Mr. Randall Oliphant reports
NEW GOLD ANNOUNCES SECOND QUARTER RESULTS; RAINY RIVER CONSTRUCTION ON SCHEDULE AND ON BUDGET
New Gold Inc. has released its 2015 second quarter operational and financial results. All dollar figures are in U.S. dollars unless otherwise indicated.
2015 second quarter highlights
- Gold production of 86,442 ounces relative to 89,460 ounces in the prior-year quarter;
- Copper production of 23.6 million pounds relative to 25.5 million pounds in the prior-year quarter;
- Silver production of 400,000 ounces, consistent with prior-year quarter;
- All-in sustaining costs of $922 per ounce, including total cash costs of $410 per ounce;
- Net cash generated from operations before changes in working capital of $63-million, or 12 cents per share;
- New Afton mill expansion successfully commissioned, ahead of schedule and under budget, resulting in increased recoveries of gold and copper as planned;
- June 30, 2015, cash balance of $327-million;
- Further strengthened financial flexibility by previously announced $175-million Rainy River streaming transaction with Royal Gold.
"The second quarter further solidified our company's strong start to the year," stated Randall Oliphant, executive chairman. "Our gold production year to date has been consistent with our plans. After investing in the mill expansion and waste stripping at our open-pit operations in the first six months of 2015, we are now positioned to benefit from higher gold production, coupled with lower costs in the second half of the year. At the same time, we further increased our financial flexibility by $175-million with the recently announced Rainy River streaming transaction. We look forward to the acceleration of construction activity at Rainy River through the remainder of this year and into 2016."
Consolidated year-to-date operational results and 2015 guidance
Consistent with the company's February, 2015, guidance for the year, production of all metals was planned to be weighted to the second half of 2015. Based on the company's solid production through the first six months of the year, led by Mesquite and Cerro San Pedro, full-year gold production has the potential to be toward the high end of the original guidance range of 390,000 ounces to 430,000 ounces. At the same time, consolidated copper production may be at the low end of the guidance range of 100 million pounds to 112 million pounds, and consolidated silver production is expected to be within the original range of 1.75 million ounces to 1.95 million ounces.
New Gold's 2015 cost guidance was for all-in sustaining costs of $745 to $785 per ounce, including total cash costs of $340 to $380 per ounce. The company's cost guidance is based on assumptions of $2.75 per pound of copper and $16 per ounce of silver and foreign exchange rates for the Canadian dollar, Australian dollar and Mexican peso of $1.25, $1.25 and $15 to the U.S. dollar.
For the six-month period ended June 30, 2015, New Gold's all-in sustaining costs were $969 per ounce, including total cash costs of $449 per ounce. As the company's gross operating expenses are tracking in line with guidance, the primary driver behind all-in sustaining costs and total cash costs per ounce being above guidance in the first half of the year is the impact of the lower gold and copper production weighting noted above.
Looking forward, the company's all-in sustaining costs and total cash costs per ounce are expected to decrease as a result of the higher production in the second half of 2015. Year to date, the impact of the decrease in the copper price relative to the company's guidance assumption of $2.75 per pound has been largely offset by the benefit associated with the continued depreciation of the Canadian dollar and Australian dollar relative to the U.S. dollar. Beyond the continued potential for changes in the relative movements of the copper price and foreign exchange rates in the second half of 2015, New Gold's full-year all-in sustaining costs and total cash costs per ounce may be impacted by two primary factors. As noted, full-year copper production may be at the low end of the guidance range, and the relative gold production contribution from the company's higher-cost mines has the potential to increase relative to the initial guidance.
Based on the company's guidance assumption of $2.75 per pound, a five-million-pound change in full-year copper production has the potential to impact costs by approximately $30 to $35 per ounce. At the same time, as a higher percentage of production is expected to be delivered by New Gold's open-pit mines, all-in sustaining costs and total cash costs per ounce may be impacted by an additional $15 to $20 per ounce. As a result of these two factors, and despite the company's gross operating and sustaining capital expenditures being in line with guidance, New Gold's all-in sustaining costs and total cash costs per ounce may be approximately $50 per ounce above their guidance ranges.
