New Gold Inc.

Good morning. My name is Ludi and I will be your conference operator today. Welcome to the New Gold's second quarter 2024 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 followed by the number one on your telephone keypad. And if you would like to withdraw your question, please press the star followed by the number two. I would now like to hand the conference over to Ankit Shah, Executive Vice President of Strategy and Business Development. Please go ahead.

Thank you, Ludi, and good morning, everyone. We appreciate you joining us today for New Gold's second quarter 2024 earnings conference call and webcast. On the line today, we have Patrick Oden, President and CEO, and Keith Murphy, our CFO. In addition, we also have Luke Buchanan, Vice President, Technical Services, and Jean-Francois Rabenau, Vice President, Geology, available for the question and answer portion of the call. 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 slide two of the presentation. Today's commentary includes forward-looking statements relating to Newgold. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in the presentation. We are cautioned that actual results in future events could differ materially from those expressed or implied in forward-looking statements. Slide 2 provides additional information and should be reviewed. We also refer you to the section entitled factors in NUGL'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 endnotes that provide important information and should be reviewed in conjunction with the material presented. I'll now turn the call over to Pat for his remarks.

Thanks, Enquete. Before discussing the quarter, I would like to take a moment to discuss last week's events when we experienced the fatality at the Rennie River mine. More specifically, we'll ask the colleague. Our thoughts continue to be with his family and friends. Every quarterly call, I start by talking about safety. I talk about our courage to care culture. I do this because I believe that the key to consistent and disciplined production starts with safe production. It starts with the courage to care for our colleagues, looking out for one another, stopping work if it's not safe, and ensuring everyone goes on to their family and friends safely at the end of every shift. I've been proud of the health and safety performance by our operation and by the commitment of all employees. We have been able to celebrate the awards and milestone together, but in the instance, we mourn together with the family, friends, and colleagues who have been impacted by this tragic incident. I will now talk about our second quarter. The second quarter saw new gold deliver another quarter as planned. During the quarter, our new Afton Mine won two separate awards for having the lowest total recordable injury frequency rate in 2023. The first being the safest large underground mine in BC presented by the BC Ministry of Energy Mines and Low Carbon Innovation. And the second being the John T. Ryan Regional Safety Award in Mines in BC and Yukon presented by the Canadian Institute of Mining. I am pleased to take a moment to recognize their accomplishments. Operationally, we deliver on the quarterly plan with a strong adherence to our personal outlook release from February. You often deliver strong quarterly production results at low cost. Renewal River made excellent progress on the planned waste tripping program and the open pit is well positioned to deliver on our increasing production profile for the second half of the year. On our first quarter call, I know that we were one quarter away from securing the increase in production and cash flow expected in the second half of the year. I am pleased to say that not only have we entered that period, but we do so having finished the first half of the year with free cash flow positive. And with the company exiting the first half of 2024 free cash flow positive, I am pleased to say that New Gold has now entered a sustained free cash flow generation period. We also made excellent progress on key growth projects. Importantly, all key growth projects remain on track for completion in the second half of the year. We made significant progress with our exploration efforts at both operations during the second quarter. At New Afton, the company provided a positive exploration update on Key Zone. The team there also completed the exploration drift early in the quarter and immediately began advancing priority near mine targets. At Rainier River, exploration drilling continues to make meaningful progress from both surface and underground. Through the first half of 2024, the company has drilled approximately 20,000 meters at Rainier River testing various high-priority targets. We are anticipating providing an exploration update later in the third quarter. The company also achieved a number of corporate milestones in the quarter. We announced the publication of our 2023 ESG report, something the company has published annually since 2015, as well as our 2023 Task Force on Climate-Related Financial Disclosure report. All reports are available on website. As a last point, I'm extremely pleased to underline that we successfully delivered an accredited transaction for our shoulder by increasing our free cash flow interest in New Afton to 80.1%. To sum up, the second quarter in the first half of the year met expectations, and the companies were in position to deliver on guidance and sustaining free cash flow generation going forward. With that, I will turn the call over to Keith. Keith?

