New Gold Announces 2017 Q1 Results; Provides Rainy River Project Update

(All dollar figures are in US dollars unless otherwise indicated)

TORONTO, April 26, 2017 /CNW/ - New Gold Inc. ("New Gold") (TSX:NGD) (NYSE MKT:NGD) today announces its 2017 first quarter results and provides an update on the construction of the company's Rainy River project.

2017 FIRST QUARTER HIGHLIGHTS

• Gold production of 89,327 ounces and copper production of 23.8 million pounds
• Operating expense of $605 per gold ounce and $1.21 per copper pound
• All-in sustaining costs⁽¹⁾ of $597 per ounce, including total cash costs⁽²⁾ of $296 per ounce
  • Lowest all-in sustaining costs since the introduction of the metric in 2012
• Lowering 2017 full-year all-in sustaining costs guidance to $760 to $800 per ounce from $825 to $865 per ounce
• Cash generated from operations of $77 million, a 25% increase compared to the first quarter
  of 2016
• Cash generated from operations before changes in non-cash operating working capital⁽³⁾
  of $69 million, a 12% increase compared to the first quarter of 2016
• Net earnings of $38 million, or $0.07 per share
• Adjusted net earnings⁽⁴⁾ of $9 million, or $0.02 per share
• Rainy River project schedule and capital cost estimate remain in line with New Gold's updated plan announced on January 30, 2017
  • Rainy River project capital expenditures totalled $126 million during the quarter
• Enhanced financial flexibility with sale of El Morro stream and equity financing
• March 31, 2017 cash and cash equivalents of $350 million

"As we indicated to our stakeholders at the beginning of this year, our priorities are: enhancing our financial flexibility, delivering operationally and executing on our updated Rainy River plan," stated Hannes Portmann, President and Chief Executive Officer. "I am very pleased to report that we have made significant progress in all three areas." 

"During the first quarter, we increased our liquidity position by $230 million through our equity financing and the sale of our El Morro stream. At the same time, after a strong start to the year, we have lowered our cost guidance and increased our cash generation potential for the balance of the year. Finally, development activities at Rainy River were advanced with both the timeline and budget remaining consistent with our updated plan announced in late January," added Mr. Portmann.

2017 FIRST QUARTER OPERATIONAL RESULTS

New Gold's first quarter gold production of 89,327 ounces remained in line with 2016 as higher production from the company's Mesquite and Peak Mines partially offset planned lower production from New Afton and Cerro San Pedro. Cerro San Pedro's production decreased as the mine has now transitioned into residual leaching. Quarterly copper production decreased by 6% to 23.8 million pounds when compared to the first quarter of 2016. As expected, silver production of 0.3 million ounces was also below 2016 as Cerro San Pedro transitioned to residual leaching.

First quarter operating expense per gold ounce of $605 remained in line with 2016. The company delivered first quarter all-in sustaining costs of $597 per ounce, including total cash costs of $296 per ounce. All-in sustaining costs decreased by over $160 per ounce relative to the first quarter of 2016, resulting in a record low for the metric. The significant decrease in all-in sustaining costs relative to the prior-year quarter was attributable to a $58 per ounce decrease in total cash costs to $296 per ounce and a $103 per ounce, or $9 million, decrease in the company's consolidated sustaining costs, which include New Gold's cumulative sustaining capital, exploration, general and administrative, and amortization of reclamation expenditures.

With the company's strong operational start to 2017, New Gold reiterates its guidance for full-year gold production of 380,000 to 430,000 ounces. The company is particularly pleased to announce a reduction to full-year all-in sustaining costs. As indicated in late January, New Gold was actively evaluating cost savings opportunities to further enhance 2017 cash flow. Through a combination of the company's business improvement initiatives and capital deferrals, New Gold identified cost savings of approximately $15 million, or approximately $40 per ounce. In addition, the company has also fixed the price for 43.7 million pounds of the company's second half 2017 copper production at $2.73 per pound, which compares favourably to the company's guidance assumption of $2.50 per pound. The copper price benefit will provide an additional $10 million, or approximately $25 per ounce, towards 2017 cash flow. Combining the benefit of these initiatives positions New Gold to reduce its 2017 full-year all-in sustaining costs to $760 to $800 per ounce, representing a $65 per ounce reduction from the company's original guidance range of $825 to $865 per ounce.