2015 second quarter operational results
New Gold's second quarter gold production of 86,442 ounces was slightly below that of the prior-year quarter. The slight decline in quarterly gold production was primarily attributable to lower production from the Peak mines, the impact of which was only partially offset by increased production at both Mesquite and Cerro San Pedro. Consolidated copper production of 23.6 million pounds decreased relative to the prior-year quarter, and silver production of 400,000 ounces remained consistent.
Total cash costs of $410 per ounce increased relative to the prior-year quarter primarily due to a $12-million, or $136-per-ounce, decrease in copper and silver byproduct revenues stemming from lower realized copper and silver prices. Quarterly all-in sustaining costs of $922 per ounce decreased by $92 per ounce relative to the first quarter of 2015; however, they were above those of the prior-year quarter due to the impact of lower byproduct revenues. New Gold's second quarter cumulative sustaining capital, exploration, general and administrative, and amortization of reclamation expenditures remained in line with the prior-year quarter at $45-million, or $512 per ounce.
New Afton
Gold production at New Afton during the second quarter of 24,358 ounces was slightly below the prior-year quarter. Quarterly production was impacted as a planned increase in throughput was offset by the combination of lower gold grade and recovery decreases associated with the lower grade. The completion of the mill expansion project during the second quarter yielded positive results. With the benefit of finer grind size resulting from the commissioning of the vertical grinding mill, gold recovery in the second quarter was 83 per cent relative to 80 per cent in the first quarter of 2015.
New Afton's quarterly copper production of 19.9 million pounds was in line with the second quarter of 2014. An increase in throughput offset a decrease in copper grade, while copper recovery remained consistent. Similar to the benefits for gold recovery associated with the mill expansion, copper recovery in the second quarter averaged 86 per cent relative to 82 per cent in the first quarter of 2015.
The $322-per-ounce increase in New Afton's total cash costs to negative $940 per ounce was primarily attributable to a $7-million, or $286-per-ounce, decrease in copper byproduct revenue relative to the prior-year quarter driven by a decrease in the realized price. Total cash costs in the second quarter were further affected by the increase in ore tonnes mined and processed, the impact of which was largely offset by a 13-per-cent depreciation of the Canadian dollar relative to the U.S. dollar. New Afton's sustaining capital expenditures of $17-million increased by $3-million, or $111 per ounce, relative to the prior-year quarter, thus resulting in all-in sustaining costs of negative $235 per ounce in the second quarter of 2015.
NEW GOLD SUMMARY OPERATIONAL RESULTS
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2015 2014 2015 2014
Gold production (thousand ounces)
New Afton 24.4 26.3 48.3 53.7
Mesquite 22.5 18.4 48.2 44.2
Peak mines 14.9 27.9 34.3 48.8
Cerro San Pedro 24.7 16.8 50.6 34.1
Total gold production 86.4 89.5 181.4 180.8
Total gold sales (thousand ounces) 87.8 84.7 180.2 178.8
Average realized gold price per ounce $1,191 $1,304 $1,210 $1,306
Copper production (million pounds)
New Afton 19.9 21.0 39.5 43.0
Peak mines 3.7 4.5 7.1 8.4
Total copper production 23.6 25.5 46.6 51.4
Total copper sales (million pounds) 23.7 24.3 45.8 49.4
Average realized copper price per pound $2.72 $3.09 $2.66 $3.03
Silver production (thousand ounces)
New Afton 61.2 59.7 121.4 123.4
Peak mines 26.8 34.5 52.3 66.8
Cerro San Pedro 338.9 326.0 635.5 644.7
Total silver production 426.9 420.2 809.2 834.9
Total silver sales (thousand ounces) 444.1 414.2 776.8 830.8
Average realized silver price per ounce $16.23 $19.53 $16.41 $19.97
Total cash costs ($ per ounce)
New Afton ($940) ($1,262) ($889) ($1,273)
Mesquite 839 993 867 928
Peak mines 1,157 627 974 681
Cerro San Pedro 879 1,169 944 1,051
Total cash costs $410 $251 $449 $253
All-in sustaining costs ($ per ounce)
New Afton ($235) ($678) ($295) ($671)
Mesquite 1,533 1,413 1,632 1,191
Peak mines 1,549 928 1,337 1,000
Cerro San Pedro 889 1,322 955 1,193
All-in sustaining costs $922 $745 $969 $707
New Afton's second quarter co-product cash costs were $466 per ounce of gold and $1.06 per pound of copper relative to $442 per ounce and $1.02 per pound in the prior-year quarter. The mine's second quarter co-product all-in sustaining costs of $708 per ounce of gold and $1.61 per pound of copper increased when compared with $643 per ounce and $1.48 per pound in the second quarter of 2014 due to the $3-million increase in sustaining capital expenditures.
