New Gold Inc.

Good morning. My name is Michelle and I will be your conference operator today. Welcome to the new Gold Second 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 are 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 the pound key. I would now like to hand the conference over to Ankit Shah, EVP of Strategy and Business Development. Thank you.

Thank you, Michelle, and good morning, everyone. We appreciate you joining us today for Newgold's second quarter 2023 earnings conference call and webcast. On the line today, we have Patrick Oden, President and CEO, and Keith Murphy, our VP Finance. If 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 Nugold. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in the presentation. You are cautioned that actual results in future events could differ materially from those expressed or implied in forward-looking statements. Slides 2 and 3 provide additional information and should be reviewed. We also refer you to the section entitled Risk Factors in Nugold's latest annual information form, 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 endnotes that provide important information and should be reviewed in conjunction with the material presented. I will now turn the call over to Pat for some opening remarks.

Thanks, Kit. And good morning, everyone.

I want to welcome Kit Murphy, our VP Finance, to the call. Keith will cover the quarterly result going forward, and we are excited to have him joining us. I want to give a few brief remarks before turning the call over to Keith to discuss the quarter. We had an excellent quarter and continue to build on the momentum from the beginning of the year. I note on our first quarter call that Q2 will see planned major maintenance perform at Trinity River. I also note at that time that our team prepares for the worst, but we plan for the best. I am proud to say our team showed great resilience. Because of the proactive measures taken at site, Rainier River not only completed the amendments on schedule, but also delivered strong production results, accomplishing our goals, all without sacrificing safety. During the quarter, we have no last-time injuries at both of our operations, and both sites reached more impressive milestones, with New Afton exceeding 1.5 million hours since its last last-time injury and Rainy Rivers surpassing 2 million hours. I want to take a moment to further recognize the team at New Afton for receiving the GT Ryan CT Award for British Columbia and UCAN, as well as British Columbia's Safest Large Underground Mine Award. These two awards are incredible recognitions to New Afton's hard work and to our company commitments to safety above all else. As a result, we are well positioned to meet our production and cost guidance set out earlier in the year. In short, we are executing our 2023 plan strongly and safely. Looking to our future, we also continue to make progress advancing our growth initiatives. We continue to advance underground development at Rainy River, with the development of the ramp access to the underground main zone commencing, something I will expand on the coming slides. NC zone development at New Afton continued well in the quarter. Our development rate increased over the first quarter, and I remain confident in our ability to achieve first production on ore during the fourth quarter with commercial production plan for the second half of 2024. With that, I will turn the call over to Keith. Keith?

Thank you, Pat. I'm on slide seven, which has our operating highlights. Q2 was another strong quarter. We produced 102,374 gold equivalent ounces. 45% higher when compared to the prior year quarter. Rainy River produced approximately 60,000 gold ounces. The increase over the prior year quarter is primarily due to higher gold grades. New Afton produced approximately 16,600 gold ounces and 12 million pounds of copper. The increase over the prior year quarter is due to higher gold and copper grades and recovery partially offset by lower tons processed. Gold produced at New Afton also includes approximately 940 ounces from the ore purchase agreements. Operating expense per gold equivalent ounce decreased over the prior year periods, primarily due to higher production and sales. Consolidated all-in sustaining costs for the quarter were $1,657 per equivalent ounce. This decrease compared to the prior year quarter, is primarily due to lower sustaining capital spend and higher sales volumes at both sites. Turning to our financial results on slide 8. Second quarter revenue was $184 million, driven by sales of over 74,200 gold ounces at an average realized gold price of $1,970 per ounce and sales of 10 million pounds of copper, at $3.82 per pound. Q2 revenue was higher than the prior year quarter, primarily due to higher gold and copper sales volumes, partially offset by lower copper prices. The second quarter revenue split saw gold contribute around 80% to our quarterly revenue and copper around 20%. Cash generated from operations before working capital adjustments was 65 million or 10 cents per share for the quarter. This was higher than the prior year period due to higher revenue. The company recorded a net loss of 2.6 million or zero cents per share during Q2, an improvement compared to a net loss of six cents per share in Q2 2022. After adjusting for certain other charges, net earnings was 11.5 million or two cents per share in Q2, an improvement compared to a net loss of $16.7 million in the second quarter of 2022. The improvements in net earnings and adjusted net earnings were primarily due to higher revenues and lower finance costs, partially offset by higher operating expenses and depreciation and depletion. Our Q2 adjusted earnings include adjustments related to other gains and losses. Our MD&A has additional details on the non-GAAP measures discussed here. Our total capital expenditures for the quarter were $72 million, with $36 million spent on sustaining capital and $36 million on growth capital. The decrease over the prior year periods is due to lower sustaining capital, as Rainy River had lower capital stripping and New Afton had B3 development capital in the prior year, partially offset by higher growth capital at both sites. Sustaining capital spend at Rainy River was primarily related to capitalized waste, capital maintenance, and the annual tailings dam raise. And at New Afton, it's primarily related to tailings management and stabilization activities. Growth capital was invested in the sea zone at New Afton and the underground intrepid and main zones at Rainy River. Slide nine provides details of our capital structure. We had cash on hand at the end of Q2 of $174 million and our liquidity was $547 million. We have $373 million available on our credit facility. We continued to execute short-term hedges on CAD and fuel and our hedge at 75% on both for Q3. We will continue to evaluate short-term hedge options on CAD and fuel and utilize it as we see fit. To sum up, we remain in a healthy financial position following a strong quarter while advancing our growth initiatives. Now, I'll turn the call back to Pat.

