2010-03-04 19:20 ET - News Release
Mr. Randall Oliphant reports
NEW GOLD ANNOUNCES RECORD GOLD PRODUCTION AND CASH FLOW FOR FOURTH QUARTER AND YEAR ENDED 2009
New Gold Inc. has released its financial and operational results for the fourth quarter and year ended 2009. All figures are shown in U.S. dollars, unless otherwise specified. The company had its best operational year, exceeding gold production guidance at lower than forecasted total cash costs resulting in record cash flow for New Gold. New Gold is also pleased to reiterate its guidance for 2010 with forecast gold production expected to increase further to between 330,000 and 360,000 ounces at total cash cost of $445 to $465 per ounce sold, net of byproduct sales.
Fourth quarter and full year 2009 highlights
Results presented below are for the period of ownership for the Mesquite (June 1, 2009) and Cerro San Pedro mines (June 30, 2008):
- Highest quarterly gold production for the company in the fourth quarter with an increase of 41 per cent to 111,672 ounces from 78,950 ounces in the same period in 2008;
- Total cash cost in the fourth quarter decreased 17 per cent to $472 per ounce sold, net of byproduct sales, from $567 per ounce sold in the same period in 2008;
- Cash flow from operations of $54.4-million in the fourth quarter 2009 versus $17.3-million in the same period in 2008
- Gold production in 2009 increased 29 per cent to 301,773 ounces from 233,103 ounces in 2008;
- Total cash cost in 2009 decreased 18 per cent to $465 per ounce sold, net of byproduct sales, from $566 per ounce sold in 2008;
- Cash flow from operations of $79.0-million for 2009 versus $23.1-million in the prior year;
- Two thousand nine year-end cash balance of $271.5-million, including $9.2-million of restricted cash, versus $182.0-million in 2008;
- Additional net cash of $70.1-million received after year-end from sale of asset-backed notes ($47.3-million) and payment from Goldcorp ($50.0-million) less Mesquite term loan prepayment ($27.2-million).
"Two thousand nine was an exceptional year for New Gold on so many levels," stated Randall Oliphant, executive chairman. "Our operational performance beat guidance on both production and costs, leading to record cash flow for our company. Combining this cash flow with the cash received from our corporate development initiatives has significantly enhanced the company's financial flexibility and positions us extremely well as we look for opportunities to continue growing our business."
Fourth quarter and full year 2009 consolidated financial results
Consolidated revenue for the fourth quarter of 2009 was $131.8-million for a total of $323.8-million for the full year, compared with $36.7-million and $143.1-million for the same periods in 2008. Revenues increased in 2009 as a result of additional gold sales from the Mesquite mine after the business combination with Western Goldfields Inc. as well as higher average realized gold prices in 2009.
Earnings from mine operations for the fourth quarter of 2009 were $39.7-million for a total of $88.6-million for the full year compared with a loss from mine operations of $14.6-million and earnings from mine operations of $21.4-million for the same periods in 2008. The increase in earnings from mine operations in 2009 was driven by increased gold sales, higher average realized gold prices and lower total cash cost during the year.
The net loss in the fourth quarter and full year 2009 was $7.7-million or two cents per share and $194.3-million or 64 cents per share, respectively. This compares with net income in the fourth quarter and a net loss for the full year 2008 of $41.1-million or 19 cents per share and $102.7-million or 69 cents per share, respectively. The full year 2009 net loss included a pretax $192.1-million goodwill impairment charge and a pretax $52.7-million foreign exchange translation loss while the full year 2008 net loss included a loss from discontinued operations (Amapari) of $173.6-million and a pretax $68.8-million foreign exchange translation gain.
Cash flow from operations for the fourth quarter of 2009 was $54.4-million for a total of $79.0-million for the full year, both over three times the $17.3-million and $23.1-million in cash flow from operations for the same periods in 2008. The cash flow generated was the highest in New Gold's history and was underpinned by the company's strong operating performance during the year.
New Gold's cash balance at the end of the year was $271.5-million, including $9.2-million of restricted cash, representing a significant increase over the year-end 2008 cash balance of $182.0-million. In addition, subsequent to year-end, the company received $97.3-million in cash from the sale of asset-backed notes ($47.3-million) and on completion of its transaction with Goldcorp related to the El Morro asset ($50.0-million). New Gold's debt balance at the end of 2009 was $237.5-million. The total debt balance was reduced by $27.2-million after the year-end as the Mesquite term loan facility was fully repaid leaving the company with $210.3-million in debt, the majority of which is due in 2017.
