New Gold Inc.

Good morning, my name is Michelle and I will be your conference operator today. Welcome to the New Gold's first quarter 2023 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 start. I would now like to hand the conference over to Ankit Shah, Executive Vice President, Strategy and Business Development. Please go ahead.

Thank you, Michelle, and good morning, everyone. We appreciate you joining us today for New Gold's first quarter 2023 earnings conference call and webcast. On the line today, we have Patrick Godin, President and CEO, and Rob Chauvet, our 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 would 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 Gold. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in the presentation. There are 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 the section entitled Risk Factors in NUGLE's latest AIF, 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 M notes that provide important information and should be reviewed in conjunction with the material presented. I will now turn the call over to Pat.

Thanks, Ankit, and good morning, everyone. Before I turn the call over to Rob to discuss the quarter, I want to provide some brief opening remarks. It has been almost one year since I joined New Gold, and at that time, I saw a lot of potential for our operation and for our company. We worked hard through 2022, and this momentum has carried into 2023. I'm proud of our team's performance in the first quarter of this year. As I note in our April production release, the first quarter of 2023 was our strongest start in four years. I cannot say enough how important safety is to our success. This was a core aspect of the impressive first quarter operating results. Q1 saw no last-time injuries at our operations. New Afton reached a big milestone and exceeded one million hours we followed last time. Rainier River continued to operate safely and reached 1.6 million hours without last time. I strongly believe safety and production are correlated, and our first quarter performance proved this. As a result, we are well positioned to meet our production and cost guidance set out earlier in the year. During the quarter, we also continue to focus on the long-term strategy of new gold. We complete multiple steps to strengthen our balance sheet, which Rob will talk to shortly. And we continue to advance underground future production at both Rainy River and New Afton. Lastly, I would like to talk about our people. Specifically, the appointment of Yuan as new CO, the promotion of Enkit to Executive Vice President and Keith to VP Finance, as well as new hires Jean-François to VP Geology and Luc to VP Technical Services. These executives will all be great assets to our team as we continue to advance growth opportunities and pursue sustained and safe production at our operation. I would also like to acknowledge Rob's retirement at the end of this year. Rob has been crucial in the turnaround of new gold over the past five years. Over my career, I have worked alongside Rob several times, and he has been an excellent business partner for me. We are grateful he is going to be staying until the end of this year to ensure a seamless transition and support Keith positioning new gold for success in the year to come. With that, I will turn the call to you, Rob.

Thanks, Pat. And I'll start with slide 7, which provides our operational highlights. The production details on that slide are consistent with our production press release from April 10th. During Q1, the company produced approximately 105,000 gold-equivalent ounces. The amount consisted of 10.3 million pounds of copper and 66,200 gold ounces from Rainy River and 16,300 gold ounces from New Afton. totaling approximately 82,500 gold ounces. Almost 20% higher equivalent gold production as compared to the prior year quarter, and it's primarily due to higher gold and copper grades and recoveries, but partially offset by lower tons processed at Rainy River. Our operating expense per equivalent ounce was slightly higher than the prior year quarter, primarily due to production from the underground intrepid zone and timing of mill maintenance performed in the quarter at Rainy River, as well as ore purchase costs in association with our ore purchase agreements at New Afton. Our consolidated all-in sustaining costs for the quarter were $14.86 per Kelvin ounce, lower than the prior year quarter, primarily due to lower sustaining capital spend and higher sales. Turning to our financial results in slide A, our first quarter revenue was approximately 201 million, driven by sales of 87,200 gold ounces at an average realized price of 18.90 per ounce, and sales of 9.5 million pounds of copper. at $4.10 per pound. Our Q1 revenue was higher than the prior quarter, primarily due to higher gold and copper sales volumes, partially offset by lower prices. The first quarter revenue split saw gold contribute 81% to our quarterly revenue and copper 18%. Our operating cash flow before working capital adjustments was 75.7 million, or 11 cents per share for the quarter, higher than the prior period due to higher revenue. A company recorded a net loss of $31.8 million or $0.05 per share during Q1 compared to a loss of $0.01 per share in Q1 of 2022. Decreases primarily due to an unrealized loss on the revaluation of a gold stream obligation at New Afton and related to the free cash flow interest obligation. After adjusting for certain charges, our net earnings was $18.4 million, or $0.03 per share, compared to net earnings of $0.02 per share in the first quarter of 2022. This earnings increase is primarily due to higher revenues offset by higher operating expenses. Our Q1 adjusted earnings include unrealized adjustments on the Rainy River Stream mark-to-market and the free cash flow royalty at New Afton. And our MD&A has details on all of those and other non-GAAP measures discussed. Our total capex for the quarter was $63.1 million. $26.3 million was spent on sustaining capital, $36.8 million on growth capital. The sustaining spend was primarily related to planned tailings work at both sites, both operating assets, capital stripping at Rainy River, and stabilization activities at New Afton. And our growth capital was focused specifically at C-Zone at New Afton and the underground at Rainy River. Slide 9 provides details of our capital structure. Our cash at the end of the quarter is $197 million, and liquidity was $570 million. in line with the end of 2022. With our investments at site largely offset by the sale of our previously held Artemis Gold shares, which contributed approximately 31.5 million Canadian dollars. Subsequent to the quarter, we also amended our credit facility, increasing the maturity date by year to December 26. We continue to execute short-term hedges on CAD and fuel, and are hedged on both commodities at 75% for Q2 and approximately 30% for Q3. With that, I'll turn the call back to Pat. Thank you, Rob.