Thank you, Kate, and welcome again.

Slide 11 provides additional details on the second quarter at Rainy River. During the quarter, the mine and mill performed well and delivered solid production increase over the second quarter of last year. The Rainier River team completed all previous discussed planned maintenance activities in the quarter. Rainier River's open pit mining sequence was optimized to maintain a consistent production profile throughout the year, leading to ounces being mined ahead of schedule. As a result of the production ounces pulled forward in the quarter, we now expect production in the second half to be approximately 50% of annual production. throughput was in line with the second quarter from last year and an increase from the first quarter of this year. I remain confident that we can get to the target rate for the year with the recently completed maintenance of the processing plant. The average goal grade at Rainy River was 0.97 grams per ton, well above the second quarter from last year. The grade normalized from the first quarter as expected. Turning to the underground, development advanced 524 meters in Q2. Production in the core include over 99,000 tons of ore from the intrepid underground zone at a grade of 3.11 grams per ton gold equivalent. Underground production continues to ramp up and tons in grade continue to reconcile well. As I mentioned in my opening remarks, Development of the underground main zone commenced during the quarter as planned, with the development advancing approximately 100 meters. Following a detailed review of optimization opportunities over the last six months, the underground main zone will initially be reached via intrepid instead of in-pit portal. This will allow for efficiencies and further optimization of the existing open pit for its remaining mine life. This will reduce haulage distance by allowing us to use the north lobe as an in-pit space storage facility. In addition to facilitating access to the underground main zone, this will allow us to prioritize underground exploration activities between the intrepid and main zone through the ramp access. I am very happy with the progress made to the underground and I remain confident that we are well positioned to meet our annual production and cost guidance at Rainy River. Slide 12 provides further details of New Afton second quarter results. The underground mine averaged over 8,500 tons per day of ore mined in the quarter, an increase over the prior year period as V3 is now comfortably operating at a state-to-state mining rate post-completion of construction activities in 2022. The mill averaged over 8,300 tons per day, relatively in line with the daily mining rate, incorporating B3 ore mine exclusive of ore purchased in relation to our purchase agreement. B3 continues to deliver to plan, and Uafton remains well-positioned to meet its annual production and cost guidance set out at the start of the year. T-zone development continued to advance with 1,415 meters in the quarter. Completion of the ventilation rates in the second quarter contribute to increase development rates substantially higher than the first quarter. Development on the extraction level to achieve first draw bill was completed in the quarter portioning the company well for first production ore in the fourth quarter, with commercial production planned for the second half of 2024 for seasonal. Before I close out the presentation today, I want to reiterate what I said on the Q1 call and what I view to be the key priorities for the company. First, continue to stabilize our operations. The open pit and underground at Twinney River continue to reconcile well, and the New Athens B-Tree is operating to plan. Second, continue to advance our organic growth opportunities. We made good progress at the underground main zone at Twinney River and C-Zone at New Athens. Third, with safety as the highest priority, deliver on our guidance set out earlier in the year. This was another consecutive quarter with no lost time injuries and strong operating results. This quarterly result shows we are well on our way to executing these priorities. I'm incredibly proud of the effort shown by our team in the first half of the year, and we will continue to build on these results as we look to the second half of 2023. This completes 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 conduct the question and answer session. If you have a question, please press star followed by the one on your touch-tone phone. You will hear a one-tone prompt acknowledging your request. Please ensure you lift the handset if you are using a speaker before pressing any keys.

