New Gold (NGD) Q4 2024 Earnings Call Transcript

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New Gold (NYSEMKT: NGD)
Q4 2024 Earnings Call
Feb 20, 2025, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Vincent, and I'll be your conference operator today. Welcome to the New Gold's fourth quarter and full year 2024 earnings call and webcast. [Operator instructions] Please be advised that today's conference call and webcast is being recorded.

[Operator instructions] I would now like to hand the conference over to Ankit Shah, executive vice president of strategy and business development. Thank you. Please go ahead.

Ankit Shah -- Executive Vice President, Strategy and Business Development

Thank you, Vincent, and good morning, everyone. We appreciate you joining us today for New Gold's fourth quarter and full year 2024 earnings conference call and webcast. On the line today, we have Patrick Godin, president and CEO; and Keith Murphy, our CFO. In addition, we have Luke Buchanan, vice president, technical services; and Jean-Francois Ravenelle, vice president, geology, available to assist during the question-and-answer portion of the call.

Would 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 Slide 2 of the presentation. Today's commentary includes forward-looking statements relating to New Gold. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in the presentation.

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You're cautioned that actual results and 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 Risk Factors in New Gold's latest annual information form, MD&A and other filings available on SEDAR , 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 end notes that provide important information and should be reviewed in conjunction with the materials.

Slide 4 highlights some of the key accomplishments of 2024. We accomplished a lot of our objectives we laid out at the start of the year. By prioritizing health and safety through our Courage to Care culture, we delivered a low TRIFR and continued to improve year over year. The company produced just under 300,000 ounces of gold and 54 million pounds of copper at an all-in sustaining cost of $1,239 per ounce, beating the low end of our all-in sustaining cost guidance range.

The strong cost discipline led to increasing margins and delivering cash flow from operations of over $390 million and free cash flow of $85 million. Throughout the year, we successfully delivered on key project milestones. At New Afton, we achieved commercial production at C-Zone and commissioned the crusher and conveyor systems. At Rainy River, we mined the first development ore from the underground Main Zone.

These milestones were accomplished on budget and ahead of schedule. Last week, we released updated technical reports for both assets. These reports incorporated mine life extensions at both sites and increased our underlying net asset value. Our exploration efforts throughout the year successfully replaced mining depletion of reserves on a gold equivalent basis.

We plan to maintain this momentum in 2025 to unlock additional long-term value. Finally, in May, we increased our exposure at New Afton to over 80% following the transaction with Ontario Teachers, reducing their free cash flow interest from 46% to 19.9%. 2024 successfully positioned our company, and we look forward to building on this in 2025 to create significant value for our shareholders. With that, I will turn the call over to Keith.

Keith Murphy -- Chief Financial Officer

Thank you, Ankit. I'm on Slide 6, which has our operating highlights. Q4 production was pre-released back in early January, but it's worth reiterating certain points. Q4 delivered the highest production and lowest cost of the year.

Production totaled approximately 80,400 gold ounces and 14.5 million pounds of copper. The increase in gold production compared to the third quarter was driven by higher feed grades at both sites. Consolidated all-in sustaining costs for the quarter were $1,018 per ounce, a decrease of 15% over the third quarter. This is highlighted by strong cost performance at both operations with Rainy River continuing to decrease its all-in sustaining costs and New Afton achieving an all-in sustaining cost of negative $540 per ounce after considering the copper credits.

Despite the slight miss in gold production compared to our updated guidance, strong cost management and discipline allowed the company to beat the low end of its original 2024 consolidated all-in sustaining cost guidance. Our total capital expenditures for the quarter were approximately $75 million, $10 million spent on sustaining capital and $65 million on growth capital. At Rainy River, sustaining capital is primarily related to capitalized waste and tailings dam. Growth capital for the full year is related to the underground development as the Underground Main and Intrepid zones continue to advance.

Full year total capital is below the 2024 guidance range of $145 million to $165 million due to efficient capital management, savings related to the execution of the Rainy River tailings dam raise and lower capitalized waste stripping with approximately $5 million of growth capital deferred into 2025. At New Afton, sustaining capital is primarily related to continuation of the tailings management and stabilization activities. New Afton growth capital is primarily related to C-Zone underground mine development and cave construction. Full year total capital is below the 2024 guidance range of $145 million to $165 million, with approximately $15 million of capital deferred into 2025.

