EX-99.3 4 tv486667_ex99-3.htm EXHIBIT 3

 

Exhibit 3

 

 

 

 

 

 

OPERATING AND FINANCIAL HIGHLIGHTS

OPERATING HIGHLIGHTS

All dollar figures are in United States dollars and tabular dollar amounts are in millions, unless otherwise noted.

New Gold Inc. (“New Gold” or the “Company”) is an intermediate gold producer with operating mines in Canada, the United States, Australia and Mexico, and a development project in Canada. For the year ended December 31, 2017, the Rainy River Mine in Canada (“Rainy River”), the New Afton Mine in Canada (“New Afton”), the Mesquite Mine in the United States (“Mesquite”), the Peak Mines in Australia (“Peak Mines”), which has been classified as a discontinued operation during 2017, and the Cerro San Pedro Mine in Mexico (“Cerro San Pedro”), which has been is in residual leaching since June 2016, combined to produce 422,411 gold ounces (430,949 gold ounces inclusive of the Rainy River pre commercial production period), 104.3 million pounds of copper and 1.2 million silver ounces. For the three months ended December 31, 2017, the Company’s operating mines combined to produce 145,992 gold ounces (154,530 gold ounces inclusive of the Rainy River pre commercial production period), 28.1 million pounds of copper and 0.3 million silver ounces. New Gold’s Rainy River Mine commenced commercial production during the fourth quarter of 2017.

 

 

New Gold’s production costs remained very competitive compared to the broader gold mining industry as New Gold had operating expenses (2) of $646 per gold ounce sold, all-in sustaining costs from continuing operations(2) of $668 per gold ounce sold, and all-in sustaining costs(2) of $727 per gold ounce sold in 2017.

 

2017 gold production by operating mine

 

 

 

1.Amounts presented include production from Peak Mines, which has been classified as a discontinued operation for the year ended December 31, 2017.
2.The Company uses certain non-GAAP financial performance measures throughout this Management’s Discussion and Analysis (“MD&A”). For a detailed description of each of the non-GAAP measures used in this MD&A and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

 

 

1 

 

 

 

FINANCIAL HIGHLIGHTS

 

 

 

 

  2017 2016 2015
Operating information(4)        
Gold production from continuing operations (ounces)   317,898 274,214 345,866
Gold production (ounces)   422,411 381,663 435,718
Gold sales from continuing operations (ounces)   309,454 274,843 339,587
Gold sales (ounces)   410,086 378,239 428,852
Gold revenue from continuing operations ($/ounce)(1)   1,247 1,207 1,122
Gold average realized price from continuing operations ($/ounce)(1)   1,278 1,246 1,152
Operating expenses per gold ounce sold from continuing operations ($/ounce)(1)   646 623 606
All-in sustaining costs per gold ounce sold from continuing operations ($/ounce)(1)   668 675 867
All-in sustaining costs per gold ounce sold ($/ounce)(1)   727 692 903
Financial Information        
Revenue   604.4 522.8 582.9
(Loss) earnings from continuing operations   (101.7) 5.5 (168.3)
Net (loss)   (108.0) (7.0) (201.4)
Adjusted net earnings from continuing operations(1)   21.3 19.4 1.8
Adjusted net earnings (loss)(1)   49.3 14.6 (10.9)
Operating cash flows generated from continuing operations   275.0 225.0 245.8
Cash generated from operations   342.2 282.2 262.6
Cash generated from operations before changes in non-cash operating working capital(3)   299.2 301.8 276.4
Cash and cash equivalents   216.2 185.9 335.5
Total capital expenditures (sustaining capital) (1)   88.4 87.4 121.5
Total capital expenditures (growth capital) (1)   513.4 479.6 268.0
Share Data        
(Loss) earnings per share from continuing operations ($)   (0.18) (0.02) (0.33)
(Loss) earnings per basic share ($)   (0.19) (0.01) (0.40)
Adjusted net earnings per basic share from continuing operations(1) ($)   0.04 0.04 0.00
Adjusted net earnings (loss) per basic share(1) ($)   0.09 0.03 (0.02)
1.The Company uses certain non-GAAP financial performance measures throughout this MD&A. For a detailed description of each of the non-GAAP measures used in this MD&A and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.
2.Of the $400 million credit facility, $230 million has been drawn and $139 million has been utilized for letters of credit, both as at December 31, 2017.
3.Amounts presented include operating cash flows from Peak Mines, which has been classified as a discontinued operation for the year ended December 31, 2017.
4.Gold production excludes 8,538 gold ounces produced during Rainy River’s pre commercial production period.

 

2 

 

 

 

Contents

 

OPERATING HIGHLIGHTS 1
FINANCIAL HIGHLIGHTS 2
OUR BUSINESS 4
OPERATING AND FINANCIAL HIGHLIGHTS 5
CORPORATE DEVELOPMENTS 11
CORPORATE SOCIAL RESPONSIBILITY 12
NEW GOLD’S INVESTMENT THESIS 15
OUTLOOK FOR 2018 16
KEY PERFORMANCE DRIVERS 17
FINANCIAL RESULTS 21
REVIEW OF OPERATING MINES 34
DISCONTINUED OPERATIONS 45
MINERAL RESERVES AND RESOURCES UPDATE (1) 51
FINANCIAL CONDITION REVIEW 54
NON-GAAP FINANCIAL PERFORMANCE MEASURES 61
ENTERPRISE RISK MANAGEMENT AND RISK FACTORS 91
CRITICAL JUDGMENTS AND ESTIMATION UNCERTAINTIES 107
ACCOUNTING POLICIES 107
CONTROLS AND PROCEDURES 108
MINERAL RESERVES AND MINERAL RESOURCES 109
CAUTIONARY NOTES 114

 

3 

 

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

For the year ended December 31, 2017

The following Management’s Discussion and Analysis (“MD&A”) provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of New Gold Inc. and its subsidiaries (“New Gold” or the “Company”). This MD&A should be read in conjunction with New Gold’s audited consolidated financial statements for the years ended December 31, 2017 and 2016 and related notes, which are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). This MD&A contains forward-looking statements that are subject to risks and uncertainties, as discussed in the cautionary note contained in this MD&A. The reader is cautioned not to place undue reliance on forward-looking statements. All dollar figures are in United States dollars and tabular dollar amounts are in millions, unless otherwise noted. This MD&A has been prepared as at February 20, 2018. Additional information relating to the Company, including the Company’s Annual Information Form, is available on SEDAR at www.sedar.com.

OUR BUSINESS

New Gold is an intermediate gold producer with operating mines in Canada, the United States and Australia, and a development project in Canada. The Company’s operating properties consist of the Rainy River gold mine in Canada (“Rainy River”), New Afton gold-copper mine in Canada (“New Afton”), the Mesquite gold mine in the United States (“Mesquite”), and the Peak Mines gold-copper mine in Australia (“Peak Mines”) which has been classified as a discontinued operation during 2017. The Company’s Cerro San Pedro gold-silver mine in Mexico (“Cerro San Pedro”) has been in residual leaching since June 2016. New Gold’s development project is its 100%-owned Blackwater gold-silver project (“Blackwater”), located in Canada. On February 17, 2017, the Company sold its 4% stream on future gold production from the El Morro property located in Chile (“El Morro”) to an affiliate of Goldcorp Inc. for $65 million cash.

New Gold’s operating portfolio is diverse in the range of commodities it produces. The assets produce gold, with copper and silver by-products, at low costs. The Company believes it has a solid platform to continue to execute its growth strategy, both organically and through value-enhancing accretive acquisitions, to further establish itself as an industry-leading intermediate gold producer.

4 

 

 

 

OPERATING AND FINANCIAL HIGHLIGHTS

OPERATING HIGHLIGHTS

Three months ended December 31  Year ended December 31 
   2017  2016   2017  2016  2015 
Operating information                      
Gold (ounces):                      
   Produced from continuing operations (1)   110,240   77,296    317,898   274,214   345,866 
   Produced(1)   145,992   95,883    422,411   381,663   435,718 
   Sold from continuing operations (1)   108,782   75,887    309,454   274,843   339,587 
   Sold (1)   143,644   93,936    410,086   378,239   428,852 
Copper (millions of pounds):                      
   Produced from continuing operations (1)   24.6   21.4    90.6   87.3   85.9 
   Produced(1)   28.1   25.6    104.4   102.3   100.0 
   Sold from continuing operations (1)   22.0   21.1    84.5   84.9   79.7 
   Sold (1)   24.9   24.6    96.6   99.2   92.9 
Silver (millions of ounces):                      
   Produced from continuing operations (1)   0.3   0.3    1.0   1.1   1.7 
   Produced(1)   0.3   0.3    1.2   1.3   1.9 
   Sold from continuing operations (1)   0.2   0.2    0.9   1.1   1.7 
   Sold (1)   0.3   0.3    1.1   1.3   1.8 
Revenue from continuing operations (1) :                      
   Gold ($/ounce)   1,252   1,181    1,247   1,207   1,122 
   Copper ($/pound)   2.44   2.24    2.41   2.03   2.21 
   Silver ($/ounce)   15.84   16.35    16.41   16.71   15.20 
Average realized price from continuing operations (1) (2):                      
   Gold ($/ounce)   1,274   1,199    1,278   1,242   1,152 
   Copper ($/pound)   2.70   2.47    2.66   2.23   2.42 
   Silver ($/ounce)   16.29   16.78    16.88   17.09   15,38 
Operating expenses per gold ounce sold from continuing operations ($/ounce) (3)   738   771    646   623   606 
Operating expenses per copper pound sold from continuing operations ($/pound) (3)   1.56   1.57    1.34   1.11   1.27 
Operating expenses per silver ounce sold from continuing operations ($/ounce) (3)   9.44   10.66    8.54   8.55   8.66 
Total cash costs per gold ounce sold from continuing operations ($/ounce)  (2)(4)   572   288    360   259   618 
Total cash costs per gold ounce sold ($/ounce)  (2)(4)   533   360    403   349   443 
All-in sustaining costs per gold ounce sold from continuing operations ($/ounce)  (2)(4)   774   590    668   675   867 
All-in sustaining costs per gold ounce sold ($/ounce)  (2)(4)   771   619    727   692   809 

Total cash costs per gold ounce sold on

a co-product basis ($/ounce) (2)(4)

   746   647    697   634   661 

All-in sustaining costs per gold ounce sold on

a co-product basis ($/ounce) (2)(4)

   916   812    909   861   903 
1.Production is shown on a total contained basis while sales are shown on a net payable basis, including final product inventory and smelter payable adjustments, where applicable.
2.The Company uses certain non-GAAP financial performance measures throughout this MD&A. Average realized price, total cash costs and all-in sustaining costs per gold ounce sold and total cash costs and all-in sustaining costs on a co-product basis are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.
3.Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
4.The calculation of total cash costs and all-in sustaining costs per gold ounce sold is net of by-product silver and copper revenue. Total cash costs and all-in sustaining costs on a co-product basis remove the impact of other metal sales that are produced as a by-product of the Company’s gold production and apportions the cash costs to each metal produced on a percentage of revenue basis. If silver and copper revenue were treated as co-products, co-product total cash costs for the year ended December 31, 2017 from continuing operations would be $8.98 per silver ounce sold (2016 - $8.19) and $1.58 per copper pound sold (2016 - $1.22) and co-product all-in sustaining costs for the year ended December 31, 2017 would be $11.52 per silver ounce sold (2016 - $11.74) and $1.98 per copper pound sold (2016 - $1.66). Co-product total cash costs for the three months ended December 31, 2017 from continuing operations would be $9.90 per silver ounce sold (2016 - $8.80) and $1.83 per copper pound sold (2016 - $1.41) and co-product all-in sustaining costs for the year ended December 31, 2017 would be $11.67 per silver ounce sold (2016 - $11.39) and $2.13 per copper pound sold (2016 - $1.79).

 

5 

 

 

 

The Company began a process for the sale of Peak Mines and entered into a binding agreement with Aurelia Metals Limited (“Aurelia”) in 2017; closing of the sale of the asset is expected in the first quarter of 2018. As such Peak Mines has been classified as a discontinued operation. Operating highlights are disclosed on a continuing and total basis, where appropriate.

Rainy River reached commercial production in the fourth quarter of 2017. From an accounting perspective, the Company recognized commercial production effective November 1, 2017, being the first day of the month following satisfaction of the commercial production criteria. Prior to the commercial production date the mine produced 8,538 gold ounces, with the associated proceeds reducing the capital costs of the project. Gold ounces produced for the year ended December 31, 2017 are shown exclusive of the pre commercial period, unless otherwise noted. Other operating and financial information represent the post commercial production period.

Gold production from continuing operations of 317,898 ounces for the year ended December 31, 2017 was higher than the 274,214 ounces in the prior-year period. Higher production at Mesquite and additional ounces from Rainy River’s start-up were partially offset by planned lower production at New Afton and Cerro San Pedro. Cerro San Pedro’s production decreased as the mine is in the residual leaching phase. Gold production from total operations of 422,411 ounces (430,949 ounces including the Rainy River pre commercial production period) was above the prior-year period. The combination of Rainy River’s start up, Mesquite’s very strong year and solid operating results at New Afton and Peak Mines, enabled the Company to achieve its guidance range of 380,000 to 430,000 ounces.

For the three months ended December 31, 2017, gold production from continuing operations was 110,240 compared with 77,926 in the prior-year period. Higher production was attributable to Mesquite’s strong fourth quarter gold production and the additional ounces from Rainy River’s start-up. In the fourth quarter of 2017, the Company delivered record quarterly gold production of 145,992 ounces (including Peak Mines).

Gold sales from total operations were 410,086 ounces for the year ended December 31, 2017, compared to 378,239 ounces in the prior-year period. Timing of sales at the end of the period resulted in a difference between ounces sold and ounces produced. Gold sales were 143,644 ounces for the three months ended December 31, 2017, compared to 93,936 ounces in the prior-year period.

Copper production from continuing operations and total operations for the year ended December 31, 2017 increased compared to the prior-year period due to higher grades and higher ore tonnes processed at New Afton. Total copper production of 104.4 million pounds achieved the Company’s guidance range of 100 to 110 million pounds. Copper production for the quarter ended December 31, 2017 was higher than the prior-year quarter.

Copper sales from total operations were 96.6 million pounds for the year ended December 31, 2017, compared to 99.2 million pounds in the prior-year period. Timing of sales at the end of the period resulted in a difference between pounds sold and pounds produced. For the three months ended December 31, 2017, copper sales were 24.9 million pounds consistent with the prior-period of 24.6 million pounds.

6 

 

 

 

Operating expenses from continuing operations per gold ounce for the year ended December 31, 2017 was $646, an increase from the prior-year of $623 due to increased process flow solution at Mesquite operations and higher operating expenses at Rainy River which commenced commercial production in the fourth quarter of 2017. Operating expense per ounce of gold sold achieved the guidance range of $630 to $670 per ounce. For the three months ended December 31, 2017, operating expenses from continuing operations per gold ounce sold was $738 compared with $771 in the prior-year period due to the prior-year period being negatively impacted by a heap leach silver inventory write-down of $24.0 million at Cerro San Pedro.

Total cash costs per gold ounce sold from continuing operations, net of by-product sales, were $360 per ounce for the year ended December 31, 2017 compared to $259 per ounce in the prior year. The increase in total cash costs was primarily driven by higher operating expenses partially offset by the effect of by-product revenues which benefitted from an increase in the realized copper price.

Total cash costs per gold ounce sold from continuing operations, net of by-product sales, were $572 per ounce for the three months ended December 31, 2017 compared to $288 per ounce in the prior year. The increase in total cash costs was primarily driven by higher operating expenses partially offset by the effect of by-product revenues which benefitted from an increase in the realized copper price.

All-in sustaining costs per gold ounce sold from continuing operations were $668 for the year ended December 31, 2017, compared to $675 in the prior year. In addition to the Company’s strong operating performance, all-in sustaining costs benefitted from the timing of sustaining capital expenditure payments at Rainy River. All-in sustaining costs per gold ounce sold from continuing operations was positively impacted by the exclusion of Peak Mines consolidated sustaining costs. All-in sustaining costs from all operations were $727 per ounce for the year ended December 31, 2017, compared to $692 per ounce in the prior-year period and came in below the guidance range of $760 to $800 per ounce which had previously been lowered by $65 per ounce in the second quarter of 2017.

All-in sustaining costs per gold ounce sold from continuing operations were $774 for the three months ended December 31, 2017, compared to $590 in the prior-year period. All-in sustaining costs from all operations were $771 for the three months ended December 31, 2017, compared to $619 in the prior-year period. This increase was due to the start-up of Rainy River and slightly higher sustaining costs at Mesquite and lower gold and silver sale volumes at Cerro San Pedro.