Thank you, Pat. I'm on slide six, which has our operating highlights. Q2 was another solid quarter. Produced approximately 69,000 gold ounces and 13.6 million pounds of copper. Rainy River produced approximately 50,300 gold ounces as planned while advancing waste . New Afton produced approximately 18,300 gold ounces, 13.6 million pounds of copper. This represented a 10% increase in gold and 13% increase in copper production compared to Q2 2023, as C-zone ore processing is ramping up. Consolidated all-in sustaining costs for the quarter were $1,381 per gold ounce on a byproduct basis in line with plan. We expect costs to trend lower in the second half of the year. At New Afton, all in sustaining costs for the quarter of negative $433 per gold ounce was significantly lower than the prior year period due to increased copper production and sales. At Rainy River, costs were higher compared to Q2 2023 within alignment plan, and they were expected to trend lower in the second half as production increases. Turning to our financial results on slide seven. Second quarter revenue was approximately $218 million. Q2 revenue was higher than the prior year quarter, primarily due to higher metal prices and higher copper production, partially offset by lower planned gold production. Cash generated from operations before working capital adjustment was $90 million, or $0.14 per share for the quarter. This is higher than the prior year period, primarily due to higher revenues and positive working capital adjustment. Company recorded net earnings of approximately $52 million, or $0.07 per share during Q2. The increase is primarily due to additional revenues resulting in higher metal prices and a net gain on the derecognition of the New Afton Free Cash Flow obligation. In connection with the amended Ontario Teachers Agreement, the liability related to the original agreement that was recorded at fair value was extinguished. The updated agreement did not constitute a financial liability for accounting purposes. It was accounted for as a partial disposition of mining interests. The net impact of this was a $42 million gain. After adjusting for certain of the charges, net earnings was $17 million or $0.02 per share compared to adjusted net earnings of $12 million in the second quarter of 2023. Our Q2 adjusted earnings include adjustments related to other gains and losses. Our total capital expenditures for the quarters were approximately $72 million, with $32 million spent on sustaining capital and $41 million on growth capital. At Rainy River, total capital increased over the prior year period due to higher growth capital spent. Sustaining capital is primarily related to capitalized waste, capital components, tailings management and construction. Sustaining capital is trending lower as a proportion of waste tons are capitalized and a higher proportion remains in operating costs with no net impact on ASIC. Growth capital is related to underground development as the underground main continues to advance. At New Afton, total capital decreased over the prior year period due to both lower growth and sustaining capital spent. Sustaining capital is primarily related to tailings management and stabilization activities. Growth capital is primarily related to the C-zone underground development. At the end of Q2, we had cash on hand of $184 million, but a liquidity position of $461 million. This is after increasing Newgold's effective free cash flow interest in New Afton to 80.1%, for an upfront cash payment of $255 million, financed with $100 million from our existing revolving credit facility and net proceeds from a concurrent equity financing. We anticipate repaying the credit facility with free cash flow generated in the second half of 2024. Sum up, we remain in a very healthy financial position, all while continuing to invest in growth projects. As we successfully executed on half-won objectives, we have entered the sustaining period of free cash flow generation, and we are well positioned to leverage the higher metal price environment. Now, I'll turn the call back to Pat to walk through our operating highlights.

Thanks, Keith.