I'll touch on operations, starting with Rainy River on Slide 7. Gold production in the fourth quarter was impacted by unexpected mechanical downtime on the crushing conveyance system in December. Despite the lower gold production, the team did an excellent job to control costs. All-in sustaining costs were $1,327 per ounce for the fourth quarter, which resulted in the operation achieving the original full year all-in sustaining cost guidance range.

This is an impressive effort from the team and resulted in $90 million of free cash flow generated in 2024 while setting up the operation for a sustained period of free cash flow generation. Turning now to New Afton on Slide 8. New Afton delivered another strong operating quarter with an increase of 19% gold production and 15% copper production over the third quarter. The B3 cave performed as planned, and C-Zone ore production is ramping up following commercial production and crusher commissioning early in the fourth quarter.

Gold production beat the top end of the original 2024 guidance range with copper production achieving the midpoint. All-in sustaining costs for the quarter and the year decreased substantially compared to the prior-year period, driven by lower operating expenses, lower sustaining capital spend and higher byproduct revenues. As a result, full year all-in sustaining costs per gold ounce sold was well below the 2024 guidance range. The operation generated $24 million in free cash flow while completing the key infrastructure required to enter a period of sustained free cash flow going forward.

Both operations exit 2024 well positioned to generate significant free cash flow. I'll wrap up with our financial results on Slide 10. Fourth quarter revenue was $262 million, which is a quarterly record. Q4 revenue was higher than the prior-year quarter, primarily due to higher metal prices and higher copper sales, slightly offset by lower gold sales.

Cash generated from operations before working capital adjustments was $126 million or $0.16 per share for the quarter, higher than the prior-year period, primarily due to higher revenues. New Gold generated quarterly free cash flow of $22 million due to higher revenue, partially offset by higher capital expenditures in the quarter as key growth project milestones were achieved. Company recorded net earnings of approximately $55 million or $0.07 per share during Q4, an increase due to higher revenues. After adjusted for certain of the charges, net earnings were $59 million or $0.07 per share in Q4, a significant increase compared to an adjusted net loss of $5 million in the fourth quarter of 2023.

Our Q4 adjusted earnings include adjustments related to other gains and losses. At the end of Q4, we had cash on hand of about $105 million and a liquidity position of $482 million with the credit facility undrawn. In the second half of 2024, we repaid the entirety of the $100 million drawn on the credit facility related to the Ontario Teachers buyback transaction with cash on hand and during a capital-intensive period for both operations. This is made possible by the operational excellence and cost discipline both of our sites showed during the year.

To sum up, we remain in a very healthy financial position. With that, I'll turn the call to Pat.

Pat Godin -- President and Chief Executive Officer

Thanks, Keith. Slide 11 summarizes our three years outlook we released last week. We expect continued and significant growth in gold and copper production over the next three years. Both operations are contributing to production increase with the realization of projects that were completed in '20.

Gold production is expected to increase from 300,000 ounces in 2024 to a midpoint of 410,000 ounces in 2027, 30% increase over three years. Copper production is expected to increase from 54 million pounds in 2024 to an impressive 405 million pounds, 90% increase over that period. With the increase in production, the cost per ounces of gold are expected to be reduced significantly. By '27, the consolidated all-in sustaining cost is expected to be $400 to $500 per gold ounces, a 64% reduction compared to '24.

Sustaining and costs are expected to taper off significantly over the next three years. This is primarily due to major projects and the reduction stripping at Rainy River. 2025 estimates consider the carryover of some capital that was not spent in '24. With the increase in production, combined with the reduction in unit costs and tapering capital costs over the next three years, the company is well positioned to deliver significant free cash flow.

Based on our updated outlook, we expect to generate significant free cash flow over the next three years following the inflection point reached in mid-2024. At current consensus commodity prices, this translates to over $1.7 billion in free cash flow over that period. At current spot price, the figure exceeds USD 2 billion, over 80% of our market cap. At New Afton, 2025 production will look a lot like 2024 as we continue transitioning from the B3 cave to the seasonal cave.

Total gold production for the year is expected to be 60,000 to 70,000 ounces, while copper production is expected to be 50 million to 60 million pounds. C-Zone mining rates will continue to ramp up throughout the year toward 16,000 tonnes per day. The increased rate is partially offset by lower grades as B3 cave is exhausted in the first half of 2025 and C-Zone grades gradually increase throughout the year. Production is expected to significantly strengthen in the second half with the first quarter representing approximately 20% of the annual production, again, driven by lower grade as B3 nears end of cave lives.