One moment, please, for your questions.

And the first question in the queue comes from Fahad Tariq with Credit Suite. Your line is open. Please proceed.

Hi, good morning. Thanks for taking my question. Patrick, just going back to your comments about the main zone and accessing it from underground versus an in-pit portal, does that have any impact on costs or timing, development rates, things like that?

Not really, because it's the opposite. Because first, the ramp to build an input portal in the North Lobe, it will require to build a portal, but it's not necessarily an easy thing, and also to bring services there. So the fact that we will start from Intrepid is everything is already in place, and we will be attached to all the services and I'm talking about compressed air and ventilation, et cetera, that is coming from Intrepid. So it's more a saving. On a timing point of view, all our mining crews are based at Intrepid, so it centralizes the activities. And it's mostly the same meters of development. And what is interesting is actually we are at 300 meter deep in Intrepid. So it's going to speed up the access to the main core of your body of main zone. So that's mainly a scuff saving and an opportunity. The second thing in terms of opportunity for us is we have a gap zone. So we have a gap between Intrepid and the main zone for exploration. So the ramp itself will give us the opportunity to explore this area. And the other saving opportunity for us is that we are using actually North Globe as a waste dump facility. So it's really a short haulage for the bottom of the pit and for the stripping that we are doing actually to get to reach the pit limits. So it's reducing significantly the haulage distance and consequently the cost and the fuel consumption. So it's a pro for us.

Okay, that's really clear. And then maybe just switching gears, can you talk a little bit about just the inflationary pressures? We've been hearing from some of your peers that maybe on the consumable side, we're starting to see some easing. I'm actually more curious to hear about what you're seeing on the mining labor side, particularly a tight labor market in Canada.

Thanks. To be honest, the big jump in terms of inflation and consumable and spare parts, it was mainly in 2022. We had a significant increase from suppliers. This year, I can say that it's mostly moderate and inside what we plan in the budget in regard of the cost increase for supplies and consumables. For the manpower, I think generally in our industry in Canada, we are nearly turning around 3%, 4%. So I think we're more in control this year than we were two years ago and last year, up to me. So we're pretty comfortable with our cost management here. And these costs, this escalation is already included in our ESIC.

Okay, great. That's it for me. Thank you.

The next question in the queue comes from Anita Soni with New Gold. Please proceed.

Good morning, Patrick and team. So my first question, I just want to get an understanding of how the rest of this year is going to play out. I think in the original guidance, you had talked about a strong first half, I'm sorry, a strong second half and a weaker first half as you did the the maintenance, but then you optimize the mine plan. So would we expect grades to moderate in the second half of the year, or is it more of a tonnage issue?

I think we anticipate more in the feed. So I'm talking about the grades. So it's the same tonnage, but we try to smooth the gold production. So it's going to be a 50-50 going forward. So we're pleased by this. And in terms of ASICs, we had some In Q2, we had less capitalized waste and more sustaining capital because of the change that we had, the improvement that we did to the mine plan. But we are still trending to be in our basic guidance for this year.

Okay. So does that mean that in the second half that would reverse, that you would have more capitalized waste and less sustaining capital? I'm sorry, did I say that wrong?

Yeah, mostly, yes.

Okay, maybe I'll take it offline because I confused myself. And then secondly, just to follow up on the first question about the intrepid zone, what kind of an impact does that have in terms of the amount, like the relative strip? I see we're now going further into the bottom of the pit and lower strip ratios then. So does that mean next year you might have a lower strip ratio at Rainey than what was previously planned?