Rainy River achieved commercial production in the fourth quarter of 2017 with mining and milling activities continuing to progress well during the quarter. Rainy River produced 37,047 ounces during the fourth quarter including the pre- commercial period, with an additional 8,607 ounces of gold inventory in circuit at the end of the period. The milling rate for December averaged 21,000 tonnes per day, which is the nameplate capacity for the facility. Gold production for 2017, including gold inventory in circuit, totalled 45,654 ounces. This was slightly lower than the guidance range of 50,000 to 60,000 ounces, as the mill ramp-up began hitting nameplate throughput slightly later in the fourth quarter than planned, resulting in lower total tonnes milled. Consistent with the Company’s plans, during the two month initial commercial production period, the gold grade averaged 0.94 gram per tonne with recoveries of 86%. With the mill operating at nameplate capacity, Rainy River is well positioned to deliver strong production in 2018. All-in sustaining costs for the year ended December 31, 2017 were above the guidance range of $1,400 to $1,440 per ounce primarily due to lower gold sales volumes.

For a detailed review of the Company’s operating mines, refer to the “Review of Operating Mines” sections of this MD&A.

7 

 

 

 

FINANCIAL HIGHLIGHTS

Three months ended December 31  Year ended December 31 
(in millions of U.S. dollars, except where noted)  2017   2016   2017   2016   2015 
FINANCIAL INFORMATION(3)                         
Revenue   193.5    140.7    604.4    522.8    582.9 
Operating margin(1)   76.5    46.5    283.4    247.3    261.9 
Revenue less cost of goods sold(2)   6.0    (10.6)    63.1    47.2    68.0 
(Loss) earnings from continuing operations(2)   (179.6)   (23.3)    (101.7)   (8.6)    34.2 
Net loss(2)   (195.6)   (22.3)    (108.0)    (7.0)    (201.4) 
Adjusted net earnings from continuing operations (1) (2)   6.2    1.5    21.3    19.4    1.8 
Adjusted net earnings (loss) (1)(2)   32.5    (4.9)    49.3    14.6    (10.9) 
Operating cash flows generated from continuing operations   91.2    49.1    275.0    225.0    245.8 
Cash generated from continuing operations before changes in non-cash operating working capital (1)   64.8    64.6    234.1    245.3    265.1 
Capital expenditures (sustaining capital) (1)   27.4    15.7    88.3    87.4    121.5 
Capital expenditures (growth capital) (1)   84.2    149.1    513.4    479.6    268.0 
Total assets(2)   4,017.3    3,933.0  3,831.5    4,017.3    3,933.0  3,831.5    3,675.5 
Cash and cash equivalents   216.2    185.9    216.2    185.9    335.5 
Long-term debt   1,007.7    889.5    1,007.7    889.5    787.6 
                          
Share Data                         
(Loss) earnings per share from continuing operations(2):                         
   Basic ($)   (0.31)   (0.05)    (0.18)    (0.02)    (0.33) 
   Diluted ($)   (0.31)   (0.05)    (0.18)    (0.02)    (0.33) 
(Loss) earnings per share(2):                         
   Basic ($)   (0.34)   (0.04)    (0.19)    (0.01)    (0.40) 
   Diluted ($)   (0.34)   (0.04)    (0.19)    (0.01)    (0.40) 
Adjusted net earnings (loss) per basic share ($)(1)(2)   0.06    (0.01)    0.09    0.03    (0.02) 
Adjusted net earnings per basic share from continuing operations ($) (1)(2)   0.01    -    0.04    0.04    - 
Share price as at December 31 (TSX – Canadian dollars)   4.13    4.71    4.13    4.71    3.22 
Weighted average outstanding shares (basic) (millions)   578.1    513.0    564.7    511.8    509.0 
                          
1.The Company uses certain non-GAAP financial performance measures throughout this MD&A. Operating margin, adjusted net loss, adjusted net loss per basic share, capital expenditures (sustaining and growth) and cash generated from operations before changes in non-cash operating working capital are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.
2.Prior-year period comparatives have been revised. Please refer to the “Key Quarterly Operating and Financial Information” section of this MD&A for further information.
3.As the Company has entered into a binding agreement to sell the Peak Mines and the Company expects to close the sale in the first quarter of 2018, Peak Mines has been classified as a discontinued operation. Financial highlights are disclosed on a continuing and total basis, where appropriate.

 

Revenue was $604.4 million for the year ended December 31, 2017, compared to $522.8 million in the prior year. Revenue benefitted from the higher gold sales volumes and higher gold and copper prices when compared to the prior year. Relative to the prior year, the average realized price increased by $36 (3%) per ounce of gold and $0.43 (19%) per pound of copper.

Revenue was $193.5 million for the three months ended December 31, 2017, compared to $140.7 million in the prior-year period. The increase is due to higher metal sales volumes and higher gold and copper prices. Relative to the prior-year period, gold sales increased by 53%, mainly attributable to the startup of Rainy River and Mesquite’s strong quarter. Average realized gold price increased by $75 (6%) per ounce and the copper price increased by $0.23 (9%) per pound compared to the prior-year period.

8 

 

 

 

Revenue less cost of goods sold for the year ended December 31, 2017 was $63.1 million compared to $47.2 million in the prior year. Revenue less cost of goods sold was $6.0 million for the three months ended December 31, 2017, compared to a loss of $10.6 million in the prior year period. This increase in the three months and year ended December 31, 2017 was driven by the higher gold sales and higher metal prices.

For the year ended December 31, 2017, the loss from continuing operations was $101.7 million compared to an $8.6 million loss in the prior year. The net loss includes the net impact of an after-tax impairment charge in the current year of $181.0 million relating to Rainy River, a $43.8 million non-cash foreign exchange gain, a $33.0 million pre-tax gain on the disposal of the El Morro stream, a $21.8 million pre-tax loss on the revaluation of the Company’s gold stream obligation, a $18.3 million pre-tax loss on the revaluation of Company’s gold and copper price option contracts and copper forward contracts, and a $3.3 million gain on the modification of long-term debt. The prior year included a $31.1 million pre-tax loss on the revaluation of the Company’s gold stream obligation, a non-cash $27.3 million inventory write-down at Cerro San Pedro, a $12.0 million non-cash foreign exchange gain, and a $10.5 million gain on the revaluation of gold price option contracts. The net loss was higher than the loss from continuing operations due to a non-cash loss of $49.0 million from the sale of Peak Mines, partially offset by strong earnings from operations from Peak Mines for the year ended December 31, 2017.

 

The loss from continuing operations was $179.6 million for the three months ended December 31, 2017, compared to $23.3 million in the prior-year period. The fourth quarter loss from continuing operations included a net impact of an after-tax impairment charge of $181.0 million relating to Rainy River, a $17.0 million loss on the revaluation of the gold stream obligation, and a $8.8 million pre-tax foreign exchange loss, finance costs of $12.7 million, and a $4.2 million expense relating to the Company’s restructuring of its corporate office workforce. The prior-year period included a non-cash $27.3 million inventory write-down at Cerro San Pedro, a $5.1 million pre-tax foreign exchange loss, an $11.4 million gain on the revaluation of the Company’s gold option contracts, and a pre-tax gain of $3.3 million on the revaluation of the gold stream obligation. The net loss was higher than the loss from continuing operations due to due to a non-cash loss of $49.0 million from the sale of Peak Mines, which was only partially offset by strong earnings from operations from Peak Mines for the three months ended December 31, 2017.

Adjusted net earnings from continuing operations for the year ended December 31, 2017 were $21.3 million, or $0.04 per basic share, compared to $19.4 million or $0.04 per basic share in the prior year. Adjusted net earnings from continuing operations were primarily impacted by higher operating expenses, net of inventory write-downs, of $69.5 million, higher depreciation and depletion, net of inventory write-downs, of $23.5 million, higher net finance costs of $6.9 million (excluding gains on debt modification), partially offset by higher revenue of $81.6 million. Adjusted net earnings from continuing operations benefitted from an adjusted tax recovery of $8.8 million. For the year ended December 31, 2017, adjusted net earnings were $49.3 million or $0.09 per share when compared to $14.6 million or $0.03 per share in the prior year. Adjusted earnings for the year ended December 31, 2017 positively benefitted from higher adjusted earnings from discontinued operations, resulting from the cessation of depreciation and depletion at Peak Mines upon classification to discontinued operations.

Adjusted net earnings from continuing operations for the three months ended December 31, 2017 were $6.2 million or $0.01 per basic share, compared to adjusted net earnings from continuing operations of $1.5 million or $nil per basic share in the prior-year period. Adjusted net earnings from continuing operations were positively impacted by higher revenue of $52.8 million, lower corporate administration (including share-based payment expenses) of $3.8 million and lower exploration and business development expenses of $1.2 million. Additionally, adjusted earnings from continuing operations benefitted from an adjusted tax recovery of $17.1 million. This was partially offset by higher operating expenses, net of inventory write-downs, of $46.8 million, higher depreciation and depletion, net of inventory write-downs, of $16.9 million, and higher net finance costs of $11.8 million. For the three months ended December 31, 2017, adjusted net earnings were $32.5 million or $0.06 per share when compared to an adjusted net loss of $4.9 million or $0.01 per share in the prior-year period. Adjusted earnings for the three months ended December 31, 2017 positively benefitted from higher adjusted earnings from discontinued operations, resulting from increased revenues at Peak Mines and the cessation of depreciation and depletion at Peak Mines upon classification to discontinued operations.

 

9 

 

 

 

For the year ended December 31, 2017, cash generated from continuing operations was $275.0 million, compared to $225.0 million in the prior year. Cash generated from continuing operations before changes in non-cash working capital for the year ended December 31, 2017 was $234.1 million compared with $245.3 million in the prior year as higher operating margins, were offset by higher income taxes paid and a $4.2 million expense relating to the Company’s restructuring of its corporate office workforce. Cash generated from continuing operations for the year ended December 31, 2017 was higher than the prior-year period, benefitting from an increase in trade and other payables at Rainy River and the collection of a concentrate receivable of $21.2 million at New Afton which was outstanding at December 31, 2016.

For the year ended December 31, 2017, cash generated from operations was $342.2 million, compared to $282.2 million in the prior-year period, benefitting from the cash generated from continuing operations working capital movements noted above.

Cash generated from continuing operations for the three months ended December 31, 2017 was $91.2 million, compared with $49.1 million in the prior-year period. Cash generated from continuing operations before changes in non-cash working capital for the three months ended December 31, 2017 of $64.8 was in line with the prior-year period. Cash generated from continuing operations benefitted from an increase in trade and other payables at Rainy River, while the prior year-period included an outstanding concentrate receivable of $21.2 million at New Afton.

For the three months ended December 31, 2017, cash generated from operations was $118.9 million, compared to $51.9 million in the prior-year period, benefitting from the cash generated from continuing operations, working capital movements noted above and higher gold sales volumes at Peak Mines.

For further information on the Company’s liquidity and cash flow position, please refer to the “Liquidity and Cash Flow” section of this MD&A. For further information on the Company’s financial results, please refer to the “Financial Results” section of this MD&A.

 

10 

 

 

 

CORPORATE DEVELOPMENTS

New Gold’s strategy involves strong operational execution at its current assets and disciplined growth through both organic initiatives and value-enhancing mergers and acquisitions. Since the middle of 2009, New Gold has focused on enhancing the value of its portfolio of assets, while also continually looking for compelling external growth opportunities. New Gold’s objective is to pursue corporate development initiatives that will maximize long-term shareholder value.

 

On February 17, 2017, New Gold sold its 4% stream on future gold production from El Morro to an affiliate of Goldcorp Inc. for $65.0 million cash. This transaction provided the Company with additional liquidity as the Company advanced the construction of Rainy River.

 

In 2017, New Gold entered into an agreement with a syndicate of underwriters to purchase, on a bought deal basis, 53,600,000 common shares of New Gold (plus an over-allotment option) at a price of $2.80 per share. On March 10, 2017, New Gold closed the bought deal financing of 61,640,000 common shares (including the over-allotment) for net proceeds to New Gold of approximately $164.7 million (gross proceeds of $172.9 million less equity issuance costs of $8.2 million).

 

On June 27, 2017, New Gold entered into gold price option contracts covering 120,000 ounces of New Gold’s second half 2017 gold production. New Gold purchased put options with a strike price of $1,250 per ounce covering 120,000 ounces of gold and simultaneously sold call options with a strike price of $1,400 per ounce covering an equivalent 120,000 ounces. The contracts covered 20,000 ounces of gold per month for six months beginning in July 2017. The net cost of entering into the option contracts was approximately $1 million.

In October 2017, the Company entered into copper price option contracts by purchasing put options at a strike price of $3.00 per pound and selling call options at a strike price of $3.37 per pound for 27,600 tonnes (approximately 60 million pounds) of copper production during 2018 (“copper option contracts”).

On November 20, 2017, New Gold announced that the Company had entered into a binding agreement with Aurelia to sell the Peak Mines for cash consideration of $58.0 million subject to a closing adjustment. Aurelia paid a $3.0 million deposit, which will be retained by New Gold in certain circumstances if the transaction is not completed. The transaction is subject to customary closing conditions, including consent from the New South Wales Minister responsible for the Mining Act 1992 for the transfer of control of certain exploration licenses, and is expected to close in the first quarter of 2018.

 

11 

 

 

 

CORPORATE SOCIAL RESPONSIBILITY 

 

 

CORPORATE SOCIAL RESPONSIBILITY HIGHlights for 2017 

·     For the fourth time, New Gold was recognized as the top ranking mining company, and ninth overall in the Future 40 Most Responsible Corporate Leaders in Canada by Corporate Knights, which identifies Canada’s emerging sustainability leaders from small to mid-cap corporations.

·     A New Gold Indigenous relations strategy was developed to address five key pillars: engagement, capacity building, economic development, inclusion and environmental stewardship.

·     A New Gold local procurement standard was established to optimize local procurement and business opportunities and support sustainable economic development in the communities where we operate.

·     Independent Tailings Review Board conducted meetings at New Afton and Rainy River to ensure that best New Gold practices are adopted in Tailings Management.

·     New Afton received the 2016 Towards Sustainable Mining Leadership Award from the Mining Association of Canada and the 2016 J.T, Ryan Safety Award for Metal Mines for the lowest accident frequency in British Columbia and Yukon.

·     New Afton’s Safety Initiative Committee received the BC Chief Inspector’s Recognition Award.

·     New Afton held Health & Career Fairs at local First Nations communities and held a fundraiser for the Kamloops Foodbank.

·     New Afton underwent an external audit of its Environmental Management System. This resulted in only minor findings and the site will be certified under ISO14001:2015.

·     The New Afton community and mine rescue teams provided critical support to a local Indigenous community to prepare for and protect from the BC wildfires.

·     Cerro San Pedro achieved level A or greater for all protocols in Towards Sustainable Mining initiative including AAA rating for all performance indicators in the Community and Aboriginal Outreach protocol.

·     Cerro San Pedro was recertified by the International Cyanide Management Institute.

·     Cerro San Pedro held a Biodiversity Day event at local schools and built a potable water tank for the local community

·     The Todos par Cerro de San Pedro foundation launched a microfinancing program and provided a microloan to its first local small business owner.

·     Cerro San Pedro Mine continued to reclaim and revegetate waste piles as part of its closure and reclamation plan as well as complete the fencing off of the open pit area.

·      Peak Mines participated in Clean Up Australia Day and the Cobar Shire Festival of the Miners Ghost.

·      Continued working toward Environmental Assessment Approval and Participation Agreements with first Nations at Blackwater.

 

 

 

 

CORPORATE SOCIAL RESPONSIBILITY Targets for 2018

·     Achieve a minimum of AA ranking at the Mining Association of Canada’s Towards Sustainable Mining Aboriginal and Community Relations Protocol at Canadian operations.

·     Reduce reportable environmental incidents across all operations.

·     Reduce the Total Reportable Injury Frequency Rate (TRIFR).

·    Establish guidance for workforce with regard to high-risk activities such as working at heights, confined space, lock-out/tag-out and hazardous substances.

 

 

12 

 

 

 

New Gold is committed to excellence in corporate social responsibility. The Company considers its ability to make a lasting and positive contribution toward sustainable development a key driver to achieving a productive and profitable business. New Gold aims to achieve this objective through the protection of the health and well-being of its people and host communities as well as employing industry-leading practices in the areas of environmental stewardship and community engagement and development.

As a participant of the United Nations Global Compact, New Gold’s policies and practices are guided by its principles with regard to human rights, labour, environmental stewardship and anti-corruption. As a member of the Mining Association of Canada (“MAC”), New Gold’s operations adopt the MAC’s Towards Sustainable Mining protocols.

New Gold’s objectives include protecting the welfare of its employees and contractors through safety-first work practices, upholding fair employment practices and encouraging a diverse workforce, where people are treated with respect and are supported to realize their full potential. The Company strives to create a culture of inclusiveness and tolerance that begins at the top and is reflected in its hiring, promotion and overall human resources practices. In each of its host communities, the Company strives to be an employer of choice through the provision of competitive wages and benefits, and through the implementation of policies of recognizing and rewarding employee performance and promoting from within wherever possible.

