New Gold Inc.

Good morning. My name is Chris, and I'll be your conference operator today. Welcome to the New Gold's second quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. Please be advised that today's conference call and webcast is being recorded. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. I would now like to hand the conference over to Ankit Shah, VP of Strategy and Business Development. Thank you.

Thank you, Chris, and good morning, everyone. We appreciate you joining us today for New Gold's second quarter 2022 earnings conference call and webcast. On the line today, we have Renaud Adams, President and CEO, Rob Chauzet, our CFO, and Patrick Oden, our COO. 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 Nugold. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in the presentation. Your caution that actual results and 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 a section entitled Risk Factors in the NUGLE'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 will now hand the call over to Renaud.

Thanks, Angus, and good morning, everyone. At Rainey Production and Mine Sequencing, were impacted by heavy rainfall, resulting in the flooding of the pit. While significant progress has been made to date to restore the situation and optimize each step moving forward, we have to replay in our last six months, and Pat will provide more detail on that one. The equipment was relocated, and the capital waste stripping advanced, resulting in a strip ratio for the quarter of nearly 8 to 1. When you can't access ore at the bottom of the fetus resulting from the flooding, then you advance your waste as it is all part of the same overall harvesting plan. Our NPIT mineral reserve at the start of the year was at nearly 44 million tons of ore, of approximately one grand a ton gold, including NPIT low-grade ore, all of which contained in the mining strip ratio of 232 to 1. which has been further reduced now as a result of the Q2 execution. A very attractive plan moving forward. On a very positive note, our gold-grade mills reconcile positively to reserve model in Q2, and our mill recovery is up for the first half of the year compared to prior year. We've made great progress in preparing intrepid for mining to start in the fourth quarter of this year, and Pat will discuss more in detail about the intrepid. A new, often low-grade, higher cost recovery level was closed earlier than planned, impacting our short-term mine plans and productions for the year, but with no impact on the future. At the start of the project, there was already a gap in the production that was identified has with transitions from the left one to the B3 and eventually the rewarded C-zone. Some zones were made as an assumption to support that gap and such of the pillar zone in the left one. We've done extremely well in depleting the left one, and we have a little more difficulties with some zones at such recovery level and some pillar in recovery. area but as such the future has no impact and the closing of the recovery level represented the execution as a core value in protecting in the health and safety and minimize the cost of destruction to what are the true value of the season project returning the mail at its full capacity processing or of the high quality better grade better recovery and the very low cost to be mine, at the very minimal sustaining capital benefiting from input tailings with no need for further tailings raise, all of which has not been in fact today. During the third quarter, B3 development advanced on plan with focus on ramping up the production in the fourth quarter. And our season continued to advance with first or plan for a second half of 2023. Pat again will provide more details on both. Our 2022 operational and cost guidance were updated to reflect the changes in respect in my plan and related cost impact and other factors and Rob will touch on it. We continue to maintain a very healthy balance sheet while also paying down 100 million of our debt in the quarter with no additional due to until 2027. And we continue to maintain the strong cash and liquidity position, allowing us to execute on our plans and position both assets for free cash flow generation. We continue to be very encouraged with our drilling program, and in particular with the underground program at New Afton that is truly focused on providing potential organic growth as we move forward. We had originally thought, have been capable to put a comprehensive update on our plan in the Q2, but in some further delays and assays, we're now ramping up and plan to release a comprehensive update on our exploration drilling program in the third quarter. I will now turn into Rob Schilze, CFO.

