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New Gold Inc
Symbol NGD
Shares Issued 578,748,338
Close 2018-07-25 C$ 2.38
Market Cap C$ 1,377,421,044
Recent Sedar Documents

New Gold loses $302-million (U.S.) in Q2 2018

2018-07-25 20:47 ET - News Release

An anonymous director reports

NEW GOLD ANNOUNCES 2018 SECOND QUARTER RESULTS AND UPDATES 2018 OUTLOOK

New Gold Inc. has released its 2018 second-quarter results and updated 2018 outlook. Unless otherwise noted, all operating and financial results have been presented on a continuing basis and exclude Peak Mines, which has been classified as a discontinued operation and was sold in April 2018. (All dollar figures are in US dollars unless otherwise indicated)

2018 Second Quarter Highlights

  • Gold production of 108,550 ounces and copper production of 20.4 million pounds
  • Operating expense of $680 per gold ounce and $1.67 per copper pound
  • All-in sustaining costs(1) of $877 per ounce, including total cash costs(2) of $453 per ounce
  • Operating cash flows generated from continuing operations of $66 million, or $0.11 per share
  • Loss from continuing operations of $302 million, or $0.52 per share, including an impairment loss, net of tax of $282 million, or $0.49 per share
  • June 30, 2018 total liquidity of $270 million, including cash and cash equivalents of $167 million
  • Updated 2018 outlook: 415,000 to 480,000 ounces of gold production (previously 525,000 to 595,000 ounces of gold) at all-in sustaining costs of $1,080 to $1,120 per ounce (previously $860 to $900 per ounce)
  • Rainy River updated life-of-mine plan completed, NI 43-101 Technical Report will be released in early August

2018 Outlook Update

As our Rainy River Mine is well into its start-up year, New Gold today provides an updated 2018 production and cost outlook. Gold production at New Afton, the Company's largest cash flow contributor, Mesquite and Cerro San Pedro remain in line with New Gold's original guidance. However, largely due to the variability in the process facility's start-up performance and lower gold grade and recoveries, the Company is lowering its 2018 annual production guidance for Rainy River from earlier estimates.

Annual consolidated gold production for 2018 is expected to be between 415,000 and 480,000 ounces, with Rainy River contributing between 210,000 and 250,000 ounces. Annual consolidated copper production remains in line with the original guidance range of 75 to 85 million pounds.

New Gold expects its consolidated 2018 all-in sustaining costs to be between $1,080 to $1,120 per ounce, total cash costs to be between $445 to $485 per ounce, and operating expense to be between $655 to $695 per gold ounce. These estimates have increased due to Rainy River's revised 2018 production outlook and a $15 million increase in Rainy River's sustaining capital expenditures associated with completing the full tailings dam footprint. Growth capital at Rainy River is also expected to increase by $15 million due to higher underground development costs. For the balance of the year, the cost targets include assumptions for gold, silver and copper prices of $1,300 per ounce, $16.00 per ounce and $3.00 per pound, respectively, and a Canadian dollar exchange rate of $1.30 to the U.S. dollar.

   Gold Production (Koz)        Q2'2018YTD'2018Original GuidanceRevised Guidance
Rainy River                        55      95        310 - 350       210 - 250
New Afton                          19      39          55 - 65       No change
Mesquite                           32      65        140 - 150       No change
Cerro San Pedro                     3       7          20 - 30         10 - 15
Consolidated                      109     205        525 - 595       415 - 480
                                                                              
                                                                              
All-in Sustaining Costs ($/oz)Q2'2018YTD'2018Original GuidanceRevised Guidance
Rainy River                    $1,295  $1,794      $990-$1,090 $1,600 - $1,700
New Afton                      ($917)($1,118)  ($1,020)-($980)       No change
Mesquite                         $875    $864     $1,005-1,045       No change
Cerro San Pedro                $2,522  $2,020    $1,330-$1,370 $2,000 - $2,140
Consolidated                     $877  $1,037        $860-$900 $1,080 - $1,120
                                                                              
                                                                              
Gold Operating Expense ($/oz) Q2'2018YTD'2018Original GuidanceRevised Guidance
Rainy River                      $802    $993      $430 - $470     $730 - $770
New Afton                        $412    $410      $455 - $495       No change
Mesquite                         $848    $832      $890 - $930       No change
Cerro San Pedro                $2,425  $1,905  $1,255 - $1,295 $1,960 - $2,000
Consolidated                     $680    $725      $555 - $595     $655 - $695

2018 Second Quarter and Year-To-Date Operational Results from Continuing Operations

New Gold's second quarter gold production of 108,550 ounces was higher than 2017 primarily due to additional ounces from Rainy River that more than offset the planned lower production at New Afton, Mesquite and Cerro San Pedro. Quarterly copper production decreased by 11% to 20.4 million pounds when compared to the second quarter of 2017.