Starting with Rainy River on slide 9. Rainy River continues to perform well, achieving another quarter in line with our plan. On the morning front, waste stripping was the focus during the quarter, and increased as planned from Q1. I am pleased to mention that the open pit is in excellent position as we start the second half of the year. Waste stripping is expected to decline to the remainder of the year as we access greater quantities of high-grade ore. In the underground mine, extraction from the interpret zones continued as planned and the development to main zone is scheduled for first ore from development in the second half of 2024. The mill performed very well, progressing over 26,000 tons per day, a 12% increase compared to the Q2 of last year. We continue to operate above the guide mill throughput rate of 24,700 tons per day. The right side of this slide outlines our 2024 outlook as presented in February, and the previous week guides stood between the first and the second half of the year. This information is still valid. six months into the year and well positioned to meet our guidance production and cost objectives for 2024. We remain on track for second half production representing approximately 60% of our annual production, mostly due to the open pit mining sequence. We will continue to reclaim some lower grade stockpile in Q3 while we release higher grade ore in the open pit for later in the year. The strip ratio is to decrease in the second half of the year as planned, which results in higher operating costs and lower sustaining capital. However, know that impact on ESIC, which will trend lower in the second half of the year with the higher coal production. Lateral development meters in the underground mine will continue to ramp up through the year as we access additional underground mining zones and more headings become available. Slide 10 outlines progress we have made underground. The underground main zone remains on track for first ore from development in the second half of 2024. As previously mentioned, the priority for 2024 is to establish the primary ventilation circuit and access multiple mining zones. These two events will be key to ramping up mining rate to 5,500 tons per day by 2027. The team at Rainy River did an excellent job advancing underground lateral development. Underground development continues to increase quarter over quarter, and I expect this trend to continue into Q3 and Q4 as additional aidings open and additional underground mining equipment is delivered. The raise borrowing of a 5-meter diameter, 420-meter long fresh air raise commenced in the second quarter. At the end of Q2, both the ODM East Ventilation Loop and the fresh air raise were approximately 50% complete in line with the plan. In addition, I am pleased to report that the construction of the in-pit portal, offering a second mini of egress and decreased waste hauling distance, will commence in a few days, early August. Turning now to New Afton on slide 11. New Afton delivered to plan. V3 continued to deliver above 8,300 tons per day, and the season ramp-up has been going to plan. leading to a 34% increase in tonne held and a corresponding increase in gold and copper production compared to Q2 last year. The increased copper production is the primary driver of the reduced haul-in-sustaining cost compared to the prior year period. Looking now at the information on the right side of the slide. Similar to Rainy River, the first help delivered according to plan, and we are trending in line with the annual plan. We continue to transition from the B3 cave to C-zone and expect to see a continued ramp-up in C-zone mining rates throughout the year. We continue to expect the higher mill throughput in the second half to be partially offset by the lower feed rate due to the cave draw sequence, leading to a fairly consistent quarterly gold and copper production profile as flat. C-zone progress is shown on slide 12. Commissioning of the giratory crusher and conveyor system is on track for the second half of this year. This will eliminate hauling requirements and impact positively on costs going forward. We are on schedule to complete the season construction phase this year, which includes the season cave reaching hydraulic radius and commissioning of the giratory crusher and conveying system. Lateral development continued to advance unplanned, with over 80% of the development meters now complete. I am really pleased with the progress the team has made, and season development is no longer a critical path item for season commissioning. These two milestones will be transformative for New Afton, increasing production and decreasing costs to generate meaningful cash flow.

Just to sum up, operationally, we deliver a first half as planned.

We will continue to deliver on our stated strategic goals. For 2024, this includes delivering on production and cost guidance. We have now delivered eight consecutive quarters to plan. As I've said before, safe production, technical excellence, and operational discipline are new goals keys to ensuring consistent quarter over quarter results. Exploration continues to advance on both sides and we'll share those results with you in the coming months. We continue to focus on both extending our mine lives and identifying new prospective targets to achieve our strategic objective of a sustainable pollution platform of approximately 600,000 gold equivalent ounces per year. We deliver an accredited transaction for our shareholders by increasing our free cash flow interest in New Afton to 80.1%. At New Afton, we will achieve commercial production at C-Zone and commission the crusher and conveyor. At Trinity River, we will establish a ventilation system and the second mean of egress while continuing preparing the mining inventory leading us to first pour from main zone development this year. We exit the first half of the year free cash flow positive with the free cash flow inflection point behind us. We have now entered a sustained cash generation period. This continues to be a transformative year for our company and our shareholders, and we look forward to providing more positive updates on our third quarter call later this fall. This completes our presentation. I will now turn it back to the operator for the Q&A portion of the call.