Thanks, Renaud. I'll start on slide seven, which provides our revised operational outlook with details that are in line with our July press release. This short-term guidance reflects our lower production profile for 2022 and our continued capital investments, which has resulted in higher ASIC. The company's mid- to long-term strategy of increasing production and decreasing costs remains intact. Moving on to the next slide, which provides our operating highlights for Q2, details are consistent with the July press release. During the quarter, the company produced 70,500 gold equivalent ounces. The amount consisted of 7.4 million pounds of copper, 42,500 gold ounces from Rainy River, and 9,900 gold ounces from New Afton for a total of 52,430 gold ounces. Lower equivalent gold production as compared to the prior quarters primarily due to lower grade and tons process at both of our operations. Operating expense per equivalent ounce was higher than the prior quarter, primarily due to lower production, which resulted in lower sales volume. Consolidated all-in sustaining costs for the quarter were $23.73 per equivalent ounce, higher than the prior quarter, primarily due to lower sales volume at our operations and higher sustaining capital spend. I'd highlight that new Afton sales in the quarter were lower than production due to timing of shipments, with approximately 7,500 gold equivalent ounces deferred to the third quarter. The impact was approximately $700 per gold equivalent ounce on New Afton's ASIC and 140 on the consolidated ASIC. The sale was completed in July. We continue to invest in sustaining capital at our operations during the second quarter with the impact of sustaining capital spend per ounce being $950 in the quarter. During Q2, we experienced inflationary challenges that have been experienced across the industry, particularly with regards to fuel, electricity, grinding media, and cyanide. The financial impact of these noted categories were approximately $10 million or 7% on ASIC for the quarter. Going forward, we continue to work on minimizing any inflationary impacts through optimization at our operations. Turning to slide nine, for our financial results. Second quarter revenue was 115.7 million, driven by sales of 51,200 gold ounces at an average realized price of 18.79 per ounce, and sales of 4.4 million pounds of copper at 4.14 per pound. Q2 revenue was lower than the prior year quarter, primarily due to lower sales volumes. As already mentioned and noted in our production release, due to timing issues at New Afton, sales of 7,500 gold equivalent ounces were deferred to the third quarter, and as noted, was completed in July. Operating cash flow before working capital adjustments was $27.4 million, or $0.04 per share for the quarter, lower than the prior quarter due to those lower sales volumes. The company recorded a net loss of $37.9 million, or $0.06 per share during Q2, compared to a net loss of $0.02 per share and Q2 2021. After adjusting for certain charges, net loss was $16.7 million or $0.02 per share in the quarter compared to earnings of $0.04 per share in the second quarter of 2021. Our Q2 earnings adjustments includes adjustments related to our gains and losses related to unrealized adjustments on the Rainy River Stream mark to market and the free cash flow royalty at New Afton. And you can look at our MD&A for additional details on those non-GAAP measures. Our capex and leases for the quarter were $78.8 million, $59.9 million was spent on sustaining capital and $18.9 million on growth capital. Sustaining spend was primarily related to planned tailings work at both operating assets, capital stripping at Rainy River and B3 mine development at New Afton. Our growth capital was focused on project development, specifically C-Zone at New Afton and the underground at Trepid Zone at Rainy River. Slide 10 provides our capital structure. During the quarter, we redeemed the remaining $100 million of our 2025 senior secured notes. Cash on hand at June 30, 22, was $277 million, and liquidity was $649 million. The decrease in cash on the prior quarter is primarily due to the above-noted bond repayment, along with continued capital investments at our operations. Now I'll turn the call over to Pat.