Second quarter operating expense per gold ounce of $680 increased relative to the prior-year quarter mainly due to higher operating expenses at Rainy River in its second full quarter of operation due to start-up challenges impacting both production and costs. The Company had second quarter all-in sustaining costs of $877 per ounce, including total cash costs of $453 per ounce. The increase in all-in sustaining costs relative to the prior-year quarter was attributable to the combined impact of a $164 per ounce increase in total cash costs and a $48 per ounce, or $17 million, increase in the Company's consolidated sustaining costs, which include New Gold's cumulative sustaining capital, exploration, general and administrative, and amortization of reclamation expenditures. The increase in consolidated total cash costs was primarily driven by lower than run-rate quarterly production at Rainy River, resulting in higher per ounce costs. The increase in consolidated sustaining costs was primarily related to increased Rainy River sustaining capital expenditures as the operation continues its first full year of operations.

For the six-month period ended June 30, 2018, New Gold's gold production of 205,432 ounces was significantly higher than 2017 as additional ounces from Rainy River more than offset the planned lower production at New Afton, Mesquite and Cerro San Pedro. Year-to-date copper production remained in line with the prior-year period.

Year-to-date operating expense per gold ounce of $725 increased relative to the prior year mainly due to higher operating expenses at Rainy River in its first full year of operation. For the six-month period ended June 30, 2018, the Company delivered all-in sustaining costs of $1,037 per ounce, including total cash costs of $502 per ounce. The increase in consolidated total cash costs was primarily driven by lower than run-rate production at Rainy River, resulting in higher per ounce costs. The increase in consolidated sustaining costs was primarily related to Rainy River sustaining capital expenditures as the operation continues its first full year of operations.

  
                                       Three months ended June 30Six months ended June 30
                                                 2018        2017        2018        2017
Operating information                                                                    
Gold (ounces):                                                                           
Produced                                      108,550      79,025     205,432     140,005
Sold                                          105,924      73,707     204,612     133,620
Copper (millions of pounds):                                                             
Produced                                         20.4        22.8        42.6        43.3
Sold                                             19.6        20.8        40.9        40.7
Silver (millions of ounces):                                                             
Produced                                          0.2         0.3         0.4         0.5
Sold                                              0.2         0.2         0.4         0.4
Revenue:                                                                                 
Gold ($/ounce)                                  1,279       1,246       1,292       1,242
Copper ($/pound)                                 2.91        2.32        2.89        2.33
Silver ($/ounce)                                15.89       16.72       16.00       16.90
Average realized price(5):                                                               
Gold ($/ounce)                                  1,297       1,278       1,312       1,277
Copper ($/pound)                                 3.18        2.56        3.16        2.56
Silver ($/ounce)                                16.49       17.22       16.56       17.37
Operating expense:                                                                       
Gold ($/ounce)                                    680         603         725         604
Copper ($/pound)                                 1.67        1.21        1.75        1.21
Silver ($/ounce)                                 8.64        8.10        9.15        8.22
Total cash costs ($/ounce)                        453         289         502         265
All-in sustaining costs ($/ounce)                 877         665       1,037         617

Continuing Operations

Second quarter revenues from continuing operations increased by $52 million, or 36%, relative to the prior-year quarter, due to higher gold sales volumes and higher metal prices. Relative to the second quarter of 2017, gold sales increased by 44%, attributable to the start-up of Rainy River, and the average realized gold price increased by $19 per ounce, or 1%. The average realized copper price increased by $0.62 per pound, or 24%, compared to the prior-year quarter which was only partially offset by a 6% decrease in copper sales at New Afton.

New Gold's second quarter operating margin increased by $17 million relative to the prior-year quarter driven by the higher gold sales volumes and higher metal prices, which were partially offset by higher operating expenses.

The Company has completed an updated Rainy River life-of-mine plan (discussed below) and will release an updated NI 43-101 Technical Report for Rainy River in early August. The updated life-of-mine plan contains updated per unit costs, changes to the sequencing in gold production and a less than 3% reduction in gold production over the life-of-mine. The updated life-of-mine plan incorporates changes to open pit design and extraction sequencing, resulting in higher ore tonnes mined and processed at a lower average gold grade. As a result of the Company completing its updated Rainy River life-of-mine plan and lowering Rainy River's 2018 outlook, the Company has reported an impairment loss, net of tax, of $282 million.

