New Gold earns $27.44-million (U.S.) in Q3 2010
2010-11-04 17:54 ET - News Release
Shares issued 391,762,109
NGD Close 2010-11-03 C$ 7.89
Mr. Randall Oliphant reports
NEW GOLD ANNOUNCES THIRD QUARTER RESULTS AT RECORD LOW TOTAL CASH COST WITH CASH OF $391 MILLION
New Gold Inc. has released its financial and operational results for the third quarter of 2010. All figures are shown in U.S. dollars, unless otherwise specified. New Gold had an excellent third quarter with gold sales of 89,692 ounces at a total cash cost of $435 per ounce, net of byproduct sales, resulting in earnings from mine operations of $46.7-million and cash flow from operations of $35.5-million. New Gold is also pleased to reiterate its 2010 full year guidance of 330,000 to 360,000 ounces of expected gold production at a total cash cost of $445 to $465 per ounce sold, net of byproduct sales.
Third quarter highlights:
Cash flow from operations increased by 492 per cent to $35.5-million from $6.0-million in the same period in 2009;
Earnings from mine operations increased by 107 per cent to $46.7-million from $22.6-million in the same period in 2009;
Gold production increased by 15 per cent to 91,332 ounces from 79,531 ounces in the same period in 2009;
Total cash cost, net of byproduct sales, decreased by $35 per ounce to $435 per ounce from $470 per ounce in the same period in 2009;
Cerro San Pedro fully operational achieving record quarterly performance, producing 37,473 ounces of gold at a total cash cost of $151 per ounce, net of byproduct sales;
Underground development advance at New Afton exceeded plan by 20 per cent as 1,066 metres of development were completed against a plan of 885 metres, with the highest-ever monthly advance achieved in the month of September;
Cash balance increased by $15-million from the end of the second quarter to $391-million at Sept. 30, 2010;
Sept. 30, 2010, cash balance exceeds remaining capital required to complete New Afton project of approximately $365-million.
"We are very pleased by delivering another strong quarter from our operations and how well New Gold is positioned today," stated Randall Oliphant, executive chairman. "We have a fully funded company with a foundation of three operations combined with two exciting organic growth projects in New Afton and El Morro. With the continued strength of the underlying commodity market, we look forward to New Gold's continued cash flow growth in the coming years."
Third quarter consolidated financial results
Consolidated revenue for the third quarter of 2010 was $127.1-million compared with $88.5-million for the same period in 2009. Revenue increased in 2010 as a result of increased gold sales as well as higher average realized gold prices in 2010. The average realized gold price in the third quarter of 2010 was $1,181 per ounce compared with $959 per ounce in the same period of the prior year.
Earnings from mine operations for the third quarter of 2010 were $46.7-million compared with $22.6-million for the same period in 2009. The increase in earnings from mine operations in 2010 was driven by increased gold sales, higher average realized gold prices and lower total cash cost per ounce during the quarter.
Net earnings from continuing operations for the third quarter of 2010 were $27.4-million or seven cents per share compared with $6.1-million or two cents per share for the same period in 2009. The third quarter 2010 net earnings included a pretax $12.9-million foreign exchange translation loss which was partially offset by the combination of a pretax gain on investments of $2.1-million and a pretax unrealized gain of $10.9-million related to the early repurchase option on the company's senior secured notes. Comparatively, the third quarter of 2009 included a pretax $8.9-million foreign exchange translation loss which was partially offset by a pretax gain on investments of $5.3-million.
Cash flow from continuing operations for the third quarter of 2010 was $35.5-million compared with $6.0-million for the same period in 2009. The significant increase in quarterly cash flow is a direct result of the company's strong operating performance during the quarter coupled with higher realized commodity prices.
For the nine months ended Sept. 30, 2010, the company generated $119.2-million in earnings from mine operations which resulted in $62.1-million, or 16 cents per share, of net earnings from continuing operations and $94.3-million in cash flow from operations.
New Gold's cash balance at the end of the quarter was $391.0-million representing a $14.9-million increase over the June 30, 2010, cash balance of $376.1-million. The company ended the quarter with $217.1-million of debt, which is due in 2014 and 2017. The increase in the debt balance was attributable to the appreciation of the Canadian dollar and the accretion of the debt component of the convertible note.