Rainy River is expecting gold production of 265,000 to 285,000 ounces for the year, a 20% increase compared to the 226,000 ounces produced in '24. The increase is driven by a 20%, 25% increase in gold grade as the underground mining rate increased during the year. Approximately 11% of production is scheduled in the first half -- in the first quarter and 37% in the first half of the year. This is due to the open pit mining sequence.

We are currently completing waste stripping in Phase 4 and will primarily process over 5 tonnes in Q1. From Q2 onwards, we will release higher grade, low strip ratio ore from the open pit. For the same reason, sustaining capital is weighted for the first half of the year. The underground mine is well positioned to deliver 846,000 ounces in '25 as a result of the development completed in '24.

Lateral development is consistent throughout the year. Growth capital allocation is higher in the first half of 2025 due to the commissioning the pressure raised funds, which will be completed in Q2 of this year and the purchase of mobile equipment. In closing, 2024 was a challenging year, but an important year and 2025 will be another important one. We will continue to deliver on our stated strategic goals.

This includes delivering on 2025 production and cost guidance with the same attention to health and safety. Support from our employees for the Courage to Care program has contributed significantly to our health and safety performance since I joined the company. At New Afton, we will ramp up C-Zone and advance the development of East Extension. At Rainy River, we will continue to ramp up the underground mine and advance Phase 5 open pit development.

We will continue to increase our exploration effort at both sites, targeting future reserve replacement. We have entered in a very exciting time for New Gold with increasing production and significant free cash flow generation in a robust community cycle. Combine that with our safe, well-established mining jurisdiction and exposure to what we view our preferred metals in gold and copper, and New Gold offers a compelling investment opportunity. I strongly believe we have a team dedicated to value creation as demonstrated last week with the delivery of two new technical report and mine life extension at both of our assets.

2025 will be a busy year, but we look forward to building on free cash flow inflection point achieved in 2024 to create value for our company, our stakeholders, my teammates and our shareholders. With that, we will open the floor up to questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from Eric Winmill. Please go ahead

Eric Winmill -- Scotiabank -- Analyst

Yes. Good morning, Pat, and team. Thanks a lot for taking my question. Nice to see the company generating cash flow here despite investing in the assets.

Just a question on Rainy River. I want to follow up from the tech session and again, the MD&A. You talk about the opportunity for additional pit pushbacks with minimal drilling there. Just sort of wondering what you need to see or how those might ultimately get into the mine plan.

Any color would be appreciated.

Pat Godin -- President and Chief Executive Officer

Thank you for that. So we -- as we present, I think we present the Phase 5 with an extension to the west side of the pit. We are actually drilling the northwest trend with an extension to the west of the ore body. So we are currently drilling this.

It's an opportunity for us to extend the mine life. But we're also having -- can extend the Phase 5 -- Phase 6 south of the pit. It's depending on a few things. So we have the drilling that is mostly completed there.

It will be driven by the price -- the gold price for sure. But also, we have to complete the next step, we need to confirm the ultimate capacity of our tailings storage facility. So 100% of technical report is something that is fully attached and fittable so -- and totally supported by the infrastructure that we have. If we want to extend or push back the pit, we have to determine our capacity to handle the tailings by itself.

And it's something that we are currently working on.

Eric Winmill -- Scotiabank -- Analyst

OK. Fantastic. I really appreciate that. And just a question, as we look out into 2025, obviously, back half is setting up pretty strong.

Q1 is going to be lower production. Any comments on the costs and how we should think about all-in sustaining costs throughout the early quarters of the year?

Keith Murphy -- Chief Financial Officer

Yes, it's Keith. Yes, similar with the production profile that Pat outlined, we expect the second half of the year to be stronger, and we expect our cost profile to follow that. So it will be decreasing toward the end of the year as our production profile increases.

Eric Winmill -- Scotiabank -- Analyst

Great. That's helpful. Appreciate the color. I'll hop back in the queue.

Cheers.

Operator

[Operator instructions] There are no further questions. Please continue.

Ankit Shah -- Executive Vice President, Strategy and Business Development

Great. Thank you, Vincent, and thank you for everyone 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. Thanks, and have a great day.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Ankit Shah -- Executive Vice President, Strategy and Business Development

Keith Murphy -- Chief Financial Officer

Pat Godin -- President and Chief Executive Officer

Eric Winmill -- Scotiabank -- Analyst

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