New Gold Inc.

Over to Mr. Ankit Shah, Vice President, Strategy and Business Development. Please go ahead.

Great. Thank you, Operator, and good morning, everyone. We appreciate you joining us today for Newgold's third quarter 2021 earnings conference call and webcast. On the line today, we have Renaud Adams, President and CEO, and Rob Chauzet, 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'd like to direct your attention to our cautionary language related to forward-looking statements found on slides two and three of 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 presentation. Your caution that actual results in future events could differ materially from those expressed or implied in forward-looking statements. Slides two and three provide additional information and should be reviewed. We also refer you to the section entitled Risk Factors in Newgold's latest MD&A and other filings available on CDAR, 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 Rob.

Thanks, Ankit, and good morning. Slide five provides our operating highlights for Q3. The details on that slide are consistent with our October production press release. During Q3, the company produced approximately 105,600 gold equivalent ounces. This amount consisted of 15.6 million pounds of copper and 58,600 gold ounces from Rainy River and approximately 13,600 gold ounces from New Afton, total gold ounces of approximately 72,000 ounces. The lower equivalent gold production as compared to the prior year quarter is primarily due to the lower tons processed at Rainy River and New Afton. The operating expense per equivalent ounce was higher than the prior year quarter due to the strengthening Canadian dollar and the Canadian weight subsidy received in the prior quarter. Consolidated all and sustaining costs for the quarter were $1,408 per equivalent ounce, higher than the prior year quarter, primarily due to the higher operating expense as previously noted, partially offset by lower sustaining capital. Turning to slide six for financial results, third quarter revenue was approximately $180 million driven by sales of 66,982 gold ounces at an average realized price of $1,788 per ounce and sales of 14 million pounds of copper at 428 per pound. The Q3 revenue was 4% higher than the prior year quarter, primarily due to higher metal prices. Operating cash flow before working capital adjustments was $81 million, or $0.12 per share, for the quarter in line with the prior year quarter. The company recorded a net loss of $11.3 million, or $0.02 per share, during Q3 compared to earnings of $0.02 per share in Q3 of the prior year. After adjusting for certain charges, net earnings were $23.4 million or $0.03 per share in Q3 compared to net earnings of $12.4 million or $0.02 per share in the third quarter of 2020. This difference is driven by higher metal prices and lower finance costs. Our Q3 adjusted earnings includes adjustments related to unrealized adjustments on our Rainy River stream mark to market and our free cash flow royalty at New Afton. Our MD&A provides additional details on the non-GAAP measures discussed in this presentation. With regards to capital expenditures, our total CapEx for the quarter was $58 million. $34.9 million was spent on sustaining capital and $23.1 million on growth capital. Sustaining spend was primarily related to planned tailings work at both operating assets and B3 mine development at New Afton. Growth capital was focused on project development, specifically the sea zone and the thicken and amended tailings project at New Afton and the underground intrepid zone at Rainy River. Slide 7 provides our capital structure as cash on hand as at September 30th, 2021 was $151 million and liquidity at the end of the quarter was $477 million. With that, I'll turn the call over to Renaud. Thank you.