The Company reported a loss from continuing operations of $302 million, or $0.52 per share, in the second quarter of 2018 relative to earnings from continuing operations of $18 million, or $0.03 per share, in the prior-year quarter. The second quarter loss from continuing operations included the net impact of the after-tax impairment charge of $282 million relating to Rainy River, finance costs of $18 million, an $8 million pre-tax foreign exchange loss, a $6 million gain on the revaluation of the gold stream obligation, and a $2 million expense relating to severance and other termination benefits. The prior-year period included an $18 million pre-tax foreign exchange gain, a $2 million loss on the revaluation of the Company's gold option contracts, and a pre-tax loss of $2 million on the revaluation of the gold stream obligation.

New Gold had an adjusted net loss from continuing operations of $2 million, or $nil per basic share, in the second quarter of 2018 relative to adjusted earnings of $9 million or $0.02 per basic share in the prior-year quarter. Quarterly adjusted loss from continuing operations included the net impact of a $24 million increase in depreciation and depletion expenses, a $17 million increase in finance costs as the Company ceased capitalization of interest to its qualifying development property due to the commencement of commercial production at Rainy River, partially offset by a $17 million increase in operating margin, a decrease of $4 million in exploration, business development, and corporate general and administrative expenses and an increase in income tax recovery of $9 million.

The Company's second quarter operating cash flows generated from continuing operations before changes in non-cash operating working capital of $88 million was $32 million, or 56%, higher than the prior-year quarter due to the increase in operating margin and an income tax refund received at Mesquite. Operating cash flows generated from continuing operations for the second quarter were higher than the prior-year quarter, due to the increase in operating margin and income tax refund, partially offset by the increase in stockpile inventory at Rainy River.

For the six months ended June 30, 2018, revenues from continuing operations increased by $120 million, or 45%, relative to the prior-year period, due to higher gold sales volumes and higher metal prices. Relative to the six months ended June 30, 2017, gold sales increased by 53%, attributable to the start-up of Rainy River, and the average realized gold price increased by $35 per ounce, or 3%. The average realized copper price increased by $0.60 per pound, or 23%.

New Gold's second quarter operating margin increased by $31 million relative to the prior-year period driven by higher gold sales volumes and higher metal prices, which were partially offset by higher operating expenses.

The Company reported a loss from continuing operations of $331 million, or $0.57 per share, in the six months ended June 30, 2018, relative to earnings from continuing operations of $49 million, or $0.09 per share, in the prior-year period. The loss from continuing operations in the period included the net impact of the after-tax impairment charge of $282 million relating to Rainy River, finance costs of $35 million, a $28 million pre-tax foreign exchange loss, a $10 million gain on the revaluation of the gold stream obligation, a $6 million gain on the revaluation of copper price option contracts, and a $2 million expense relating to severance and other termination benefits. The prior-year period included a $22 million pre-tax foreign exchange gain, a $13 million loss on the revaluation of the Company's gold option contracts, and a pre-tax loss of $5 million on the revaluation of the gold stream obligation.

New Gold had an adjusted loss from continuing operations of $18 million, or $0.03 per basic share, in the six months ended June 30, 2018 relative to adjusted net earnings of $10 million, or $0.02 per basic share in the prior-year period. Adjusted net loss from continuing operations included the net impact of a $46 million increase in depreciation and depletion expenses, a $32 million increase in finance costs as the Company ceased capitalization of interest to its qualifying development property due to the commencement of commercial production at Rainy River, partially offset by a $31 million increase in operating margin, a $7 million decrease in exploration, business development, and corporate general and administrative expenses and a $12 million increase in income tax recovery.

For the six months ended June 30, 2018, the Company's operating cash flows generated from continuing operations before changes in non-cash operating working capital of $156 million was $50 million, or 47%, higher than the prior-year period due to the increase in operating margin and an income tax refund received at Mesquite. Operating cash flows generated from continuing operations for the six months ended June 30, 2018 were consistent with the prior-year period, due to the increase in operating margin and income tax refund, partially offset by the prior-year period including an outstanding concentrate receivable of $21 million at New Afton and the current period including an increase in working capital associated with the increase in stockpile inventory at Rainy River.

Financial Update

New Gold's cash and cash equivalents as at June 30, 2018 were $167 million. At June 30, 2018, the Company had drawn $180 million from its $400 million revolving credit facility and $117 million had been used to issue letters of credit for closure obligations at the Company's producing mines and development projects, leaving $103 million undrawn. As a result, at June 30, 2018, the Company's liquidity totals $270 million (cash and undrawn credit facility). In the second quarter of 2018 the Company amended the credit facility's net debt to Adjusted EBITDA covenant ("Leverage Ratio"), to increase the maximum Leverage Ratio to 4.0 to 1.0 until June 30, 2018. After that date, the maximum ratio will be 3.5 to 1.0.