For the six-month period ended June 30, 2015, gold production at New Afton of 48,270 ounces was below the prior-year period production of 53,676 ounces as the combination of lower gold grade and first quarter recovery was only partially offset by higher throughput. New Afton's first half copper production of 39.5 million pounds was below prior-year period production of 43 million pounds for reasons consistent with those noted above for gold production.
New Afton's total cash costs for the six-month period ended June 30, 2015, of negative $889 per ounce were impacted by a $22-million, or $469-per-ounce, decrease in copper byproduct revenue relative to the prior-year period driven by a combination of the decrease in the realized price and lower copper sales volumes.
New Afton's sustaining capital expenditures in the first half of 2015 of $27-million remained in line with the prior-year period, thus resulting in all-in sustaining costs of negative $295 per ounce for the six-month period ended June 30, 2015.
New Afton's co-product cash costs were $480 per ounce of gold and $1.04 per pound of copper in the first half of 2015 relative to $427 per ounce and 97 cents per pound in the prior-year period and the mine's co-product all-in sustaining costs were $689 per ounce of gold and $1.49 per pound of copper compared with $636 per ounce and $1.45 per pound.
As New Afton moves into the second half of 2015, production of both gold and copper is expected to benefit from the completion of the mill expansion in the second quarter. Production should increase in each of the final two quarters of the year, and New Afton is expected to finish the year within its gold production guidance range of 105,000 ounces to 115,000 ounces. Full-year copper production is expected to be at the low end of the guidance range of 85 million pounds to 95 million pounds as year-to-date realized copper grades have been slightly below the company's expectations. Though New Afton's gross operating costs have been in line with the company's plans, the year-to-date average realized copper price of $2.66 per pound has been below the company's guidance assumption of $2.75 per pound, which, when combined with planned lower first half gold and copper production, has negatively impacted the mine's total cash costs and all-in sustaining costs per ounce relative to guidance. At New Afton, every 25-cent-per-pound change in the copper price results in an approximate $200-per-ounce change in the mine's total cash costs and all-in sustaining costs per ounce.
Total cash costs and all-in sustaining costs per ounce in the second half of 2015 should benefit from the combination of higher gold and copper production; however, costs will also continue to be impacted by external variables, including the copper price and Canadian-dollar exchange rate. Based on the potential for full-year copper production to be at the low end of the guidance range and the copper price currently being below the company's guidance assumption of $2.75 per pound, New Afton's costs have the potential to be approximately $200 per ounce above the mine's guidance of negative $1,070 to negative $1,030 per ounce for total cash costs and negative $560 to negative $520 per ounce for all-in sustaining costs.
Mesquite
Mesquite's second quarter gold production of 22,501 ounces increased by 22 per cent relative to the prior-year quarter. The increase in production was driven by the combination of a 78-per-cent increase in ore tonnes mined and placed on the leach pad and faster process recoveries resulting from the new leach pad being commissioned ahead of schedule during the second quarter. The benefit of the significant increase in ore tonnes was partially offset as a portion of the tonnes contained lower gold grades relative to the second quarter of 2014. Consistent with the company's expectations, Mesquite delivered a significant increase in ore tonnes mined and placed relative to the first quarter of 2015, which positions the mine well for a strong second half of 2015.
Mesquite's second quarter total cash costs of $839 per ounce were $154 per ounce below the prior-year quarter, with the decrease primarily attributable to higher quarterly production. Second quarter sustaining capital expenditures of $15-million were $10-million higher than the prior-year quarter. This resulted in Mesquite's all-in sustaining costs of $1,533 per ounce temporarily remaining above normal levels. The increase in sustaining capital expenditures was attributable to costs associated with Mesquite's leach pad expansion, as well as the capitalization of waste stripping costs in April, a period during which the waste-to-ore ratio was well above the life-of-mine average.