Thank you. And ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question at this time, simply press the star followed by the number one on your telephone keypad. And if you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press the star followed by the number two.

One moment, please, for your first question. And your first question comes from the line of Eric Windmill with Scotiabank. Please go ahead.

Hi, Patrick and team. I appreciate you taking my question. Maybe just a quick question here on New Afton. The mining cost per ton was down over Q1. Any additional commentary there in terms of one-time items that might have caused that? Or how are you thinking about the mining costs here throughout the year, obviously? should sort of stabilize these lower levels as the cave ramps up?

Yeah, as we continue to increase the throughput at New Afton with C-Zone or coming online, we will decrease our cost per ton. A lot of fixed costs at New Afton and we'll well leverage that increased throughput.

So yeah, as we continue to increase throughput, that cost per ton will continue to come down.

Okay, great. Thank you very much. And just turning to Rainy River for a moment, obviously in the shutdown last week, my condolences on the fatality there. Any sort of broader read-throughs, we should think, in terms of pit stability or any other issues in the open pit at Rainy?

Yeah, thank you for your question. So, yes, it was not an easy week for all of us. Uh, and you know, it's nothing compared to the family, but this remain an ongoing investigation. And in respect of the process, I'll not go into the specific detail of the incident. So what I can confirm to you, Arvor, is that it's not related to pit slope. It's, uh, it's, it was an isolated incident with a piece of equipment. It was equipment that was loading a truck. So we have no stability concern, no technical issues. or nothing regarding the infrastructures of the pit or whatever. So if I can ring sense the incident, it's related to the operation of an equipment.

All right. Thank you very much for that. I know it's not an easy situation. And then, so obviously, sort of a week of downtime is what we should expect here, and I guess the operations have resumed more or less?

Yeah, but first we stopped the operation when the incident happened in the morning of last Wednesday. And we restart on Saturday. So basically we stopped mostly over three days. And we... And we ramp up after that smoothly on Saturday, the operation. But we are on track to deliver guidance. So it's mostly three, four days. It's the range that we can absorb and to deliver in the range of our guidance for 2024. So we're not impacted for this. We just took the appropriate time to do the first, I would say, to gather the data for the investigation. And so we're always doing an investigation with an incident like this, no matter the incident that we are facing. And after that, we're doing an analysis. So it was important for us to gather all the data. We collaborated with the minister of mine, the chief inspector. And also we are doing the investigation in partnership with our employees and our team. So in the time to gather all this, to sort it out, and to care for the family, and to care also to restart the operation with our people. So we mostly lost three days, but I'm not seeing that as a loss. I'm seeing that as a care for my colleague.

Absolutely. I really appreciate the added commentary. Thank you very much. I'll hop back in the queue.

And your next question comes from the lineup. Anita Soni with CIBC World Markets. Please go ahead.

Anita Soni? Hi, Ludi. We can't hear any of the questions.

Are you on mute? Yeah, mute. Keeping yourself on mute. Sorry about that. So firstly, my condolences on the loss of life at New Afton, sorry, at Rainy River. And then my question, I'll start with the CapEx at New Afton. It seems that you're a little understanding there relative to the guide. Is that as a result of cost savings or are you just, you know, a little bit behind on the spend? Will that catch up in the back half of the year? I think. The guide was more like 130 to 145 for growth capital, and you guys are kind of averaging more sub 120 so far.

It's mainly related to two items. The first item is we have a bit of set quarter to quarter for the delivery of the equipment for the extraction zone and the re-handling of the crosshairs, but it's not having an impact on our operation as we are using the previous equipment actually. So equipment delivery. And the other item is because we are really proud of the fact that the one with the team here are working really hard to optimize net asset value. So we invest a lot of time and effort to optimize the development. We are performing better on development. And we delayed some openings to next year, so a slight adjustment. because it's only this. It's good management in the planning of the development on a timely matter, reduce the number of contractors, and decreasing our costs and improving our productivity. So there's mainly the two reasons why we are on a construction point of view and a CapEx point of view. We're slightly delayed, but we will have to spend this money on a timely matter. Okay. Just offset from a quarter to a quarter, a quarter to a quarter, but, you know, it's not a, It's not an extra expense. It's not an underperformance. It's a great performance.