Yeah. So the change, the fact that we start the ramp from Intrepid instead in the portal is not changing the strip, but it will reduce our mining costs because it will reduce the knowledge distance. So consequently, it's a huge efficiency, operation efficiency improvement for us. And also, I think it's a double impact because it will eliminate a waste dump and reduce our impact on the landscaping and environment. Going forward, Anita, because the pit is depleting, actually we are doing the phase four pushback. As discussed previously, the mining fleet will deplete year after year, so actually we are operating, we have 20 trucks in the fleet, we are operating 17 trucks It will go full steam ahead up to year end. And in the second half of 2024, the fleet will deplete and to go down to five trucks in the first half of 2026. So for sure, going forward, this pit will be well positioned to reduce the cost significantly and we'll see a cost decrease in Q4 this year.

Okay. And then just in terms of impact to sustaining capital or development capital in 2023 and 2024 as a result of the change and the way you're hitting the intrepid zone, can you give some color on that?

To be honest, I'm not having this detail actually, but we're trending mostly. You have some slight improvement that will be to our advantage. You have the cost increase in the development that will be on the counterpart. So I think the 43-101 is still something that is representing what we were facing actually.

Okay, so you're going to deliver a 43. Oh, so you're saying the original 43-101 is still okay, or are you going to deliver a new one?

It's still okay, yeah.

Okay. All right. Thank you. That's it for my questions.

Thank you.

Thank you. Once again, as a reminder, if you do have any questions, please press star 1 on your telephone keypad.

Hi, Michelle. Actually, we had a few questions emailed to us because I think a few individuals had difficulty dialing in. So I'm just going to read a couple of the questions out for the team. The first question is for Pat. What was the underground grade in the second quarter at Rainy River, and how is this reconciling to our plan?

The underground grade at Rainy River was 3.11 grams per ton for 91,000 tons are from scope and development, and we are right on. The reconciliation compared to the reserve to what we mine is... And historically, since we start the mine at Trinity River in Intrepid Underground Zone, we are mostly right. We are bang on the grade, and we are mostly 2%, 3% above in tonnage. And it's still the case. We reconcile at 100%. Okay, great.

And one more question was also emailed to me. C-Zone continues to be on track for the fourth quarter, but what other milestones can we look for in the C-Zone development over the next few months?

Actually, the first milestone that is important for us is the first draw bell. So the first draw bell, we complete the development for the undercut and for the extraction level. So we are right on time to deliver the first drawbell for Q4, the beginning of Q4 more exactly. So it is one of the milestones. We need to continue to be at full capacity in terms of development at C-Zone. We will complete the excavation of the crusher chamber in the following days. and construction crews will jump in to build the crusher and all the equipment attached to it, conveyors and et cetera. And it's something that we're looking at for Q3 next year to be fully commissioned and operational. And the hydraulic radius will say that the trigger between commercial production and to complete the investment in the C-zone, we're mostly targeting the second half of 2024, Next year, so it means that we are pursuing the development close to 475 to 500 meters per month to be able to expose your and to start to increase production for season and to reach a full capacity at the end of 2025.

As planned.

Thank you, we do have one more question in the queue from Anita Sony from Newgold. Please proceed.

Oh, I'm actually from CIBC, but anyway. So follow-up question. I'm sure CIBC would be pleased to hear there's been a change. But my question is with regards to the intrepid zone and the underground. I just wanted to understand what 2024 looked like. So you're kind of running at about 400 ton per annum right now. I think you said 91,000 tons this quarter. And then do you ramp to, like, the 600, 700,000 tons per annum next year, and then, like, 1.2, 1.3 in 2025? Is that still the case at about 3 gram per ton material?

Yeah, you talk all in. Yeah, the grade all in, well, because in Phase 3, going deeper, the grade is probably around 1. And we have the grade from underground that is leading this. Intrepid is mostly 1,000 tons per day, Anita. And we are bang on on the 42-101 the same. So I think by the uncertainty that the reconciliation is good. So basically the grade that we have in the 42-101 is the same. Yeah, I was just looking.

I was trying to get an idea of the out years, like the 24, 25 years, what they look like.

Yeah, and we will give you, we are working, the fact that we have new colleagues who joined a new goal recently, it's helping a lot to, it's increasing our capacity to improve our engineering process. And we will provide more, we will provide more details in the 2024 guidance.

All right.

Okay. Thank you very much. There are no further questions at this time.

Speakers, do you have any closing remarks?

Thank you, Michelle. And again, thank you 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 rest of your summer.

Thank you, ladies and gentlemen. This will conclude your teleconference. Please disconnect your phone lines.