Thanks Rob and thank you everyone for joining us today. So first let me start by saying that I had the chance recently to spend quality time at both hats and I really continue to be amazed by the tremendous level of hard work and commitment of our employees and contractors as we continue to build our company on a solid foundations and core values. In terms of our third quarter, On a consolidated basis, I believe that we responded very well to the challenges experienced in the third quarter, positioning us to meet our updated guidance. I'm really pleased with the global reductions of our all-in sustaining costs of over 9% compared to the first half of the year, with Rene improving by almost 16%. And I really want to thank everyone at Lugo for their continued effort. At Rene, I'm on slide 10. Another quarter of nearly 150,000 tons per day mine in line with our objective to achieve approximately 151,000 tons per day for the year. The mine is now an average 150,000 tons per day for over a year and is now well set for further optimization as we progress towards 2022. It is now about redirecting our efforts in 2022 from ramping up in stabilization to continue to deliver volume, but in a more optimized way, unlocking further opportunities for cost reductions, improved OEEs, all linked to our mobile maintenance capital program. As originally planned, the mine executed on a much lower strip ratio of 1.83 to 1 in the quarter. in line with our objective to average approximately 2.721 for the year. So accordingly, we expect to remain at the low strip ratio in the fourth quarter. The highlight of the quarter at Rainy was sure around the negative grade reconciliation in the east slope part of the pit, forcing a revised production guidance. But September responded very well to our short-term adjusted grade approach for the zone, and our overall production for the quarter was in line with our revised plans. With a much lower contribution from the East Low Plan for the fourth quarter, we expect an increased grade in the fourth quarter over the 0.89 grams a ton achieved in Q3, which was already approximately 10% higher than the first half of the year. In terms of grade control, we continue to see in-line reconciliations for zones outside of the East Lobe area, reconfirming our confidence when looking at our future production profile. A second RC drill arrives on site and more drilling is taking place to continue to assess the East Lobe area and prep for 2022 production plans. The mill averaged 25,245 tons per day, lower the same period of last year of 27,000 tons per day, mostly due to extended maintenance in the crushing area. But looking forward, I'm very confident that the mill will return to its permitted capacity of 27,000 tons a day. But also, I'm looking forward to seeing potential improved recovery as we continue to optimize the grinding, gravity, and back-end circuits. With completion of all deferred construction work in 2020, the mine achieved a reduction of sustaining capital in Q3 compared to the same period of 2020, contributing to lower all-in sustaining costs of $13.7 per gold equivalent versus the $14.69 achieved for the same period of 2020, but also a reduction of nearly 16% compared to the first half of the year. So we remain on track to meet our updated production and cost guidance. The underground development of the entropied zone continues during the quarter with the objective to initiate long-haul stoping mining in late 2020 once the first long-haul panel is fully developed in waste and ore. We also continue to advance our optimized underground mine plan study that will potentially include additional conversion of underground mineral resources into mineral reserve all located directly below the pit the the result of of the study are expected to be released in the first quarter of 2022 along with our year-end mineral reserve and mineral resources update at new afton i'm on slide 12. As a result of the delay in receiving the B3 permit in 2021, the contribution of tons mined from B3 zone was lower than originally planned, resulting in a lower tons mined compared to the same period of 2020. Other contributors to lower tons mined included the limited mining capacity on the recovery level as the mucking activities continue in a remote mode following the event of last February. As we complete 2021 and entered in 2022, our focus remains on, first, safe and efficient ramp-up of the B3 zone. This is really important to us, as it will be the main contributors of 2022. A safe mining of the recovery level reserve prior transitioning to the input tailings plan for 2022, so we don't leave anything behind us. and, of course, the safe and efficient exhaustions of the East Cape area. The overall grade for the quarter were comparable to the same period of 2020, as the grade mine from the East Cape continued to perform super well in the quarter. The middle recoveries at the mill were also comparable, just slightly better for gold, to the same period of 2020, despite an increased supergene ore volume mill. The average of nearly 13,000 tons per day mill was lower the same period of last year, but in line with our mining rates in the quarter in our plan to optimize metal recovery while processing higher volume of supergene ore. So overall, we remain on track to meet our goal equivalent production guidance. with an all-in sustaining cost expected to be on the higher end of the guided range. Our sea zone underground development advanced by nearly 800 meters in the first quarter, and the taken-amend tailings facility was nearly commissioning at the quarter end. In terms of exploration, we had six more holes totaling nearly 3,900 meters that were completed in the quarter in the Cherry Creek trend. to explore for deep porphyry style system. The drilling program is expected to be completed by the end of the fourth quarter. Following the very encouraging and exciting results of our underground drilling program testing artificial intelligence targets, more drilling were added and should also be completed by year end. So really looking forward to our next exploration update to market in the first quarter of 2022. This will complete the presentation portion of the call, so I would now hand it back to Operator for the Q&A portion of the call. Operator?

Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request, and your questions will be polled in the order that they are received. Should you wish to decline from the polling process, please press the star followed by the two. And if you are using your phone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Anita Soni from CIBC World Markets. Please go ahead.