Operations overview
Collectively, the company's three operating mines, Mesquite, Cerro San Pedro and Peak Mines, had another strong quarter with gold production up 15 per cent and total cash cost, net of byproduct sales, lower by $35 per ounce. The resulting cash flow from the three operating assets has continued to strengthen New Gold's balance sheet with the cash balance further increasing during the quarter despite the company's increased capital expenditures as it continues to develop the New Afton project. New Gold is very well positioned as it continues to internally finance the development of New Afton, the company's exciting, near-term development project which is anticipated to start production in mid-2012.
"With over three-quarters of the year now behind us, we are pleased with the performance of our operations and the continued development of New Afton, which remains on time and on budget for a production start in mid-2012," stated Robert Gallagher, president and chief executive officer. "Our gold production remains right on target for the year, with costs coming down significantly, from those realized in the first and second quarters, reflecting the efficiency of our operations and positive impact of our silver and copper byproducts."
Historical figures presented include gold production, sales and total cash cost per ounce for the first nine months of 2009 which includes results prior to the completion of the acquisition of Western Goldfields Inc. and the Mesquite mine on June 1, 2009.
Cerro San Pedro fully operational with another strong quarter
Gold sales in the third quarter at Cerro San Pedro increased by 40 per cent to 38,090 ounces from 27,193 ounces in the same period in 2009. The increased gold sales, together with a significant reduction in total cash cost per ounce of gold sold, net of byproduct sales, to $151 from $416 in the third quarter of 2009 and higher realized gold prices, resulted in Cerro San Pedro generating $30.0-million in earnings from mine operations in the third quarter of 2010 compared with $8.5-million in the same period of the prior year. The average realized gold price in the third quarter of 2010 was $1,234 per ounce compared with $964 per ounce in the same period of the prior year.
The increased gold sales and production were a result of mining of higher grade ore per the mine plan sequencing and leach pad recoveries returning to more steady-state levels during the third quarter of 2010. The decrease in total cash cost is a result of higher byproduct revenues driven by both higher silver production and prices. These benefits were partially offset by the appreciation of the Mexican peso.
Silver sales in the third quarter were 748,704 ounces at an average realized price of $19.25 per ounce compared with 382,278 ounces at an average realized price of $14.83 per ounce in the third quarter of 2009. Silver sales and production increased during the quarter as a result of higher silver grades and improved silver recoveries from the leach pad.
For the nine months ended Sept. 30, 2010, gold sales increased by 10 per cent to 76,047 ounces from 68,857 ounces sold in the same period in 2009, while, over the same period, total cash cost per ounce of gold sold, net of byproduct sales, decreased to $277 from $394. As a result of the lower costs and higher realized gold prices, Cerro San Pedro generated $47.7-million in earnings from mine operations in the first nine months of 2010 compared with $17.6-million in the same period of the prior year. The average realized gold price for the first nine months of 2010 was $1,205 per ounce compared with $942 per ounce in the same period of the prior year.
The increased gold sales and production in the first nine months of 2010 were attributable to the mining of higher average grade ore and improved leach pad recoveries and were partially offset by the mining of fewer ore tonnes as a result of the delayed receipt of the explosives permit in the first quarter of 2010. The decrease in total cash cost is driven by a combination of improved mining costs per tonne and higher byproduct revenues in the first nine months of 2010. These benefits were partially offset by the appreciation of the Mexican peso during the first nine months of 2010 when compared with the same period in 2009.
Silver sales in the first nine months of 2010 were 1,447,560 ounces at an average realized price of $18.66 per ounce compared with 1,177,210 ounces at an average realized price of $13.75 per ounce in the same period of 2009.
New Gold would also like to provide an update on the legal challenges at its Cerro San Pedro mine. On July 19, the company filed an appeal with the Collegiate Appeals Court in Mexico City against the July 7 decision by a lower court which upheld the November, 2009, court decision ordering the cancellation of the company's environmental impact statement. A decision on this most recent appeal is expected toward the end of 2010 or early 2011, and the company plans to explore further appeal opportunities if required. The company continues to work closely with Semarnat, the Mexican government's environmental agency, and Profepa, the Mexican government's environmental enforcement agency, as well as other levels of government and external stakeholders to achieve uninterrupted operation of the Cerro San Pedro mine.