Thank you, Rob. So I'll direct you to the slide 13. I'll start to cover the Rainy River highlights. So in Q2, so mostly in the open pit, we achieved a production of 110,000 tons per day, but it's slightly lower than the previous years and the previous quarters, mainly due to the heavy rainfall and major water heaven that we had to deal with in the region here in the Fort Francis region. company also has to support our stakeholders, may need to send back houses and to support people because we have to deal with major floods. So that caused, as previously explained by Renaud, some issues with the open pit operation, where the bottom of the pit was flooded, mainly the north load that was in the mining sequence, in the mining sequence to be extracted during this period. So we relocated the equipment in the upper part of the pit to at least maximize the value of our teams. And it helped to accelerate the stripping ratio during the quarter. The mill has an average of 23,000 tons per day. It's slightly lower compared to the previous year. However, mainly due to the fact also that we had to re-endow a lot of material and we faced some mechanical issues. 50% of the feed was mainly coming from the low-grade stockpile. This is what is explaining the lower grade. However, on a positive note, the recovery was 90% for 0.69 grams per ton. I think the plant has performed very well in terms of gold recovery during this period. As discussed previously at the beginning of the Q3, our production guidance for year M is between 230,000 to 250,000 ounces. And approximately 50% of the total year production will remain in the second half of the year. And actually, we are trending positively in terms of production at Trinity River in the pit. Intrepid is going really well in terms of development, and we'll cover that later. And we developed 774 meters of development, and we remain on track. to start the commercial production in Q4 of this year. What is important before to go to slide 14 here is to keep in mind that what we did not mine is remaining in the ground, and the value of the ore body will show up in the next quarter going forward. On the slide 14, I just want to take a little bit of time to explain to you what happened in terms of water heaven. So you have on the right side the graph of the precipitation. So the dark gray line is the normal precipitation curve. The light gray is the worst of one of the year. And the green line is what we have, the precipitation that we are facing this year in the region. You can see that in May and June, we receive a lot of rain. And compared also to other regions, if you compare, by example, I was in BC the last two years, Here, the rain is a bucket, so it's heavy rain, and it's more difficult to manage in terms of when you have continuous precipitation in the ground. It was really intense, and combined with the snow melt, it was, for us, it caused a lot of issues, mainly in the pit, but also with the water management on site. The team, they did an excellent work. to control the impact on the environment where we were fully in full compliance. So, and consequently, we work really hard. We did some slight improvement and adjustment to the water treatment to increase our treatment capacity by 40%. We also add to the pit an additional dewatering line and dewatering system, so to double our capacity in terms of pumping. And the construction of the tailing dam is on time It's a continuous project for us. We are raising the tailing dams every year. And actually, what is the project that is ongoing, and we are planning to complete all the infrastructures for the end of October, beginning of November. We'll guide you to the slide 15 now, where you can see the open pit as it stands at the beginning of this week. You can see that the north lobe is dry, so it's all dewatered. It's where we are mining now. So we are in bench one. The bench 140 is completed, and we'll mine the 130 during August. And it's positive for us because the grid is good. The work index is higher, but the grid is excellent. And what we are looking at also in terms of opportunities to the pit is we readjust our strategy. We reduce slightly our mining rate to reflect the fact that it's narrower in the pit, at the bottom of the pit, and also that we have longer distance. We optimize also our mining sequence to reduce the re-handling. So we are mainly re-handling to mix the material to optimize the mill recovery and the processing throughput. But in terms of re-handling, we are targeting to feed the mill with 85% of expit material, so to be much more efficient and reduce our costs and our fuel consumption. I'll guide you to the slide 16, where Carving Intrepid. So in terms of Intrepid, actually we have access to DR. We developed the SIL level. And what is nice is that what we see and what we expect is what we get. So in terms of volume, we are still on. In terms of grade, we are slightly higher. So the level 175 and above, the first mining area is ready for production. The contractor is mobilizing, actually. We already started the drilling for the first stop at the beginning of this week, and we will be on time. We are slightly in advance to start the extraction of the ore in the next weeks. We also work hard to... to make our mining more efficient and more fluid. So we changed our mining method. Originally, we contemplated to use the cemented rock fill approach. We want to, as much as we can, to stay away of cement in terms of cost and in terms of inflation. So we will replace the mining method with a pillar with rock fill or an avocado mining method. So it will be a combination of both. So it will be more efficient and it will be also in terms of cost and also in terms of manpower. So I'll guide you now to the slide 18 covering New Afton. New Afton is during the quarter, the underground mine average 6500 tons per day. We also, and what is the key factor here is that we we stopped the mining of the recovery level during this quarter earlier than planned, mainly because it was more difficult in terms of reconciliation and mainly in terms of health and safety because we were facing mud rush. We have also an exceptional year in Kamloops, actually, in terms of rain, and the ore will remain in place, and we are actually contemplating to recover the material that we left in place ultimately in the lower-level extraction. On the mill point of view, the mill is operating really well. We process slightly more than 11,000 tons per day. The additional tonnage is coming from the low-grade stockpile. It's actually totally depleted. So the goal is we average 0.37 grams per ton, and the copper, we were 0.42. And the recovery is in the bracket that we are used to present to you. The sea zone development, I will cover that again later in more detail, but we are performing really well. We reached the sea zone in May, at the beginning of May, so it was a great achievement for our teams. And the exploration is going really well at New Afton. So during the quarter underground, we complete 73 holes, and we are actually completing the analysis and the resource model for... the Upper East Extension, and this information will be communicated to you before the end of Q3. On the slide 19, that's the B-Tree. B-Tree is, I think it's a great achievement for the team at New Afton. They did really well on this. They are on time. During the quarter, the guys did last morning five draw goals per month, so this is excellent. The undercut is totally completed. So what is interesting for us is the fact that the guys, they did very well with B3. It will let us the possibility to extract earlier B3 and to increase the throughput of B3 to compensate the tons and it's higher quality tons than the one that remain in place in the recovery level. So the construction activities remains on schedule. So we're still planning, as you can see in the figure on the lower left, What is in green is the draw point that needs to be completed in terms of construction. The development will be completed at the end of September, beginning of October, and construction is on time. Also, what we did on the bee tree is the lesson learned from the upper cave. We learned from that, and I think by prevention, it was an excellent incentive from the team We had additional ground support and cable bolts, and we did also cable leasing for the apex pillar. It will reduce drastically the rehabilitation when we will have the time to complete the full recovery of the bee tree. So going forward, it's an investment that we did up front that will save a lot of time and will be much more efficient in terms of the optimization of the mining recovery at the end of the bee tree. In the picture, you can see our second electric, our electrical truck battery vehicles. That is, we utilize actually to re-indulge the material from the lower part of the mine. In terms of C-Zone, as I said previously, we reached the C-Zone in May, so it was a really good initiative. We still, we are on time to complete the undercut, to initiate the undercut in 2023. And we are still on track to extract the ore in tube ore 2023. In terms of progress, construction progress and development progress, the conveyor and the mineral sizer is fully commissioned. So we are much more efficient in terms of material rendering. We completed all the major construction contracts to install the crusher, to install also the maintenance facility and dewatering system. And also, the team did an amazing work in terms of the optimization of the extraction level. B3 is longitudinal approach, is with for design for the draw points. In terms of the C zone, it will be transverse, and we will have airy bones approach. What that means is instead to start from one extremity to the other, we will start from the middle. So the development will be much more efficient. The construction will be much more efficient. We did that mainly because the shape of the ore body permits this, and it will be a big part of it. I'm very confident in the future, this season, we will deliver on time, and we de-risk the approach with that. So I will hand over to Renaud to close the call.