Miss Anita Soni?

Hi. Good morning. Sorry, I didn't hear you. I was switching from the webcast to the phone. There was some delay in dialing in. I was just wondering, in the rainy river, could you give us an update and some color on the amount of East Lobe material that you expect to see next year and perhaps into 2023 if there is any?

What I can say at this stage, Anita, is you would appreciate that we continue to assess and optimize our plan. But if you refer to the 43-101, and quite frankly, the plan remains somewhat pretty similar, you have about 25% of the ore mined for 22 and 23, completion in the second half to 23 of the east load area. So as we advance and complete, we'll, yeah, so we'll obviously in our guidance early in 2022, we'll update all our plans, but this is what you could see so far as per the 4310.

All right, and secondly, could you comment on the inflationary pressures that you guys are, if any, that you're seeing, and just give us some color on the magnitude just overall, and then where are the sources of that? in terms of labor consumables?

Sure. There's no material inflationary pressures. Any sort of major capital items and components related to steel, etc., were ordered and received pre this inflationary period, if you will. Ultimately, I think our inflationary pressures come down to access to maybe contractors, etc., And labor is within line, you know, that 2% to 3% that we're seeing. So as it stands right now, we're not seeing any material impacts on our business related to inflation.

Thank you. I'll pass it over to someone else.

Thanks. Your next question comes from Josh Wilson from RBC. Please go ahead. Hey, Josh, you might be on mute.

Sorry about that. For the upcoming optimized mineplain at Rainy River, you mentioned looking at opportunities for upside for resource conversion. Is there any changes in sequencing that we should potentially expect? Or is there any ability to maybe incorporate some upside more near term rather than mine life extension?

The purpose of the study really is to create some sort of standalone underground mining, Josh, as we complete the stockpile that is currently 2028. So it's really a continuity because if you look at the current plan in the 42-101, we had already incorporated the top part of the center zone below the pit. and the 42-101 together with the stockpile. So really the study is a kind of continuity of the mining standalone with a continuity, you know, and just keep mining deeper in the central zone and all the intrepid as already in the reserve. So it's not so much about, as you say, unfortunately, you know, incorporations at the early stage more than creating an extended life of mine beyond 2028. There will be some here and there opportunity, but the main purpose of the study is an extension of life of mine beyond 2028.

And when the initial East Slope issues had come out, there was some discussion maybe of looking at mining some of that material underground. Is that something which could still make sense or that could be incorporated in this plan, or is that not a priority right now?

It's not a priority right now. There is not much of the e-slope in the open pit to complete in 22-23. I think we were, as I said previously, we're continuing to refine and optimize our plan as we advance towards 22. But at this stage, I think it's fair to say that it still makes more sense to catch it open pit and carry our underground plan as previously planned.

Okay. And last question, when you're looking at year-end reserves for rainy, first off, I guess, what sort of price assumptions are you expecting to incorporate? And then how should we think about the impact of East Lobe as well as maybe some exploration efforts that have materialized this past year?

We're looking at use of $1,400 for a reserve exercise at the year end, and the exploration at Rennie is still somewhat at the early stage, so not expecting an impact from the from the exploration program of 21. But as we continue in 22 and 23 and so forth, we'll see and continue to hope, you know, for additional resources out of our exploration program. But this will not be the case for 21. Good.

And then to understand the impact for East Lobe, is it fair to assume, you know, some loss of ANSAs, you know, just from that and depletion?

Very honestly, Josh, I mean, this is exactly the assessment that is taking place. No, we're not. We're decoupling completely. First of all, we're decoupling completely the open pit from the underground. It's a different complete mining, as you know, and approach. And then the mining, the systems rather than on the volume and bulk. So it's a complete difference. So we're not mixing both here. And for the remaining ounces of East Slope, that's exactly the assessment we're doing with more drilling and RC and so forth. And we'll be prepping, you know, for our 2022 guidance. But don't have all those answers, as we said.

Okay. Those are all my questions. Thank you. Thanks.

Thank you. Your next question is from Dalton Barreto from Canaccord. Please go ahead.