Okay, so a little bit of better unit cost optimization, a little bit of deferral, and a little bit of that catch-up spend in the back half. Is that right? All right, and then that actually leads me to my next question. Both New Afton and Rainy River outperform not just on the mining costs but on all of the unit costs. Is that... Was that something that was just a one-time thing or is that, you know, better, good optimization on behalf of Johan and his team?

Yeah, I think first I can say to you that we are, because Johan actually is at Rainy Rivers. This is why I'm taking his part of the call. He's taking care of our colleagues there. But he's really proud of this achievement at Rainy Rivers because on a total cost point of view, we mine more tons for less money. So we are at a point that we optimize the open pit. We fully maximize the fact that we are not using the waste dump anymore because we are doing in-pit dumping for the waste, reduce haulage distance, optimize the drilling and the blasting. So we have a new mine manager in place that is a big part of this success too. It's a teamwork, but we improve drastically the productivity in the pit. So we mine more tons for less money. So we are really pleased by this. Really pleased. And for Rainy River, for New Afton, as I said to you, we manage really well our performance. And so we are pushing really hard to deliver our crushing and material and limp in advance. So we are in advance actually on the schedule. And the day that we will start it up, it will reduce our OPEX because we eliminate all the trucking because we're tracking up all the material from sea zone to the mineral fissure. So we'll not have to do that anymore. So in terms of manpower, fuel, operation equipment, maintenance of the equipment, it will be an immediate gain for us.

All right. And that's it for my questions. Congratulations on achieving a positive free cash flow. I'll get back to you. Thank you.

Thank you.

And your next question comes from the line of Jeremy Hoy with Hanukkah Ortiz. Go ahead.

Hi, Pat and team. Thanks for taking my question. Condolences for your colleague at Rainy River. I think I'll touch on the ramp up at New Afton. When we were there back in May, the progress of the project was going quite well. I think you had four drawbells completed and we're we're looking to complete them at a rate of about four per month. So with hydraulic radius being 18, we were looking at achieving that potentially August or September, I believe. Could you guys give a bit more detail on when you expect to achieve it? Because things seem to be moving at quite a good pace.

Yeah, so for the hydraulic radius, you know, it's... Actually, because we have experience with blockade, if you look at the fourth one, in theory, we need to achieve to have 18 drawbills developing in function to reach the Hidrodecretus. And actually, we're trending for the beginning of Q4. So we're doing well on that. We're still trending to have 30 drawbills for year-end. And so, as we discussed, we are in plan. So we're trending. You know what? It can start to cave by itself with 17. It can start with 21. So it's not an exact science, but actually we're trending for the beginning of Q4. So really pleased by this. And also for the conveyor system and the crusher. So I think that we present a picture of the, we're fixing the bottom part of the giratory crusher. It's a picture of that. So actually is the mantle and the spider are probably in place. So we're mostly, instead of looking at the end of Q4, we're looking middle Q4. So it's excellent for us. Doing well.

Okay, that's great to hear. And my next question was going to be on the conveyor and the crusher. So I appreciate the detail there as well. That's it for me.

Thank you very much. So we are installing the last belt this week. So basically the apron is in place under the bin. So I think we will probably sort it out shortly. So the next item in terms of infrastructure and construction will be the crusher. So it will be the focus from the following weeks up to the end, mid-November. So we are really well positioned. The guys did a good job. They did also a safe job. So I was there with them on Sunday and nothing to add to you. It's perfect.

So, great. Well, thanks for the additional color.

And your next question comes from the line of Mike Parkin with National Bank. Please go ahead.

Hi, guys. All my questions have been answered. So, thank you. Thanks, Mike.

And there are no further questions at this time. I'd like to turn it back to Ankit Shah for closing remarks.

Thank you, Ludi. And to everyone who joined us today, thanks again. 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, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.