we are well positioned to leverage the higher metal price environment. Now I'll turn the call back to Pat to walk through our operating highlights. Pat Godin -- President and Chief Executive Officer Thanks, Keith. Starting with Rainy River on Slide 9. Rainy River continues to perform well, achieving another quarter in line with our plan. On the mining front, waste stripping was the focus during the quarter and increased as planned from Q1. I'm pleased to mention that the open pit is in an excellent position as we start the second half of the year. Waste stripping is expected to decline to the remainder of the year as we access greater quantities of high-grade ore. In the underground mine, extraction from the Intrepid zones continued as planned and the development to main zone is schedule for first ore from development in the second half of 2024. The mill performed very well, progressing over 26,000 tons per day, a 12% increase compared to the Q2 of last year. We continue to operate above the guide mill throughput rate of 24,700 tons per day. The right side of this slide outlines our 2024 outlook as presented in February and the previously guide split between the first and the second half of the year. This information is still valid six months into the year and well positioned to meet our guidance production and cost objectives for 2024. We remain on track for second half production, representing approximately 60% of our annual production, mostly due to the open pit mining sequence. We will continue to reclaim some lower-grade stockpile in Q3, while we release higher-grade ore in the open pit for later in the year. The strip ratio is to decrease in the second half of the year as planned, which result in higher operating costs and lower sustaining capital. However, no net impact on ASIC, which will trend lower in the second half of the year with the higher gold production. Lateral development meters in the underground mine will continue to ramp up through the year as we access additional underground mining zone and more addings become available. Slide 10 outlines progress we have made underground. The underground main zone remains on track for first ore from development in the second half of 2024. As previously mentioned, the priority for 2024 is to establish a primary ventilation circuit and access multiple mining zones. These two events will be key to ramping up mining rate to 5,500 tons per day by 2027. The team at Rainy River did an excellent job advancing underground lateral development. Underground development continues to increase quarter over quarter, and I expect this trend to continue into Q3 and Q4 as additional headings open and initial underground mining equipment is delivered. The raise-boring of a 5-meter diameter, 420-meter long fresh air raise has commenced in the second quarter. At the end of Q2, both the ODM East ventilation loop and the fresh air raise were approximately 50% complete, in-line with the plan. In addition, I am pleased to report that the construction of the in-pit portal offering a second means of egress and decrease waste all-in distance will commence in a few days early August. Turning now to New Afton on Slide 11. New Afton delivered to plan. B3 continued to deliver above 8,300 tons per day and the seasonal ramp-up has been going to plan, leading to a 34% increase in ton milled and a corresponding increase in gold and copper production compared to Q2 last year. The increased copper production is the primary driver of the reduced all-in sustaining costs compared to the prior-year period. Looking now at the information on the right side of the slide. Similar to Rainy River, the first half delivered according to plan, and we are trending in line with the annual plan. We continue to transition from the B3 cave to C-zone and expect to see a continued ramp-up in C-zone mining rates throughout the year. We continue to expect the higher mill throughput in the second half to be partially offset by the lower feed grade due to the cave draw sequence, leading to a fairly consistent quarterly gold and copper production profile as planned. C-zone progress is shown on Slide 12. Commissioning of the gyratory crusher and conveyor system is on track for the second half of this year. This will eliminate hauling requirement and impact positively on costs going forward. We are on schedule to complete the C-zone construction phase this year, which include the C-zone cave reaching hydraulic radius and commissioning of the gyratory crusher and conveying systems. Lateral development continued to advance on plan with over 80% of the development meters now complete. I'm really pleased with the progress the team has made and C-zone development is no longer a critical path item for C-zone commissioning. These two milestones will be transformative for New Afton, increasing production and decreasing costs to generate meaningful cash flow. Just to sum up, operationally, we delivered a first half as planned. We will continue to deliver on our stated strategic goals. For 2024, this includes delivering on production and cost guidance. We have now delivered eight consecutive quarters to plan. As I've said before, safe production, technical excellence and operational discipline or new goals keys to enter in consistent quarter-over-quarter results. Exploration continues to advance at both sides, and we'll share those results with you in the coming months. We continue to focus on both extending our mine lives and identifying new prospective targets to achieve our strategic objective of a sustainable production platform of approximately 600,000 gold equivalent ounces per year. We delivered an accretive transaction for our shareholders by increasing our free cash flow interest in New Afton to 80.1%. At New Afton, we will achieve commercial production at C-zone and commission the crusher and conveyor. At Rainy River, we will establish a ventilation system and the second mean of egress while continuing preparing the mining inventory leading us to first ore from main zone development this year. We exit the first half of the year free cash flow positive with the free cash flow inflection point behind us. We have now entered a sustained cash generation period. This continues to be a transformative year for our company and our shareholders, and we look forward to providing more positive updates on our third quarter call later this fall. This completes our presentation. I will now turn it back to the operator for the Q&A portion of the call. Operator Questions & Answers: |
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