2009 operational review
All three of New Gold's operating mines had excellent gold production results with Cerro San Pedro and Peak Mines also producing silver and copper, respectively, above guidance. As anticipated, the Mesquite mine achieved its highest quarterly production since the mine was brought back into production in January, 2008, with 61,245 ounces of gold produced during the fourth quarter. Across its operations, New Gold's total cash cost for 2009 was $465 per ounce of gold sold, net of byproduct sales, below the guidance range of $470 to $490 per ounce of gold sold and considerably below the $566 per ounce of gold sold in 2008.
Mesquite mine
Gold production in the fourth quarter at Mesquite increased by 116 per cent to 61,245 ounces from 28,378 ounces produced in the fourth quarter 2008, resulting in 2009 full year production of 150,002 ounces versus 108,325 ounces in the prior year. Gold sales were 55,861 ounces in the fourth quarter and 143,509 ounces in full year 2009 compared with 30,625 and 110,880 ounces in the same periods of 2008. Both the fourth quarter and full year 2009 production and sales benefited from higher tonnes placed on the leach pad and increased recoveries from secondary leaching.
Total cash cost per ounce of gold sold for the fourth quarter of 2009 was $551 compared with $519 in the fourth quarter of 2008 and $596 per ounce of gold sold for full year 2009 compared with $508 in 2008. The total cash cost increase is mainly attributable to increased diesel consumption from higher tonnes moved, increased usage of cyanide and lime to improve gold recoveries, use of a contractor to accelerate stripping and certain non-recurring maintenance costs.
As part of New Gold's 2009 update to mineral reserves and resources, Mesquite's proven and probable mineral reserves increased by 500,000 ounces when compared with the end of 2008. These additional reserves should allow the team at Mesquite to extend the mine life and/or increase annual throughput going forward.
Further, during 2010, New Gold plans to evaluate various treatment alternatives for the sulphide resource that currently lies directly beneath the pits being mined at Mesquite. The deeper sulphide resource is not currently part of the mine plan due to the lower recovery rates achieved on sulphides via heap leaching. However, if a processing methodology can be established to bring the recoveries up and thus make the deeper sulphides economic this could, not only potentially increase the mineral reserves base, but New Gold also believes there may be potential to explore for additional sulphide resources as previous operators of the Mesquite mine largely stopped drilling when sulphides were reached below the base of the oxide mineralization. New Gold will provide further updates on this evaluation during the year.
Gold production for 2010 is forecast to be 145,000 to 155,000 ounces at a total cash cost of $540 to $560 per ounce sold. Capital expenditures at Mesquite are forecast to be $14.6-million in 2010.
Cerro San Pedro mine
Gold production in the fourth quarter at Cerro San Pedro increased by 21 per cent to 25,781 ounces from 21,231 ounces produced in the fourth quarter of 2008, resulting in 2009 full year production of 95,502 ounces versus 84,561 ounces in the prior year. Gold sales were 24,455 ounces in the fourth quarter and 93,312 ounces in full year 2009 compared with 21,180 and 85,362 ounces in the same periods of 2008. The increase in gold production and sales was due to increased tonnes of ore mined and further improved leach pad recoveries, partially offset by lower gold grades.
Silver production increased in the fourth quarter to 312,848 ounces from 290,520 ounces in the fourth quarter of 2008, resulting in full year production of 1.5 million ounces compared with 1.1 million ounces in 2008. The increase in silver production is attributed to higher tonnes of ore mined and increased silver recoveries.
Total cash cost per ounce of gold sold, net of byproduct sales, for the fourth quarter of 2009 was $436 compared with $487 in the fourth quarter of 2008, and $407 per ounce of gold sold, net of byproduct sales, for full year 2009 compared with $399 in 2008. The decrease in total cash cost in the fourth quarter is due to the temporary shutdown of mining operations during the quarter and increased silver byproduct credits from both higher silver production and higher realized silver prices.
During 2009, through the drilling of 29 core holes extending from the bottom of the Cerro San Pedro open pit, the company established a 3.5-million-ounce inferred sulphide gold resource with an additional 76 million ounces of silver as well as lead and zinc. New Gold was very pleased with this initial resource and intends to further evaluate the results with a view to completing preliminary metallurgical testing, evaluating potential economics and completing additional drilling during 2010.
