New Gold (TSX:NGD) Inc. (NYSE:NGD) has reported robust financial and operational results in its second quarter earnings call. The company highlighted strong adherence to its outlook, with significant progress in key growth projects and exploration efforts.
New Gold's New Afton and Rainy River mines have shown commendable performance, contributing to the company's positive financial position. Increased net earnings were attributed to higher metal prices and the gain on derecognition of the New Afton free cash flow obligation. The company is set to focus on sustainable production and expects to generate meaningful cash flow going forward.
Key Takeaways
- New Gold's financial health is solid, with increased net earnings this quarter.
- Operational success at New Afton and Rainy River mines has been acknowledged, with New Afton receiving two safety awards.
- The company completed an accredited transaction to increase free cash flow interest in New Afton.
- New Gold is on track to achieve a sustainable production platform of approximately 600,000 gold equivalent ounces per year.
- The underground lateral development at Rainy River is expected to continue its increase in Q3 and Q4.
- New Afton's B3 cave outperforms with a 34% increase in tonnage milled and higher gold and copper production compared to the same period last year.
- Significant cost savings are anticipated due to operational efficiencies such as in-pit dumping and optimized drilling and blasting.
Company Outlook
- The structured ratio is planned to decrease in the second half of the year, leading to higher operating costs and lower sustaining capital.
- ASIC is expected to trend lower with higher gold production.
- The company aims to maintain a strong financial position with sustained free cash flow generation.
Bearish Highlights
- Higher operating costs are anticipated due to a planned decrease in the structured ratio.
Bullish Highlights
- The company remains focused on extending mine lives and adding new prospective targets.
- Rainy River's main zone is on track for first ore from development in the second half of 2024.
- The commissioning of the gyratory crusher and conveyor system at New Afton is on schedule for the second half of the year.
Misses
- There were no specific misses mentioned in the earnings call summary provided.
Q&A Highlights
- Analysts inquired about the progress of the ramp-up at New Afton and the installation of the conveyor and crusher systems.
- Executives provided a timeline for achieving the hydraulic radius and completion of the conveyor system, expressing satisfaction with the progress and safety measures.
New Gold Inc . continues to demonstrate operational excellence and financial resilience, as evidenced by its Q2 results and ongoing projects. The company's commitment to safety, operational efficiency, and growth projects positions it favorably for future performance. As New Gold advances its mining operations and capitalizes on cost-saving measures, the market will watch closely for the continued execution of its strategic plans and the realization of its projected sustainable production rates.
InvestingPro Insights
New Gold Inc. (NGD) has shown a promising trajectory in its recent financial and operational results, with an emphasis on sustainable production and cost-saving measures. To provide additional context to these developments, InvestingPro offers some pertinent data and tips that may interest investors looking at NGD's performance and potential.
InvestingPro Data indicates that New Gold Inc. has experienced a significant increase in revenue, with a 15.83% growth over the last twelve months as of Q2 2024, and an even higher quarterly revenue growth rate of 18.33% in Q2 2024. This aligns with the company's reported progress in its key growth projects and exploration efforts. Moreover, the company's gross profit margin stands at a healthy 45.17%, underscoring operational efficiency.
One of the InvestingPro Tips points out that analysts predict the company will be profitable this year, which may reassure investors about New Gold's future financial health given the recent growth trends. Additionally, the fact that 2 analysts have revised their earnings upwards for the upcoming period suggests that there is a positive sentiment in the analyst community regarding NGD's potential to exceed expectations.
Investors following New Gold Inc. should note that the company does not pay a dividend to shareholders, which could be a consideration for those looking for income-generating investments. However, the high return over the last year, with a 1 Year Price Total Return of 85.59% as of the date provided, is indicative of the stock's strong performance for growth-focused investors.
For those interested in further insights, InvestingPro has a total of 11 tips for New Gold Inc., which can be found at https://www.investing.com/pro/NGD. These tips provide a deeper analysis of the company's financials and market position, offering valuable information for making informed investment decisions.
Full transcript - NEW GOLD INC BATS (NGD) Q2 2024:
Operator: Good morning. My name is Ludy, and I'll be your conference operator today. Welcome to the New Gold’s Second Quarter 2024 Earnings Conference Call [Operator Instructions]. I would now like to hand the conference over to Ankit Shah, Executive Vice President of Strategy and Business Development. Please go ahead.