Slide 11 provides additional details on the first quarter after new year. During the quarter, the mine and mill performed well and delivered solid production increase over the first quarter of last year. While the mill throughput was below our plans, I'm confident that we can get to the target rate for the year due to the current investment on planned maintenance for the processing plant. The average gold rate at Trinity River was 1.12 grams per ton, well above the first quarter from last year, as more underground ore was processed. I'm really excited to say that mining of the overburden is now complete. which will lead to a significant improvement in mining efficiencies. I can also share that mining in the North Lobe has finished, providing further confidence in open pit grade reconciliation through the reminder of the open pit mine life. Additionally, completing the North Lobe has created a cost-saving and improvement opportunity as this part of the open pit will be utilized to pile waste within the pit going forward. Over the last year, the operation has made upgrades in preparation to water management infrastructures. We have boosted the pumping system, doubled the pipeline, built open pit diversion channels, and increased the water treatment capacity. I can confidently say Rainier River is prepared to manage any excess water. During the quarter, the open pit pushback was delayed, leading to lower capital spend and budget. I'm confident that the team will catch up over the year. Turning to the underground, intrepid development advanced 388 meters in Q1. Production in the quarter included over 69,000 tons of ore from the intrepid underground zone at a grade of 3.52 grams per ton gold equivalent. Importantly, the underground towns in Great continue to reconcile well. Going forward, I remain confident that we are well positioned to meet our annual production and cost guidance at Rainier River. As noted in our guidance, production is expected to get stronger in the second half of the year, as plant maintenance activities are to be completed in the first half of the year. With grade expected to normalize in Q2, I want to reiterate our target of 45-55 for the production split between the first and the second half of the year.

Slide 12 provides further details of New Athens' first quarter results.

The underground mine averaged over 7,700 tons per day of ore mined in the quarter. an increase over the prior year period as B3 reached steady-state mining rate post-completion of construction activities in 2022. The mill averaged 8,100 tons per day, relatively in line with daily mining rates, incorporating B3R mine as well as R purchase in relation to our purchase agreement. In short, B3 delivered to plan. Seasonal development continued to advance with 1,172 meters in the quarter. Development fell behind schedule during Q1 due to ventilation constraints related to ground condition in the air intake vent rates. However, I'm confident in our ability to achieve the critical path of mining first production ore during the fourth quarter and deliver commercial production in the second half of 2024. Going forward, New Afton remains well positioned to meet its annual production and cost guidance set out at the start of the year. Before I close out the presentation today, I want to highlight what I view to be the key priorities for the company. First, continue to stabilize our operations. Second, continue to advance our organic growth opportunities. And third, we have safety as the highest priority delivered our guidance set out earlier in the year. I'm proud of the commitment of my colleagues who have done an excellent job to start the year. This will continue to drive our success. Let's complete our presentation. I will now turn it back to the operator for the Q&A portion of the call. Operator?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Did you have a question? Please press star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Did you wish to decline from the polling process? Please press star followed by the two. If you're using a speakerphone, please lift the hands up before pressing any keys. One moment please for your first question. The first question comes from Michael Saparsio. RBC Capital Markets, please go ahead.