In respect of the opposition to mining operations at Cerro San Pedro, New Gold continues to work diligently with local and federal governmental groups in an effort to establish a long-term solution that allows the company to continuously operate the Cerro San Pedro mine and thus provide continuing economic benefits to the local people and community. New Gold's management believes the Cerro San Pedro mine has been operating in full compliance with required permits and government authorizations.
Throughout the temporary suspensions, New Gold has been permitted to continue the leaching process and is producing gold and silver. Further, as the Cerro San Pedro mine uses equipment leased from a large construction contractor, the company should be able to increase the mining rate once current legal challenges are addressed.
The gold production forecast for 2010 remains 95,000 to 105,000 ounces at a total cash cost of $390 to $410 per ounce sold, net of byproduct sales. Capital expenditures at Cerro San Pedro are forecast to be $10.8-million in 2010.
Peak Mines
Gold production in the fourth quarter at Peak was 24,646 ounces versus 27,618 ounces produced in the fourth quarter of 2008, resulting in 2009 full year production of 93,247 ounces versus 100,493 ounces in the prior year. Gold sales were 26,159 ounces in the fourth quarter and 87,812 ounces in full year 2009 compared with 28,815 and 102,928 ounces in the same periods of 2008. The decrease in gold production and sales was primarily due to a lower average realized gold grade when compared with 2008.
Copper production increased in the fourth quarter to 3.9 million pounds from 2.5 million pounds in the fourth quarter of 2008, resulting in full year production of 15.6 million pounds compared with 8.2 million pounds in 2008. The increase in copper production year over year was attributable to mining of higher grade copper zones during the year.
Total cash cost per ounce of gold sold, net of byproduct sales, for the fourth quarter of 2009 was $339 compared with $624 in the fourth quarter of 2008 and $334 per ounce of gold sold, net of byproduct sales, for full year 2009 compared with $477 in 2008. The decrease in total cash cost is a result of increased copper sales from increased volumes.
During 2009, Peak Mines once again successfully replaced the mineral reserves that it mined during the year. Peak has a long history of such reserve replacement having started operations in 1992 with approximately one million ounces of total resources. Over its life, Peak has mined over two million ounces and today still has 800,000 ounces of measured and indicated resources with an additional 400,000 ounces of inferred resources. Through additional underground and surface drilling in 2010, the company plans to continue this history of reserve replacement.
Gold production for 2010 is forecast to be 90,000 to 100,000 ounces at a total cash cost of $360 to $380 per ounce sold, net of byproduct sales. Capital expenditures at Peak Mines are forecast to be $31.9-million in 2010.
New Afton project
New Gold's primary development project continued on schedule during the fourth quarter and is expected to commence production in the second half of 2012. The project will be an underground mine and concentrator which is expected to produce an annual estimated average of 85,000 ounces of gold and 75 million pounds of copper.
During the fourth quarter of 2009, the New Afton underground development crews achieved their highest quarterly advance for the year, completing 634 metres compared with 453 metres during the third quarter of 2009. For full year 2009, 1,708 metres of underground development were completed. Project spending for the fourth quarter was $26.1-million, including $5.0-million of capitalized interest, resulting in full year 2009 capital spending of $76.1-million, including $21.1-million of capitalized interest.
As New Gold's financial position has significantly improved, the company has decided to move forward approximately $50-million of surface-construction-related capital into 2010 that was previously budgeted for 2011 and 2012. This will not impact the overall capital spend on the project, but will help de-risk both the overall capital cost and timeline to production as it helps spread out surface development activities over the next 2.5 years. In conjunction with recommencing some of this surface construction, New Afton will continue to focus on underground development in 2010 with projected capital expenditures for the year totalling $119.9-million, including capitalized interest.
El Morro project
As reported in Stockwatch Feb. 16, 2010, a New Gold subsidiary closed the acquisition of Xstrata's 70-per-cent interest in the El Morro project in Chile held by Xstrata Copper Chile S.A., a wholly owned subsidiary of Xstrata PLC. The acquisition resulted from the exercise of a right of first refusal held by a New Gold subsidiary, as originally reported in Stockwatch Jan. 7, 2010.
New Gold also announced the subsequent completion of the transactions under the acquisition financing agreement with Goldcorp Inc., which resulted in a Goldcorp subsidiary holding the 70-per-cent interest in El Morro and New Gold indirectly retaining a 30-per-cent interest. Through the subsequent transaction with Goldcorp, New Gold received $50-million and the terms of the El Morro shareholders agreement were amended.
