New Gold Inc.

Ladies and gentlemen, thank you for standing by and welcome to the New Gold Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require further assistance, please press star 0. It is now my pleasure to turn the call over to your speaker today, Ms. Andy. Now, please go ahead.

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 Chausset, 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. Before the team begins the presentations today, I would like to direct your attention to our cautionary language related to forward-looking statements found in the presentation. Today's commentary includes forward-looking statements relating to Newgold. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in the presentations. You are cautioned that actual results and future events could differ materially from those expressed or implied in forward-looking statements. Slide 2 and Slide 3 provide additional information and should be reviewed. We also refer you to the section entitled Risk Factors in NUGLE's latest MD&A and other filings available on CDAR, which set out certain material factors that could cause actual results to differ. Please note that in all amounts are presented in U.S. dollars. In addition, including the presentation, there are a number of end notes that provide more important information and should be reviewed in conjunction with the material presented. I will now turn the call over to Rob Chausset.

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

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

Okay. Good morning. Just jumping straight into slide five, which provides our operating highlights for Q4 and the 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 quarters, primarily due to higher grades at Rainier River and New Afton. Operating expense per equivalent ounce was lower than the prior year quarter due to higher production and sales volume. Consolidate all and sustaining costs for the quarter were $1,491 per equivalent ounce, 20% lower than the prior year quarter primarily due to the lower sustaining capital at Rainy River. Moving to slide six 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 16.23 per ounce, and sales of 17.5 million pounds of copper at 3.34 per pound. Our 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. The company recorded a net loss of $21.1 million or $0.03 per share during Q4 compared to earnings of $0 per share in Q4 2019. After adjusting for other certain charges, net earnings was $27.9 million or $0.04 per share in the quarter compared to a net loss of $28 million or $0.04 per share in the fourth quarter of 2019. That difference is driven by higher revenue, lower operating costs and depreciation. Our Q4 adjusted earnings also includes adjustments related to the previously announced redemption of notes, unrealized adjustments on our gold price option contracts, rainy rivers stream mark to market and our new Afton free cash through royalty. Our MD&A has additional details on the non-GAAP measures discussed here. Moving to slide seven, our CAPEX. This slide provides a breakdown of our Q4 2020 capital expenditures. Our total sustaining capital and leases for the quarter was $69.2 million, and the spend was primarily related to tailings work and wick drains at Rainier River and B3 mine development and advancement of tailings dams raised at New Afton. Growth capital was focused on project development at New Afton. Slide 8 provides details of our capital structure. At December 31st, 2020, we had approximately $185 million in cash and approximately $490 million in liquidity. During the fourth quarter, New Gold completed a $200 million redemption with cash on hand of the outstanding 6.375% senior note due in 2025. Patrick Corbett- Leaving a balance of 100 million on those notes also in early Q4 the company extended its credit facility to 2023 I would refer you to the company's press releases for further information on those specific transactions. Patrick Corbett- slide nine provides our 2021 consolidated guidance we're no will will provide details by operation, but on a consolidated basis, the company is expecting to produce between 440 and 490. thousand equivalent gold ounces by metal the estimated gold production range is 322 000 to 352 000 ounces and the estimated copper production range is expected to be 56 million between 56 million and 66 million pounds when compared to the prior year production guidance includes an increase in production from rainy river mine offset by lower production at the new afton mine the consolidated cash costs are expected to be in line with the prior year with lower costs from the Rainy River mine and higher from the New Afton mine. The all-in sustaining costs, ranging between $12.30 and $13.30 per equivalent ounce, are expected to decline as compared to the prior year, primarily due to lower sustaining capital requirements at Rainy River. Growth capital is expected to increase over the prior year, primarily related to the New Afton C-Zone project development and the intrepid underground at Rainy River. With that, I'll turn the call back to Renaud.