The Company is committed to preserving the long-term health and viability of the natural environments that host its operations. Wherever New Gold operates – in all stages of mining activity, from early exploration and planning, to commercial mining operations through to eventual closure – the Company is committed to excellence in environmental management. From the earliest site investigations, New Gold carries out comprehensive environmental studies to establish baseline measurements for flora, fauna, earth, air and water. During operations, the Company promotes the efficient use of raw materials and resources and works to minimize environmental impacts and maintain robust monitoring programs. After mining activities are complete, New Gold’s objective is to restore the land to a sustainable end land use.

The New Gold environmental management standards are based on internationally recognized standards. The standards serve to guide site-level management systems to ensure that site operations identify and appropriately manage their environmental aspects, adopt a consistent approach to identifying and controlling environmental risks, report progress through audits and assessments, and adopt a high level of environmental stewardship. All sites are expected to have an external audit, peer audit or self-assessment annually based on our audit schedule.

As part of the implementation process, each operation has also compiled a register of significant environmental risks. This register contains the main environmental risks for each operation and allows corporate representatives to test the adequacy and effectiveness of controls as well as emergency preparedness and mitigation measures associated with these greatest potential risks.

In 2017, New Gold was subject to charges in relation to two incidents from 2016.  Specifically, on July 13, 2017, New Gold was charged with five breaches of the Environmental Protection Act (Ontario) in connection with alleged effluent discharges at the Rainy River project in July 2016 in excess of permit limits. On November 9, 2017, New Gold plead guilty to discharging un-ionized ammonia above the ECA limit on July 27, 2016 and failing to report a July 20, 2016 discharge above the standard for un-ionized ammonia. The three remaining charges were withdrawn. New Gold was sentenced to a fine of C$100,000 for the July 27, 2016 discharge and C$50,000 for the failure to report the July 20, 2016 discharge. A mandatory victim surcharge of 25% applies to the fines, for a total amount owing of C$187,500.  In addition, on July 24, 2017, New Gold was charged with two breaches of the Lakes and Rivers Improvement Act (Ontario) in connection with water allegedly overtopping a dam on the Rainy River construction site prior to completion of construction of the dam. New Gold takes all environmental incidents seriously and is in the process of evaluating this matter.  

13 

 

 

 

New Gold is committed to establishing relationships based on mutual benefit and active participation with its host communities to contribute to healthy and sustainable communities. Wherever the Company’s operations interact with Indigenous peoples, New Gold promotes understanding of, and respect for traditional values, customs and culture and takes meaningful action to consider their interests through collaborative agreements aimed at creating jobs, training and other lasting socio-economic benefits.

The New Gold community engagement and development standards provide guidance to our sites to identify our communities of interest, and effectively engage and sustain dialogue, and to find opportunities to contribute to long-term development within our host communities. They also drive us to monitor and continually improve our processes and performance. The standards are based on several internationally recognized principles and values. At each site, the standards are being progressively implemented to guide site-level management systems to ensure that site operations appropriately identify and engage with local communities of interest, respect human rights, identify opportunities for sustainable community investments, and makes commercially reasonable efforts to maximize local hiring and contracting.

Our standards also guide our operations to adopt a consistent approach to identifying and controlling social risks and to report progress through audits and assessments. All sites are expected to have an external audit, peer audit or self-assessment annually based on an audit schedule.

14 

 

 

 

NEW GOLD’S INVESTMENT THESIS

Our primary focus is the exploration, development and operation of our portfolio of gold producing assets. We currently have an established foundation, with our four producing assets providing us with the cash flow that should position us to grow the business as we further explore and develop our exciting development projects. As we deliver on what we believe is an industry-leading organic growth profile, we intend to remain focused on the following key strengths that have helped New Gold become a leading intermediate producer.

PORTFOLIO OF ASSETS IN TOP-RATED JURISDICTIONS   New Gold has a diverse portfolio of assets. Operating assets consist of Rainy River and New Afton in Canada, Mesquite in the United States, Peak Mines in Australia (classified as a discontinued operation) and Cerro San Pedro in Mexico, which transitioned into residual leaching in the second half of 2016. Our significant development project is the Blackwater project in Canada. All assets are located in jurisdictions that have been ranked in the top five mining jurisdictions based on the Behre Dolbear Report “2015 Ranking of Countries for Mining Investment”. In 2017, 43% of our revenue was generated from Canada, 22% from Australia, 28% from the United States and 7% from Mexico, and over 92% of our gold reserves are located in Canada.
     
INVESTED AND EXPERIENCED TEAM   New Gold has an invested and experienced executive management team and Board of Directors with extensive mining sector knowledge, a successful track record of identifying and developing mines and significant experience in leading successful mining companies.  Our Board of Directors provides valuable stewardship and includes individuals with a breadth of knowledge across the mining sector that the Company believes provides New Gold with a distinct competitive advantage.
     
ESTABLISHED TRACK RECORD   New Gold has a portfolio of mines that have a history of delivering on consolidated Company guidance. In 2017, New Gold achieved its production guidance at low costs which enabled us to generate robust margins. New Gold produced 422,411 gold ounces at operating expenses per gold ounce sold of $664 and all-in sustaining costs of $727 per gold ounce sold net of by-product sales.
     
PEER-LEADING GROWTH PIPELINE   In addition to our operating mines, we have development potential that significantly enhances our production base and growth profile. As at December 31, 2017, the Rainy River mine contains Proven and Probable Mineral Reserves of 4.4 million gold ounces and 12.8 million silver ounces. The Blackwater project contains Proven and Probable Mineral Reserves of 8.2 million gold ounces and 61 million silver ounces. Please refer to the “Mineral Reserves and Mineral Resources” section of this MD&A for further details
     
A HISTORY OF VALUE CREATION   Since the middle of 2008, New Gold has grown through the acquisition of largely single asset companies which has further strengthened the Company. The experience of our management team and Board of Directors has allowed the Company to be opportunistic in its corporate development initiatives. In addition, New Gold continues to look for opportunities to organically increase the value of each of its operations.

 

15 

 

 

 

OUTLOOK FOR 2018

 
 

Gold

Production(1)

Copper

Production(1)

Operating

Expense(2) (4)

Operating

Expense(2) (4)

All-in

Sustaining Costs(3) (4)

  (thousands of ounces) (millions of pounds) (per gold ounce sold) (per copper pound sold) (per gold ounce sold)
Rainy River 310 - 350 - $430 - $470 - $990 - $1,090
New Afton 55 - 65 75 - 85 $455 - $495 $1.10 - $1.30 ($1,020) - ($980)
Mesquite 140 - 150 -  $890 - $930 - $1,005 - $1,045
Cerro San Pedro 20 - 30 - $1,255 - $1,295 - $1,330 - $1,370
Total 525 - 595 75 - 85 $555 - $595 $1.35 - $1.55 $860 - $900
1.Consolidated silver production is estimated to be approximately 0.9 million ounces in 2018.
2.Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
3.Net of by-product silver and copper revenues.
4.For details on the key assumptions, which apply to all 2017 and 2018 production and cost guidance contained in this MD&A, refer to “Total Operating Expense and All-in Sustaining Costs per Gold Ounce Sold” below.

Production

New Gold’s 2018 consolidated gold production is expected to increase by approximately 30% relative to the prior year due to the benefit of the first full year of operations at Rainy River more than offsetting the planned decreases in gold production at New Afton, Mesquite and Cerro San Pedro, and the sale of Peak Mines. Consolidated copper production for 2018 is expected to decrease relative to the prior year primarily due to the sale of Peak Mines and planned lower mill throughput at New Afton. Consolidated silver production is scheduled to remain in line with 2017 at approximately 0.9 million ounces.

Consistent with previous years, New Gold’s 2018 full-year gold production is not scheduled to be evenly distributed across the four quarters. Approximately 60% of the Company’s consolidated gold production is expected to occur evenly in the second and fourth quarters. 

Total Operating Expense and All-in Sustaining Costs per Gold Ounce Sold

New Gold’s by-product pricing assumptions for 2018 are $3.20 per copper pound, which was in line with spot prices and approximates the mid-point of the Company’s copper collar pricing, and $17.00 per silver ounce which is in line with spot prices. The 2018 assumptions for the Canadian dollar and Mexican peso exchange rates of $1.25 and $18.00 to the U.S. dollar were in line with spot exchange rates at the time guidance was set.

The Company’s operating expense per gold ounce is expected to decrease in 2018, as a higher proportion of gold sales will be from the lower operating expense per ounce Rainy River Mine. Operating expense per copper pound in 2018 is expected to increase relative to the prior year due to lower mill throughput and copper grades at New Afton.

New Gold’s 2018 all-in sustaining costs are expected to increase relative to the prior year. The Company’s 2018 consolidated total cash costs, which form a component of all-in sustaining costs, are expected to be $360 to $400 per ounce. Sustaining costs for 2018, including sustaining capital, exploration, general and administrative and amortization or reclamation expenditures, are expected to increase by approximately $145 million relative to the prior year primarily due to an increase in sustaining capital expenditures during Rainy River’s first full year of operation. This increase is expected to be partially offset by lower capital and exploration expenditures at New Afton, Mesquite and Cerro San Pedro, as well as a sustainable reduction in corporate general and administration expenditures.

16 

 

 

 

Consistent with previous years, New Gold’s 2018 full-year gold production is not scheduled to be evenly distributed across the four quarters. Approximately 60% of the Company’s consolidated gold production is expected to occur evenly in the second and fourth quarters. The Company’s sustaining capital profile is also not scheduled to be evenly distributed across the four quarters. Approximately 40% of the sustaining capital is expected to occur in the first quarter with the remaining 60% to occur evenly over the second, third and fourth quarters. As a result of the combined impact of planned lower first quarter production and higher sustaining capital spend profile, the first quarter is expected to have a higher all-in sustaining cost relative to the full-year guidance range.

KEY PERFORMANCE DRIVERS

There is a range of key performance drivers that are critical to the successful implementation of New Gold’s strategy and the achievement of its goals. The key internal drivers are production volumes and costs. The key external drivers are market prices of gold, copper and silver, as well as foreign exchange rates.

Production Volumes and Costs

New Gold’s portfolio of continuing operating mines produced 317,898 gold ounces for the year ended December 31, 2017 and 110,240 gold ounces for the three months ended December 31, 2017.

Operating expenses per gold ounce sold from continuing operations for the year ended December 31, 2017 was $646, compared to $623 in the prior-year period. Operating expenses per copper pound sold from continuing operations for the year ended December 31, 2017 was $1.34, compared to $1.11 in the prior-year period. Operating expenses per silver ounce sold from continuing operations for the year ended December 31, 2017 was $8.54, compared to $8.55 in the prior-year period.

Operating expenses per gold ounce sold from continuing operations for the three months ended December 31, 2017 were $738, compared to $771 in the prior-year period. Operating expenses per copper pound sold from continuing operations for the three months ended December 31, 2017 were $1.56, compared to $1.57 in the prior-year period. Operating expenses per silver ounce sold from continuing operations for the three months ended December 31, 2017 were $9.44 compared to $10.66 in the prior-year period.

For the year ended December 31, 2017, total cash costs and all-in sustaining costs from continuing operations, net of by-product sales, were $360 and $668 per gold ounce sold, respectively. In the prior-year periods, total cash costs and all-in sustaining costs were $259 and $675 per gold ounce sold, respectively.

For the three months ended December 31, 2017, total cash costs and all-in sustaining costs from continuing operations, net of by-product sales, were $572 and $774 per gold ounce sold, respectively. In the prior-year periods, total cash costs and all-in sustaining costs were $288 and $590 per gold ounce sold, respectively.

For an analysis of the impact of production volumes and costs for the year ended December 31, 2017 relative to prior-year periods, refer to the “Operating Highlights” section of this MD&A.

17 

 

 

 

Commodity Prices

 

 

Gold prices

The price of gold is the single largest factor affecting New Gold’s profitability and operating cash flows. As such, the current and future financial performance of the Company is expected to be closely related to the prevailing price of gold. In the third quarter of 2016, the Company entered into gold price option contracts related to its production for the first half of 2017. New Gold purchased put options with a strike price of $1,300 per ounce covering 120,000 ounces of gold and simultaneously sold call options with a strike price of $1,400 per ounce covering an equivalent 120,000 ounces.

In June 2017, the Company entered into further gold option contracts for the periods July 2017 to December 2017 with a strike price of $1,250 per ounce covering 120,000 ounces of gold and simultaneously sold call options with a strike price of $1,400 per ounce covering an equivalent 120,000 ounces. For the year ended December 31, 2017, the Company recognized $7.4 million in revenue related to these gold price option contracts. At December 31, 2017, the contracts have expired. No further gold price option contracts have been entered into for 2018. For the year ended December 31, 2017, New Gold’s gold revenue per ounce and average realized gold price from continuing operations per ounce were $1,247 and $1,278 respectively, compared to the LBMA p.m. average gold price of $1,257 per ounce. For the three months ended December 31, 2017, New Gold’s gold revenue per ounce and average realized gold price per ounce were $1,252 and $1,274, respectively, compared to the LBMA p.m. average gold price of $1,274 per ounce. The difference between New Gold’s average realized gold price and the LBMA p.m. average gold price is primarily a result of the gold price option contracts described above.

Copper prices

In November 2016, the Company entered copper swap contracts for 5.3 million pounds of copper per month from January through June 2017, at a fixed price of $2.52 per pound settling against the LME monthly average price. In February 2017, the Company entered into further copper swap contracts for 7.3 million pounds of copper per month from July 2017 through December 2017 at a fixed price of $2.73 per pound. The copper forward contracts are treated as derivative financial instruments and mark-to-market at each reporting period on the consolidated statement of financial position with changes in fair value recognized in other gains and losses. As at December 31, 2017, all of the aforementioned copper forward contracts have expired.

18 

 

 

 

For the year ended December 31, 2017, New Gold’s copper revenue per pound and average realized copper price per pound from continuing operations per pound were $2.41 and $2.66, respectively, compared to the average LME copper price of $2.79 per pound. For the three months ended December 31, 2017, New Gold’s copper revenue per pound and average realized copper price per pound were $2.44 and $2.70, respectively, compared to the average LME copper price of $3.09 per pound. The difference between New Gold’s average realized copper price and the LME average copper price is primarily a result of the copper forward contracts described above.

On October 18, 2017, New Gold entered into copper price option contracts covering approximately 60 million pounds of its 2018 production, with put options at a strike price of $3.00 per pound and call options at a strike price of $3.37 per pound, at a nominal cost to the Company. Call options sold and put options purchased are treated as derivative financial instruments and mark-to-market at each reporting period on the consolidated statement of financial position with changes in fair value recognized in other gains and losses.

Silver prices

For the year ended December 31, 2017, New Gold’s silver revenue per ounce and average realized silver price per ounce from continuing operations were $16.41 and $16.88, respectively, compared to the LBMA p.m. average silver price of $16.80 per ounce. For the three months ended December 31, 2017, New Gold’s silver revenue per ounce and average realized silver price per ounce were $15.84 and $16.29 respectively, compared to the LBMA p.m. average silver price of $16.70 per ounce. The difference between New Gold’s average realized silver price and the LBMA p.m. average silver price is as a result of timing of spot sales.

Foreign Exchange Rates

The Company operates in Canada, the United States, Australia and Mexico, while revenue is generated in U.S. dollars. As a result, the Company has foreign currency exposure with respect to costs not denominated in U.S. dollars. New Gold’s operating results and cash flows are influenced by changes in various exchange rates against the U.S. dollar. The Company has exposure to the Canadian dollar through New Afton, Rainy River and Blackwater, as well as through corporate administration costs. The Company also has exposure to the Australian dollar through Peak Mines, and to the Mexican peso through Cerro San Pedro.

The average Canadian dollar against the average U.S. dollar for the year ended December 31, 2017 strengthened by approximately 2% when compared to the prior year. The Canadian dollar weakened against the U.S. dollar by approximately 1% from September 30, 2017 to December 31, 2017. The strengthening or weakening of the Canadian dollar impacts costs in U.S. dollar terms at the Company’s Canadian operations, as well as capital costs at the Company’s Canadian development property, as a significant portion of operating and capital costs are denominated in Canadian dollars.

The average Australian dollar against the average U.S. dollar for the year ended December 31, 2017 strengthened by approximately 3% when compared to the prior year. The Australian dollar weakened against the U.S. dollar by approximately 0.3% from September 30, 2017 to December 31, 2017. The strengthening or weakening of the Australian dollar impacts costs in U.S. dollar terms at the Company’s Australian operation, Peak Mines, as a significant portion of operating costs are denominated in Australian dollars.

The average Mexican peso against the average U.S. dollar for the year ended December 31, 2017 weakened by approximately 1% when compared to the prior year. The Mexican peso weakened against the U.S. dollar by approximately 8% from September 30, 2017 to December 31, 2017. The strengthening or weakening of the Mexican peso impacts costs in U.S. dollar terms at the Company’s Mexican operation, Cerro San Pedro, as a portion of operating costs are denominated in Mexican pesos.