For the six-month period ended June 30, 2015, gold production of 48,188 ounces increased by 9 per cent relative to the same period of the prior year. The increase in production was attributable to an increase in ore tonnes mined and placed on the leach pad, which was partially offset by lower gold grade.
Mesquite's total cash costs of $867 per ounce for the six-month period ended June 30, 2015, were $61 per ounce below the same period of the prior year. At the same time, as a result of the company's planned focus on waste stripping, as well as the leach pad expansion, Mesquite's all-in sustaining costs in the first half of 2015 were $1,632 per ounce.
As a result of Mesquite's strong first half operating performance, the mine's full-year gold production has the potential to exceed the high end of its guidance range of 110,000 ounces to 120,000 ounces by 5,000 ounces to 10,000 ounces. The combination of the planned higher second half production and lower sustaining capital expenditures is expected to result in a significant decrease in all-in sustaining costs in the final two quarters of 2015. Mesquite's 2015 full-year total cash costs are expected to come in significantly below the guidance range of $925 to $965 per ounce, due to the combined benefit of higher production and approximately $20-million of waste stripping costs being capitalized. Mesquite's all-in sustaining costs are expected to be slightly below the guidance range of $1,290 to $1,330 per ounce.
Peak mines
Second quarter gold production at the Peak mines of 14,892 ounces was well below that of the prior-year quarter, due to the combined impact of lower tonnes processed, gold grade and recovery. As previously disclosed, the main stoping area of the Perseverance orebody experienced geotechnical challenges in March, 2015, which led to reduced accessibility and a decrease in tonnes mined and processed from this area during the second quarter. As a result, ore was primarily sourced from the Peak mines' more copper-rich orebodies, including Chesney and New Cobar. Activity in the Perseverance orebody during the quarter focused primarily on rehabilitation and remediation of the impacted area; however, by the end of the quarter, mining activity at Perseverance was operating at 60 per cent to 70 per cent of historical levels. With the benefit of the improved operating performance at Perseverance toward the end of the quarter, ore tonnes mined and processed increased toward planned levels, which helped drive gold production of 9,112 ounces in June.
Quarterly copper production of 3.7 million pounds was 800,000 pounds below the prior-year quarter, due to the combination of lower ore tonnes processed and lower recoveries, while copper grade remained consistent. Similar to the strong gold production month in June, copper production in the final month of the second quarter was 1.4 million pounds.
Total cash costs at the Peak mines of $1,157 per ounce increased relative to the prior-year quarter primarily due to a 50-per-cent decrease in gold sales volumes. The Peak mines' quarterly operating expenses, net of copper byproduct revenue, remained in line with the second quarter of 2014 as the benefit of the 20-per-cent depreciation of the Australian dollar relative to the U.S. dollar offset the combination of lower copper byproduct revenue and costs associated with the rehabilitation of Perseverance. All-in sustaining costs per ounce in the second quarter also increased, despite a $3-million decrease in sustaining capital expenditures relative to the prior-year quarter, as they were similarly impacted by the lower gold sales volumes.
For the six-month period ended June 30, 2015, gold production at the Peak mines of 34,320 ounces was well below production of 48,826 ounces in the same period of the prior year, due to a combination of lower throughput and gold grade primarily related to the geotechnical challenges at Perseverance.
Copper production in the first half of 2015 of 7.1 million pounds was below the 8.4 million pounds produced in prior-year period primarily due to lower throughput.
Total cash costs of $974 per ounce and all-in sustaining costs of $1,337 per ounce at the Peak mines in the six-month period ended June 30, 2015, increased relative to the prior-year period primarily due to the lower gold sales volumes as the impact of lower copper byproduct revenue was offset by the depreciation of the Australian dollar relative to the U.S. dollar.
As remediation of Perseverance continues to completion, gold production in the second half of 2015 is expected to increase significantly relative to the first two quarters of the year. With the benefit of a stronger finish to the year, full-year gold production at the Peak mines is expected to be close to the low end of the guidance range of 85,000 ounces to 95,000 ounces despite the geotechnical challenges experienced in March. Copper production in the final two quarters of 2015 should remain consistent with that of the first half, thus full-year copper production is expected to come in below the guidance range of 15 million pounds to 17 million pounds. Total cash costs and all-in sustaining costs per ounce in the second half of 2015 should benefit from the combination of higher gold production and lower rehabilitation requirements; however, as a result of the lower than planned copper production, full-year costs at the Peak mines are expected to be remain approximately $50 per ounce above the guidance of $660 to $700 per ounce for total cash costs and $1,005 to $1,045 per ounce for all-in sustaining costs.