Sorry. I think I was on mute again. Can you hear me?

It seems to be a theme on this call. Good morning. Thank you for taking my question. Renaud, my question is also on the east load. I want to ask, do you understand exactly why you have a grade reconciliation issue at this point in time?

Well, the only thing I can say is, you know, for the benches, you know, that took place, the mining that took place on benches in the Q3, I think it's fair to say, you know, that you're never exactly right on the model, reconciliation day-to-day, every hour. But I think it's fair also to say that, unfortunately, for the Q3 period, the benches that took place, unfortunately, the reconciliation compared to the resource models was showing less tons and ounces. Now, why is it like this? Is it just like a localized type of systems? You know, it sometimes happens, you know, in some areas for a period of time, and then it switches. So globally, we've been doing extremely well over the last three years. All the other areas on a global basis continue to perform very well with the model, but with nearly... If you look at our Q3, a big portion of the Q3 was really focused on mining in that specific area. When you experience a negative reconciliation and most of your mine plan is from one specific area, it does highlight as a big variance, of course. If it would be more distributed over the year, you will have more flexibilities and so forth. We really need to complete all this RC drilling to look at this on a global basis because there is nothing telling us that things cannot even shift as you go. So I've seen those localized situations in my career, and sometimes it's very localized over a few benches, sometimes a little more. But I think our model has responded very well globally, but unfortunately that's very far east. area has just not responded well in terms of tons and grade. There is nothing really specific more to say. We just need to, at this stage, to continue to drill underneath and assess the remaining ounces and see how does that compare with the model. But, you know, it's a one resource model apply, you know, to across, you know, the deposit. And sometimes, you know, you have positive, sometimes negative. But if you follow your effort on this one area as we experience in Q3, unfortunately, the variants, you know, hit us stronger. But let's see with the completion of the RC, and I'll definitely be in a better position as we complete the year and enter 22 to have all the specifics to that question.

Okay, thanks for that. And then maybe as a bigger picture question, I wanted to ask you about M&A, pretty topical in the gold space right now. On the A side, on the acquisition side, are you seeing anything in the vicinity of Radio River that could potentially complement the underground once the open pit's done? And then part B, on the M, the merger side, If you were to consider a merger of equals, what would you look for in a partner?

Thank you. Thanks for that very specific question on a Friday morning. I can answer the first one. I think the first one, when it comes to the vicinity, this is an exercise that is a continuous exercise for us to draw a radius around our operations and always look for opportunities for resources that could eventually be Unfortunately, at Rainy, I would qualify like somewhat, you know, like not really advanced volume ounces type of stories, you know. It's still more within our land package that we see the best opportunity. New Afton is a bit of a different situation, you know, considering the very prolific areas and multiple opportunities and resources around the assets, but rainy. And I would keep my comments for myself when it comes to more specific merger. I mean, you understand that as we advance. Our focus now is ready to deliver on our plan. We see our cash balance that would continue to improve over the years. We have the streams. And so I think we are extremely well equipped to provide eventually as we advance, you know, some gross opportunity to our shareholders. But I would not go any further than that. But thanks for asking.

Thanks, guys. All the best.

Thanks.

Thank you. Your next question comes from Mike Jolunen from Bank of Montreal. Please go ahead.

Bank of Montreal. I don't even bank there. But still at Bank of America, 32 years. And well, Rob Ankick, thanks for the call. And I'm actually drawn to slide 13, your investment proposition. A couple of questions there. I noticed the 25% GOE growth 2020 versus 2226. By my math, that's about an average of 546, 546,000 ounces for that period. Would that also be guidance for 2022? No, no, no.

We're not referring. I mean, this is the This is really for the period, you know, like going towards 26. If you look at our production profile at Rainy, you see a constant grade increase over the period of 20 to 26. So you have the season that is coming at play. So as we advance for, let's say, this year towards 22, first step of increase at Rainy, and you continue to increase over the period going towards the 26, and you incorporate the season to this, what we're seeing is a net increase of 25% plus compared to our current situation. That's the way to look at it.