Thanks. Almost right. Mike Sabarco. Good morning, everyone. Just on the quarter, I mean, it was obviously a great result, especially from New Afton. You talked about the maintenance in Q2. But could you talk a bit about how we should look at at existing operations going forward sort of without looking at the sea zone and the ramp up of underground mining at Rainey. Should we be re-baselining our forecasts at least over the course of 2023 on the basis of Q1?

So, thank you for your question, Michael. The way we should look at this is actually we are doing a significant maintenance on the crusher at Rainier River. We plan for the worst and we wish for the best. So that's what we are doing actually. The crusher is under repair and we are changing main components after six years of operation. So we are, I think we really plan to respect our guidance. So it's why we indicate 45-55. It doesn't mean that we will do it because we are actually working really hard. So we put in place mitigation measures due to the crusher shutdown. We pre-crush tons at site, and we continue to operate the mill. So the efficiency is less, but it's why we guide you to 45-55, but we should consider that it's the worst position that we can have.

So should we be thinking coming out of 2022 and what was a pretty challenging year, should we be thinking of 2023 as a period of stabilization at the operations while you're continuing to develop and invest in the new growth from 2024 and beyond? Or is it more a case where you are operating at full capacity, if that makes sense?

Well, I can say to you that, first, I will start with New Afton. B3 is the block cave. It's performing really well. So we are at the beginning of the block cave, so we're probably 60 meters of elevation in the block. So it's performing well. It's a steady state. So I think for this, I'm not concerned about the stability of the extraction at New Afton. For Rainier River, it's the same. So I explained to you that one of the reasons why in Q1 we mined a bit less is because it was really less efficient to mine in the North Low because it was a narrow, shallow pit. So the face are small and difficult to interact with multiple equipment in one single face. And also, we are... Really happy to say to all of you that the overburden is over, and it's a really difficult material to handle, so we maximized the opportunity, the winter opportunity, to extract this, so it's behind us. So, you know, in terms of pit, we have a mine life of 3.5 years, 23, 24, 25, and 26 in the first half. So we will mine in rock. The mine is in good shape. The pumping system is robust and the mitigations are all in place. So we deploy a lot of investment and time and effort and capital to beef up the preventive and predictive maintenance in the field actually. So I'm strongly confident that it's why I said to you that our priority is to stabilize. I think going forward, we reduce a lot of risk on the execution of the production and the guidance. And I'm not seeing any other than something that be out of my control and the control of our people. I don't see any huge risk for the operation going forward.

Okay, perfect. Thank you so much.

Thank you. The next question comes from Andrew Dessant with National Bank Financial. Please go ahead.

Hi, good morning. I just have a couple of questions. On Rainy River, I'm just wondering if you can give some update on how that's proven versus the block model and what your conviction is in that going forward.

You're talking about underground? Yeah, at underground, sorry.

Yeah, sorry. So actually, we have a team that is when we have a new Azure Poly. So we increase our capacity to do stuff and to look to opportunities. So we have Johan, Luc, and Jean-Francois who recently joined us that will support us on this. But we're still working on the block model to optimize the R-shapes. We did a lot of work in terms of simulation for the extraction under the main zone. So we're working actively on that. And the optimization of the ramp, the optimization of the ventilation, the optimization of the equipment. And the grade up to now in Q1, we considered really well intrepid. And I think we will be well positioned to finalize our optimization for Q3 this year.

Great, thank you.

And then just one follow-up just on the development at the sea zone. Just wondering if you can provide a little bit more color on the delay that you mentioned this quarter and if you see any impacts going forward to the timelines that you've previously provided.