Beyond the operational results, the Peak mines further solidified its record of continual exploration success during the second quarter. Results of exploration drilling at the historic Great Cobar mine, located approximately nine kilometres from the Peak mines mill, continued to extend and delineate a new high-grade copper-gold lode located approximately 200 metres to the south of the historic mine workings. Recent exploration highlights include drill hole GC17, which intercepted two lenses of strong mineralization at a vertical depth ranging from 550 to 625 metres from surface. The first lens included 14 metres (10 metres true thickness) averaging 1.08 grams per tonne gold, 6.11 per cent copper and 47 grams per tonne silver at a downhole depth of 622 metres to 636 metres. This intercept was followed by a second lens that included eight metres (5.8 metres true thickness) averaging 0.46 gram per tonne gold, 0.84 per cent copper, 22 grams per tonne silver, 0.46 per cent lead and 2.64 per cent zinc at a downhole depth of 693 metres to 701 metres. Beginning at a depth of less than 100 metres from surface, the southern lode has been delineated over dimensions measuring approximately 800 metres vertically, 250 metres along strike and 10 metres true thickness. Additional exploration drilling to test the limits of the southern lode at Great Cobar is planned for the second half of 2015.
Cerro San Pedro
Cerro San Pedro continued its strong start to the year with second quarter gold production of 24,691 ounces increasing relative to the prior-year quarter. The 47-per-cent increase in gold production relative to the second quarter of 2014 was driven by a significant increase in ore tonnes mined and placed on the leach pad coupled with higher gold grade. Consistent with the company's plans, the focus on waste stripping in 2014 has enabled Cerro San Pedro to deliver strong gold production in 2015.
Quarterly silver production at Cerro San Pedro of 300,000 ounces was consistent with the prior-year quarter.
Both Cerro San Pedro's second quarter total cash costs of $879 per ounce and all-in sustaining costs of $889 per ounce were well below those of the prior-year quarter. When compared with the second quarter of 2014, costs benefited from a combination of the higher gold production base, depreciation of the Mexican peso relative to the U.S. dollar and lower sustaining capital expenditures. These benefits were only partially offset by a decrease in silver byproduct revenue resulting from the lower realized silver price.
For the six-month period ended June 30, 2015, Cerro San Pedro's gold production of 50,641 ounces increased by 48 per cent when compared with the same period of the prior year. The increase in production was attributable to a combination of an increase in ore tonnes mined and placed on the leach pad and higher gold grade. Silver production in the first half of 2015 of 600,000 ounces remained consistent with the prior-year period.
Cerro San Pedro's total cash costs of $944 per ounce and all-in sustaining costs of $955 per ounce in the six-month period ended June 30, 2015, were below those of the prior-year period for reasons consistent with those related to the decrease in second quarter costs.
On July 16, 2015, Cerro San Pedro achieved a very significant milestone by surpassing three million man-hours worked without a lost-time incident. Cerro San Pedro's operating performance through the first six months of 2015 has positioned the mine well relative to its full-year production and cost guidance.
Cerro San Pedro's full-year gold production could reach the high end of its guidance range of 90,000 to 100,000 ounces. At the same time, Cerro San Pedro's costs in the six-month period ended June 30, 2015, are tracking well when compared with the guidance for total cash costs of $955 to $995 per ounce and all-in sustaining costs of $1,005 to $1,045 per ounce. The mine is expected to have a strong second half and has the potential to deliver full-year costs below the guidance range. It should be noted, however, that Cerro San Pedro's full-year costs will also continue to be impacted by external variables, including the silver price and Mexican peso exchange rate.
"The second quarter demonstrated the value of having a portfolio of operating mines," stated David Schummer, executive vice-president and chief operating officer. "As we worked through some of the challenges at the Peak mines, both Mesquite and Cerro San Pedro stepped up with strong production quarters while New Afton extended its solid operational track record. We look forward to building on our operating performance with a strong second half of 2015."