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 in a tragic way at Newgold 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 of everyone working at the New Afton. And, you know, 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 incidents trending way below the Canadian industry. And as a company in general, we've reduced over 45% our overall frequencies and incidents. New Goal 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 main area focused on the water tailings and climate and indigenous communities, This is all, in fact, at the end of the day, going back to one thing, is 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 2nd with a mud rush that occurred at the recovery level, resulting in a fatality. And this hit the whole family of Newfoundland, family in particular, and more families and the whole group of New Afton and Newgold, it hit hard because it hits you right in the middle, you know, of where it hurts the most, your core value and people. And with the same, the same strength, you know, and solid foundations and commitments, we have to get back in our feet and, and move on and, and find a way to move on understanding the, 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 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 in our solid commitment. When I turn back as a CEO, and I say it's a mixed feeling, when I turn back and I look at 2020, I see only tremendous achievement in everything we did and everything we do. A significant progress in turning and repositioning this company. And it started with the health safety, as I said. We've achieved significant milestones. and continue to de-risk in every single environmental aspect. We're positioning the mine for success. We've reduced our debt. We restrict our balance sheet, and we did so while we preserved a very healthy balance sheet in cash and liquidity, and we're moving forward in a very bright way. It's a mixed feelings because we've done so much, but yes, we started the year on a tragic way and we have to bounce back. And it's always the fine line as we put our people first, because we understand what it did and how it hurts. And as the CEO of this company, I could assure everyone that the new Afton family has been and will remain extremely committed to the health and safety. And with the same creativity that's been so part of the story of overcoming technical issues, we'll find a way to move on. I'm on slide 12. When I look at Rainier River and I look back, 2020 was all about repositioning the mine and making sure by the end of 2020, the mine will be positioned to enter 2021 at an increased production, reduced cost. and free cash flow stream starting in 21 and for the remaining of the mine. This is how it's been designed. So look at the result of 2020, achieved the high end of the gold equivalent production. Tremendous effort in controlling and reducing our unit costs resulted in a lower cash cost below the revised guidance. We've completed all the capital projects on the deferred constructions and now moving on to sustaining capital and what I would call the more regular sustaining moving forward. And we've done all this by advancing a little bit of 2021 as well and ended the year at the low end of the sustaining capital, resulting in an ASIC below the guidance. Now, as we're going to see moving forward, we're extremely well positioned now at Rainey, and we're looking at the future in a very, very bright way. On slide 13, you could see how we've transformed the mine with two main focus, operational cost. And for the last two quarters, the mine, the mill, has been operating at a design of about 150,000 tons mine and 27,000 tons mill. And We've done so by also focusing on our unit costs and positioning the cost structure of the asset to compete or even better with the 43-101 assessment that we've made early in the year. So if I move forward and I look at the slide 14 and I look at our operational outlook for 2021, I see a tremendous improvement and While we've made those assumptions in the 43-101 early in the year, and you're looking at the COVID situation, and we bounce back from it and reposition the mine, $275,000 to $295,000 ounces equivalent, a significant reduction in cost below a cash cost below the $800,000, an ASIC at the midpoint slightly below the $1,200 an ounce equivalent, reduction of sustaining capital, This is a significant improvement over 2020, and this will bring a good margin and free cash flow. The first part of the year, I will see the mine in the higher strip ratio and a little bit of a lower grade as we continue our effort of stripping. But in the second half of the year, we should be back in the phase two and benefit better grade and lower strip ratios. The mine will continue to operate in an average of about 151,000 tons all year round, but there would be a bit of a shift from higher stripping, lower grade, to lower stripping and higher grade in the second half. The mill will be kept at its full capacity and will continue to improve on the recovery side. Very good upside is the underground mining. We've made a decision in 2020 to accelerate the development of the entropy zone. originally planned for mining in 2023, and we'll spend the first part of 2021 really understanding and fine-tuning our block model and long-haul mining method with the view that maybe we can accelerate the intrepid zone. And now that intrepid is pretty much all within the reserve and will be part of the 2022-2028 mine plan, there is an opportunity here to accelerate the entropy zone. Capital project, as I mentioned, mostly sustaining capital, tailings increase, capacity tailings and stripping, and some basic maintenance on the main components with reductions of nearly 50% compared to previous year. On slide 15, significant progress with regards to how do we bring back as many ounces as possible in a mine plant on the ground and potentially extend the life of mine. At the end of 2020, as you can see on the upper figure, the intrepid zone was basically all transferred back to reserve as a result of a higher gold price used. So now we have basically the whole intrepid zone now back into the reserve and will be incorporated in the 2022-2028 