Good question. Really good question. So just to summarize, actually just first, we developed this. We can see zone is split in two. We have the infrastructures on the ground, and we have the development on the ground. And the development, we have what we call a critical path, and what are the supporting other development, the support development for other purpose. So actually, we respect the critical path to create the undercut of the blockade and to develop the drawbells. and so the extraction levels, and also to do the development for the construction of the crush. So we actually, in development, we're a bit late. We were late in Q1 mainly because the main fresh air raise for sea zone is 450 meters long, and it's a raised bore. And at the bottom part, we had some zone where we had a cave, and we had to... Spend more time to short read this and to rehabilitate the part. Actually, it's all stabilized. It's part of mining. And we are full steam ahead. So we recently, if you look, we recently increased a lot our development meters. We did 450 meters in March. Actually, we are rating at 500 meters per month. We reduced the temperature on the ground from 7 to 10 degrees C. That is mainly due because we have more air exchange. It's going really well for the development of the exhaust rays, too. And we will receive our new electrical equipment in the following days. And first order is still expected. for the second half of 2023 mainly in Q4 and we are still expecting to reach the commercial production or what we call the hydraulic radius for the second half of 2024. So our production profile model is still respected.

Thanks for the update. That's it for me.

Thank you. The next question comes from Fahad Tariq of Credit Suisse, please go ahead.

Hi, good morning. Thanks for taking my question. On Rainy River, you highlighted a few different mining efficiencies, underground optimization. Just at a high level, how do you think about aspirationally what the cost profile could look like at this mine? For example, is it possible that the all-in sustaining cost gets closer to, let's say, the $1,200 an ounce range? Just trying to get a sense of, like, a best-case scenario where costs could end up longer-term things.

Well, I think for this, I will ask you to give me more time to look at my numbers because we're still optimizing this. So the fact that we can now remind of the North Lobe is it will provide to us a huge opportunity to short the knowledge distance backfill this bit. So that's going to be really significant for us in terms of efficiency and fuel consumption and operating costs. And for underground itself, I think the costs are still in the tech report are still valid, but we are working again to reduce development as much as we can, reduce the capex. and to maximize the fact that we have the open pit that can tie in to reduce development. So it's what we are working on, actually. And as I said to you previously, I said to the previous question, I will be more in position to answer to that in Q3. Great.

Thank you.

Thank you. The next question comes from Anita Soni of CIBC World Market. Please go ahead.

Hi, good morning, Patrick and team, and I have a number of questions, so hopefully you'll bear with me. I just wanted to clarify, first at Rainy River on the grade, you said grade is expected to normalize in Q2. Can you talk about what happened in Q1? Was it positive grade reconciliation in the pit? I know you're pulling tons from Intrepid now, but you haven't given us an idea of how much tons are coming from underground and from the open pit, but if you could give us a breakout of Both of those, the tons and the grades, and then also what was different about what happened in Q1 that would be helpful.

The main comment that passed through the normalization is mainly because in the North Logue, as discussed previously, I think the years before the reconciliation was more tricky. So we apply a mine call factor and we use RC drilling to determine the grade. So we have more volatility in the north lobe than all the other parts of the ore bodies, so it's behind us, it's mined out. So this is why mainly we relate in our comments that we're going to be more straightforward. The reconciliation will be easier for us. For the underground mine, you know it's the entire grade, so as I explained to you, it's 3.5 grams per ton, and the reconciliation is as planned, so we mine... mostly compared to the ton that we process. You know, it's 70,000 tons compared to 2 million tons processed from the pit. So basically it's, on the answer's point of view, it's what is making the difference.

Okay. And when you say the grade is expected to normalize, so then what you're talking about is that you've mined out the north lobe and you're going back into, I guess, the main zone, and that grade should be more along the lines of 0.9, I assume, 0.9, 0.95 or so?

Yeah, yeah, something like this, yes. But also more, it's easy for us to predict the grade. We have better reconciliation. Okay.

And so you are, when you reiterated the 55-45, you were talking about one, the grade, but two, also that you're still going through maintenance in the second quarter, but that should be complete by the end of the second quarter, right?

Yeah, so the shutdown is actually ongoing and it's going to end on the beginning of May.