Thank you so much, Pat, and such a pleasure to receive batting on our organizations. I've known Pat for as long as I work in this industry, but it is truly the first time that we had the chance to combine our effort and mutual experience and value creation. So very much looking forward to this partnership. So in closing remarks, and as I mentioned in my opening comments, we intend to release in the third quarter a comprehensive exploration update and with more colors around our intentions of organic growth at UAT and over the next years to come. We've talked about optimization and we talked about a cost initiative and we've heard Pat discussing I have many times repeated my vision of the next while for this company and reaching our goals of the 2022-26 and how I believe that everything has remained intact. When you're looking at the Rainier River asset, and earlier this year we filed a 43-101, which was which was supporting our increase in reserve on the ground and the central zone with a slightly different approach in the open pit execution, allowing for a little more smoothing, but also a lot of re-handling. And we know the cost pressure on certain consumptions. At Rainier River, the increase in the fuel price has been for sure the most impactful increase in the end of consumable. But when I look forward, and with the strip ratio, remaining strip ratio of approximately 2 to 1, and looking at the tremendous opportunity of reducing the re-handling, over 20 million tons has been added as re-handling in our 2022-26 plan as it stands. And there is no doubt in my mind that it provides a significant opportunity of optimization. As we deplete the remaining capital waste and reduce even further the strip ratio, tremendous opportunity of optimization and sequencing. And we heard Pat talking about those things. So as we move forward, it is really all about our ability to extract the remaining 44 million tons of nearly approximately 1 gram per ton gold at the lowest cost possible. And the starting point is definitely going after the re-handling and lowering our fuel cost moving forward. More optimization remains possible in some consumables, and we continue to work in those in the grinding medias and in the oxygen and the and as well on the cyanide and tires consumptions, all of which could provide even further optimization. It could be very challenging at some times, you know, to control the prices of some consumables. So we're going to go after the consumption. We're going to work hard in reducing the most impactful consumables in terms of consumption and continue to work, of course, with procurement and the more global procurement possibilities. So I remain extremely Positive at the Rainier River, when I look at the period of 22-26 and our ability to extract at a lower cost and be more efficient as we move forward and allow Pat and his team to implement efficiencies. So we improve on our overall OEE while we reduce our consumptions of the main cost drivers. As we move forward and continue to optimize the mill and return to the market capacity of 27,000 tons a day that we have enjoyed back in 2020, it remains a tremendous opportunity to ramp up the underground and use this incremental ore for additional value and touch on our progress on the underground. Everything is in place to be successful. And where we had some challenges in the last couple of years, Our intention and vision remains to position this asset for high free cash flow, and that has not been impacted. At NuOptim, you've heard Pat on the tremendous progress in the QB3, and the C-Zone has mentioned in my opening comment, the reward of the C-Zone project has always been a great future where you would return the operations to very low cost, higher grade, better recovery, and higher free cash flow. And this has not been impacted. We had some issues in a short while in the last couple of years with some secondary zones that we were trying to bring to productions to help in upsetting the gap, all of which is all short-term. When I look forward, as we ramp up the B3 and as we reach the C zone, none of the original visions of returning this asset to high free cash flow has been impacted. And as I mentioned, we're going to benefit the impact tailing the position and simplify our operations. The short-term objective is that we all remain committed to execute on our 2022 updated guidance. And on that, that will close. That will close the comment portion of the call, and I will turn it back to the operator for the Q&A portion of the call. Thank you.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star, followed by one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Trevor Turnbull, Scotiabank. Trevor, please go ahead.