New Afton

The decrease in gold production at New Afton relative to the first quarter of 2016 was due to an expected decrease in gold grade and gold recovery, partially offset by a 4% increase in mill throughput. Copper production was also lower than the prior-year quarter due to an expected decrease in copper grade.

First quarter operating expenses increased when compared to the prior-year quarter due to higher costs associated with processing more ore tonnes. All-in sustaining costs decreased as the benefit of increased by-product revenues and lower sustaining costs was only partially offset by the appreciation of the Canadian dollar relative to the U.S. dollar and the increase in operating expenses. By-product revenues benefitted from an increase in the realized copper price which more than offset lower copper sales volumes. New Afton's quarterly sustaining costs decreased by $2 million to $7 million when compared to the first quarter of 2016.

New Gold is pleased to reiterate New Afton's guidance for full-year gold production of 70,000 to 80,000 ounces and copper production of 85 to 95 million pounds. As a result of the cost savings initiatives solidified in the first quarter, and the benefit of the copper hedges relative to the company's guidance assumption, New Afton's full-year all-in sustaining cost guidance has been reduced to ($520) to ($480) per ounce, representing a $240 per ounce reduction from the company's original guidance range of ($280) to ($240) per ounce.

Mesquite

The increase in gold production at Mesquite relative to the first quarter of 2016 was due to higher recoveries as total ore tonnes mined and placed included less transitional material than was mined in 2016.

First quarter operating expenses increased when compared to the prior-year quarter as no mining costs were capitalized in the first quarter of 2017. First quarter all-in sustaining costs decreased due to a $10 million, or $405 per ounce, decrease in sustaining costs primarily due to no capitalized waste stripping, which was only partially offset by the increase in operating costs.

New Gold is pleased to reiterate Mesquite's guidance for full-year gold production of 140,000 to 150,000 ounces and all-in sustaining costs of $805 to $845 per ounce.

Peak Mines

Peak Mines had a strong start to the year with first quarter gold production increasing by 45% relative to the first quarter of 2016. The significant increase in gold production was attributable to mining and processing of higher gold grade material. Quarterly copper production increased by 13% when compared to the first quarter of 2016 due to higher copper grade.

First quarter operating expenses decreased when compared to the prior-year quarter primarily due to higher gold sales volumes. All-in sustaining costs decreased during the quarter primarily as the benefit of higher gold sales volumes and increased by-product revenues were only partially offset by the appreciation of the Australian dollar relative to the U.S. dollar and a slight increase in sustaining costs.

New Gold is pleased to reiterate Peak Mines' guidance for full-year gold production of 85,000 to 95,000 ounces and copper production of approximately 15 million pounds. As a result of the cost savings initiatives solidified in the first quarter, Peak Mines' full-year all-in sustaining costs guidance has been reduced to $975 to $1,015 per ounce, representing an $85 per ounce reduction from the company's original guidance range of $1,060 to $1,100 per ounce.

Cerro San Pedro

Cerro San Pedro finished active mining late in the second quarter of 2016 and has now transitioned to residual leaching. As a result, and consistent with expectations, the mine's first quarter gold and silver production decreased compared to the prior year. First quarter operating expenses and all-in sustaining costs increased when compared to the prior-year quarter due to lower gold sales volumes. As the company is drawing down leach pad inventory during the residual leach period, $403 per ounce of the reported all-in sustaining costs is related to cash expenditures that were incurred in prior periods.

New Gold is pleased to reiterate Cerro San Pedro's guidance for full-year gold production of 35,000 to 45,000 ounces and all-in sustaining costs of $1,090 to $1,130 per ounce.

2017 FIRST QUARTER FINANCIAL RESULTS

First quarter revenues increased by $15 million, or 10%, relative to the prior-year quarter, primarily due to higher metal prices. Relative to the first quarter of 2016, the average realized price increased by $80 per ounce of gold, or 7%, $0.44 per pound of copper, or 21%, and $2.79 per ounce of silver, or 19%. First quarter production and metal sales volumes were in line with the prior-year quarter.  

New Gold's first quarter operating margin increased by $14 million relative to the prior-year quarter as a result of the $15 million increase in revenues and the company's operating expenses remaining consistent, despite the appreciation of the Canadian and Australian dollars relative to the U.S. dollar.

The company reported net earnings of $38 million, or $0.07 per share, in the first quarter of 2017 relative to net earnings of $26 million, or $0.05 per share, in the prior-year quarter. First quarter net earnings included a $33 million pre-tax gain on the disposal of the El Morro stream, a $6 million non-cash foreign exchange gain and a $14 million pre-tax loss on the revaluation of company's gold price option contracts.