Beginning of May, okay. All right, so my next question actually relates to the financial. I noticed that you said New Afton costs are, they went up as it relates to ore purchase agreements previously, previous agreements. Could you clarify what those ore purchase agreements are referring to? I apologize, I don't think I've seen that before, but I'm not sure if you had previously mentioned that. But if you could explain what ore purchase agreements are, that would be helpful.

Okay, so the new Afton mill is having a mill throughput capacity of 14,500 tons per day, and we can increase to 16,000 tons per day in peaks, depending on the work index. Actually, we are using just 60% of this capacity. And we have neighbors around us who are more smaller operation. And for us, it's an opportunity that we look at. So this quarter, the all-purchase agreement is mainly generated for us 2,500 ounces of production. And we represent mostly 7%. of the new Afton in terms of revenues. And it's mainly, we have small operators beside us who are not having milling capacity or mill in place. And so it's just an opportunity for us to generate more cash flow. And as we are to our purchase agreement, on any SIG point of view, it's increasing our costs.

Okay, so when you... Could you explain how that for-purchasing agreement works in terms of how it would impact your financials? I mean, you guys just mentioned that it added to the cost, but I'm just trying to understand. Do you purchase the ore at the value of spot price less the discount? And then what's the cost associated with those ounces? How do we figure that out?

Yeah, we purchased the ore at a factor or a discount, if you will. And as we process, we recognize those ounces and generate the cash flow. It's as simple as that. There's no significant, it's not a complicated formula.

Okay. And then just to follow up, sorry, on one comment. You guys mentioned that in your opening remarks, Rob, you mentioned that you said we are 75% hedged and 35% hedged on both commodities. And I think you were referencing fuel and CAD, but I just wanted to clarify you meant fuel and CAD and not gold and copper.

Yeah, no, it's the input costs, the fuel and our exchange rate.

Okay. All right. So you didn't mean commodities. Okay. All right. No.

We are unhedged. No, no, no. Okay.

All right. Sorry. I just wanted to make sure. All right. And then another question I had was, and probably the last one, looking at Note 11 in the financials, I just want to understand there's two different kinds of, I guess, two different kinds of fair value charges that are coming through. And one, I guess, came through the comprehensive income of the owner's. And the other one came through the income statement and it's just a little bit higher than we've seen before. So I guess I understand the one that went through the income statement that's related to the Royal gold and the teacher's pension plan, um, uh, share agreement there. Um, but I don't understand really the, the one that's going through the, uh, operating, sorry, the, the owners, um, side. And then, and I guess specifically why it's called related to our own credit risk. I guess I wanted to understand. Is there any implications of the higher rates that are happening now in that particular note?

Yeah, no, the big change in the Goldstream obligation and the New Afton free cash flow obligation is, as you noted, I think, in your note, there is some impact on higher metal prices, which increases that liability for both of those. But the bigger change is related to our bond yields and the change during the quarter of those yields is, which impacts the discount rate that we use. So there was a change of approximately 28% in that discount rate downward, which increases the liability. There is some impact from the risk-free rate, but not as much as what we've seen on that new gold credit spread, if you will. So it's a part of the option of the model and that we have to use to calculate these liabilities.

Okay, yeah, what I wasn't understanding is that the, it would have implied that the discount rate was going down and rates have generally gone up. So it's your, it's your specific.

Yeah, it's related specifically to our, exactly. It's, it has nothing to do with the open market rates, if you will, or the risk-free rates.

Okay, thank you very much. That's it for my question.

Thank you. The next question comes from Farouk Ahmed. From Raymond James, please go ahead.

Hi there. Thanks. Good morning. Most of my questions have been asked and answered, but maybe just following up on Rainy River and the performance in Q1 and what you're kind of guiding for Q2 here. Obviously, Q1 was strong. I think it represents something like 27% or so of your full year guidance. And yet you're calling for 45, 55 split in the second half. My focus is actually on the cost. Your Q1 costs, despite the good production, were above your guided rate. And I'm assuming that if you have this pullback in grade and lower production in 2Q, I would imagine that costs are probably moving higher in 2Q relative to 1Q. And so in order for you to hit your cost guidance at ready for the year, That would imply something like operating expense in the $700 to $800 per ounce range in the second half of the year. Is this consistent with your expectations?