19 

 

 

 

 

For an analysis of the impact of foreign exchange fluctuations on operating costs for the year ended December 31, 2017 relative to prior-year periods, refer to the “Review of Operating Mines and Discontinued Operations” sections for Rainy River, New Afton, Peak Mines and Cerro San Pedro. 

Economic Outlook

The LBMA p.m. gold price increased by 6% since the start of 2017, declining by 4% during the fourth quarter. The current U.S administration continues to generate considerable uncertainty and unpredictability, and U.S. economic data has been mixed. Although the Federal Reserve is expected to increase the pace of interest rate hikes in 2018 and most asset markets continue to set new highs, there are numerous U.S legislative hurdles on the horizon, as well as continuing challenges with Brexit and ongoing geopolitical concerns. Against this backdrop, gold has started 2018 well.

Prospects for gold are encouraged by several structural factors. Mine supply has been plateauing as high quality deposits become more difficult to find and more expensive to develop and mine. Exploration budgets have been cut in recent years, increasing the likelihood that supply will remain muted, even in the face of increasing gold prices. Gold held in exchange-traded products is significantly below the peak in 2012, suggesting that the broad investment community has capacity to add length to positions as sentiment improves. As a low all-in sustaining cost producer with a pipeline of development projects, New Gold believes it is particularly well positioned both to operate in a lower gold price environment and to take advantage of higher prices in the gold market.

Economic events can have significant effects on the price of gold, through currency rate fluctuations, the relative strength of the U.S. dollar, gold supply and demand, and macroeconomic factors such as interest rates and inflation expectations. Management anticipates that the long-term economic environment should provide support for precious metals and for gold in particular, and believes the prospects for the business are favourable. New Gold’s growth plan is focused on organic and acquisition-led growth, and the Company plans to remain flexible in the current environment to be able to respond to opportunities as they arise.

20 

 

 

FINANCIAL RESULTS

Summary of Quarterly and Year-to-Date Financial Results

Three months ended December 31 Year ended December 31
(in millions of U.S. dollars, except where noted)  2017 2016  2017 2016 2015
FINANCIAL RESULTS(3)          
Revenue  193.5  140.7  604.4  522.8  582.9
Operating expenses  117.0  94.2  321.0  275.5  321.0
Depreciation and depletion(2)  70.5  57.1  220.3  200.1  193.9
Revenue less cost of goods sold(2)  6.0  (10.6)  63.1  47.2  68.0
           
Corporate administration  4.9  6.4  23.7  22.9  20.4
Corporate restructuring  4.2 -  4.2 - 3.0
Share-based payment expenses  (1.8)  0.5  5.1  8.3  7.3
Asset impairment  268.4  6.4  268.4  6.4  (13.6)
Exploration and business development  1.3  2.5  6.4  4.1  16.7
(Loss) earnings from operations(2)  (271.0)  (26.4)  (244.7)  5.5  37.2
           
Finance income  0.2  0.7  1.1  1.4  1.3
Finance costs  (12.7)  (1.4)  (13.2)  (9.9)  (37.9)
Other gains and losses          
Unrealized gain on share purchase warrants -  1.5  1.2  0.2  14.2
(Loss) gain on foreign exchange  (8.8)  (5.1)  43.8  12.0  (98.2)
Loss on disposal of El Morro project - - - -  (180.3)
Gain on disposal of El Morro stream - -  33.0 - -
Other gain (loss) on disposal of assets  0.2  (0.1)  0.3  0.1  (4.4)
Revaluation of AFS securities    (0.1)  (0.2)  (0.2)  0.5  (0.2)
Gain (loss) on copper forward contracts and copper option contracts  0.3 -  (4.4) - -
Unrealized (loss) gain on revaluation of gold stream obligation  (17.0)  3.3  (21.8)  (31.1)  6.2
Gain (loss) on revaluation of gold price option  0.3  11.4  (13.9)  10.5 6.0
Financial instrument transaction costs - - - -  (2.4)
Company’s share of the net loss of El Morro - - - -  (0.8)
Other  0.1  (0.2)  1.2  0.1  (0.2)
Loss before taxes(2)  (308.5)  (16.5)  (217.6)  (10.7)  (262.4)
Income tax recovery (expense) (2)  128.9  (6.8)  115.9  2.1  94.1
Net loss from continuing operations (2)  (179.6)  (23.3)  (101.7)  (8.6)  (168.3)
(Loss) earnings from discontinued operations  (16.0)  1.0  (6.3)  1.6  (33.1)
Net loss  (195.6)  (22.3)  (108.0)  (7.0)  (201.4)
Adjusted earnings from continuing operations (1) (2)  6.2  1.5  21.3  19.4 1.8
Adjusted net earnings (loss) (1) (2)  32.5  (4.9)  49.3   14.6  (10.9)
1.The Company uses certain non-GAAP financial performance measures throughout this MD&A. For a detailed description of each of the non-GAAP measures used in this MD&A and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.
2.Prior-year period comparatives have been revised. Please refer to the “Key Quarterly Operating and Financial Information” section of this MD&A for further information.
3.As the Company began a process for the sale of Peak Mines and the Company expects to close the sale in the first quarter of 2018, Peak Mines has been classified as a discontinued operation. Financial highlights are disclosed on a continuing and total basis, where appropriate.

 

21 

 

 

 

Revenue

The $81.6 million, or 16%, increase in revenue for the year ended December 31, 2017 was due to the combined impact of a $45.0 million increase driven by higher gold and copper prices and a $36.6 million increase in metal sales volumes. The average realized prices for the year ended December 31, 2017 were $1,278 per gold ounce, $2.66 per pound of copper and $16.88 per silver ounce, compared to $1,242 per gold ounce, $2.33 per pound of copper and $17.09 per silver ounce in the prior year.

 

For the three months ended December 31, 2017, the $52.8 million increase in revenue was attributable to higher gold and copper prices. The 38% increase in revenue was due to the combined impact of a $9.8 million increase driven by higher gold and copper prices and a $43.0 million increase in metal sales volumes. The average realized prices for the three months ended December 31, 2017 were $1,274 per gold ounce, $2.70 per pound of copper and $16.29 per silver ounce. This compared to $1,199 per gold ounce, $2.47 per pound of copper and $16.78 per silver ounce in the prior-year period.

 

A detailed discussion of production is included in the “Review of Operating Mines” section of this MD&A.

 

Operating expenses

For the year and three months ended December 31, 2017, operating expenses increased compared with the prior-year periods. Higher operating costs at Mesquite were due to higher process solution flow which drove higher production. The increase in operating costs was also attributable to Rainy River as the mine commenced commercial production in the fourth quarter of 2017. This was partially offset by lower operating costs at Cerro San Pedro, as the mine has been in residual leaching since June 2016. The prior-year period operating expenses included a non-cash heap leach inventory write-down of $24.0 million at Cerro San Pedro.

 

Depreciation and depletion

For the three months and year ended December 31, 2017, depreciation and depletion increased compared with prior-year periods due to higher production from the Mesquite operations compared to prior periods, and depreciation and depletion being recognized at Rainy River as the mine commenced commercial production in the fourth quarter.

 

Revenue less cost of goods sold

For the three months and year ended December 31, 2017, revenue less cost of goods sold increased primarily due to higher revenues, partially offset by higher operating expenses and depreciation and depletion.

 

Corporate administration and share-based payment expenses

For the year ended December 31, 2017, corporate administration was consistent with the prior-year period. For the three months ended December 31, 2017, the decrease in corporate administration costs was due to a reduction in salaries and benefits expenses as the Company initiated a restructuring plan that impacted its corporate office workforce. As a result, the Company incurred $4.2 million in severance and termination related charges in the quarter.

 

For the three months and year ended December 31, 2017, the decrease in share-based payment expenses was a result of a lower amount of share units due to the above-noted restructuring and a decrease in share price used to value share-based compensation when compared to the prior-year period.

 

22 

 

 

 

Asset impairment

In accordance with the Company’s accounting policies, the recoverable amount of an asset is estimated when an indication of impairment exists. As at December 31, 2017, indicators of impairment existed at the Rainy River cash generating unit (‘CGU’).

 

In January 2018, the Company announced higher estimated operating expenses and capital expenditures over Rainy River’s first nine years of operations. The Company has identified the revised operating expense and capital expenditure estimates at Rainy River as an indicator of impairment.

 

For the year ended December 31, 2017, the Company recorded an after-tax impairment loss of $181.0 million within net loss, as noted below:

 

Year ended December 31, 2017
(in millions of U.S. dollars) Rainy River
Impairment charge included within NET LOSS  
Rainy River depletable mining properties  268.4
Tax recovery  (87.4)
Total impairment charge after tax  181.0

 

In the prior year, indicators of impairment existed at the Rainy River CGU and for the Company’s 3% NSR royalty on the production of the Rio Figueroa property (“Rio Figueroa NSR”). The Company had identified the revised capital cost and three-month delay at the Rainy River project and the lack of activity on the Rio Figueroa project as indicators of impairment in the prior year and performed an impairment assessment to determine the recoverable amount of these CGUs at December 31, 2016. In the prior year, an impairment loss of $6.4 million was recorded relating to Rio Figueroa NSR. No impairment loss was recorded at Rainy River in the prior year as the carrying value exceeded the recoverable amount as at December 31, 2016.

 

For the year ended December 31, 2016, the Company recorded an impairment charge of $6.4 million within net loss, as noted below:

 

Year ended December 31, 2016
(in millions of U.S. dollars) Rio Figueroa
NSR
Impairment charge included NET LOSS  
Exploration and evaluation assets 6.4

 

(i) Methodology and key assumptions

Impairment is recognized when the carrying amount of a CGU exceeds its recoverable amount. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Each operating mine and development project represents a separate CGU as each mine site or project has the ability to, or the potential to, generate cash inflows that are separately identifiable and independent of each other. The Company has the following CGUs: New Afton, Mesquite, Peak Mines, Cerro San Pedro, Rainy River, and Blackwater. Other assets consist of corporate assets and exploration properties.

 

As outlined in the accounting policies, the Company uses fair value less cost of disposal to determine the recoverable amount of an asset as it believes that this will generally result in a value greater than or equal to the value in use. When there is no binding sales agreement, fair value less costs of disposal is estimated as the discounted future after-tax cash flows expected to be derived from a mine site, less an amount for costs to sell estimated based on similar past transactions. The inputs used in the fair value measurement constitute Level 3 inputs under the fair value hierarchy.

 

23 

 

 

 

(a) Rainy River CGU:

Key estimates and judgements include production levels, operating costs, project costs and other capital expenditures reflected in the Company’s life-of-mine (‘LOM’) plans, the value of in-situ ounces, exploration potential and land holdings, as well as economic factors beyond management’s control, such as gold, and silver prices, discount rates and foreign exchange rates. The Company considers this approach to be consistent with the valuation approach taken by market participants.

 

Life-of-Mine plans

Estimated cash flows are based on LOM plans which estimate expected future production, commodity prices, exchange assumptions, operating costs and capital costs. The current Rainy River LOM plan is 13 years. LOM plans use proven and probable mineral reserves only and do not utilize mineral resource estimates for a CGU. When options exist for the future extraction and processing of these resources, an estimate of the value of the unmined mineral resources (also referred to as in-situ ounces) is included in the determination of fair value.

 

In-situ ounces

In-situ ounces are excluded from the LOM plans due to the need to continually reassess the economic returns on and timing of specific production options in the current economic environment. The value of in-situ ounces has been estimated based on an enterprise value per equivalent resource ounce, with the enterprise value based on the market capitalization of a subset of publicly traded companies.

 

Discount rates

When discounting estimated future cash flows, the Company uses a real, after-tax discount rate that is designed to approximate what market participants would assign. This discount rate is calculated using the Capital Assets Pricing Model (‘CAPM’). The CAPM includes market participant’s estimates for equity risk premium, cost of debt, target debt to equity, risk-free rates and inflation. For the December 31, 2017 impairment analysis, a real discount rate of 4.00% was used (2016 - real discount rates of 5.50%). The decrease in the real discount rate was due to the removal of the project development risk premium and stronger bond markets.

 

Commodity prices and exchange rates

Commodity prices and exchange rates are estimated with reference to external market forecasts. The rates applied have been estimated using consensus commodity prices and exchange rate forecasts. For impairment analysis, the following commodity prices and exchange rate assumptions were used:

 

As at December 31, 2017 As at December 31, 2016
(in U.S. dollars, except where noted) 2018 - 2022
Average
Long-term 2017 - 2021
Average
Long-term
Commodity prices        
Gold ($/ounce)  1,300  1,300  1,325  1,300
Silver ($/ounce)  19.16  19.25  19.66  20.00
Exchange rates        
CAD:USD  1.24  1.24  1.31  1.30

 

Significant judgments and assumptions are required in making estimates of fair value. It should be noted that CGU valuations are subject to variability in key assumptions including, but not limited to, long-term gold prices, currency exchange rates, discount rates, production, operating and capital costs. An adverse change in one or more of the assumptions used to estimate fair value could result in a reduction in a CGU’s fair value.

 

24 

 

 

 

(b) Rio Figueroa NSR:

Key estimates and judgments used in the fair value less cost of disposal calculation are estimates of production levels, probability of the project being developed and economic factors beyond management’s control, such as copper prices and discount rates.

 

(ii) Impact of impairment tests

The Company calculated the recoverable amount of the Rainy River CGU using the fair value less cost of disposal method as noted above. For the year ended December 31, 2017, the Company recorded pre-tax impairment losses of $268.4 million, $181.0 million net of tax, within net loss. The fair value of the Rainy River CGU was negatively impacted by the higher development capital costs incurred to date as well as higher expected all-in sustaining costs over the LOM.

 

For the year ended December 31, 2016, the Company recorded impairment losses of $6.4 million related to the Rio Figueroa NSR, within net loss, as noted above.

 

(iii) Sensitivity analysis

After effecting the impairment for the Rainy River CGU, the fair value of this CGU is assessed as being equal to its respective carrying amount as at December 31, 2017. Any variation in the key assumptions used to determine fair value would result in a change of the assessed fair value. It is estimated that changes in the key assumptions would have the following approximate impact on the fair value of the Rainy River CGU at December 31, 2017:

 

As at December 31, 2017
(in millions of U.S. dollars) Rainy River
Impact of changes in the key assumptions used to determine fair value  
$100 per ounce change in gold price  235.1
0.5% change in discount rate  25.9
5% change in exchange rate  106.5
5% change in operating costs  90.3
5% change in in-situ ounces  20.2

 

25 

 

 

 

Exploration and business development

For the year ended December 31, 2017, expensed exploration was primarily incurred at Rainy River and the Fifield project, located in central New South Wales, Australia. The prior-year included expensed exploration costs primarily at New Afton and Mesquite. Capitalized exploration costs were $2.0 million for the year ended December 31, 2017 and were incurred at Rainy River and New Afton.

 

Please refer to the “Development and Exploration review” section of this MD&A for further details on the Company’s exploration and business development activities.

 

Finance income and finance costs

For the three months and year ended December 31, 2017, finance costs increased as the Company capitalized less interest to its qualifying development property due to the commencement of commercial production at Rainy River, and additional interest was incurred on the additional drawn portion of the Company’s revolving credit facility.

 

Other gains and losses

Other gains and losses consist of the following items:

 

Share purchase warrants

For the year ended December 31, 2017, the Company recorded a gain on share purchase warrants. As the traded value of the New Gold share purchase warrants increases or decreases, a related loss or gain on the mark-to-market of the liability is reflected in earnings. In June 2017 all share purchase warrants expired unexercised, thus there was no loss for the three months ended December 31, 2017.

 

Gold stream obligation

For the year ended December 31, 2017, the unrealized loss on revaluation of the gold stream obligation derivative instrument was related to the decrease in the discount rate, increase in expected gold ounce production, and the periodic recognition of the accretion expense. The loss on the revaluation of the gold stream obligation is a result of the change in the Company’s own credit risk narrowing.

 

Gold price option contracts

In the prior year, the Company entered into gold price option contracts whereby it sold a series of call option contracts and purchased a series of put option contracts. These gold price option contracts covered of 120,000 ounces of New Gold’s first half 2017 gold production. In June 2017, the Company entered into further gold option contracts for the period July 2017 to December 2017 with a strike price of $1,250 per ounce covering 120,000 ounces of gold and simultaneously sold call options with a strike price of $1,400 per ounce covering an equivalent 120,000 ounces.

 

These derivative instruments were fair valued at the end of each reporting period. For the year ended December 31, 2017, the Company recognized $7.5 million increase in revenue related to these gold price option contracts.

 

As at December 31, 2017, these options have expired and no further gold price option contracts have been entered into in 2018.

 

Gain on disposal of El Morro gold stream

During the first quarter of 2017, the Company sold its 4% stream on future gold production from El Morro for $65 million cash. As a result, the Company recorded a gain on disposal of $33.0 million representing the difference between the net proceeds received and the carrying value of the asset. Please refer to the “Corporate Developments” section of this MD&A for more information on this transaction.

 

26 

 

 

 

Foreign exchange

Movements in foreign exchange are due to the revaluation of the non-monetary assets and liabilities at the balance sheet date and the appreciation or depreciation of the Canadian and Australian dollars compared to the U.S. dollar in the current period.