New Gold had adjusted net earnings of $9 million, or $0.02 per share, in the first quarter of 2017 relative to an adjusted net loss of $2 million, in the prior-year quarter. Quarterly adjusted net earnings were positively impacted by the combination of the $15 million increase in revenues, a $4 million decrease in depreciation and depletion and a $3 million decrease in finance costs as more interest has been capitalized to Rainy River. These items were partially offset by an $8 million increase in adjusted income tax expense, a $1 million increase in operating expenses, and a $1 million increase in exploration, business development, and corporate general and administrative expenses.

The company's first quarter cash generated from operations before changes in non-cash operating working capital of $69 million was $7 million, or 12%, higher than the prior-year quarter as the impact of the higher operating margin was only partially offset by higher income taxes paid. Cash generated from operations in the first quarter of 2017 was $77 million relative to $62 million in the prior-year quarter. The significant working capital benefit during the first quarter of 2017 was due to the company collecting an outstanding concentrate receivable of $21 million at New Afton in January 2017.

FINANCIAL UPDATE

New Gold's cash and cash equivalents at March 31, 2017 were $350 million. The company also has a $400 million revolving credit facility, of which $100 million has been drawn and $123 million has been used to issue letters of credit for closure obligations at the company's producing mines and development projects, leaving $177 million undrawn. The company's pro forma liquidity totals $527 million (cash and undrawn credit facility) plus its expected free cash flow generation from its operating mines through the balance of 2017.

In 2016, New Gold entered into gold price option contracts covering 120,000 ounces of its first half 2017 production, with put options at a strike price of $1,300 per ounce and call options at a strike price of $1,400 per ounce. The company also fixed the price for 31.7 million pounds of the company's first half 2017 copper production at $2.52 per pound and fixed 43.7 million pounds of the company's second half 2017 copper production at $2.73 per pound. These initiatives increase the company's cash flow certainty during the remaining Rainy River development period.

At March 31, 2017, the face value of the company's long-term debt was $900 million (book value – $890 million). The components of the long-term debt include: $300 million of 7.00% face value senior unsecured notes due in April of 2020; $500 million of 6.25% face value senior unsecured notes due in November of 2022; and $100 million drawn from the revolving credit facility. The company currently has approximately 575 million shares outstanding.

PROJECTS UPDATE

Rainy River

Development activities at New Gold's Rainy River project, located in northwestern Ontario, continue to advance and the project is scheduled to transition from construction to operation in the third quarter of 2017. Both the project schedule and capital cost estimate remain in line with New Gold's updated plan announced on January 30, 2017.

RAINY RIVER – 2017 FIRST QUARTER HIGHLIGHTS

• Project spending during the first quarter totalled $126 million, with estimated remaining capital to achieve November commercial production of $389 million 
• Mining rate during the quarter averaged over 110,000 tonnes per day
• Overall earthworks approximately 70% complete
• All key structural components of the process facilities complete
• Installation of mechanical, piping, electrical and instrumentation in processing facilities approximately 85% complete 
• Primary crusher and conveyor system approximately 95% complete
• Commissioning of the crusher commenced in March 2017 with first crush scheduled for early May 2017 

UPCOMING KEY MILESTONES

Second Quarter 2017

• Complete commissioning of crusher and complete first crush
• Commence commissioning of ball and SAG mill
• Energization of all site power lines

Third Quarter 2017

• Dry and wet commissioning of the full process circuit
• Complete tailings management area starter cell
• First ore to mill and mine start-up

Mining activities at Rainy River progressed well during the first quarter. The company's mining rate during the quarter averaged over 110,000 tonnes per day, which was in line with New Gold's updated plan announced on January 30, 2017. The September start-up is based on an expectation that the mining rate will continue to increase to an average of approximately 120,000 tonnes per day, which includes both planned productivity gains and takes into consideration the impact of changing weather conditions through the spring and summer months. There are multiple catalysts for the planned productivity gains. As pit water management impacts productivity, particularly during the spring thaw, the commissioning of the water management pond will facilitate increased pit dewatering which, in turn, will provide greater access and improved mining conditions. As well, an additional construction rock source has been identified outside of the pit and closer to the tailings area, which is currently being brought online. Once fully operational, this will shorten the cycle time of rock material mined from the pit as it will primarily be delivered to the waste dump instead of the longer haul to the tailings area. These changes, as well as operational improvements in the mining and maintenance areas, underpin the planned increase in mining rate to 120,000 tonnes per day.