No. First, in terms of the second quarter, I said to you that we plan for the worst and we wish for the best. So that's one thing. And we mitigate the risk there. Going forward in our cost too, so We plan in the budget to mine mostly 131,000 tons of XPIT per day. We average 118 in the Q1, but actually we are hitting 170. So, and you know, we have a certain big part of our mining costs with the same people, same equipment. So our costs will decrease. our capital costs for the pushback will decrease as we are way more efficient in our business. So in going forward in terms of ASIC, I'm not expecting that. We are slightly higher in terms of meeting costs because of the contractor cost and for the shutdown. But when it will be behind us in the second half of the year, these costs will go back to normal. And we are in control. We're in total control of our G&E. So we are pretty lean as an organization at Rennie. So basically, in terms of ASIC, it's not a proportional going forward now.

okay no thanks that's helpful i guess i was focused a little more on opex because i figured that there was some capex you know accounting moving over into the asic category there but just more on the opex because that was already running ahead of your your guidance for the year despite the strong production in the first quarter um so maybe i can just follow up on that but uh um i'm unless i misheard you i'm surprised to hear that you're expecting cost to come down were you saying you're expecting cost to come down in the second quarter from from q1 levels or or is it really just a second half thing?

You know, it's always a question of denominator too, but I think you should look at this on the next quarter, not on one, I think two, because we have some NLT in an open pit, so compared to one on the ground mine, so I think if you just target Q2, it's a mistake, so you need to look at the cost going forward, and I think I'm expecting a strong second half in terms of the cost per ounce that's produced in 2023.

Okay, thanks for that. Maybe I'll just switch gears a bit, just a little bit on strategy. In your wrap-up slide, you talked about your second priority being advancing your organic growth opportunities. Padraig, can you talk to us a little bit about what those organic growth opportunities are? Is that the sea zone and underground at Rainy River, or is there something else to be considered in that organic growth bucket?

So it's mainly this. It's first is the C-zone. So C-zone, it's an opportunity for us because it's an opportunity. It's not an opportunity. It's our mission, actually. And we have a strong vision on the copper price going forward. And we want to be fully efficient in 2024 when the copper price is expecting to increase. So, and for us, the execution of the sea zone in terms of development, construction, achievement of hydraulic radius is important because it's a nice opportunity for us to be well positioned to serve from the copper wave at the end of 2024. In terms of Rainy River, it's an opportunity to increase efficiencies, maximize what we get from the geology, and to see how we can, in addition to the reserve, how we can address the resource underground. And actually, it's what we are looking at. And we are seeing, we're still seeing this as an opportunity to create more value in an NAV point of view.

Okay, thanks. And then maybe just the last question from me. At the beginning of the call, you talked about strengthening your balance sheet. You know, I believe you sold your Artemis shares in the quarter. you push back your date on your credit facility. I'm just wondering why, I mean, obviously it's always good to have a good balance sheet or a strong balance sheet, but I'm just wondering why the focus here, it looks like your covenant positions are in good shape. It looks like your balance sheet is in relatively good shape. So I'm just wondering what's driving the focus on strengthening the balance sheet focus starting in the first quarter of this year.

Yeah, I think it's just driven by good housekeeping and optionality and just keeping ourselves in good shape and ahead of the game.

Nothing specific. Okay. All right. Perfect. Thanks.

Thank you. The next question comes from Eric Windmill of Deutsche Bank. Please go ahead.

It's actually Scotiabank, but thank you very much. Yeah, thanks for taking my question. I think a lot of what I was going to ask has already been addressed, but maybe just quickly on Rainey and the underground, any additional details there in terms of maybe quantum and tons or grade or what you're seeing there in Q1?

Are you talking about the past production or are you looking forward?

Well, I guess both, actually. Any additional details you could provide?

So if I'm looking, so just not sure that I understand clearly the question. But the first part, I think, on Rainy, we changed the mining method. I think we are pretty efficient now. I think what I'd like to say is that Rainy, we are reconciling the grade and the tons. So it's always, I would say, an overhang when you start an operation on the ground like this. I think it's giving to us confidence. Looking forward, as I explained to you, I will be in a better position to explain in the Q2, at the end of Q3, where we are positioned with the optimization of the underground mine. Actually, it will be really subjective and not realistic, because we will present to you numbers, and on the efficiency of the underground is numbers that we will stand behind, and actually I cannot talk about this.