Ankit Shah: Thank you, Ludy. And good morning, everyone. We appreciate you joining us today for New Gold’s second quarter 2024 earnings conference call and webcast. On the line today we have Patrick Godin, President and CEO; and Keith Murphy, our CFO. In addition, we also have Luke Buchanan, Vice President Technical Services; and Jean-Francois Ravenelle, Vice President Geology, available for the question and answer portion of the call. Should you wish to follow along with the webcast, please sign in from our home page 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 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 Gold's latest AIF, 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 turn the call over to Pat for his remarks.
Patrick Godin: Thanks, Ankit. Before discussing the quarter, I would like to take a moment to discuss last week's events when we experienced the fatality at the Rainy River mine. More specifically, we lost a colleague. Our thoughts continue to be with his family and friends. Every quarterly call, I start by talking about safety. I talk about our courage to care culture. I do this because I believe that the key to consistent and disciplined production start 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 operation and by the commitment of all employees. We have been able to celebrate the awards and milestone together, but in the instance, we mourn 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 saw New Gold deliver 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 CT Award in mines in BC and Yukon, presented by the Canadian Institute of Mining. I'm pleased to take a moment to recognize their accomplishments. Operationally, we delivered on the quarterly plan with a strong adherence to our [personal] 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'm 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'm pleased to say 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 effort at both operations in 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. For 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 milestone 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 Web site. As the last point, I'm extremely pleased to underline that we successfully delivered an [accredited] transaction for our shoulder 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'll turn the call over to Keith. Keith?
Keith Murphy: 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 of copper. Rainy River produced approximately 50,300 gold ounces as planned, while advancing waste stripping. New Afton produced approximately 18,300 gold ounces and 13.6 million pounds of copper. This represented an 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 cost 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 increased copper production and sales. At Rainy River, costs were higher compared to Q2 2023 were in line with plan and are expected 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 adjustment 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 from 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, it was accounted for as a partial disposition of net mining interests. The net impact of this was a $42 million [gain]. 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 quarters 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 spent. Sustaining capital is primarily related to capitalized waste, capital components, tailings management and construction. Sustaining capital is trending lower as a proportion of waste tonnes are capitalized and a higher proportion remains in operating costs with no net impact on [ASIC]. Growth capital is related to underground development as the underground mine continues to advance. At New Afton, total capital decreased over the prior year period due to both lower growth and sustaining capital spent. 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 Gold’s effective free cash flow interest in New Afton to 80.1% for an upfront cash payment of $255 million financed with a $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. To sum up, we remain in a very healthy financial position all while continuing to invest in growth projects. As we successfully executed on half one 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.
Patrick Godin: 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 excellent position as we start the second half of the year. Waste stripping is expected to decline through the remainder of the year as we access greater quantities of high ore. In the underground mine, extraction from the interpret zones continued as planned and the development to main zone is scheduled for first ore from development in the second half of 2024. The [mill] performed very well, progressing over 26,000 tonnes per day, 12% increase compared to the Q2 of last year. We continue to operate above the guided mill throughput rate of 24,700 tonnes per day. The right side of this slide outlines our 2024 outlook as presented in February and the previously guided 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 objective 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 our grade ore in the open pit for later in the year. The [structured] ratio is to decrease in the second half of the year as planned, which result in higher operating costs and lower sustaining capital. However, lower that impact on [ASIC], which will to 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 zone, as these two events will be key to ramping up mining rate to 5,500 tonnes 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 additional underground mining equipment is delivered. The raise boring of the 5 meter diameter, 420 meter long fresh air raise commenced in the second quarter. At the end of Q2, both the ODM is ventilation to loop and the fresh air ways were approximately 50% complete in line with the plan. In addition, I'm pleased to report that the construction of the in-pit portal offering a second mean of egress and decreased waste all-in distance will commence in few days early August. Turning now to New Afton on Slide 11. New Afton delivered to plan. B3 continued to deliver above 8,300 tonnes per day and the season ramp up as being going to plan leading to a 34% increase in tonne 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 cost compared to the prior year period. Looking now at the information on the right side of this slide. Similar to Rainy River, the first half delivered according to plan and we are trending in line with the end of our 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 iron 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 [task] 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 continue 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 commissionings. These two milestones will be transformative for New Afton, increasing production and decreasing cost to generate meaningful cash flow. Just to sum up, operationally, we delivered our first half as planned. We'll continue to deliver on our stated strategic goals. For 2024, this include delivering on production and cost guidance. We have now delivered eight consecutive quarters to plan. As I've said before, a safe production, technical excellence and operational discipline are New Gold’s keys to ensuring consistent quarter-over-quarter results. Exploration continues to advance at both sites and we’ll share those results with you in the coming months. We continue to focus on both extending our mine lives and [adding] new prospective targets to achieve our strategic objective of a sustainable position platform of approximately 600,000 gold equivalent ounces per year. We delivered an accredited 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'll 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 certain cash generation period. This continue 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: [Operator Instructions] And your first question comes from the line of Eric Winmill with Scotiabank (TSX:BNS).