Mesquite mine looks ahead to stronger fourth quarter
Gold sales in the third quarter at Mesquite increased by 12 per cent to 30,890 ounces from 27,594 ounces sold in the third quarter of 2009. As a result of increased gold sales and higher realized gold prices, Mesquite generated $6.3-million in earnings from mine operations in the third quarter of 2010 compared with $1.4-million in the same period of the prior year, despite an increase in total cash cost to $708 per ounce from $662 per ounce in the prior year. The average realized gold price in the third quarter of 2010 was $1,079 per ounce compared with $947 per ounce in the same period of the prior year.
The increased gold sales and production at Mesquite during the third quarter were primarily driven by mining of higher grade ore, though still below reserve grade, as well as continued improvement in gold recoveries. The total cash cost increase is attributable to lower truck operating efficiencies during the quarter as the sequencing of the mine plan led to mining in a smaller working area of the pit. This resulted in lower tonnes mined which, when combined with increased fuel costs, as both the volume and price of diesel consumed have increased over the prior year period and additional explosive costs, led to higher operating costs per tonne and, in turn, higher total cash cost during the quarter.
For the nine months ended Sept. 30, 2010, gold sales increased by 36 per cent to 119,178 ounces from 87,647 ounces sold in the same period in 2009, while, over the same periods, total cash cost per ounce of gold sold decreased to $619 from $624. As a result of the increased production, declining costs and higher realized gold prices, Mesquite generated $35.0-million in earnings from mine operations in the first nine months of 2010 compared with $9.6-million in the same period of the prior year. The average realized gold price for the first nine months of 2010 was $1,067 per ounce compared with $888 per ounce in the same period of the prior year.
The increased gold sales and production in the first nine months of 2010 were attributable to increased recoveries and higher average grades mined and were partially offset by lower ore tonnes mined. The drivers of the total cash cost decrease during the first nine months of 2010 included a lower stripping ratio requiring fewer waste tonnes to be moved as well as the fixed portion of operating costs being distributed over increased gold ounces. These positive impacts were partially offset by the above-noted cost increases.
Peak Mines continues steady performance
Gold sales in the third quarter at Peak Mines were 20,712 ounces compared with 22,858 ounces sold in the third quarter of 2009. Over the same period, total cash cost per ounce of gold sold, net of byproduct sales, was $549 compared with $302, which, with higher realized gold prices, resulted in Peak Mines generating $10.4-million in earnings from operations during the third quarter of 2010 compared with $12.6-million in the same period of the prior year. The average realized gold price in the third quarter of 2010 was $1,234 per ounce compared with $968 per ounce in the same period of the prior year.
Gold sales and production quarter over quarter remained relatively consistent as higher ore tonnes milled during the third quarter were offset by slightly lower grades. The increase in total cash cost is primarily attributable to the appreciation of the Australian dollar as well as lower byproduct revenues in the third quarter of 2010 when compared with the same period in the prior year.
Copper sales decreased in the third quarter to 2.3 million pounds at an average realized price of $3.33 per pound from 3.8 million pounds at an average realized price of $2.57 per pound in the same quarter of 2009. Copper sales and production decreased during the quarter as a result of lower copper grades. Copper sales were further negatively affected by timing of concentrate shipments with significant copper sales anticipated in the fourth quarter.
For the nine months ended Sept. 30, 2010, gold sales were 56,888 ounces compared with 61,653 ounces sold in the same period in 2009, while, over the same periods, total cash cost per ounce of gold sold, net of byproduct sales, was $393 compared with $332. As a result of the higher realized gold prices, and despite slightly lower gold sales and higher costs, Peak Mines generated $36.6-million in earnings from mine operations in the first nine months of 2010 compared with $31.0-million in the same period of the prior year. The average realized gold price for the first nine months of 2010 was $1,194 per ounce compared with $933 per ounce in the same period of the prior year.
Gold sales and production year to date were down slightly when compared with that of the prior year as ore milled and gold grade have been lower in the first nine months of 2010. The increase in total cash cost is driven by the appreciation of the Australian dollar and an increase in Australian-dollar-denominated mining costs in the first nine months of 2010 when compared with the same period in the prior year and is partially offset by higher byproduct revenues.