Okay, great. Thank you. And then maybe one more quick one on New Afton. In terms of additional or purchase from third parties, should we assume that will be the same throughout the balance of the year or any sort of guidance there?

Yeah, you can assume that, yes. We're looking at this as an opportunity. And I think we have a strong team. The metallurgists at New Afton are having a lot of success. skills, experience, credibility, and capacity. So we have an excellent mill, and the recovery factor is excellent. We have a lot of maturity, and we want to maximize the value of our infrastructures and people with that.

Yeah, great. Okay, thank you very much.

Really appreciate it.

Thank you. Our last question comes from Mike Parkin of National Bank. Please go ahead.

Hi, guys. Thanks for taking my question. Just to follow up there, the regional war purchases from third parties, was that factored into the original guidance?

No, it was not.

And then, with respect to drilling off some extensions at the Rainy River Underground, when could we expect you guys to be, like, from what I understand, you guys were looking to resume that from underground drill stations rather than from more costly surface locations? If that's still the case, when do you think you'd be in a position to start that up?

So we did definition drilling. That is business as usual this year. For the exploration, it will be difficult for us to drill from the pit. Because as you know, we are having activities and we can be in conflict and it can cause issues. But we are actually looking at this in our transition to develop drilling platform to drill in advance. It's probably something that will be ready to go in 2024.

Okay. And then just skipping around, with respect to targeting your commercial production rates at New Afton, when do you What percentage of full capacity, are you basing that off like 14,500 tons per day mill capacity or something else? What's your baseline?

It's a bit so. Usually, the definition of commercial production is when you achieve 70% of your mill rate during 30 consecutive days. In the block caving, it's a bit different. It's when it starts to cave by itself. So when you reach the Adriatic radius, and so just to create the opening, you have the cave that is already initiated. In our case, you know, it's pretty particular because we're only two mining companies who are doing block caving in Canada. But the way that they establish the trigger to be in commercial production is through is when we reach the regions where it caves by itself. So for us, it can be actually, I think it's an average of 12 to 16 drawbell. I'm not sure the exact amount. It can vary. It can change. It can be 22 or it can be just 10. But in our case, it's where we call it directly this commercial production. So when we will start to extract C-zone, We cannot. Each drawbill is having a capacity. So we will not be able to extract at 14,000 tons per day C-zone. But we have B-tree that is operating at the same time. And it's where when C-zone is coming, C-zone overtopping B-tree, and we have a progression up to the moment that we reach 14,500 tons per day. And C-zone will be at maturity, if I'm right, it will be in 2025. Okay.

And just following up on that, can you give us a sense of what percentage of your operating costs at New Afton are kind of fixed versus variable? I'm thinking you've got quite a significant step up in tonnage coming, but that probably doesn't translate into a steady state cost per ton from where we are today. that likely drives a significant drop with fixed costs being spread out over a bigger number. Is it a little too early to ask that question?

It is a bit early, but I could sort of give you a range of between 70 to 80% fixed. It's a high fixed component, as you know, but it'll be in that 70% range. But we haven't done the math recently, but it should be in that spot.

that's good enough um and then has there been any chat with ontario teachers in terms of what their intention is uh with the q2 2024 uh decision to either take a direct interest in new afton or maintain their interest in the free cash flow hey mike thank you here um

We have a great relationship with teachers that buy back provisions a year out. So we maintain open dialogue, but there hasn't been any specific discussions around the buyback that's a year away from now.

Okay. All right. That's it for me. And Rob, congrats on your retirement. Hope you get out on a sailboat or something.

Thanks, Mike. Thanks, guys.

Thank you. If there are no further questions, I will turn the call back to Nkit Shah for closing remarks.

Thanks, Michelle. And again, thanks to everybody who joined the call today and asked those great questions. As always, should you have any additional questions, please feel free to reach out to us by phone or email. Have a great day.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for participation and ask that you please disconnect your lines.