Overall earthworks are approximately 70% complete and tracking in line with New Gold's updated plan. Through March 31, 2017, over 800,000m³ of construction material has been placed at the tailings management starter cell. The starter cell is scheduled to be completed in August 2017. Construction of the water management pond is tracking in line with the company's updated plan and approval is expected in the coming days to pump up to 1.4 million cubic metres into the pond. Completion and energization of all site overhead power lines and completion of the tailings pipeline corridor is planned for the second quarter. Subsequent to the end of the quarter, approval was received to commence construction of the mine rock pond.

All of the key structural components of the process facilities have been completed and the setting of mechanical equipment and installation of piping, electrical and instrumentation services is well advanced. The primary crusher and conveyor system are approximately 95% complete. Commissioning of the crusher commenced in March 2017 with the first crush expected in early May 2017. Thereafter, the commissioning of the ball and SAG mills should start during the second quarter and be completed in August 2017. Finally, the refining portion of the circuit should be completed and ready to begin commissioning early in the third quarter. Dry and wet commissioning of the full process circuit is scheduled to be completed in August 2017, which should leave approximately one month before targeted first production for any required adjustments to the circuit.

The company continues to work towards obtaining an amendment to Schedule 2 of the Metal Mining Effluent Regulations, required to close two small creeks and deposit tailings. In recent discussions with senior officials from Environment and Climate Change Canada, New Gold was advised that public notification of the proposed amendment is expected to be published in the second quarter of 2017, with the final publication and adoption of the Schedule 2 amendment expected to occur in January 2018.

As previously disclosed, New Gold is presently constructing a starter tailings cell, located within the broader tailings management area, that does not require a Schedule 2 amendment. This will allow New Gold to commence operations prior to completion of the Schedule 2 amendment. Based on its location and scale, the starter cell would provide capacity for approximately six months of tailings.

In addition, New Gold is finalizing its evaluation of an approach to constructing the creek closures which incorporates sheet pile at the centre of the portion of the dam which will cover the creeks. The purpose of this approach is both to reduce the construction time after receipt of the Schedule 2 amendment, and, most importantly, to be able to complete the work regardless of the weather conditions. The approach is expected to require provincial and federal regulatory approvals.

During the quarter, infill drilling was completed to confirm the estimated grades of mineralization in the resource block model and upgrade confidence in the portion of the reserve expected to be mined during the first year of commercial production.

Project spending at Rainy River during the first quarter totalled $126 million. Based on a C$1.30/US$ exchange rate, the remaining capital cost from April 1, 2017 to the targeted November commercial production is estimated to be approximately $389 million. Capital spending levels are expected to ramp up in the second and third quarters as the project enters the final phase of construction and transitions to operation.

New Gold continues to look forward to the expected growth in the company's production and cash flow once Rainy River transitions into operation later this year. Rainy River has multiple important asset qualities including its great jurisdiction, significant annual production potential, long estimated reserve life and continued exploration potential.

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 continues to anticipate approval of the Blackwater EA in 2017.

Capital expenditures at Blackwater during the first quarter were $2 million.

El Morro

In February, the company sold its gold stream on the El Morro project to an affiliate of Goldcorp Inc. for $65 million cash.

WEBCAST AND CONFERENCE CALL

A webcast and conference call to discuss these results will be held on Thursday, April 27, 2017 at 9:00 a.m. Eastern time. Participants may listen to the webcast by registering on our website at www.newgold.com. You may also listen to the conference call by calling toll free 1-888-231-8191, or 1-647-427-7450 outside of the U.S. and Canada. A recorded playback of the conference call will be available until May 27, 2017 by calling toll free 1-855-859-2056, or 1-416-849-0833 outside of the U.S. and Canada, passcode 94771662. An archived webcast will also be available until July 27, 2017 at www.newgold.com.  

ABOUT NEW GOLD INC.

New Gold is an intermediate gold mining company. The company has a portfolio of four producing assets and two significant development projects. The New Afton Mine in Canada, the Mesquite Mine in the United States, the Peak Mines in Australia and the Cerro San Pedro Mine in Mexico (which transitioned to residual leaching in 2016), provide the company with its current production base. In addition, New Gold owns 100% of the Rainy River and Blackwater projects located in Canada. New Gold's objective is to be the leading intermediate gold producer, focused on the environment and social responsibility. For further information on the company, please visit www.newgold.com.