 

Income tax

Income tax recovery from continuing operations for the year ended December 31, 2017 was $115.9 million on loss before taxes of $217.6 million compared to $2.1 million on a loss of 10.7 million in prior-year, reflecting an effective tax rate of 53.3% in 2017 compared to 19.6% in 2016. The primary reason for the change in the unadjusted effective tax rate is the impact of US tax rate change, lower tax rate applicable on the disposal of the El Morro stream and the impact of foreign exchange movements on the deferred tax related to non-monetary assets and liabilities. On December 22, 2017, the Tax Cuts and Jobs Act (“tax reform”) was signed into law in the U.S. Tax reform lowered the U.S Federal corporate tax rate from 35% to 21% and made numerous other tax law changes. The change in tax law required the Company to remeasure existing net deferred tax liabilities using the lower rate in the period of enactment resulting in an income tax benefit of approximately $32.6 million to reflect these changes in the year ended December 31, 2017. For the year ended December 31, 2017, the Company recorded a foreign exchange gain of $7.4 million on non monetary assets and liabilities, compared to a gain of $10.1 million in the prior year with no associated tax impact. For the year ended December 31, 2017 the unadjusted effective tax rate was impacted due to higher income tax rate in the province of British Columbia.

 

The Company had unrecognized deferred tax assets in Mexico of $20.1 million as at December 31, 2017 compared to $18.4 million in the prior year. The Company had $1.6 million of unrecognized deferred tax asset in the U.S. as at December 31, 2017 relating to decommissioning obligations compared to $1.2 million relating to alternative minimum tax credits in the prior year. In addition, the Company had unrecognized deferred tax assets of $43.6 million for investment tax credits in Canada as at December 31, 2017. The deferred tax asset were not recognized as the Company did not meet more likely than not criteria for recognizing these assets.

 

During the year the Company paid income taxes of $17.6 million compared to refund of $2.4 million in the prior year. The increase is primarily due to higher income taxes paid in the U.S.

 

On an adjusted net earnings (loss) basis, the adjusted tax recovery from continuing operations for the year ended December 31, 2017 was $8.8 million, compared to an adjusted tax expense of $11.3 million in the prior year. The adjusted tax recovery excludes the impact of asset impairment at Rainy River, foreign exchange, disposal of the El Morro gold stream, revaluation of the gold stream obligation and the gain on revaluation of the gold price option contracts. Please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

 

(Loss) earnings from discontinued operations

For the three months and year ended December 31, 2017 earnings from discontinued operations decreased due to the impairment loss on held-for-sale assets, partially offset by an increase in revenues and the cessation of depreciation and depletion upon classification of Peak Mines to a discontinued operation.

 

27 

 

 

 

Net earnings (loss)

Please see below for a reconciliation of net earnings for the year ended December 31, 2017.

 

RECONCILIATION OF NET EARNINGS (LOSS) – 2016 TO 2017

(in millions of U.S. dollars)

 

 

28 

 

 

 

Please see below for a reconciliation of net earnings (loss) for the quarter ended December 31, 2017.

 

RECONCILIATION OF NET EARNINGS (LOSS) – Q4 2016 TO Q4 2017

(in millions of U.S. dollars)

 

 

29 

 

 

 

Adjusted net earnings (loss)

The net earnings have been adjusted, including the associated tax impact, for asset impairments, inventory write-downs, gains on the modification of long-term debt, and “Other gains and losses” on the audited consolidated income statement. Key entries in this grouping are: the fair value changes for the gold stream obligation; share purchase warrants and the fair value changes for gold option contracts; foreign exchange gain or loss; and loss on disposal of assets. The adjusted entries are also impacted for tax to the extent that the underlying entries are impacted for tax in the unadjusted net earnings. Please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

 

Please see below for a reconciliation of adjusted net earnings for the year ended December 31, 2017.

 

RECONCILIATION OF ADJUSTED NET EARNINGS (LOSS) – 2016 TO 2017

(in millions of U.S. dollars)

 

 

30 

 

 

 

Please see below for a reconciliation of adjusted net earnings (loss) for the quarter ended December 31, 2017 from the prior-year period.

 

RECONCILIATION OF ADJUSTED NET EARNINGS (LOSS) – Q4 2016 TO Q4 2017

(in millions of U.S. dollars)

 

 

31 

 

 

 

Key Quarterly Operating and Financial Information

Selected financial and operating information for the current and previous quarters is as follows:

 

 

(in millions of U.S. dollars,

except where noted)

Q4
2017
Q3
2017
Q2
2017
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
Operating information                  
Total gold production (ounces)(1)  145,992 82,027 105,064 89,327 95,883 95,546 99,423 90,811 131,719
Gold production from continuing operations (ounces)(1)  110,240 67,653 79,025 60,980 77,026 57,565 68,138 71,215 96,921
Total gold sales (ounces)(1)  143,644 79,904 99,235 87,304 93,936 96,452 101,820 86,031 133,005
Gold sales from continuing operations (ounces) (1)  108,782 67,052 73,707 59,913 75,887 56,038 74,036 68,882 98,315
                   
Revenue  193.5 142.5 143.8 124.5 140.7 125.2 140.1 126.8 155.2
                   
(Loss) earnings from continuing operations  (179.6)  29.2 17.8 30.9 (23.3) 0.8 (14.1) 28.5 1.7
per share:                  
Basic ($)  (0.31)  0.05 0.03 0.06 (0.05) $nil (0.03) 0.06 $nil
Diluted ($)  (0.31)  0.05 0.03 0.06 (0.05) $nil (0.03) 0.06 $nil
(Loss) earnings from discontinued operations, net of tax  (16.0)  (2.2) 5.3 6.6 1.0 3.3 0.2 (2.9) (11.2)
Net (loss) earnings  (195.6)  27.0 23.1 37.5 (22.3) 4.1 (13.9) 25.6 (9.5)
per share:                  
Basic ($)  (0.34)  0.05 0.04 0.07 (0.04) 0.01 (0.03) 0.05 (0.02)
Diluted ($)  (0.34)  0.05 0.04 0.07 (0.04) 0.01 (0.03) 0.05 (0.02)
                   

 

A detailed discussion of production is included in the “Operating Highlights” section of this MD&A.

 

32 

 

 

 

In the first quarter of 2017, the Company identified an immaterial error relating to depletion of its New Afton mining interest for the year ended December 31, 2016 resulting in a reduction in 2016 net earnings of $9.7 million.

 

The quarterly impact on the comparative consolidated income statement is outlined in the table below. The resulting overstatement of the mining interest’s balance of $15.4 million, overstatement of deferred tax liability of $5.3 million and understatement of inventories totalling $0.4 million as at December 31, 2016 has also been revised in the comparative consolidated statement of financial position and the associated notes to the audited consolidated financial statements. There has been no change to the cash flows from operating, investing and financing activities in the comparative consolidated statement of cash flow.

 

  Three months
ended
Three months
ended
Three months
ended
Three months
ended

Year ended

 

 (in millions of U.S. dollars) March 31,
2016
September
30, 2016
September
30, 2016
December
31, 2016
December 31,
2016
Impact on net earnings (Loss)          
Net earnings (loss) before revision 26.8 (8.8) 5.1 (19.9) 2.7
Depreciation and depletion (3.4)  (4.1) (3.4) (4.1) (15.0)
Income tax recovery 2.2 (1.0) 2.4 1.7 5.3
Revision to net earnings (loss) (1.2) (5.1) (1.0) (2.4) (9.7)
Revised net earnings (loss) 25.6 (13.9) 4.1 (22.3) (7.0)
Basic weighted average number of shares outstanding (in millions) 509.6 511.2 513.0 513.3 511.8
Dilution of securities:          
Stock options 1.1 - 2.8 - -
Diluted weighted average number of shares outstanding (in millions) 510.7 511.2 515.8 513.3 511.8
Net earnings (loss) per share before revision:          
Basic 0.05 (0.02) 0.01 (0.04) 0.01
Diluted(1) 0.05 (0.02) 0.01 (0.04) 0.01
Impact of revision to net earnings (loss) per share:          
Basic - (0.01) - - (0.02)
Diluted(1) - (0.01) - - (0.02)
Revised net earnings (loss) per share:          
Basic 0.05 (0.03) 0.01 (0.04) (0.01)
Diluted(1) 0.05 (0.03) 0.01 (0.04) (0.01)

1.For the periods in which the Company records a loss, diluted loss per share is calculated using the basic weighted average number of shares outstanding, as using the diluted weighted average number of shares outstanding in the calculation would be anti-dilutive.

 

33 

 

 

 

 

AT-A-GLANCE

AS AT DECEMBER 31, 2017

2018 GUIDANCE:

Gold: 310,000 - 350,000 ounces

OPERATING EXPENSES/oz: $430 - $470

ALL-IN SUSTAINING COSTS/OZ: $990 - $1,090

 

2017 Production

Gold: 28,509 ounces

Silver: 0.04 MILLION OUNCES

ALL-IN SUSTAINING COSTS/OZ: $1,549

REVIEW OF OPERATING MINES

 

Rainy River Mine, Ontario, Canada

Rainy River is a gold mine located approximately 50 kilometres northwest of Fort Frances, a town of approximately 8,000 people, in northwestern Ontario, Canada. The property is located near infrastructure and is comprised of approximately 192 square kilometres of freehold and leasehold patented surface rights and mining rights, properties and unpatented mining claims.

 

At December 31, 2017, the mine had 4.4 million ounces of Proven and Probable Gold Mineral Reserves, with 1.8 million ounces of Measured and Indicated Gold Mineral Resources, exclusive of Mineral Reserves. Rainy River enhances New Gold’s growth pipeline through its significant production scale and exciting longer-term exploration potential in a great mining jurisdiction.

 

 

Three months ended

December 31

Year ended
December 31
(in millions of U.S. dollars, except where noted)  2017 2016  2017       2016 2015
Operating information          
Ore mined (thousands of tonnes)  1,808 -  1,808  -  -
Waste mined (thousands of tonnes) 6,821 - 6,821 - -
Ore processed (thousands of tonnes)    977  -  977  -  -
Average grade:          
Gold (grams/tonne)  0.94  -  0.94  -  -
Silver (grams/tonne)  2.20  -  2.20  -  -
Recovery rate (%):          
Gold 86.1 - 86.1 - -
Silver 55.6 - 55.6 - -
Gold (ounces):          
Produced (inclusive of pre-commercial ounces) 37,047 - 37,047 - -
Produced (1)  28,509  -  28,509  -  -
Sold (1)  26,359  -   26,359  -  -
Silver (millions of ounces):          
Produced (1)  0.04  -  0.04  -  -
Sold (1)  0.04  -  0.04  -  -
Revenue          
Gold ($/ounce)  1,276  -  1,276  -  -
Silver ($/ounce)  16.50  -  16.50  -  -
Average realized price (2):          
Gold ($/ounce)  1,276   -  1,276  -  -
Silver ($/ounce) 16.50  - 16.50  -  -
Operating expenses per gold ounce sold ($/ounce) (4)  1,432  -  1,432  -  -
Operating expenses per silver ounce sold ($/ounce) (4)  18.52  -  18.52  -  -
Total cash costs per gold ounce sold (2)(3)  1,436  -  1,436  -  -
All-in sustaining costs per gold ounce sold (2)(3)  1,549  -  1,549  -  -
Total cash costs on a co-product basis (2)(3)          
Gold ($/ounce)  1,432  -  1,432  -  -
Silver ($/ounce) 18.52  - 18.52  -  -

 

34 

 

 

 

 

Three months ended

December 31

Year ended
December 31
(in millions of U.S. dollars, except where noted)  2017 2016  2017       2016 2015
All-in sustaining costs on a co-product basis (2)(3)          
Gold ($/ounce)  1,543  -  1,543  -  -
Silver ($/ounce)  19.96  -  19.96  -  -
           
FINANCIAL INFORMATION          
Revenue 34.3 - 34.3 - -
Operating margin(2) (4.2) - (4.2) - -
Revenue less cost of goods sold  (18.3) - (18.3) - -
Capital expenditures (sustaining capital) (2) 2.6 - 2.6 - -
Capital expenditures (growth capital) (2) 80.7 145.9 496.7 - -
           
1.Production is shown on a total contained basis while sales are shown on a net payable basis, including final product inventory adjustments, where applicable.
2.We use certain non-GAAP financial performance measures throughout our MD&A. Total cash costs and all-in sustaining costs per gold ounce sold, total cash costs and all-in sustaining costs on a co-product basis, average realized price, and operating margin and capital expenditures (sustaining capital) are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.
3.The calculation of total cash costs per gold ounce is net of by-product silver revenue. Total cash costs and all-in sustaining costs on a co-product basis removes the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
4.Operating expenses are apportioned to each metal produced on a percentage of revenue basis. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

 

Operating results

Rainy River reached commercial production in the fourth quarter of 2017. From an accounting perspective, the Company recognized commercial production effective November 1, 2017, being the first day of the month following satisfaction of the commercial production criteria. Prior to the commercial production date the mine produced 8,538 gold ounces, with the associated proceeds reducing the capital costs of the project. Gold ounces produced for the year ended December 31, 2017 are shown exclusive of the pre commercial period, unless otherwise noted. Other operating and financial information represent the post commercial production period.

 

Production

Rainy River commenced processing ore on September 14, 2017 and completed its first gold pour on October 5, 2017. Commercial production was achieved ahead of plan in mid-October. Mining and milling activities continued to progress well during the fourth quarter of 2017. For the year and three months ended December 31, 2017, post-commercial production gold production at Rainy River was 28,509 ounces. Total gold production, inclusive of pre-commercial gold production was 37,047 ounces and 8,607 ounces of gold inventory in circuit at the end of the period, was 45,654 ounces.

 

This was slightly lower than the guidance range of 50,000 to 60,000 ounces, as the mill ramp-up began hitting nameplate throughput slightly later in the fourth quarter than planned, resulting in lower total tonnes milled.

 

Revenue and Revenue less cost of goods sold

For the year ended December 31, 2017, revenue was $34.3 million, and revenues less cost of goods sold was a loss of $18.3 million, as the operation ramped up to nameplate capacity during the operating period.

 

Operating expenses, total cash costs and all-in sustaining costs

For the year and three months ended December 31, 2017, operating expense per gold ounce sold was $1,432. For the year and three months ended December 31, 2017, total cash costs and all-in sustaining costs per gold ounce sold were $1,436 and $1,549 respectively, as the operation ramped up to nameplate capacity during the operating period.

 

35 

 

 

 

Capital expenditures

For the year and three months ended December 31, 2017, total capital expenditures were $499.3 million and $83.3 million respectively, which related primarily to project development spending. Subsequent to the start of commercial production, the Company paid $52 million in payables associated with the project development in the fourth quarter, with approximately $15 million in payables remaining at the end of 2017. Including the remaining project development payables, the total 2017 development cost was $512 million, which was in line with the company’s estimate for the year of $515 million.

 

Exploration Activities

During 2017, exploration efforts at Rainy River primarily involved infill drilling to further upgrade mineral resource classification in the open pit and deeper underground portions of the ODM deposit. Results of this work have been incorporated into the Company’s updated mineral resource and reserve estimates for year-end 2017. Additionally, during the three months ended December 31, 2017, the Company completed a high-resolution, airborne geophysical survey over a portion of the Off Lake claim block located to the east of the Rainy River Mine. Results of this survey will be used to support future exploration plans.

 

Outlook for 2018

As Rainy River enters its first full year of operations, gold and silver production are expected to increase significantly relative to the partial operating year in 2017. The focus for 2018 will be on optimizing throughput at the mill, which has a 21,000 tonne per day nameplate capacity, as well as advancing initiatives to potentially increase production.

 

Both operating expenses and all-in sustaining costs for 2018 are expected to decrease relative to 2017 due to higher gold sales volumes. As previously noted, Rainy River’s 2018 sustaining capital expenditures will be higher than the life-of-mine average as the mine completes construction of the full tailings dam footprint. In addition, approximately $45 million of 2018 waste stripping is scheduled to be capitalized. The remainder of the sustaining capital expenditures are related to open pit sustaining costs as well as property and equipment. The $20 million of growth capital expenditures are related to underground development which is scheduled to begin in the second half of 2018.

 

The company has incorporated the insights gained from the first two months of operation in Rainy River’s long-term outlook. Based on the Company’s current estimates, annual gold production for the first nine years of the mine life (including 2018) should average between 275,000 to 375,000 ounces. At the same time, based on current input cost estimates, silver prices and foreign exchange rates, all-in sustaining costs over Rainy River’s first nine years of operation (including 2018) are expected to average approximately $875 per ounce. Costs are expected to be higher than this average in the next three years as a result of sustaining capital expenditures associated with completion of the full tailings dam footprint in 2018 as well as the construction of the first tailings lift later in 2018 into 2019.