2015 second quarter financial results
NEW GOLD SUMMARY FINANCIAL RESULTS
(in millions of U.S. dollars, except where noted)
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2015 2014 2015 2014
Revenues $167.7 $178.1 $336.6 $368.6
Operating margin 69.5 82.8 138.8 174.8
Adjusted net (loss) earnings (1.3) 8.2 (6.4) 26.4
Adjusted net (loss) earnings per share (0.00) 0.02 (0.01) 0.05
Net earnings (loss) 9.4 16.2 (34.4) 14.4
Net earnings (loss) per share 0.02 0.03 (0.07) 0.03
Net cash generated from operations
before changes in working capital 62.7 71.9 130.1 162.0
Net cash generated from operations 56.9 59.3 126.7 140.7
Second quarter revenues decreased relative to the prior-year quarter as the impact of lower realized metal prices was only partially offset by New Gold's operations delivering higher gold and silver sales volumes when compared with the second quarter of 2014. When compared with the prior-year quarter, the average realized price decreased by $113 per ounce of gold, 37 cents per pound of copper and $3.30 per ounce of silver. For the six-month period ended June 30, 2015, revenues were impacted by the combination of lower realized metal prices and copper sales volumes, which was only partially offset by higher gold sales volumes relative to the same period of the prior year.
The decrease in New Gold's operating margin in the second quarter was driven by lower revenues. The company's operating expenses were in line with the prior-year quarter as costs associated with increased mining activity at each of New Afton, Mesquite and the Peak mines were largely offset by the combined benefit of the depreciation of the Canadian dollar and Australian dollar relative to the U.S. dollar. The company's operating margin in the first half of 2015 was similarly impacted by lower revenues and increased mining activity, which was partially offset by the depreciation of the Canadian dollar and Australian dollar relative to the U.S. dollar.
New Gold had an adjusted net loss of $1-million, or nil per share, in the second quarter of 2015. The adjusted net loss was attributable to the decrease in operating margin, coupled with increased finance costs, which was partially offset by lower depreciation and depletion and corporate administration and exploration and business development expenditures. The increase in finance costs was due to the company no longer capitalizing a portion of its interest expense for activities at Blackwater. The company reported net earnings of $9-million, or two cents per share. The reported net earnings included the impact of a $4-million pretax foreign exchange gain and a $7-million pretax gain on the mark to market of the company's share purchase warrants.
The company's second quarter net cash generated from operations before changes in working capital was $63-million. The impact to cash flow generation of lower metal prices was partially offset by a total $6-million decrease in corporate administration and exploration and business development expenses relative to the prior-year quarter. Cash generated from operations of $57-million remained in line with the second quarter of 2014 despite the decrease in metal prices. For the six-month period ended June 30, 2015, New Gold's net cash generated from operations before changes in working capital was $130-million and cash generated from operations was $127-million. The impact of lower metal prices in the first half of 2015 was partially offset by an $8-million reduction in corporate administration and exploration and business development expenses as well as lower cash taxes when compared with the same period of the prior year.
Financial update
New Gold's cash and cash equivalents were $327-million as at June 30, 2015. In addition, on July 20, 2015, the company announced that it entered into a $175-million streaming transaction with RGLD Gold AG, a wholly owned subsidiary of Royal Gold Inc., which provides New Gold with further financial flexibility. Royal Gold paid the first $100-million of the deposit concurrent with the entering into the transaction. The remaining $75-million will be paid when 60 per cent of the estimated Rainy River project development capital has been spent, which is expected to be by mid-2016, and other customary conditions precedent have been met. The company also has a $300-million revolving credit facility, of which $64-million has been used to issue letters of credit with the balance remaining undrawn. New Gold's June 30, 2015, cash balance of $327-million, together with Royal Gold's full $175-million deposit and the amount available for drawdown under New Gold's revolving credit facility provide the company with approximately $738-million of liquidity.
At the end of the second quarter of 2015, the face value of the company's long-term debt was $893-million (book value: $879-million). The components of the debt include: $300-million of 7-per-cent face-value senior unsecured notes due in April, 2020; $500-million of 6.25-per-cent face-value senior unsecured notes due in November, 2022; and $93-million in El Morro financing loans, repayable out of a portion of New Gold's 30-per-cent share of El Morro cash flow upon the start of commercial production. The company currently has approximately 509 million shares outstanding.