Transaction highlights for New Gold:
- $50-million received;
- Goldcorp to finance 100 per cent of New Gold's share of the development and construction capital for the project;
- Lower interest rate on financing advance by Goldcorp -- U.S. seven-year treasury rate plus 187 basis points (approximately 4.99 per cent as at Feb. 16, 2010);
- Penalty payment if construction does not commence within 60 days of receipt of required permits and approvals ($1.5-million per month up to a maximum of 24 months);
- Continued participation in world-class project.
On Jan. 13, 2010, Barrick Gold Corporation commenced legal proceedings to attempt to challenge New Gold's exercise of its right of first refusal to acquire Xstrata's interest in the El Morro project.
New Gold believes that the claim is without merit. New Gold intends to respond to this action using all available legal avenues.
Amapari -- pending sale
As reported in Stockwatch Jan. 27, 2010, New Gold signed an agreement to sell its Brazilian subsidiary Mineracao Pedra Branca do Amapari Ltda. (MPBA), which holds the Amapari mine and other related assets, to Beadell Resources Ltd. for $63-million. Beadell is an Australian-listed gold-focused company with exploration and development assets in Western Australia and Brazil.
Proceeds to New Gold of $46-million in cash and $17-million in Beadell shares are contingent on the successful completion of a $75-million (Australian) equity offering by Beadell and related shareholder approvals.
The transaction is expected to close in March, 2010.
Key financial information
At Dec. 31, 2009, New Gold had $271.5-million of cash, including $9.2-million in restricted cash. The consolidated debt position of the company was $237.5-million which includes $169.0-million of 10-per-cent senior secured notes ($187.0-million (Canadian)), $37.6-million of 5-per-cent convertible debentures (face value of $55.0-million (Canadian)), $27.2-million of the Mesquite project term loan and $3.7-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. The $27.2-million of Mesquite project term loan was repaid in February, 2010, leaving the company with $210.3-million in debt.
Subsequent to the year-end, New Gold received $47.3-million in cash proceeds from the sale of asset-backed notes in January, 2010, and $50.0-million upon closing of the Goldcorp transaction related to the El Morro asset. In February, 2010, the company also prepaid the total outstanding balance of $27.2-million related to the Mesquite project term loan. After adjusting for these items, when comparing New Gold's financial position with year-end 2008, the company has approximately doubled its cash position and lowered the overall debt outstanding. Importantly, New Gold now does not have any debt due until 2014, well after New Afton is in production and generating cash flow.
New Gold's cash balance, combined with the future cash flow generation of the company and the long-term nature of the majority of the debt, leaves the company in an excellent financial position.
2010 guidance
As New Gold looks forward to 2010, the company expects to realize an increase in gold production primarily resulting from a full year of production from Mesquite. The company also expects increased production of silver and copper, helping to further reduce costs when compared with 2009.
Mine Actual 2009 Forecast Forecast gold 2010 gold Actual 2009 2010 production production total cash total cash ounces) (ounces) cost) cost Mesquite 99,298 145,000-155,000 $596 $540-$560 Cerro San Pedro 95,502 95,000-105,000 $405 $390-$410 Peak Mines 93,247 90,000-100,000 $335 $360-$380 Amapari 13,726 - $696 - Total 301,773 330,000-360,000 $462 $445-$465 Note: Cerro San Pedro and Peak Mines total cash cost are net of byproduct sales. Amapari was put on care and maintenance on Jan. 2, 2009. Two thousand nine Mesquite production represents partial year from June 1, 2009, forward.
Assumptions used in the 2010 forecast include silver and copper prices of $15.00 per ounce and $2.75 per pound, respectively, and Canadian dollar, Australian dollar and Mexican peso exchange rates of $1.11, $1.18 and $13.00 to the U.S. dollar, respectively.
Conference call-in and webcast
New Gold will hold a conference call and webcast on Friday, March 5, at 8 a.m. Eastern Standard Time to discuss the 2009 fourth quarter and year-end results. Anyone may join the call by dialling toll-free 1-866-696-5910 or 1-416-340-2217 to access the call from outside Canada or the United States (passcode 1356226). You can listen to a recorded playback of the call after the event until April 16, 2010, by dialling 1-800-408-3053 or 1-416-695-5800 for calls outside Canada and the U.S. (passcode 5620573).
A live and archived webcast will also be available at the company's website.
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