 

  Year ended December 31
  2017 Actuals 2018 Guidance
2017 Actuals and 2018 guidance    
Gold (ounces) 28,509 310,000 - 350,000
Operating expenses per gold ounce sold ($/ounce)  1,432 430 – 470
All-in sustaining costs ($/ounce)  1,549 990 – 1,090
Capital expenditures (sustaining capital) 2.6     195
Capital expenditures (growth capital) 496.7 20

 

Please refer to the “Outlook for 2018” section of this MD&A for details of the relevant key assumptions.

 

36 

 

 

 

 

AT-A-GLANCE

2018 GUIDANCE:

Gold: 55,000 - 65,000 ounces

copper: 75 - 85 million pounds

OPERATING EXPENSE/gold OZ: $455 -$495

ALL-IN SUSTAINING COSTS/OZ: ($1,020) - ($980)

2017 Production:

Gold: 86,163 Ounces

copper: 90.6 million pounds

OPERATING EXPENSE/gold OZ: $412

ALL-IN SUSTAINING COSTS/OZ: ($605)

New Afton Mine, British Columbia, Canada

The New Afton Mine is located near Kamloops, British Columbia. At December 31, 2017, the mine had 1.0 million ounces of Proven and Probable Gold Mineral Reserves and 941 million pounds of Proven and Probable Copper Mineral Reserves, with 1.2 million ounces of Measured and Indicated Gold Mineral Resources, exclusive of Mineral Reserves, and 968 million pounds of Measured and Indicated Copper Mineral Resources, exclusive of Mineral Reserves. A summary of New Afton’s operating results is provided below.

 

 

Three months ended

December 31

Year ended

December 31

(in millions of U.S. dollars, except where noted)  2017 2016  2017       2016 2015
Operating information          
Ore mined (thousands of tonnes)  1,728  1,628  6,325     6,113  5,255
Ore processed (thousands of tonnes)  1,483  1,522  5,993     5,773  5,097
Average grade:          
Gold (grams/tonne)  0.58  0.60  0.56  0.65  0.78
Copper (%)  0.93 0.78  0.85 0.81 0.90
Recovery rate (%):          
Gold  80.8 80.9  80.1 81.9 82.5
Copper  80.9 81.5  80.8 84.4 84.9
Gold (ounces):          
Produced (1)  22,384  23,879  86,163     98,098  105,487
Sold (1)  20,132  24,171  81,067  96,851  99,458
Copper (millions of pounds):          
Produced (1)  24.6  21.4  90.6  87.3  85.9
Sold (1)  22.0  21.1  84.5  84.9  79.7
Silver (millions of ounces):          
Produced (1)  0.1  0.1  0.3  0.3  0.3
Sold (1)  0.1  0.1  0.3  0.3    0.3
Revenue          
Gold ($/ounce)  1,132  1,102  1,162  1,140  1,061
Copper ($/pound)  2.44  2.24  2.41  2.03  2.21
Silver ($/ounce)  13.92  14.97  15.11  16.52  13.60
Average realized price (1)(2):          
Gold ($/ounce)  1,254  1,212  1,280  1,251 1,164
Copper ($/pound)  2.70  2.47  2.66  2.23 2.42
Silver ($/ounce)  15.43  16.47  16.64  18.14 14.94

 

37 

 

 

 

 

Three months ended

December 31

Year ended
December 31
(in millions of U.S. dollars, except where noted)  2017 2016  2017       2016 2015
Operating information          
Operating expenses per gold ounce sold ($/ounce) (4)  362  415  412  415 364
Operating expenses per copper pound sold ($/pound) (4)  0.78  0.84  0.85  0.74 0.76
Total cash costs per gold ounce sold ($/ounce) (2)(3)  (1,363) (720)  (1,126) (634) (724)
All-in sustaining costs per gold ounce sold ($/ounce) (2)(3)  (909) (253)  (605)  (218) (242)
Total cash costs on a co-product basis (2)(3)          
Gold ($/ounce)  484 525  530 527 464
Copper ($/pound)  1.04 1.07  1.10 0.94 0.96
All-in sustaining costs on a co-product basis (2)(3)          
Gold ($/ounce)  617 691  692 686 646
Copper ($/pound)  1.33 1.41  1.44 1.22 1.34
           
Financial Information:          
Revenue  77.3  74.9  302.0  287.2 284.6
Operating margin(2)  52.5  46.6  194.8  182.4 186.9
Revenue less cost of goods sold(5)  16.8  7.3  55.6  30.1 44.7
Capital expenditures (sustaining capital) (2) 8.3 10.2 39.3 37.7 46.7
Capital expenditures (growth capital) (2) 0.3 0.2 2.9 3.2 15.4
1.Production is shown on a total contained basis while sales are shown on a net payable basis, including final product inventory and smelter payable adjustments, where applicable.
2.We use certain non-GAAP financial performance measures throughout our MD&A. Total cash costs and all-in sustaining costs per gold ounce sold, total cash costs and all-in sustaining costs on a co-product basis, average realized price, operating margin, and capital expenditures (sustaining capital and growth capital) are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.
3.The calculation of total cash costs per gold ounce is net of by-product revenue while total cash costs and all-in sustaining costs on a co-product basis removes the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
4.Operating expenses are apportioned to each metal produced on a percentage of revenue basis. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.
5.Prior-year period comparatives have been revised. Please refer to the “Key Quarterly Operating and Financial Information” section of this MD&A for further information.

 

Operating results

 

Production

For the year ended December 31, 2017, the decrease in gold production at New Afton relative to the prior year was due to an expected decrease in gold grade and gold recovery. Copper production was higher than the prior-year due to higher throughput and higher copper grades. New Afton’s full-year gold production exceeded the guidance range of 70,000 to 80,000 ounces by 8%.

 

For the three months ended December 31, 2017, gold production was below the prior-year period due to an expected decrease in gold grade and gold recovery. Copper production was higher than the prior-year quarter due to higher copper grades.

 

Revenue

For the year ended December 31, 2017, revenue increased compared with the prior periods due to increases in the realized gold and copper prices. At the end of the period, New Afton’s exposure to the impact of movements in market metal prices for provisionally priced contracts was 13,872 ounces of gold and 24.5 million pounds of copper. Exposure to these movements in market metal prices was reduced by 11,900 ounces of gold swaps and 22.9 million pounds of copper swaps outstanding as at December 31, 2017. For the three months ended December 31, 2017, revenue was higher than the prior year period due to an increase in gold and copper prices in addition to higher copper sales volumes.

 

38 

 

 

 

Revenue less cost of goods sold

For the year and three months ended December 31, 2017, the increase in revenue less cost of goods sold was primarily driven by an increase in realized gold and copper prices, and lower depreciation and depletion compared to the prior-year periods, partially offset by operating expenses (described below).

 

Operating expenses, total cash costs and all-in sustaining costs per gold ounce sold

For the year ended December 31, 2017, operating expense was in line with the prior year. For the three months ended December 31, 2017, operating expense per ounce was lower than the prior-year quarter due to gold revenue representing a lower portion of total sales in the prior-year quarter.

 

All-in sustaining costs decreased compared to the prior-year period due to lower sustaining costs and higher by-product revenues. By-product revenues benefitted from an increase in the realized copper price and higher copper sales volumes. New Afton’s full year sustaining costs increased by $2 million to $42 million when compared to the prior year.

 

New Afton’s 2017 operating expense per gold ounce and per copper pound both achieved their respective guidance ranges of $405 to $445 per gold ounce and $0.80 to $1.00 per copper pound. 2017 all-in sustaining costs were below the guidance range of $520 to $480 per ounce, primarily due to an increase in the realized copper price relative to the assumption used when setting 2017 guidance.

 

Capital expenditures

In both the current and prior-year periods, sustaining capital expenditures were primarily related to mine development, and growth capital expenditures were primarily related to capitalized exploration at the New Afton C-zone.

 

Impact of foreign exchange on operations

New Afton’s operations is impacted by fluctuations in the valuation of the U.S. dollar against the Canadian dollar. For the year ended December 31, 2017, the value of the U.S. dollar averaged $1.29 against the Canadian dollar, compared to $1.32 in the prior-year period, resulting in a negative impact on total cash costs of $16 per gold ounce sold.

 

For the three months ended December 31, 2017, the value of the U.S. dollar was $1.27 against the Canadian dollar, compared to $1.33 in the prior year, resulting in a negative impact on total cash costs of $37 per gold ounce.

 

Outlook for 2018

Gold production at New Afton is expected to decrease relative to 2017 due to a scheduled decrease in gold grade, and a planned decrease in mill throughput from approximately 16,400 tonnes per day in 2017 to 14,400 tonnes per day in 2018. The Company had previously increased the throughput rate at New Afton in order to maximize cash flow in support of the development of Rainy River. New Gold has elected to decrease New Afton’s throughput from 2017 levels in order to achieve higher copper recoveries. Copper production is expected to decrease as the impact of lower throughput is only partially offset by the targeted higher recoveries.

 

New Afton’s 2018 operating expense per gold ounce is expected to increase relative to 2017 due to lower grades. At the same time, all-in sustaining costs are expected to decrease due to an increase in by-product revenues resulting from the 2018 copper price assumption of $3.20 per pound being higher than the 2017 realized price.

 

39 

 

 

 

Consistent with the Company’s commitment to maximizing free cash flow, New Gold has elected to defer development of the C-zone in 2018. While the 2016 Feasibility Study for the project includes solid project economics at spot prices, the Company intends to defer the commencement of capital spending while evaluating opportunities that have the potential to further optimize the C-zone project. Some of the opportunities identified, and not included in the original feasibility study, that are being investigated include different tailings options (such as dry stack or thickened/amended tailings), as well as mining approaches based on operating experience in the B-zone (including reassessing the amount of required underground development in the cave as well as optimizing draw bell and pillar designs).

 

      Year ended December 31
  2017 Actuals 2018 Guidance
2017 Actuals and 2018 guidance    
Gold (ounces) 86,163 55,000 - 65,000
Copper (millions of pounds)  90.6 75 – 85
Operating expenses per gold ounce sold ($/ounce) 412 455 – 495
Operating expenses per copper pound sold ($/pound)  0.85 1.10 - 1.30
All-in sustaining costs ($/ounce)  (605) (1,020) - (980)
Capital expenditures (sustaining capital) 39.3 40
Capital expenditures (growth capital) 2.9 5

 

Please refer to the “Outlook for 2018” section of this MD&A for details of the relevant key assumptions.

 

40 

 

 

 

 

AT-A-GLANCE

2018 GUIDANCE:

Gold: 140,000 - 150,000 ounces

OPERATING EXPENSES/oz: $890 - $930

ALL-IN SUSTAINING COSTS/OZ: $1005 - $1045

 

2017 production:

Gold: 168,889 ounces

OPERATING EXPENSES/oz: $727

ALL-IN SUSTAINING COSTS/OZ: $817

 

Mesquite Mine, California, USA

The Company’s Mesquite Mine is located in Imperial County, California, approximately 70 kilometres northwest of Yuma, Arizona and 230 kilometres east of San Diego, California. It is an open pit, run-of-mine heap leach gold mining operation. The mine was operated between 1985 and 2001 by Goldfields Mining Corporation, subsequently Santa Fe Minerals Corporation, and finally Newmont Mining Corporation with Western Goldfields Inc. acquiring the mine in 2003. The mine resumed production in 2008. New Gold acquired Mesquite as part of the business combination with Western Goldfields in mid-2009. At December 31, 2017, the mine had 1.1 million ounces of Proven and Probable Gold Mineral Reserves and 1.2 million ounces of Measured and Indicated Gold Mineral Resources, exclusive of Mineral Reserves. A summary of Mesquite’s operating results is provided below.

 

  Three months ended
December 31
Year ended
December 31
(in millions of U.S. dollars, except where noted) 2017 2016 2017 2016 2015
Operating information          
Ore mined and placed on leach pad (thousands of tonnes) 5,868 5,762 20,828 18,969 19,987
Waste mined (thousands of tonnes) 5,818 5,021 38,023 39,782 38,791
Ratio of waste-to-ore 0.99 0.87 1.83 2.10 1.94
Average grade:          
Gold (grams/tonne) 0.29 0.31 0.32 0.38 0.34
Gold (ounces):          
Produced (1)(2) 52,170 39,353 168,889 111,123 134,868
Sold (1) 54,612 38,366 168,800 113,843 133,712
Revenue          
Gold ($/ounce) 1,281 1,217 1,278 1,244 1,144
Average realized price (3):          
Gold ($/ounce) 1,281 1,217 1,278 1,244 1144
Operating expenses per gold ounce sold ($/ounce) (4) 749 660 727 628 734
Total cash costs per gold ounce sold ($/ounce) (3) 749 670 727 638 743
All-in sustaining costs per gold ounce sold ($/ounce) (3) 833 771 817 979 1,156
           
FINANCIAL INFORMATION          
Revenue 70.0 46.7 215.7 141.7 152.9
Operating margin(3) 29.1 21.4 93.0 70.2 54.8
Revenue less cost of goods sold 10.1 7.9 32.8 31.3 12.1
Capital expenditures (sustaining capital)(3) 3.9 1.9 12.8 35.6 53.2

1.Production is shown on a total contained basis while sales are shown on a net payable basis, including final product inventory, where applicable.
2.Tonnes of ore processed each period does not necessarily correspond to ounces produced during the period, as there is a time delay between placing tonnes on the leach pad and pouring gold ounces.
3.We use certain non-GAAP financial performance measures throughout our MD&A. Total cash costs and all-in sustaining costs per gold ounce sold, average realized price, operating margin and capital expenditures (sustaining capital) are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.
4.Operating expenses are apportioned to each metal produced on a percentage of revenue basis. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

 

41 

 

 

 

Operating results

Production

For the year and three months ended December 31, 2017, the increase in gold production at Mesquite relative to the prior year was due to increased ore tonnes mined and accelerated inventory drawdown due to the increase of process solution flow on the leach pad. Mesquite’s full-year production significantly exceeded the 2017 guidance range of 140,000 to 150,000 ounces.

Revenue

For the year ended December 31, 2017, the increase in revenue was attributable to higher gold prices and sales volumes.

 

Revenue less cost of goods sold

For the year and three months ended December 31, 2017, the increase in revenue less cost of goods sold was primarily driven by an increase in gold revenue compared to the prior year. The increase in revenue described above was partially offset by higher operating expenses and depreciation and depletion compared to the prior year.

 

Operating expenses, total cash costs and all-in sustaining costs per gold ounce sold

For the year ended December 31, 2017, operating expenses increased when compared to the prior year due to higher process solution flow and the drawdown of leach pad inventory. Full-year 2017 all-in sustaining costs decreased due to the increase in gold ounces sold and lower sustaining costs, primarily due to no capitalized waste stripping, which were only partially offset by higher operating expenses. Operating expense per ounce for 2017 was above the guidance range of $675 to $715 per ounce. All-in sustaining costs achieved the guidance range of $805 to $845 per ounce. For the three months ended December 31, 2017, all-in sustaining costs increased due to an increase in operating costs and slightly higher sustaining costs.

 

Capital expenditures

For the year ended December 31, 2017, the decrease in sustaining capital expenditures was due to no capitalized waste stripping in the year. For three months ended December 31, 2017, capital expenditures increased when compared with the prior-year period due to major component replacements for existing equipment.

 

Outlook for 2018

As planned, production at Mesquite is expected to decrease relative to 2017 as the impact of lower ore tonnes mined and placed is only partially offset by higher gold grade.

 

Both operating expenses and all-in sustaining costs in 2018 are expected to increase relative to 2017 due to lower gold sales volumes.

 

 

 

Year ended December 31
  2017 Actuals 2018 Guidance
2017 Actuals and 2018 guidance    
Gold (ounces) 168,889 140,000 - 150,000
Operating expenses per gold ounce sold ($/ounce)  727 890 - 930
All-in sustaining costs ($/ounce) 817 1,005 - 1,045
Capital expenditures (sustaining capital) 12.8 10

 

Please refer to the “Outlook for 2018” section of this MD&A for details of the relevant key assumptions.