"Our quarter-end cash balance, coupled with the Rainy River stream deposit, leaves us well positioned from a liquidity perspective," stated Brian Penny, executive vice-president and chief financial officer. "Importantly, as the majority of the Rainy River capital is denominated in Canadian dollars, the continued depreciation of the dollar has the potential to provide significant economic benefit to us as expenditures at Rainy River increase in the coming quarters."
Project updates
Rainy river
Development activity at New Gold's Rainy River project, located in Northwestern Ontario, has continued to advance on schedule, with first production remaining on target for mid-2017. Over its first nine years of full production, the 21,000-tonne-per-day, combined open-pit/underground operation is expected to produce an average of 325,000 ounces of gold per year at all-in sustaining costs of approximately $670 per ounce, including total cash costs of $570 per ounce.
Rainy River -- second quarter 2015 project updates
- Permits to enable commencement of major earthworks construction received in May;
- Detailed engineering -- on schedule and approximately 95 per cent complete;
- Construction-related activities progressing on schedule;
- Temporary accommodation facility -- 80 per cent complete;
- First major earthworks for the process plant site commenced in May; scheduled for completion in the fourth quarter of 2015;
- First concrete pour for primary crusher foundation successfully completed on July 20, 2015;
- Delivery of initial truck fleet and shovels on schedule for the third quarter of 2015;
- Delivery of mills on schedule for the fourth quarter of 2015;
- Five prospective areas within a five-kilometre radius of mine development area identified for potential drill testing in the second half of 2015.
Project capital expenditures at Rainy River during the second quarter totalled $33-million, bringing the total project development capital spending through June 30, 2015, to $120-million. Through mid-2015, New Gold has spent 14 per cent of the total development capital estimate of $877-million. Beyond the $119-million that has been spent, the company has committed an additional $258-million of the project development capital. Through mid-2016, with approximately 43 per cent of the total capital either spent or committed, the project's capital estimate remains on budget.
Subsequent to the end of the quarter, New Gold entered into a streaming transaction with Royal Gold. Under the terms of the agreement, Royal Gold will provide New Gold with a deposit of $175-million in exchange for the delivery by New Gold of a percentage of the future gold and silver production from the Rainy River project. Royal Gold paid $100-million of the deposit concurrent with entering into the transaction and the remaining $75-million will be paid when 60 per cent of the estimated project development capital has been spent and other customary conditions precedent are met. Based on the currently planned timing of development capital expenditures at Rainy River, it is estimated that 60 per cent of the project development costs will have been spent by mid-2106.
Upon the start of production at Rainy River, New Gold will deliver 6.5 per cent of the project's monthly gold production and 60 per cent of the monthly silver production to Royal Gold until a total of 230,000 ounces of gold and 3.1 million ounces of silver have been delivered. Once each of the ounce thresholds has been satisfied, the stream percentage for that metal will decrease by 50 per cent such that New Gold will be required to deliver 3.25 per cent of the project's gold production and 30 per cent of the silver production. In addition to the $175-million deposit, Royal Gold will be required to pay New Gold in cash 25 per cent of the average spot gold price and silver price at the time the stream ounces are delivered.
The streaming transaction enabled New Gold to secure over 20 per cent of the remaining development capital costs for less than 6 per cent of the project's estimated future revenues at today's metal prices. The transaction increases the project's rate of return for New Gold equityholders by approximately 3 per cent and, importantly, was structured to maximize the company's exposure to both the continued exploration potential of the Rainy River district and long-term gold and silver prices.
Over all, the Rainy River project enhances New Gold's growth pipeline through its manageable capital costs, significant production scale at below current industry average costs and exciting regional exploration potential in a great mining jurisdiction. The company looks forward to advancing the Rainy River project and providing further updates on its development through the remainder of 2015 and beyond.
"Construction activity at Rainy River is advancing quickly and on schedule," stated Robert Gallagher, president and chief executive officer. "During the second quarter, we had our official groundbreaking, last week we had our first concrete pour for the processing facility, and, over the next two months, the initial equipment fleet will arrive, which will position us to start the prestripping of the open pit later this year and construction of the tailings facility in early 2016."