So the lowest year would be 22, the highest would be 26 of that five-year period?

The period of 24-26, specifically 25-26, very similar, if you will. Okay.

I'm not asking because 22 is in the average, so that's why I was asking.

Yeah, we're very close to year-end here, so we'll have a very comprehensive guidance, you know. And as we complete the study for underground study for Rainy River, and enter the year and complete our year end mineral reserve resources update, and eventually we'll update as well our 43-101, so we'll re-provide a more specific detailed plan for the remaining of life of mine.

Okay. Maybe going back to Dalton's question, if I'm a foreign gold company looking at slide 13, I'm going, All right. Triton's gone. Oh, look, they're located in Canada. A hundred percent. Wow. We should look at new gold.

So I appreciate your, appreciate your comment because we're definitely, uh, continue, you know, to work hard in positioning this company. And, uh, we definitely see a very interesting profile down the road and, uh, As we improve the production, put the capital execution behind us and focus on harvesting at the sea zone, this company has a very interesting profile down the road and the right jurisdiction. And as you say, we're becoming more and more a rare commodity, if you will.

Definitely. All right. Well, thank you. And we at Bank of Montreal, thank you very much.

Congrats for your promotion. Thanks. Appreciate it.

Thank you. Your last question comes from John Tumazez from John Tumazez Very Independent Research. Please go ahead.

Good morning. How much of the full-year CapEx is the capitalized stripping account in dollars? And could you talk a little bit about what normal capex might be the next several years please i just want to make sure that i got your question right with the uh the stripping sorry if you could um the first portion of the question is how much of the capex is the capitalized stripping in dollars

So if we look at Rainy in particular, you have from the sustaining capital of year-to-date of 77 million, about a third of it is around the capitalized ITEM, just confirming that. A big portion is obviously the tailing, the sustaining tailing construction. And the other part has a lot to do with the maintenance, the maintenance and mobile maintenance and so forth. So as we move forward, very important to re-highlight here that by the end of 2023, the biggest part of the stripping will be completed. So that's it. Yeah, it's about $29 million of capital mining costs so far out of the $77 million for the nine months. And as you advance in time, two things are going to happen. You're going to continue year after year up to 2025 to complete the raise at the tailings every year, like we did this year, 22, 23, and with the last raise in 25. You're stripping exercise and the pets. Well, we'll be mostly completed at the end of 2023, as highlighted again in our tech report. So that would be a further contributor to quite reductions in our sustaining. And as we deplete the pit as well and start operating with less equipment, you will have as well as significant reductions on your mobile maintenance capital program. So we're We're shooting this year towards like the 100, the 110 million. Next year, we have another phase very similar to this year as highlighted in our plan. And as you advance 23, 24, you'll start seeing and dropping the stripping and the maintenance cost and the tailings drop in 25, at the end of 25. So that's really the big contributor to the cost reductions as well as we increase our production. On a combined basis, it's a significant margin down the road for us.

Are there particular thresholds that the investor should look to for new gold to have a dividend? For example, a particular level of debt reduction or the rainy transition to underground when the capital needs will be less?

Yeah, to be answered as we advance. I mean, we've received that question quite a bit. When you look at our presentation and cash building and our cash balance as we advance at the current metal prices, you know, you could be in excess of the $1 billion of free cash flow generated over the next 20 to 26 period. uh come you know and as you know we we also have uh the streams and and other and we're cash position so so yes we will be building i think it's important that we keep in mind as well the importance of of the growth component in our company as well so we're not in a position now to answer this with specificity, what's going to exactly happen and how this cash balance will be used towards like growth debt repayment and dividend and all that. This is all to come for us. The most important now is to deliver on our plan. And as we advance and build, we'll see strategically how this best use of our cash position.

Thank you very much.

Thank you.

There are no further questions at this time. You may please proceed.

Great. Thank you so much. And thanks again to everyone for joining us this morning. As always, should you have any additional questions, please don't hesitate to reach out to us by phone or email. Have a great weekend.

Ladies and gentlemen, this concludes your conference call for today. We thank you very much for participating and ask that you please disconnect your lines.