Eric Winmill: Maybe just a quick question here on New Afton. Mining cost per tonne was down over Q1. Any additional commentary there in terms of one time items that might have caused that, or how are you thinking about the mining costs here throughout the year? Obviously, should sort of stabilize these lower levels as the cave ramps up.
Keith Murphy: As we continue to increase the throughput at New Afton with C-Zone ore coming online, we will decrease our cost per tonne and a lot of fixed costs at New Afton and we’ll leverage that increased throughput. So as we continue to increase throughput that cost per tonne will continue to come down.
Eric Winmill: And just turning to Rainy River for a moment. Obviously, in the shutdown last week, my condolences on the fatality there. Any sort of broader read throughs we should think in terms of pit stability or any other issues in the open pit at Rainy?
Patrick Godin: So yes, it was not an easy week for all of us and it's nothing compared to the family, but this remain an ongoing investigation. And in respect of the process [Indiscernible] not going through the specific detail of the incident. So what I can confirm to you, however, is that it's not related to pit slope, it was related incident with a piece of equipment. It was equipment that was loading a crack. So we have no stability concern, no technical issues or nothing regarding the infrastructures of the pit or whatever. So if I can ring sense the incident, it's related to the operation of an equipment.
Eric Winmill: I know not an easy situation. And then so obviously, sort of a week of downtime, is that what we should expect here and I guess, the operations have resumed more or less?
Patrick Godin: But we -- first, we started the operation when the incident happened in the morning of last Wednesday,and we start on Saturday. So basically, we stopped mostly over three days. And so when we ramp up after that as smoothly on Saturday, the operation, but we are on track to deliver guidance. So it's mostly three, four days, is the range that we can absorb and to deliver our -- in the range of our guidance for 2024. So we're not impacted for this, just we took the appropriate time to do the first, I would say, to gather the data for the investigation. And it would be -- and so we are always doing an investigation with something like this. So no matter the incident that we are facing and after that we're doing [Indiscernible] this. So it was important for us to gather all the data. We collaborate with the Minister of Mine, the Chief Inspector and also we are doing the investigation in partnership with our employees and of our team. So in the time to gather all this to sort it out and to care for the family and to care also to restart the operation with our people. So we mostly lost 3 days, but I'm not seeing that as a loss, I'm saying that as a care for my colleague.
Operator: And your next question comes from the line of Anita Soni with CIBC (TSX:CM) World Markets.
Anita Soni: So firstly, my condolences on the loss of life at New Afton -- at Rainy River. And then my question, I'll start with the CapEx at New Afton. It seems that you're a little underspending there relative to the guide. Is that as a result of cost savings or are you just a little bit behind on the spend, will that catch up in the back half of the year? I think the guide was more like $130 million to $145 million for growth capital and you guys are kind of averaging more sub $120 million so far?
Patrick Godin: So it's mainly related to two items. So the first item is we have a bit of, I would say, offset the quarter-to-quarter for the delivery of the equipment for the extraction zone and the rehandling of the crushers, but it's not having an impact on our operation as we are using the previous equipment actually, so equipment delivery. And the other item is because we are really proud of the fact that the Yohann with the team here are working really hard to optimize net asset value. So we invest a lot of time and effort to optimize the developments. We are performing better on development. And we delayed some openings to next year, so a slight adjustment because it's only the -- good management in the planning of the development on a timely manner, reduce the number of contractors and decreasing our costs and improving our productivity. So that's mainly the two reasons why we are on the construction point of view and the CapEx point of view, we slightly delayed but we will have to spend this money in a timely matter, just offset [Multiple Speakers] from a quarter to a quarter -- not quarter, but it's not an extra expense, it's just -- it's not an underperformance, it's a great performance.