Copper sales for the nine months ended Sept. 30, 2010, were 9.3 million pounds at an average realized price of $3.28 per pound compared with 9.1 million pounds sold at an average realized price of $2.32 per pound in the same period in 2009.
New Afton underground development advance beats plan by 20 per cent
New Gold's primary development project continued on schedule during the third quarter and is expected to commence production in the second half of 2012. The project includes an underground mine and concentrator which are expected to produce an annual estimated average of 85,000 ounces of gold and 75 million pounds of copper.
During the third quarter of 2010, the New Afton underground development crews continued their advance, completing 1,066 metres of development, against a budget for the quarter of 885 metres, with September being a record month for development completed. With underground development now progressing under the first ore block, advance should continue to accelerate as the crews have multiple headings in which to move forward.
Project spending during the quarter was $22.5-million compared with $8.7-million in the same period in 2009. For the nine-month period ended Sept. 30, the project spending was $59.1-million, including $10.1-million of interest, compared with $52.6-million, including $9.2-million of interest, in the same period of the prior year.
In addition to the continued development advance, certain key construction projects also progressed during the quarter including:
Installation of buried piping on surface which began in May now over 93 per cent complete;
Continued installation of underground conveyor systems progressing as planned;
Construction of process water tank 50 per cent complete.
Total project spending for 2010 at New Afton is projected to be approximately $130-million, including $21.0-million of interest.
Subsequent to the quarter end, the company exercised an option to acquire two separate 5-per-cent net profit royalty interests on the project for total consideration of $2-million (Canadian). The royalties had been established in 2002 and were held by individuals involved in the original staking of the New Afton property. Based on the company's analysis of the future profitability of New Afton, the acquisition of these royalties for $2-million (Canadian) is believed to be value enhancing and should further improve the economics of the project.
The company looks forward to production commencing in less than two years, as New Afton is expected to contribute significantly to New Gold's current portfolio of operating assets. The project remains fully financed with the cash on New Gold's balance sheet exceeding the remaining targeted project capital costs. As a low-cost operation, New Afton should meaningfully expand the company's operating margin and cash flow generation. At current commodity prices, the mine is expected to more than double the company's cash flow.
El Morro project update
El Morro is an advanced stage gold/copper project located in north-central Chile, Atacama region, approximately 80 kilometres east of the city of Vallenar. The El Morro project is a world-class project with low expected cash costs and great organic growth potential in one of the best mining jurisdictions in the world.
The environmental impact assessment necessary for the project permitting to proceed is being reviewed by government authorities and continues to advance with approval anticipated in late 2010 or early 2011. On receipt of the required permits, New Gold's 70-per-cent joint venture partner, Goldcorp Inc., intends to begin development and pursue a drill program to further delineate and expand the current El Morro resource.
Third quarter and year-to-date production and cash cost overview
RESULTS FOR THE PERIOD OF OWNERSHIP FOR THE MESQUITE MINE
(June 1, 2009)
Three months ended Nine months ended
Sept. 30, Sept. 30,
2010 2009 2010 2009
Production
Mesquite gold (ounces) 30,150 29,012 113,033 38,053
Cerro San Pedro
Gold (ounces) 37,473 24,928 79,835 69,721
Silver (ounces) 733,463 342,633 1,487,247 1,184,110
Peak Mines
Gold (ounces) 23,709 25,591 65,598 68,601
Copper (million pounds) 3.1 3.6 11.1 11.7
Amapari gold (ounces) - - - 13,726
Total production
Gold (ounces) 91,332 79,531 258,466 190,101
Silver (ounces) 733,463 342,633 1,487,247 1,184,110
Copper (million pounds) 3.1 3.6 11.1 11.7
Gold sales (ounces) 89,692 77,645 252,113 185,932
Total cash cost ($ per ounce) $435 $470 $465 $460
As announced in Stockwatch April 13, 2010, the company has sold
the Amapari asset.
Key financial information
At Sept. 30, 2010, New Gold had a cash balance of $391.0-million, an increase of $14.9-million when compared with the June 30, 2010, cash balance. The net increase in the cash balance during the third quarter of 2010 is summarized.