mine plan would provide better grade at the earlier stage than the current plan and may extend the life of the stockpile as we would be incorporating more underground during the period. Originally, Entrepid has only a small portion included in the current plan, but now we're moving the whole Entrepid into the reserve. And as you can see at the bottom right, there is still a significant amount of resources that are outside of the reserve, but within the reach of potentially being included in the mine plant extending the life of mine beyond 28 as a standalone underground. To do so, we'll be carrying in 2021 a study, an economic study, looking at the feasibility of bringing back and, of course, with the milling scenario that would be adjusted as a potential standalone underground. So more to come on this, but significant progress to date, almost replaced the depletion, of mining depletion of 2020 by incorporating entropy and then a little bit around the open pit as well. But the big upside here is eventually to migrate back from resource to reserve significant amount of ounces from underground in 2021. On slide 16, exploration continues at Rainier River. We've launched it in the fourth quarter. We have the first 4,000 meters that are complete and assays pending. And we intend to release before or late Q1 an exploration update, which we will be ramping up. All work will be wrapped up, you know, all the results today that Rainier River will incorporate as well the new aft and some more to come on the exploration front. I'm on slide 17. So, looking back at the new AFTEN in 2020, new AFTEN is engaged, of course, in the construction, development and constructions of the B3 zone and the C zone. And significant progress were made in 2020. And first, achieving the mid-range of our gold equivalent production We've done so with a unit cost within our cash cost towards the lower end. We've been advancing if it can play the B3 zone, and by the end of 2020, we were well positioned to initiate the B3 zone in the first half of 2021, and this continues. On the gross capital side, mostly around the sea zone development, we ended the year at 110% of the development. We were fully engaged in the construction of the taken amended tailing facilities by the end of 20, working hard on the stabilization as well. In short, we're now fully engaged in all fronts. There was some capital that were deferred to 2021, but overall, at the end of 20, we were extremely well positioned to continue to deliver with the view that 2021 is about getting B3 up to speed, initiate the B3 and ramp it up and been in position at the end of 20, so we enter, 21, sorry, so we enter 2022 with the B3 as a lead or source for new Afton as we continue to build on the C-zone. On slide 18, While I will not talk of the detail of the accident as the investigation continued at New Afton, I thought I would provide with a 3D sketch to better picture where the incident occurred. As you can see, the recovery zone is this very small zone sticking out at the bottom of the lift one with... quite a space decoupled in space with the B3 and the C zone. And as a result, all activities in the B3 and C zone has resumed with the view to initiate the B3 sequence and mining in the second quarter while we complete the permitting and development to get ready. The C zone as well, as you could see even further down, The development has resumed as well with the view to deliver on our capital plan in 2021. The lift one located above is as well. Most of the area of the list one, in fact, has no interactions with the recovery zone. So as a general view, the recovery zone at this stage is in the remote marking and the assumption is made that will remain remote marking for the rest of the year. and therefore extend the remaining extraction of recovery zone, and most likely in the first half of 2022. And the left one will now be ramping up over the next week towards the Q2, where we expect to be back in the pre-incident mining rate. On slide 19, looking forward for new aft in 2021, There is two aspects of it. There is the operational, of course, and there is building the future. So on the mine plan, there was a revised mine plan that was released this morning. And basically what is the mine plan about is obviously a limitation around the recovery level. So from the original top of 2021, and as previously disclosed, the recovery level was expected to be more towards the 3,000, 4,000 tons a day. And now we'd average probably more around 1,700 tons a day, and therefore we'd extend next year. That would be basically replaced by some stockpile on surface, as the left one will ramp back to what we expect to be the pre-incident mining rate at some point in Q2, and would represent about 60%, 65% of the ton. And the plan to initiate B3 And the second quarter hasn't changed. A little bit of ramping up from the incident, of course, but B3 is expected to represent 20 to 25% of the ore for the year. In terms of capital projects, more sustaining this year as we complete the B3 development and put it in production. And on the growth capital side, it's all about season. increased capital because we're now engaged in offense and we expect the season to be significantly de-risked by the end of 2021. On slide 20, a lot of work has been done so far from the first phase of exploration on the Cherry Creek at the bottom right, the figure. We are awaiting a lot of assaying and and interpretation pending, and as I said, we should be in position to release an update exploration story by the end of the first quarter. We continue to work underground as well, but it's really from 22 when we have better angles from the RAM going down to C-Zone that we'd be more actively looking for potential continuity of the C-Zone and the SLC at depth. Meanwhile, there is a bit of delineation taking place, but I think it's fair to say that the exploration program of 2021 will be mostly focused around the Cherry Creek area, with some underground picking up more in 2022. So more to come in our exploration update plan for late Q1. On that, that will complete the most formal part of the call and I'll pass it back to the operator for the Q&A section. Thank you.