Blackwater
The company's Blackwater project, located in south-central British Columbia, is expected to produce an average of 485,000 ounces of gold per year at below industry average costs. The current focus at Blackwater is working toward the approval of the environmental assessment. Work continued with the Canadian Environmental Assessment Agency and the British Columbia Environmental Assessment Office to advance the federal and provincial environmental assessment. The final environmental assessment is scheduled to be issued to first nations and regulators during the third quarter of 2015. Capital expenditures during the second quarter were $1-million and were related to the continued advancement of the environmental assessment process and associated environmental and engineering studies. For the six-month period ended June 30, 2015, capital expenditures at Blackwater were $3-million.
Exploration field activities at Blackwater resumed in May to follow up on the favourable results of the 2014 field program. During last year's program, the company's exploration team confirmed the presence a broad area of prospective porphyry and epithermal-style geology extending three kilometres to five kilometres south and west of the main Blackwater deposit. Detailed surface reconnaissance and geophysical surveys completed in June have identified three target areas scheduled for drill testing during the third quarter of 2015.
In the current commodity price environment, New Gold plans to sequence the development of its projects, with the near-term focus being on the advancement of the lower-capital-cost Rainy River project. Thereafter, the timing of Blackwater's development will be driven by prevailing market conditions over the coming years.
El Morro
New Gold's share of the El Morro project provides the company with a 30-per-cent fully carried interest in a world-class gold-copper project in north-central Chile. Under the terms of New Gold's agreement with Goldcorp Inc., Goldcorp is responsible for financing New Gold's full 30-per-cent share of capital costs. The carried financing accrues interest at a fixed rate of 4.58 per cent. New Gold will repay its share of capital plus accumulated interest out of 80 per cent of its share of the project's cash flow with New Gold retaining 20 per cent of its share of cash flow from the time production commences.
On Nov. 7, 2014, Goldcorp announced that it had withdrawn the environmental impact study for the El Morro project. The decision was made after an Oct. 7, 2014, ruling by the Chilean Supreme Court that invalidated the environmental impact study. Since that time, the El Morro project team has continued to progress its studies to determine the optimal development plan for the El Morro project.
El Morro remains one of the highest-grade undeveloped deposits in the world with a substantial base of gold and copper mineral reserves. In addition, the broader El Morro land package totals 417 square kilometres with significant untested exploration potential.
Webcast and conference call
A webcast and conference call to discuss these results and the streaming transaction will be held on Wednesday, July 29, 2015, at 9 a.m. Eastern Time. Participants may listen to the webcast by registering on the company's website. You may also listen to the conference call by calling toll-free 1-888-231-8191 or 1-647-427-7450 outside of the United States and Canada. A recorded playback of the conference call will be available until Aug. 31, 2015, by calling toll-free 1-855-859-2056 or 1-416-849-0833 outside of the United States and Canada, passcode 76281198. An archived webcast will also be available until Oct. 28, 2015, at the company's website.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in millions of U.S. dollars, except per-share amounts)
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2015 2014 2015 2014
Revenues $ 167.7 $ 178.1 $ 336.6 $ 368.6
Operating expenses 98.2 95.3 197.8 193.8
Depreciation and depletion 50.9 52.7 106.0 104.3
Earnings from mine operations 18.6 30.1 32.8 70.5
Corporate administration 5.5 7.9 11.5 14.2
Share-based payment expenses 1.9 2.3 4.0 4.5
Exploration and business development 1.2 4.3 2.3 7.4
(Loss) earning from operations 10.0 15.6 15.0 44.4
Finance income 0.4 0.2 0.6 0.5
Finance costs (10.6) (7.3) (21.4) (14.7)
Other (losses) 10.5 8.5 (20.9) (7.7)
(Loss) earning before taxes 10.3 17.0 (26.7) 22.5
Income tax recovery (expense) (0.9) (0.8) (7.7) (8.1)
Net (loss) 9.4 16.2 (34.4) 14.4
(Loss) earnings per share
Basic 0.02 0.03 (0.07) 0.03
Diluted 0.02 0.03 (0.07) 0.03
We seek Safe Harbor.
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