During the quarter, the company's cash flow was, once again, in excess of the New Afton development costs and sustaining capital expenditures at New Gold's operations. As a result of the appreciation in the Canadian dollar, the consolidated debt position of the company increased by $7.4-million to $217.1-million which includes: $172.8-million of 10 per cent senior secured notes (face value of $187-million (Canadian)), $40.4-million of 5 per cent convertible debentures (face value of $55-million (Canadian)) and $3.9-million in El Morro financing loans. The senior secured notes are due in 2017 and the convertible debentures are due in 2014 and have a $9.35 (Canadian) conversion price.
2010 fourth quarter outlook
While the third quarter was New Gold's best operating quarter in 2010 as the company combined its highest quarterly gold sales with its lowest total cash cost, with continued strength in commodity prices, the fourth quarter of 2010 is anticipated to be another strong quarter for New Gold. Looking forward, gold production and sales are anticipated to continue to grow in the fourth quarter with further reductions in cash cost. Mesquite is moving into a higher grade portion of the pit which is expected to drive production higher with a commensurate decline in costs. Cerro San Pedro which has now demonstrated two consecutive quarters of excellent operating results is anticipating similar success to finish the year. Peak Mines should be mining higher grade gold and copper zones, and will focus on bringing down the gold and copper inventories through increased concentrate shipments, both of which will positively impact production and costs in the fourth quarter of 2010. New Gold reiterates its 2010 full year guidance of 330,000 to 360,000 ounces of gold production at a total cash cost of $445 to $465 per ounce sold, net of byproduct sales.
Conference call-in and webcast
New Gold will discuss third quarter earnings results during a conference call and webcast on Friday, Nov. 5, 2010, at 8 a.m. Eastern Time. Participants may join the conference by calling 1-416-340-2217 or toll-free 1-866-696-5910 in North America, and 800-8989-6336 toll-free outside of North America. The passcode is 6463541. To listen to a recorded playback of the call after the event, please call 1-416-695-5800 or toll-free 1-800-408-3053 in North America, passcode 4861765.
A live and archived webcast will also be available at the company's website.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands of U.S. dollars, except per share amounts)
Three months ended Nine months ended
Sept. 30, Sept. 30,
2010 2009 2010 2009
Revenues $127,116 $88,491 $341,095 $192,015
Operating expenses (59,437) (51,075) (169,548) (109,122)
Depreciation and depletion (20,984) (14,820) (52,341) (33,954)
-------- ------- -------- --------
Earnings from mine operations 46,695 22,596 119,206 48,939
Corporate administration (7,009) (5,527) (23,689) (15,299)
Business combination
transaction costs - - - (6,583)
Exploration (4,764) (2,416) (9,400) (5,095)
Goodwill impairment charge - - - (189,634)
-------- ------- -------- --------
Income (loss) from operations 34,922 14,653 86,117 (167,672)
Other income (expense)
Realized and unrealized
(loss) gain on gold contracts - (905) - 7,256
Realized and unrealized gain
on fuel contracts - - - 797
Realized and unrealized gain
on investments 2,126 5,288 7,018 14,987
Unrealized gain on prepayment
option 10,916 - 11,568 -
Interest and other income 1,078 629 1,840 2,637
Gain on redemption of
long-term debt - - - 14,236
Interest and finance fees (72) (476) (360) (768)
Other expense 2 (715) (2,063) (715)
(Loss) on foreign exchange (12,897) (8,895) (12,200) (41,486)
-------- ------- -------- --------
Earnings (loss) before taxes 36,075 9,579 91,920 (170,728)
Income and mining taxes (8,629) (3,483) (29,868) (10,411)
-------- ------- -------- --------
Net earnings (loss) from
continuing operations 27,446 6,096 62,052 (181,139)
Earnings (loss) from
discontinued operations - (1,995) 42,023 (5,527)
-------- ------- -------- --------
Net earnings (loss) $ 27,446 $ 4,101 $104,075 ($186,666)
======== ======= ======== ========
Earnings per share from
continuing operations
Basic 0.07 0.02 0.16 (0.65)
Diluted 0.07 0.02 0.16 (0.65)
Earnings per share from
discontinued operations
Basic - (0.01) 0.11 (0.02)
Diluted - (0.01) 0.10 (0.02)
Earnings per share
Basic 0.07 0.01 0.27 (0.67)
Diluted 0.07 0.01 0.26 (0.67)
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