New Gold Inc.

Good morning. My name is Anas, and I'll be your conference operator today. Welcome to the new Gold 3rd 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'd like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you'd like to withdraw your questions, please press star, too. I would now like to hand the conference over to Ankit Shah, VP of Strategy and Business Development. Thank you.

Thank you, and good morning, everyone. We appreciate you joining us today for Newgold's third quarter 2022 earnings conference call and webcast. On the line today, we have Renaud Adams, President and CEO, Rob Chausset, our CFO, and Pat Godin, our COO. Should you wish to follow along with the webcast, please sign in on 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 new goals. 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 titled Risk Factors in NUGO'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 Renaud.

Thank you, Ankit, and good morning, everyone. Before we proceed with our third quarter update, I do have some sad news to share. I'm deeply saddened to announce that Suresh Kaltil, General Manager at Rainier River, passed away in his home in Imo, Ontario late last week. Suresh has been with us for the past two years and made tremendous contributions during his time at the company. We extend our deepest condolences to Suresh's family, loved one, and colleagues during this difficult time. Our strong and committed team that Suresh worked to build and develop in these two years with us will continue to execute on this vision for Rainier River. With my manager, Gord Sims, stepping up as interim general manager and with the continued support across the whole new organization. Thank you, Suresh. Slide five provides a summary of our third quarter highlights. During the quarter, we continue to advance on our long-term priorities. At Rainier River, we achieved a significant milestone with the startup of underground production from the intrepid zone. As we move forward, we're focused on ramping up from the mining from the main ODM zone and starting to feed the mill with underground material. At New Afton, B3 development was completed, and our focus now is to ramp up mining rates to 8,000 tons per day. Receiving the C-Zone permit was a great milestone for the team in New Gulf, and we continue to move all project activities along with the first ore plant for the second half of the year. In addition, at New Afton, the exploration results we previously released are very encouraging. During the next quarters, we will continue to advance organic growth initiative to further increase the value of our asset base. Lastly, the third quarter delivered to plan and significantly improved versus the second quarter in both production and cost. And we are on track to achieve our 2022 updated guidance. I will now pass it to Rob to provide an update on our operating and financial results. Rob.

Thanks, Rinaldo. And I'll start with slide seven, which provides our operation highlights. Production details are consistent with our October production press release. During Q3, the company produced approximately 91,000 gold equivalent ounces. The amount consisted of 8.5 million pounds of copper, 58,700 gold ounces from Rainy River and 11,400 gold ounces from New Afton, giving us a total of 70,147 gold ounces. The lower gold production as compared to the prior year quarters, primarily due to the lower copper grade and tons processed at New Afton. Our operating expense per equivalent ounce was higher than the prior quarter, primarily due to lower production and therefore sales volume. Consolidated all-in sustaining costs for the quarter were $16.37 per equivalent ounce, higher than the prior quarter, primarily due to the lower sales volume at our operations and higher sustaining capital spend. We continued to invest in sustaining capital at our operations during the third quarter, with the impact of sustaining capital spend per ounce being $460 in the quarter. During Q3, 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 above-noted categories on inflation was approximately $100 per ounce, or 6% on ASIC for the quarter. As noted in previous quarters, we continue to work on minimizing any inflationary impacts and realize benefits with our currency. Canadian currency. Turning to slide eight for our financial results, the third quarter revenue was 151.2 million, driven by sales of approximately 68,800 gold ounces at an average realized price of $1,727 per ounce and sales of 9.9 million pounds of copper at 3.42 per pound. The Q3 revenue was lower than the prior year quarter, primarily due to lower copper sales volumes and prices. Our operating cash flow before working capital adjustments was $43.6 million or $0.06 per share for the quarter, again lower than the prior year quarter due to lower sales volumes and metal prices. The company recorded a net loss of $4.2 million or $0.01 a share during the Q3 compared to a net loss of $0.02 per share in the previous year's quarter. After adjusting for certain items, net loss was 13.4 million or 2 cents per share in the quarter compared to 3 cents earnings of 3 cents in the prior year quarter. The loss increases primarily due to lower revenues. Q3 adjusted earnings include adjustments related to our gains or losses, which include unrealized adjustments on Rainy River stream, mark to market and the free cash flow royalty at New Afton. RMDNA has details on these non gap measures. Our capital expenditures and leases for the quarter were $72.7 million. $42.4 million was spent on sustaining capital and $30.3 million on growth capital. The 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 the sea zone at New Afton and underground intrepid zone at Rainy River. Slide 9 provides details on our capital structure. Cash on hand at the end of the quarter was $247 million and liquidity was $620 million. The decrease in cash from the prior quarter is primarily due to the continued capital investments at our operations. And with that, I'll turn the call over to Pat.