 

42 

 

 

 

 

AT-A-GLANCE

2018 GUIDANCE:

Gold: 20,000 - 30,000 ounces

OPERATING EXPENSES/gold oz: $1,255 - $1,295

ALL-IN SUSTAINING COSTS/OZ: $1,330 - $1,370

 

2017 Production

Gold: 34,337 ounces

operating expenses/gold oz: $1,264

ALL-IN SUSTAINING COSTS/OZ: $1,425

Cerro San Pedro Mine, San Luis Potosí, México

The Cerro San Pedro Mine is located in the state of San Luis Potosí in central México, approximately 20 kilometres east of the city of San Luis Potosí. The mine is a gold-silver, open pit, run-of-mine heap leach operation. Cerro San Pedro finished active mining late in the second quarter of 2016 and is now in residual leaching. A summary of Cerro San Pedro’s operating results is provided below:

 

  Three months ended
December 31
 

Year ended
December 31

(in millions of U.S. dollars, except where noted) 2017 2016 2017 2016 2015
Operating information          
Gold (ounces)          
Produced (1)(2) 7,177 14,064 34,337 64,993 105,512
Sold (1) 7,679 13,351 33,228 64,149 106,417
Silver (millions of ounces)          
Produced (1)(2) 0.12 0.18 0.61 0.87 1.47
Sold (1) 0.13 0.17 0.58 0.85 1.47
Revenue          
Gold ($/ounce) 1,279 1,219 1,278 1,243 1,152
Silver ($/ounce) 16.71 16.91 17.02 16.76 15.40
Average realized price (3):          
Gold ($/ounce) 1,279 1,219 1,278 1,243 1,152
Silver ($/ounce) 16.71 16.91 17.02 16.76 15.44
Operating expenses per gold ounce sold ($/ounce) (5) 1,380 2,586 1,287 1,311 991
Operating expenses per silver ounce sold ($/ounce) (5) 18.03 35.87 17.14 17.68 13.38
Total cash costs per gold ounce sold ($/ounce) (3)(4) 1,414 1,014 1,264 933 865
All-in sustaining costs per gold ounce sold ($/ounce) (3)(4) 1,545 1,045 1,425 959 879
Total cash costs on a co-product basis (2)(3)          
Gold ($/ounce) 1,390 1,045 1,267 980 910
Silver ($/ounce) 18.16 14.49 16.87 13.22 12.19
All-in sustaining costs on a co-product basis (2)(3)          
Gold ($/ounce) 1,498 1,071 1397 1,002 922
Silver ($/ounce) 19.56 14.86 18.61 13.52 12.36
           
FINANCIAL INFORMATION          
Revenue 11.9 19.1 52.4 93.9 145.4
Operating margin (3) (1.0) (21.5) (0.3) (5.3) 20.2
Revenue less cost of goods sold (2.6) (25.8) (7.0) (14.2) 11.2
Capital expenditures (sustaining capital)(3) - 0.2 0.7 1.0 1.3
1.Production is shown on a total contained basis while sales are shown on a net payable basis, including final product inventory adjustments, where applicable.
2.Tonnes of ore processed each period does not necessarily correspond to ounces produced during the period, as there is a time delay between placing tonnes on the leach pad and pouring gold ounces.
3.We use certain non-GAAP financial performance measures throughout our MD&A. Total cash costs and all-in sustaining costs per gold ounce sold, total cash costs and all-in sustaining costs on a co-product basis, average realized price, and operating margin and capital expenditures (sustaining and growth) are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Performance Measures” section of this MD&A.
4.The calculation of total cash costs per gold ounce sold and all-in sustaining costs per gold ounce sold is net of by-product silver revenue. Total cash costs and all-in sustaining costs on a co-product basis removes the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
5.Operating expenses are apportioned to each metal produced on a percentage of revenue basis. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

 

43 

 

 

 

Operating results

Production

Cerro San Pedro finished active mining late in the second quarter of 2016 and has transitioned to residual leaching. As a result, and consistent with expectations, for the year and three months ended December 31, 2017, gold and silver production decreased compared to the prior-year periods. 2017 full-year gold production was slightly below the guidance range of 35,000 to 45,000 ounces.

 

Revenue

For the year ended December 31, 2017, the decrease in revenue was attributable to the decrease in metal sales volumes as Cerro San Pedro is drawing down leach pad inventory during the residual leach period.

 

Revenue less cost of goods sold

For the year ended December 31, 2017, the increase in revenue less cost of goods sold was primarily attributable to lower operating expenses. The prior-year period was negatively impacted by a heap leach silver inventory write-down of $24.0 million.

 

Operating expenses, total cash costs and all-in sustaining costs

 

For the year and three months ended December 31, 2017, operating expenses decreased when compared to the prior-year periods as prior-year periods included the impact of a heap leach inventory write-down of $24.0 million. All-in sustaining costs increased when compared to the prior-year periods due to lower gold and silver sales volumes. As the Company is drawing down leach pad inventory during the residual leach period, $400 operating expense per gold ounce in the fourth quarter, and $404 operating expense per gold ounce in the year, of the reported operating expense per gold ounce and all-in sustaining costs are related to mining costs that were incurred in prior periods. Cerro San Pedro’s 2017 costs were above the guidance ranges of $1,080 to $1,120 per ounce for operating costs, and $1,090 to $1,130 per ounce for all-in sustaining costs, primarily due to lower gold sales and higher sustaining costs.

 

Impact of Foreign Exchange on Operations

Cerro San Pedro was impacted by changes in the value of the Mexican peso against the U.S. dollar. For the year ended December 31, 2017, the value of the Mexican peso averaged MXN18.91 against the U.S. dollar compared to MXN18.67 in the prior-year period. This had a positive impact on total cash costs of $4 per gold ounce sold.

 

For the three months ended December 31, 2017, the value of the Mexican peso averaged MXN18.95 against the U.S. dollar compared to MXN19.81 in the prior-year period. This had a negative impact on total cash costs of $15 per gold ounce sold.

 

Outlook for 2018

As Cerro San Pedro enters its second full-year of residual leaching in 2018, gold and silver production are expected to decline while costs should remain in line with 2017. As the Company is drawing down leach pad inventory during the residual leach period, approximately $380 per ounce of the estimated all-in sustaining costs for 2018 are related to mining costs that were incurred in prior periods.

 

44 

 

 

 

  Year ended December 31
  2017 Actuals 2018 Guidance
2017 Actuals and 2018 guidance    
Gold (ounces) 34,337 20,000 - 30,000
Operating expenses per gold ounce sold ($/ounce) 1,287 1,255 – 1,295
All-in sustaining costs ($/ounce) 1,425 1,330 – 1,370
Capital expenditures (sustaining capital) 0.7 -

  

Please refer to the “Outlook for 2018” section of this MD&A for details of the relevant key assumptions.

 

DISCONTINUED OPERATIONS

In July 2017, the Company announced a process for the sale of Peak Mines, its gold-copper mine located in Australia, and upon commencement of the process met the criteria as a discontinued operation under IFRS 5. In November 2017, the Company entered into a binding agreement to sell Peak Mines and expects a sale to be completed within the first quarter of 2018. In conjunction with the agreement, the Company has received a $3.0 million prepayment from the buyer which has been recorded as a deferred benefit within current liabilities on the consolidated statement of financial position.

 

For the year ended December 31, 2017, the net earnings from Peak Mines is reported as earnings from discontinued operations. Total assets and liabilities of Peak Mines (excluding any assets and liabilities which do not form part of the net assets being sold) are reported as assets and liabilities held-for-sale, respectively, as at December 31, 2017 without restatement of the prior-year period comparative amounts. Upon classification of Peak Mines as held-for-sale, the Company ceased recognizing depreciation and depletion at Peak Mines for the year ended December 31, 2017.

 

As at December 31, 2017, the Company has measured the asset group at the lower of carrying value and fair value less costs to sell (“FVLCS”). The expected purchase consideration was used as the basis for determining the fair value, and an estimate of the disposal costs was used as the basis for the costs to sell. In performing this assessment, the Company concluded that the expected fair value less costs to sell of Peak Mines was lower than the carrying value. As a result, the Company recognized an impairment loss of $49.0 million for the year ended December 31, 2017, inclusive of $0.4 million in incurred transaction costs to date. This impairment loss was entirely allocated to Peak Mines mining interests.

 

45 

 

 

 

 

 

AT-A-GLANCE

 

2017 Production

Gold: 104,512 ounces

COPPER: 13.8 MILLION pounds

ALL-IN SUSTAINING COSTS/OZ: $909

  

 

 

Peak Mines, New South Wales, Australia

The Company’s Peak Mines gold-copper mining operation is an underground mine/mill operation located in the Cobar Mineral Field near Cobar, New South Wales, Australia. At December 31, 2017, the mine had 246,000 ounces of Proven and Probable Gold Mineral Reserves and 84 million pounds of Proven and Probable Copper Mineral Reserves, with 380,000 ounces of Measured and Indicated Gold Mineral Resources, exclusive of Mineral Reserves, and 183 million pounds of Measured and Indicated Copper Mineral Resources, exclusive of Mineral Reserves. During 2017, the Company entered into a binding agreement to sell Peak Mines and expects the sale to close in the first quarter of 2018. Accordingly, Peak Mines has been classified as a discontinued operation. A summary of Peak Mines’ operating results is provided below:

 

 

Three months ended

December 31

 

Year ended

December 31

 
(in millions of U.S. dollars, except where noted) 2017 2016 2017 2016 2015
Operating information            
Ore mined (thousands of tonnes) 165 219 574 755 693  
Ore processed (thousands of tonnes) 167 191 634 736 723  
Average grade:            
Gold (grams/tonne) 7.20 3.16 5.49 4.82 4.19  
Copper (%) 1.07 1.10 1.10 1.03 1.00  
Recovery rate (%):            
Gold 97.6 91.9 94.8 93.3 93.00  
Copper 94.0 90.8 89.4 90.1 88.32  
Gold (ounces):            
Produced (1) 35,753 18,587 104,512 107,449 89,852  
Sold (1) 34,861 18,049 100,632 103,396 89,265  
Copper (millions of pounds):            
Produced (1) 3.6 4.2 13.8 15.0 14.0  
Sold (1) 2.9 3.5 12.0 14.3 13.2  
Revenue            
Gold ($/ounce) 1,233 1,157 1,245 1,249 1,137  
Copper ($/pound) 3.07 2.09 2.73 2.02 2.42  
Average realized price (2):            
Gold ($/ounce) 1,271 1,191 1,289 1,278 1,137  
Copper ($/pound) 3.18 2.36 2.85 2.21 2.42  
Total cash costs per gold ounce sold (2)(3) 412 662 535 590 791  
All-in sustaining costs per gold ounce sold (2)(3) 762 742 909 736 1,071  
Total cash costs on a co-product basis (2)(3)            
Gold ($/ounce) 688 816 776 720 858  
Copper ($/pound) 1.74 1.82 1.73 1.38 2.00  
All-in sustaining costs on a co-product basis (2)(3)            
Gold ($/ounce) 972 872 1,067 837 1,067  
Copper ($/pound) 2.45 1.93 2.37 1.58 2.45  

 

46 

 

 

 

 

Three months ended

December 31

 

Year ended

December 31

(in millions of U.S. dollars, except where noted) 2017 2016 2017 2016 2015
FINANCIAL INFORMATION          
Revenue 57.7 29.6 170.5 161.0 130.0
Operating margin (2) 30.0 9.1 76.1 70.7 31.4
Revenue less cost of goods sold 30.9 (5.4) 51.5 0.4 (15.4)
Capital expenditures (sustaining capital) (2) 12.3 3.1 32.2 11.1 20.2
Capital expenditures (growth capital) (2) 0.8 - 2.5 - -
1.Production is shown on a total contained basis while sales are shown on a net payable basis, including final product inventory and smelter payable adjustments, where applicable.
2.We use certain non-GAAP financial performance measures throughout our MD&A. Total cash costs and all-in sustaining costs per gold ounce sold, total cash costs and all-in sustaining costs on a co-product basis, average realized price, and operating margin and capital expenditures (sustaining capital) are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.
3.The calculation of total cash costs per gold ounce is net of by-product copper revenue. Total cash costs and all-in sustaining costs on a co-product basis removes the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
4.Operating expenses are apportioned to each metal produced on a percentage of revenue basis. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

 

Operating results

Production

For the year ended December 31, 2017, gold production at Peak Mines was in line with the prior year. Copper production decreased compared to the prior-year period due to an expected decrease in copper grades and tonnes processed.

 

Full-year 2017 gold production exceeded the guidance range of 85,000 to 95,000 ounces and copper production was in line with the guidance range of approximately 15 million pounds.

 

For the three months ended December 31, 2017, gold production increased at Peak Mines when compared to the prior-year period due to an increase in gold grade and gold recovery. Quarterly copper production decreased compared to the prior-year period due to a decrease in copper grade and tonnes processed.

 

Revenue

For the year ended December 31, 2017, revenue increased compared to the prior year due to higher gold and copper realized prices offsetting the decrease in gold and copper sales for the year. Revenue was also impacted by the significant increase in gold sales volumes during the fourth quarter when compared to the prior-year period.

 

Revenue less cost of goods sold

For the year and three months ended December 31, 2017, the increase in revenue less cost of goods sold compared to the prior-year periods was due to higher gold and copper prices, a significant increase in gold sales during the fourth quarter of 2017 and the cessation of depreciation and depletion upon classification to discontinued operations.

 

Operating expenses and all-in sustaining costs

As the Peak Mines has been classified as a discontinued operation and is presented separately on the consolidated income statement for the year ended December 31, 2017, the asset’s operating expenses per ounce of gold sold is no longer disclosed.

 

47 

 

 

 

For the year ended December 31, 2017, all-in sustaining costs increased when compared to the prior-year period due to higher operating costs and sustaining capital. Peak Mines’ 2017 all-in sustaining costs were below the guidance range of $975 to $1,015 per ounce. For the three months ended December 31,2017, all-in sustaining costs increased relative to the prior-year period due higher operating costs and sustaining capital, which were partially offset by an increase in gold sales volumes.

 

Capital expenditures

For the year ended December 31, 2017, the increase in capital expenditures was a result of increases in capital development on Chronus, Jubilee, and Perseverance deposits, and increased capitalized exploration activities. Capital development is related to mine and infrastructure development.

 

Impact of Foreign Exchange on Operations

Peak Mines’ operations are impacted by fluctuations in the valuation of the U.S. dollar against the Australian dollar. For the year ended December 31, 2017, the value of the U.S. dollar averaged $1.30 against the Australian dollar compared to $1.34 in the prior-year period, resulting in a negative impact on total cash costs of $22 per gold ounce.

 

For the three months ended December 31, 2017, the value of the U.S. dollar averaged $1.30 against the Australian dollar compared to $1.33 in the prior-year period, resulting in a negative impact on total cash costs of $16 per gold ounce sold.

 

Exploration Activities

During 2017, exploration at the Company’s Peak Mines operation focused on the delineation of additional gold and copper resources extending from the Perseverance Zone D, Jubilee and Great Cobar deposits located along the nine kilometre trend that defines the Peak Mines Corridor. Additionally, the surface drilling and reconnaissance work to test prospective targets identified along the Company’s greater regional tenement holdings continued to return encouraging results that merit further follow up going forward.

 

48 

 

 

 

 

 

AT-A-GLANCE

AS AT DECEMBER 31, 2017

PROVEN AND PROBABLE RESERVES

Gold: 8.2 MILLION OUNCES

SILVER: 60.8 MILLION OUNCES

 

MEASURED AND INDICATED RESOURCES

(Exclusive of Reserves)

GOLD: 1.4 MILLION OUNCES

SILVER: 8.9 MILLION OUNCES

 

Blackwater Project, British Columbia, Canada

 

Blackwater is a bulk-tonnage, gold-silver project located approximately 160 kilometres southwest of Prince George, a city of approximately 80,000 people, in central British Columbia, Canada. The project property position covers over 1,000 square kilometres and is located near infrastructure.

 

Exploration

During 2017, a reconnaissance mapping and sampling survey was conducted over the 445 km2 of mineral claims recently acquired from Parlane Resource Corp. and RJK Explorations Ltd. Results of this survey will be used to support plans for follow-up exploration work. Exploration activity at Blackwater remained otherwise suspended while the Company maintained its focus on development and commercial start-up at Rainy River.

 

Environmental and permitting activities

The following environmental and permitting related activities occurred at Blackwater during 2017:

·The Provincial and Federal environmental assessment technical review stage continued, with approvals anticipated in mid-2018.

 

·Performed key engineering studies for advancement of post-environmental assessment approval permits.

 

·Advanced discussions with key First Nations on Participation Agreements.

 

·Advanced project trade-off studies.

 

Project costs and outlook

For the year ended December 31, 2017, capital expenditures totalled $11.3 million compared to $10.0 million in the prior year. For the three months ended December 31, 2017, capital expenditures totalled $2.4 million, compared with $2.1 million in the prior-year period. Expenditures in the current period related to continued advancement of the environmental assessment process, including work to resolve remaining regulatory and First Nations comments and related environmental and engineering studies, as well as discussions with First Nations on Participation Agreements.

 

The Company is currently working on internal trade-off studies for the Blackwater project. The objective of these studies is to further enhance project economics and maximize free cash flow by reducing the project strip ratio, maximizing the feed grade and lowering both development capital and operating costs. Aspects of the project being evaluated include the scale of the operation, ore sorting and flowsheet configurations. The internal studies are expected to be completed in the second half of 2018.

 

Blackwater’s 2018 non-sustaining capital expenditures are expected to be approximately $10 million and relate to the continued advancement of the Environmental Assessment process and completion of the internal trade-off studies.