Yeah, thank you. Thank you, Renaud. I just wondered if you could talk a little bit about how next year is going to look at New Afton. You'll have B3 next. starting to come into production, obviously the C-Zone getting there in 2023. But your comments talked about really how things will look much different in 2024 with the C-Zone fully in production. And I guess I'm just wondering how we get from the second half of this year into 2024, just kind of how does that bridge look in terms of the costs at New Afton?

Everything that Pat is working on is to bring the B3 ramping up to its max capacity, so 23. We feed the mill with better quality ore than currently, right? Stockpile will be over by then, and we're going to be feeding the mill with the B3. So all the effort in accelerating the B3 and bring it up to the max capacity has the objective to feed the male on January 1st at the highest capacity possible of the B3, which originally has been set between the 8,000 and 10,000 tons a day, which eventually will be also increasing the overall time from underground as we ramp up the season. So you got it right, and all effort at this stage is to bring the B3 to its max capacity. Early stage, we're reviewing certain aspects of our costs, But in terms of capital, once you reach your capacity in the B3, you're reducing all this aspect of the sustaining cost moving forward, of course, and then you complete your capital project on the C zone, which, again, from reaching and opening and starting the productions in the Q4, will not necessarily stop all capital on day one. There will be some remaining ramp up, but when you start looking 24 and forward, this is where you really are best in your work. But again, all efforts on the B3 now for 2023. Hope this answers your question.

And I guess with respect to that effort with the B3, does that... Is there... In a perfect world, if everything goes the way Pat would like it to at the B3, does that mean 2023 won't really need any of the low-grade stockpiles?

Well, the low-grade stockpile will be gone by then, so that's an easy answer on that. So really moving forward, it is all about feeding the mill from the 2023 period onward. It's all about feeding the mill with low-cost block cave tons.

Okay. That's good. Thank you. And then maybe just one other question with respect to Rainy and the Intrepid Zone. You talk about having some production later this year, and we saw the pictures in the presentation. I just wondered if you could talk a little bit about how fast you expect it to ramp up from that first production and then to the capacity that you're trying to reach.

I will pass it over to Pat for more comments on that.

Thank you, Trevor, for the question. Entrepid is not a big operation, so we're targeting something around 1,000 tons per day. I think the ramp-up will be pretty short because if you look at the design of the stove, we will mine one stove and drill one stove, so we'll have mostly three to four stoves ongoing. One will be in extraction. One will be in backfill. The other one will be in drilling and blasting and in the mining sequence. So I think that we will reach the throughput of 1,000 tons per day pretty quickly in Q4.

Okay. Great. Thank you. And that's all I had. Thank you.

Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press star 1 on your touchtone phone. Your next question comes from Mohamed Sidibe, CIBC. Mohamed, please go ahead.

Hi, Renaud. Thanks for taking my question. So my question is on the CAPEX guidance with 46% of CAPEX spent to date, which is the midpoint of guidance. Should we expect an uptick of spend in the second half? And if so, what would be the drivers of that, please? Thank you.

Yeah, the as you have you seen in this trip ratio, you know, you look at the same capital and also bring me and I'll ask for our colors around our capital. But Q2, obviously, you know, when you when you mine at 8 to 1 on the capital, it has a higher impact globally. But I think at the end of the day, we're still targeting, you know, to be within the guidance for sustaining capital. Growth capital is pretty significant to the work we're doing in the intra-bid, so it has not real, even a 10% more or less has really low impact. But it's all about the sustaining capital and believe that we're going to be within our guidance at the end of the day.

Thank you.

Thank you. There are no further questions at this time. Please proceed.

Thanks, Chris. And to everyone who's joined us today, thank you again. As always, should you have any additional questions, please do not hesitate to reach out to us by phone or email. Enjoy the rest of your summers. Thanks very much.

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