Thank you, Rob. Slide 11 provides a summary of the third quarter. I'd like to follow up with any of the remarks. During the quarter, the open pit averaged 112,000 tons per day. This increased over the prior year as we have shifted our focus to minimize the amount of re-handled material we are feeding the mill and the impact from our dewatering effort earlier in the quarter. In Tier 3, 85% of the mill feed was direct door shipping from the open pit, and the compliance to my plan was close to perfection at 97%. The mill averaged approximately 24,400 tons per day. This was lower than last year, probably as a result of processing other ore from the North Lobe. We expect to complete mining from the North Lobe in the first half of 2023. Quality production increased six-tenths compared to the second quarter and was in line with the last year. We remain on track to achieve our updated guidance. Both mining and development advance on plans during the quarter. We blast the first oak in September. Gold rate from the first oak has reconciled positively, and function will ramp up over the coming months. Development advance an additional 833 meters during the quarter, with the main deep-line ramp reaching the 200-meter level ahead of plan. During the final quarter of the year, our focus at Rainier River will be ramping up open pit mining on the main on the main ODM zone and getting the high-grade underground material fed into the mill. Slide 12 provides a summary of third quarter highlights for our new absent mine. During the quarter, the underground mine averaged 6,500 tons per day. It has decreased over the prior year due to the planned completion of lift 1 mining activities and the closure of the recovery level for safety reasons. As planned, the mill average approximately 7700 tons per day, and we complete the processing of the lower grade surface touch pile to supplement the ton mine early in the beginning of the third quarter. BH3 development and drawbill construction is now complete. We're currently extracting ore solely from BH3 and expect mining rate to reach a targeted 8000 tons per day early in 2023. C-Zone development advanced an additional 998 meters during the quarter, and we continue to remain on track for first order from C-Zone in the second half of 2023. Ramping up B-Tree and continuing to develop C-Zone on time remains New Afton's key priority for the remainder of the year. I will now pass it back to Renaud.

Thank you, Pat. And I'm on a slide 13, which provides a summary of our key priorities. In concluding this presentation, so building up on the significant progress and milestone achieved in the third quarter, we continue to work very hard to assess all possibilities to increase the underlying value of our asset base. And we're focused on achieving all of our key catalysts for the remainder of the year. This completes our presentation, and I will now turn it back to the operator for the Q&A portion of the call. Operator?

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

Yeah, thank you. I just wanted to ask for a little bit of clarification on the guidance. You mentioned that rainy, the glacial material that you're stripping would be about 2.4 million tons. And it seemed like that would imply more like a one-to-one strip ratio. But then in the commentary, it said something about the strip ratio staying...

below 3 to 1, and I'm just wondering if I'm mixing something up there.

I think the strip ratio going forward will be 3 to 1, and what is remaining to strip from the overburden is mostly the tonnage we talked about, 2.4, 2.5 million tons. It's something that will be completed if I'm just... I think it will be around the second half of the year, next year. It's something that we are pushing back as we are getting there. But, you know, going forward, what is more important for us is all the crawler equipment are working on rocks. So, basically, it's the conditions of extraction of the overburden is pretty straightforward for us, and our risks are totally eliminated compared to the last year where we were struggling with mud and stuff. So basically, we're still having 2.4, 2.5 million tons of overburden material to endow, and it's part of the shipping ratio that is incorporated in our forecast.

Yeah, I think Trevor, just to complete on this, I think your question goes as on the glacial flow is not the whole waste, of course. I think the highlight here of the $2.4 million after battling, you know, like over four or five years, you know, and mining that material is almost gone. But, of course, it's not the only and sole material, waste material. So moving forward, you know, that's the difference here.

Right. And so kind of the tons of ore mined is going to remain roughly consistent with what you've been doing.

Yeah, yeah, yeah. Correct.

Okay. And then just one other quick question. With respect to the copper, your copper output as we close out the year in Q4, is it correct to assume that now that the B3 zone is starting to ramp up production, that production should start to trend a bit higher? Or are there grade considerations that are potentially going to keep copper from being higher in Q4?

So the copper pollution will for sure increase because actually we are ramping up from 65 to 8,000 tons per day. And you know in the block cave, usually when you start, we are looking on the reserve is based on the mining dilution that is coming from the extraction of the cave. But when we start caving method, usually the grade is much better because the dilution is coming from the external wall. And in addition to that, as I explained during the presentation, we totally exhaust the stockpile load, the low-grade stockpile that we have on surface. And basically, actually, all the material that is going to the mill is high-quality material.

Understood. Okay. Thank you very much.

Pleasure for me. Thanks.

Thank you. Ladies and gentlemen, as a reminder, if you have any questions, please press star 1. Your next question comes from Mike Parkin with National Bank. Please go ahead.

Hi, guys. Thanks for taking my question. Sorry to hear about the news of Tarush. With respect to New Afton, noticing that your gold as well as your copper recovery rates for Q3 have been better than they've been... for at least two plus years. Is that something that we could expect to continue into fourth quarter in 2023?

Well, if you recall, Mike, one thing that we liked about the season as we move forward is how clean is the ore and so forth. So we continue to believe that as we move forward with more material from the B3, but also the switching eventually to C-Zone, I think the guys have been doing an absolutely believable job there at the mill. And yes, we continue to believe that we will benefit for an increased recovery as we move forward.

And with that, is that anything to do with a function of the lower throughput as you're kind of transitioning through this lower tonnage period? And then as you ramp up season, would that ease off in the recovery or would you expect that to actually sustain it? the more elevated levels versus where you've averaged kind of in the last couple of years?

Yeah, we're definitely not pushing, as you mentioned, you know, the mill to its max capacity. But to be very frank, if you compare with the last couple of years, you know, we were not necessarily pushing the mill in any way, too. It has to do with the mineralogy of the ore, that it will keep improving as you move forward, and also the fact that the – the supergene as well will be reducing as you move forward.

Okay, super. That's it for me, guys. Thanks so much. Thank you.

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

Great. Thank you very much. And thanks to everybody who joined us today. As always, should you have any additional questions, please do not hesitate to reach out to us by phone or email. Have a great day.

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