At June 30, 2018, the face value of the Company's long-term debt was $980 million (book value {A –} $959 million). The components of the long-term debt include: $500 million of 6.25% face value senior unsecured notes due in November of 2022; $300 million of 6.375% face value senior unsecured notes due in May of 2025; and $180 million drawn from the revolving credit facility. The Company currently has approximately 579 million shares outstanding.

Rainy River Updated Life-Of-Mine Plan

The Company has completed an updated Rainy River life-of-mine plan and will release an updated NI 43-101 Technical Report for Rainy River in early August. The updated life-of-mine plan was informed by the experience gained over the initial start-up period. Also, as previously disclosed, costs are expected to be higher over the next three years (including 2018) as a result of sustaining capital expenditures associated with completing the full tailings dam footprint in 2018 as well as the construction of the first tailings lift later in 2018 and into 2019.

Rainy River updated life-of-mine highlights include:

Mine life of 14 years (unchanged)

Processing of open pit and underground ore, at a rate of 21,000 tonnes per day, increasing to 24,000 tonnes per day in the fourth quarter of 2018, and 25,500 tonnes per day in 2021

First nine years: average annual gold production of 340,000 ounces (previously 275,000 to 375,000 ounces) at all-in sustaining costs of $1,016 per ounce (previously approximately $875 per ounce), cost targets include assumptions for gold and silver of $1,300 per ounce and $16.00 per ounce, respectively, and a Canadian dollar exchange rate of $1.30 to the U.S. dollar

Life-of-mine average gold grade of 1.09 grams per tonne, including stockpile (previously 1.13 grams per tonne)

Updated Rainy River NI 43-101 Technical Report will be released in early August

Projects Update

Blackwater

Activities at the Company's Blackwater project, located in south-central British Columbia, continued to focus on attaining the approval of the Environmental Assessment ("EA"). The coordinated Federal and Provincial EA technical review is in progress. Technical review comments have now been received from the Federal government, Provincial agencies and local Indigenous communities, and New Gold has responded to the review comments. The Company is working through the remaining requests for information received in the quarter and anticipates approval of the Blackwater EA in 2019.

Capital expenditures at Blackwater during the second quarter and year-to-date were $2 million and $4 million, respectively.

Conference Call and Webcast Details

  • Date: Thursday, July 26, 2018
  • Time: 9:00 a.m. Eastern Time
  • Dial in: North America: 1-888-231-8191, International: 1-647-427-7450
  • Replay: North America: 1-855-859-2056, International: 1-416-849-0833
  • Passcode:9269608

The conference call replay will be available until August 23, 2018. An archived webcast will also be available until October 26, 2018 at www.newgold.com.

                                     Consolidated Income Statements (unaudited)  
  
                                                        Three months ended June 30Six months ended June 30
(in millions of U.S. dollars,  except per share amounts)          2018        2017         2018       2017

Revenues                                                         195.3       143.8        388.5      268.3
Operating expenses                                               105.9        71.3        223.2      133.7
Depreciation and depletion                                        77.1        53.1        145.3       99.0
Revenue less cost of goods sold                                   12.3        19.4         20.0       35.6
Corporate administration                                           5.5         5.9         10.9       13.4
Corporate restructuring                                            2.3           -          2.3          -
Share-based payment expenses                                       0.1         2.6          1.5        3.8
Asset impairment                                                 383.7           -        383.7          -
Exploration and business development                               0.4         1.5          1.0        3.2
(Loss) earnings from operations                                (379.7)         9.4      (379.4)       15.2
Finance income                                                     0.6         0.3          1.1        0.6
Finance costs                                                   (18.0)       (1.1)       (34.7)      (2.3)
Other (losses) gains                                             (2.3)        14.7       (10.5)       40.4
(Loss) earnings before taxes                                   (399.4)        23.3      (423.5)       53.9
Income tax recovery (expense)                                     97.8       (5.5)         92.8      (5.1)
(Loss) earnings from continuing operations                     (301.6)        17.8      (330.7)       48.8
(Loss) earnings from discontinued operations, net of tax         (0.4)         5.3        (0.8)       11.9
Net (loss) earnings                                            (302.0)        23.1      (331.5)       60.7
(Loss) earnings from continuing operations per share                                                      
Basic                                                           (0.52)        0.03       (0.57)       0.09
Diluted                                                         (0.52)        0.03       (0.57)       0.09
(Loss) earnings per share                                                                                 
Basic                                                           (0.52)        0.04       (0.57)       0.11
Diluted                                                         (0.52)        0.04       (0.57)       0.11

We seek Safe Harbor.

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