As a reminder, to ask a question, you will need to press star 1 on your telephone keypad. Again, that's star 1 to ask a question. Please stand by while we compile the Q&A roster. Your first question comes from Anita Soni from GIBC World Markets. Your line is open.

Hi, good morning, 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 and what cases you would spend a higher amount? Like why is that range there?

Well, you see like the capital project for New Afton is a four-year project, right? So there is, as we experienced in 2020 at Rainier 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 our estimate based on and an average productivity and timeline 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 four years, so you have a lot of room based on performance. And equally important, we're doing very well on the COVID as well. We're case-free, new afternoon, rainy as we speak. But there are some aspects out there that sometimes you don't 100% control. So we felt comfortable with guidance being set in the mid-range of what we could achieve, but we we have a bit of room should we better perform to increase some aspect as well. Rainier 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, depending how it goes, it can re-accelerate a bit some aspects. I would say that that would be the thinking behind it. 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 we better perform or maybe something out there slowing us down a bit?

Yeah, I'm just wondering if capital allocation and, you know, an eye to, you know, sort of hitting that free cash flow inflection point, I think as most people had expected this year was part of the planning. Like, you know, 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?

It's all about the price you apply to it. But if you look at the Rainy River today, beside the 10, 12 million Canadian of cash of accelerating the intrepid, you're in an ASIC slightly below the $1,200. So it's a significant margin, right? And we'll bring a lot of free cash flow. And we have the second payment this year as well from Artemis. So yes, we remain very confident that we'll 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 four years, no doubt. But globally, Anita, and 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.

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

I don't have this handy right now, but I would say if you look at Rainier Rivers, 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 often is a bit of a different situation considering the new plan. So, again, if you use the 43-101 reference on the year-by-year, yes, we would be a unit cost higher as a 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.

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 higher on that slide if you took the ratio of the rate?

It's more on the unit basis, right? So when you do a recovery zone, a planned and remote mucking at 1,700 tons 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 terms of, let's say, lift one productivities in the second half, what we have planned for the B3 unit cost, again, all referenced for the 3101, we still feel very strong. Fuel-wise, I think we could achieve better than originally planned. So we'll be very close in some aspect, but unfortunately we'll be impacted a bit on our unit costs for the underground as a result of what's happening now.

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? You know, 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 a Obviously, New Afton things had to be paired back in Q1, but outside of that, is there anything we should be aware of?

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

Again, to ask a question, please press star then the number one on your telephone keypad. Your next question comes from Mike Parkin from National Bank. Your line is open.

Hi, guys. Thanks for taking my questions. On Rainy, you're bumping up against the permit limit on your processing. As you're moving into the second half, you've indicated a more favorable kind of mining scenario where you're into a lower strip and also better grades. 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? Any kind of details you can shed there?

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 on the hardness. But generally speaking, we've been for two 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 milk 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 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 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 held to increase the bets. But it has to be well captured in all the effort of extending the life of mine as well and bring back more on the ground 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 that. So it could be a more conversation the second half. But I'm not expecting any increase of the mailing capacity, if you will, permanent in 21. And we'll see how we advance in the exercise. Does that deserve a 22 talking? Maybe.

Okay. That's great. Thanks very much, guys. Thanks.

Your next question comes from Mike Chalonen from Bank of America. Your line is open.

No, Robinette. I'm sure you noticed that I Am Gold just sold a bunch of royalties for up to $47 million. None of the royalties in production. And I obviously have a stream on Blackwater, which is moving to production. I guess Franco, Wheaton, they probably haven't forgotten your phone numbers. I'm just wondering what you're thinking on that stream. Is it something that would be sold to have buyers? Thanks. Thanks.

the, uh, we're definitely not questioning ourselves if they could be a buyer out there, uh, without, uh, without more specific. I think, uh, I think definitely, you know, as you look at the, uh, the stream where we own on the, uh, Artemis Blackwater, uh, in Canada, uh, solid project on its way to be, uh, developed. And, uh, so we understand the, the, the interest, uh, I think Rob and the team did an unbelievable job in 2020 to restructure this balance sheet of the company and maintaining cash liquidity and so forth with only $100 million to be repaid, if you will, before 2025. And basically the whole long-term debt set in 27. So is there any need in the short term to monetize or no? And, you know, we sold Blackwater. We sold... if you will, a portion of our pipeline and retain very strategic stream on it and some equity and more payment this year. And as we move forward, it would be always a question for us, how do you build more value from those? So, of course, we have this, a 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 a 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 are some interests out there, but be a little more strategic about it.

Okay. Well, thanks. Take care.

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

Thank you, Opera. 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.

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