Anita Soni: So a little bit of better unit cost optimization, a little bit of deferral and a little bit of catch-up spend in the back half. Is that...
Patrick Godin: Yes.
Anita Soni: And then that actually leads me to my next question. Both of the -- both New Afton and Rainy River outperformed not just on the mining cost but on all of the unit cost. Is that -- was that something that was just a onetime thing or is that better -- good optimization on behalf of Yohann and his team?
Patrick Godin: I think, first, I can say to you that we are -- because Yohann actually is at Rainy River, this is why I'm taking his part of the call, he's taking care of our colleagues there. But he is really proud of this achievement at Rainy River, because on a total cost point of view, we mine more tonnes for less money. So we are at a point that we optimize the open pit. We fully maximize the fact that we are not using the waste dump anymore because we are doing in pit dumping for the waste, reduce all the distance, optimize the drilling in the blasting. So we have a new mine manager in place that is improving -- is a big -- he's a part with his team -- is a big part of the success, too. It's a team work but we improved drastically the productivity in the pit. So we mine more tonnes for less money. So we are really pleased by this, really pleased. And for Rainy River -- for New Afton, as I said to you, we managed really well our performance. And so we are pushing really hard to deliver our crushing and material handling in advance. So we are in advance actually on the schedule. And the day that we will start it up, it will reduce our OpEx because we eliminate all the trucking because we're trucking up all the material from C-Zone to the mineral sizer, so we'll -- not have to do that anymore. So in terms of manpower, fuel, operational equipment, maintenance of the equipment, it will be an immediate gain for us.
Operator: And your next question comes from the line of Jeremy Hoy with Canaccord.
Jeremy Hoy: Condolences for you colleague at Rainy River. I think I'll touch on the ramp-up at New Afton. When we were there back in May, the progress of the project was going quite well. I think you had four drawbells completed and we're looking to complete them at a rate of about four per month. So with hydraulic radius being 18, we're looking at achieving that potentially August or September, I believe. Could you guys give a bit more detail on when you expect to achieve it, because things seem to be moving at quite a good pace?
Patrick Godin: So for the hydraulic radius, it's actually on -- because we have experience with [blockade], the fourth one. In theory, we need to achieve -- to have 18 drawbells development and function to reach the hydraulic radius and actually, we're trending for the beginning of Q4. So we're doing well on that. We're still trending to have three drawbells for year end and so as we discussed -- and we are in plan. So we're trending -- it can start the kit by itself with 17, it can start with 21. So it's not an exact science but actually we're trending for the beginning of Q4. So really pleased by this, because -- and also for the conveyor system and the crusher. So I think that we present some -- a picture of the ore fixing the bottom part of the gyratory crusher. It's a picture of that. So actually, the manpower in this part are probably in place, so it's worth looking more. So we're mostly -- instead to look at the end of Q4, we're looking middle Q4, so it's excellent for us, doing well.
Jeremy Hoy: And my next question was going to be on the conveyor and the crusher. So I appreciate the detail there as well. That's it for me...
Patrick Godin: So we are installing the last belt this week. So basically, the [Indiscernible] is in place under the BIM. So I think it's -- we will probably sort it out in shortly. So the next item in terms of infrastructure and -- the construction of infrastructure will be the crusher. So it will be the focus from the following weeks up to the end -- in November. So we are really well positioned, the guys did a good job, we did also a safe job. So I was there with them on Sunday and nothing to add there. It's perfect.
Operator: And your next question comes from the line of Mike Parkin with National Bank.
Mike Parkin: All my questions have been answered. So thank you.
Operator: And there are no further questions at this time. I'd like to turn it back to Ankit Shah for closing remarks.
Ankit Shah: Thank you, Ludy. And to everyone who joined us today, thanks again. 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 rest of your summer.
Operator: Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.
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