 

49 

 

 

 

 

 

AT-A-GLANCE

AS AT DECEMBER 31, 2017

PROVEN AND PROBABLE RESERVES

Gold: 616,000 OUnces

copper: 453 million pounds

MEASURED AND INDICATED RESOURCES

(Included in New Afton Measured and Indicated Resources)

Gold: 472,000 OUnces

copper: 383 million pounds

  

New Afton C-zone, British Columbia, Canada

 

The C-zone is the down-plunge extension of the B-zone block cave currently being mined at New Afton. In early 2016 New Gold completed a feasibility study which confirmed the viability and positive economics for the C-zone deposit. The feasibility study relates to the C-zone Mineral Reserves which have demonstrated economic viability at the New Afton property and is not part of, and should be distinguished from, the current mining of the B-zone reserves. Work completed in 2016 included additional exploration drilling, mine optimizations and planning reviews, and development of a Project Implementation Plan. The detailed results from the feasibility study can be found in the Company’s Management’s Discussion and Analysis for the year ended December 31, 2015.

 

Project update and costs

During 2017, work on the C-zone focused on tailings management optimization studies. Studies on the use of thickened and amended tailings were initiated based on an evaluation of the potential for significant cost savings compared with either filtered tailings or the construction of a new conventional tailings storage facility. Discussions with the Ministry of Energy and Mines confirmed that decline development could be initiated by adding it to the New Afton five-year Mine Plan and would not require separate permitting.

 

Mining studies to advance the design of the conveyor system were completed during 2017, as well as studies to evaluate sub-level caving as a mining method for a portion of the deposit. Geotechnical studies are currently also underway to better understand stresses at depth. For the three months and year ended December 31, 2017, project capital expenditures totalled $0.3 million and $2.9 million, respectively.

 

Consistent with the Company’s commitment to maximizing free cash flow, New Gold has elected to defer development of the C-zone in 2018. While the 2016 Feasibility Study for the project includes solid project economics at spot prices, the Company intends to defer the commencement of capital spending while evaluating the above-noted opportunities that have the potential to further optimize the C-zone project.

 

Exploration activities

During 2017, a final campaign of underground infill drilling on the planned C-zone block cave was completed and the results were incorporated into updated mineral resource and reserve estimates and their life-of-mine operational plan. Results of this work have also been incorporated into the Company’s updated mineral resource and reserve estimates for year-end 2017. Additionally, surface reconnaissance within the Afton mine lease and greater mineral tenements was completed to support plans for future exploration programs.

 

50 

 

 

 

 

MINERAL RESERVES AND RESOURCES UPDATE (1)

New Gold’s production profile is underpinned by the Company’s mineral reserve and resource base combined with organic growth from its existing portfolio of mines and development projects. Consistent with previous years, metal pricing assumptions for the Company’s year-end 2017 mineral reserve estimates are determined based on an assessment of different factors that include current spot prices, three-year trailing average prices and street consensus pricing forecasts for gold, silver and copper. For the Company’s year-end 2017 mineral reserve updates, pricing assumptions increased by $25 per ounce to $1,275 per ounce for gold, $2.00 per ounce to $17.00 per ounce for silver and remained unchanged for copper. Details of these pricing assumptions are provided in the notes to the consolidated mineral reserves and resource estimates provided on pages 110 to 114 of this Management discussion and analysis.

 

On a consolidated basis, and excluding the Peak Mines operation, the Company’s total gold reserves of 14.8 million ounces remained materially unchanged compared to year-end 2016. This was due to the conversion to reserves of approximately 0.7 million ounces of gold at Rainy River, New Afton, and Mesquite offsetting approximately 0.4 million ounces of mining depletion at the three operations during 2017. Excluding Peak Mines, New Gold’s consolidated 2017 year-end copper reserves of 941 million pounds decreased by 92 million pounds due mining depletion at New Afton in 2017.

 

51 

 

  

 

 

 

 

2017 YEAR-END MINERAL reserves and resource Overview 

Rainy River: Proven and Probable Mineral Reserves increased by 475,000 ounces of gold and 2.8 million ounces of silver compared to year-end 2016. This increase is due primarily to a combination of higher gold and silver pricing assumptions and an updated mineral resource model, which were partially offset by increases to operating cost and capital assumptions on the open pit and underground mine designs and consolidated life-of-mine plan. For the updated open pit design, a gold price of $1,275 per ounce gold was applied compared to the $800 per ounce price used for open pit designs in previous years. As a result, total open pit reserves increased by 377,000 ounces of gold and 1.9 million ounces of silver. For the updated underground mine design, a lower grade cut-off of 2.2 g/t gold-equivalent has been applied to improve confidence and reduce risk associated with mining selectivity and dilution at higher cut-off grade thresholds. This change has resulted in higher underground ore tonnes at lower grade for an overall increase in underground reserves of 96,000 ounces of gold and 0.8 million ounces of silver. Measured and indicated resources correspondingly decreased by 478,000 ounces of gold and 1.8 million ounces of silver due to the conversion of resources to reserves. Inferred resources decreased by 429,000 ounces of gold and 0.3 million ounces of silver as a result of revised mineral resource estimation criteria.

 

New Afton: Probable mineral reserves decreased by 83,000 ounces of gold and 92 million pounds of copper compared to the prior year as a result of 2017 mine depletion. Total measured, indicated and inferred gold and copper resources remained materially unchanged compared to year-end 2016.

 

Mesquite: Proven and probable mineral reserves decreased by 50,000 ounces of gold as 2017 mine depletion, was largely offset by an updated open pit plan and higher gold pricing assumptions. Measured and indicated resources increased by 141,000 ounces of gold, due primarily to an updated open pit design and revised lower cut-off grade criteria. Inferred mineral resources remain materially unchanged compared to year-end 2016.

 

Blackwater: Proven and probable mineral reserves remain unchanged compared to year-end 2016. Measured and indicated resources increased by 79,000 ounces of gold and 0.7 million ounces of silver largely as a result of higher metal pricing assumptions.

 

Cerro San Pedro: Proven and probable mineral reserves have been expended and mining operations have ceased as the mine is in residual leaching.

 

 

 

 

52 

 

 

 

Proven and Probable gold reserves(2)

(MILLIONS OF OUNCES)

 

PROVEN AND PROBABLE GOLD RESERVES BY SITE

(MILLIONS OF OUNCES)

     
 
     

MEASURED AND INDICATED GOLD RESOURCES (EXCLUSIVE OF GOLD RESERVES)(2)

(MILLIONS OF OUNCES)

 

MEASURED AND INDICATED GOLD RESOURCES BY SITE (EXCLUSIVE OF GOLD RESERVES)

(MILLIONS OF OUNCES)

     
 
     

Inferred gold resources(2)

(MILLIONS OF OUNCES)

 

Inferred gold resources by site

(MILLIONS OF OUNCES)

     
     

 

1.For a detailed breakdown of mineral reserves and mineral resources by category and additional information relating to key estimation assumptions and parameters, please refer to the “Mineral Reserves and Mineral Resources” section of this MD&A.
2.Peak Mines has been classified as a discontinued operation and the charts presented above exclude mineral reserves and resources for the Peak Mines operation.

 

53 

 

 

 

FINANCIAL CONDITION REVIEW

Balance Sheet Review

  As at December 31 As at December 31
(in millions of U.S. dollars) 2017 2016
balance sheet information    
Cash and cash equivalents 216.2 185.9
Other current assets 238.8 224.1
Non-current assets 3,453.3 3,523.0
Assets held for sale 109.0 -
Total assets 4,017.3 3,933.0
     
Current liabilities 181.2 175.4
Non-current liabilities excluding long-term debt 626.1 794.9
Long-term debt 1,007.7 889.5
Liabilities held for sale 62.8 -
Total liabilities 1,877.8 1,859.8
Total equity 2,139.5 2,073.2
Total liabilities and equity 4,017.3 3,933.0

 

Assets

Cash and cash equivalents

The increase in cash and cash equivalents was primarily driven by the Company’s bought deal financing of common shares resulting in net proceeds of $165.7 million, the sale of the El Morro stream for $65.0 million, drawdown of $100.0 million from the Company’s revolving credit facility in August 2017 and $30.0 million in November 2017, and the Company’s operating cash flows generated during the current period. This was partially offset by growth capital expenditures at Rainy River, of $496.7 million was spent during the year ended December 31, 2017, other capital expenditure and financing payments. Please see the “Corporate Developments” section of this MD&A for further information on the Company’s bought deal financing of common shares and the sale of the El Morro stream.

 

Other current assets

Other current assets primarily consist of trade and other receivables, inventories, prepaid expenses, and derivative assets. The increase in other current assets is attributable to an increase in inventories at Rainy River as the mine commenced commercial production on November 1, 2017. This increase is offset by a decrease in derivative assets on the settlement of the gold price option contracts.

 

Non-current assets

Non-current assets primarily consist of mining interests which include the Company’s mining properties, development projects and property, plant and equipment and long-term inventory. The movement in non-current assets is primarily attributable to the Company’s investments in its mining interests less depreciation and depletion, offset by the impairment charge at Rainy River. For the year ended December 31, 2017, the Company spent $567.0 million, primarily focused on completing the development of Rainy River, and sustaining capital expenditures at the Company’s operating sites.

 

54 

 

 

 

Liabilities

Current liabilities

Current liabilities consists of trade and other payables and derivative liabilities. Current liabilities increased compared to the prior year as a larger portion of the gold stream obligation became current, and an increase was also a result of the mark-to-market on copper option contracts. In addition, the Company received a $3.0 million prepayment from the buyer of Peak Mines, which has been recorded as a current liability.

 

Non-current liabilities excluding long-term debt

Non-current liabilities consist primarily of reclamation and closure cost obligations, the gold stream obligation and deferred tax liabilities.

 

The Company’s asset retirement obligations consist of reclamation and closure costs for Rainy River, New Afton, Mesquite, Cerro San Pedro and Blackwater. Significant reclamation and closure activities include land rehabilitation, demolition of buildings and mine facilities, ongoing monitoring and other costs.

 

The long-term discounted portion of the liability as at December 31, 2017 was $181.3 million compared to $109.5 million as at December 31, 2016. For the year ended December 31, 2017, the Company updated the reclamation and closure cost obligations for each of its mine sites. The impact of these assessments was an increase of $52.3 million (year ended December 31, 2016 – $15.5 million), which primarily related to Rainy River and Mesquite. Key drivers of the Rainy River liability increase of $41.4 million include advancement of the processing plant site area, construction of tailings management area, placement of mine rock and other additional obligations related to significant project advancement achieved during the period as the project reached commercial production. The key driver of the Mesquite liability increase of $6.6 million was an increase in the requirements for reclamation sloping on waste rock, increasing the amount of earthworks required.

 

The net deferred income tax liability decreased from $230.3 million as at December 31, 2016 to $78.7 million at December 31, 2017. For the year ended December 31, 2017, the Company recorded a decrease in deferred tax liability of $87.4 million as a result of asset impairment at Rainy River and $43.6 million as a result of a derecognition of the deferred tax related to the investment tax credits in Canada.

 

Long-term debt and other financial liabilities containing financial covenants

The majority of the Company’s contractual obligations consist of long-term debt and interest payable. Long-term debt includes senior unsecured notes and the amounts drawn on the Company’s revolving credit facility.

 

In 2015, the Company entered into a $175 million streaming transaction with RGLD Gold AG, a wholly owned subsidiary of Royal Gold Inc. (“Royal Gold”). The Company has designated the gold stream obligation as a financial liability under the scope of IFRS 9. Accordingly, the Company values the liability at the present value of its expected future cash flows at the end of each reporting period, with the changes in fair value reflected in the consolidated income statements and the consolidated statements of comprehensive income. The gold stream obligation contains a maximum leverage ratio covenant (net debt to earnings before interest, taxes, depreciation, amortization, exploration, impairment and other non-cash adjustments “Adjusted EBITDA”) of 3.5: 1.0, with the exception that the net leverage covenant limit may increase to 4.0: 1.0 for two consecutive quarters, provided that it thereafter returns to a maximum of 3.5: 1.0. However, in order to provide additional flexibility, Royal Gold has agreed to adjust this leverage ratio to match the revised maximum leverage ratio under the revolving credit facility for the quarters ending March 31, 2018. New Gold currently estimates that approximately 22,600 ounces of gold and 203,100 ounces of silver will be delivered to RGLD Gold AG (“Royal Gold”) in 2018, in accordance with a streaming agreement, and will be accounted for as financing activities in the Company’s cash flow statement.

 

55 

 

 

 

On November 15, 2012, the Company issued $500.0 million of senior unsecured notes (“2022 Unsecured Notes”). As at December 31, 2017, the face value was $500.0 million. The 2022 Unsecured Notes are denominated in U.S. dollars, mature and become due and payable on November 15, 2022, and bear interest at the rate of 6.25% per annum. Interest is payable in arrears in equal semi-annual instalments on May 15 and November 15 of each year.

 

On May 18, 2017, the Company issued $300.0 million of senior unsecured notes (“2025 Unsecured Notes”) for net cash proceeds of $295.1 million after a banker’s fee and other transaction costs. The proceeds were used to redeem and purchase for cancellation the $300.0 million principal amount of the previously outstanding senior unsecured notes (“2020 Unsecured Notes”) for which the Company was required to pay a redemption premium of $5.3 million. As a result, total costs paid relating to this refinancing were $10.2 million. Additionally, the Company was required to pay $2.8 million of accrued interest on the 2020 Unsecured Notes on redemption and cancellation.

 

The 2025 Unsecured Notes bear interest at the rate of 6.375% per annum. Interest is payable in arrears in equal semi-annual instalments on May 15 and November 15 of each year. As at December 31, 2017, the face value was $300.0 million.

 

The 2022 and 2025 Unsecured Notes are subject to a minimum interest coverage incurrence covenant (earnings before interest taxes depreciation, amortization, impairment and other non-cash adjustments to interest) of 2.0: 1.0. The test is applied on a pro-forma basis prior to the Company incurring additional debt, entering into business combinations or acquiring significant assets, or certain other corporate actions.

 

In June 2017, the Company amended its $400.0 million revolving credit facility (the “Credit Facility”) to extend the maturity date of the agreement by one year to August 2020.

 

Net debt is used to calculate leverage for the purpose of covenant tests and pricing levels. The Credit Facility contains various covenants customary for a loan facility of this nature, including limits on indebtedness, asset sales and liens. The Credit Facility contains two covenant tests, the minimum interest coverage ratio, earnings before interest, taxes, depreciation, amortization, exploration, impairment, and other non-cash adjustments (“Adjusted EBITDA”) to interest and the maximum leverage ratio (net debt to Adjusted EBITDA), both of which are measured on a rolling four-quarter basis at the end of every quarter.

 

In June 2017, the Company amended the Credit Facility’s Net Debt to Adjusted EBITDA ("Leverage Ratio") covenant, to increase the maximum Leverage Ratio to 4.0 to 1.0 from January 1, 2018 to March 31, 2018 (previously 3.5 to 1.0). Following that period, the maximum leverage ratio will be 3.5 to 1.0. The maximum Leverage Ratio from October 1, 2017 to December 31, 2017 is 4.0 to 1.0.

 

Significant financial covenants are as follows:

 

 

 

Twelve months ended
December 31
Twelve months ended
December 31
  Financial covenant  2017   2016
Financial covenants      
Minimum interest coverage ratio (EBITDA to interest) >3.0 : 1 4.7 : 1 5.7 : 1
Maximum leverage ratio (net debt to EBITDA) <4.0 : 1  3.1 : 1 2.6 : 1

 

56 

 

 

 

The interest margin on drawings under the Credit Facility ranges from 1.00% to 3.25% over LIBOR, the Prime Rate or the Base Rate, based on the Company’s net debt to adjusted EBITDA ratio and the currency and type of credit selected by the Company. Based on the Company’s net debt to adjusted EBITDA ratio, the rate is 3.25% over LIBOR as at December 31, 2017 (December 31, 2016 – 3.25%). The standby fees on undrawn amounts under the Credit Facility range from 0.45% to 0.73%, depending on the Company’s net debt to adjusted EBITDA ratio. Based on the Company’s net debt to adjusted EBITDA ratio, the rate is 0.73% as at December 31, 2017 (December 31, 2016 – 0.73%).

 

As at December 31, 2017, the Company had drawn $230.0 million under the Credit Facility and the Credit Facility has been used to issue letters of credit of $138.8 million as at December 31, 2017 (December 31, 2016 - $122.1 million). Of the issued letters of credit, $16.6 million relate to Peak Mines. Letters of credit relate to reclamation bonds, worker’s compensation security and other financial assurances required with various government agencies.

 

Liquidity and Cash Flow

As at December 31, 2017, the Company had cash and cash equivalents of $216.2 million compared to $185.9 million at December 31, 2016. The Company’s investment policy is to invest its surplus funds in permitted investments consisting of treasury bills, bonds, notes and other evidences of indebtedness of Canada, the U.S. or any of the Canadian provinces with a minimum credit rating of R-1 mid from the DBRS or an equivalent rating from Standard & Poor’s or Moody’s and with maturities of 12 months or less at the original date of acquisition. In addition, the Company is permitted to invest in bankers’ acceptances and other evidences of indebtedness of certain financial institutions. Surplus corporate funds are only invested with approved government or bank counterparties.

 

The Company’s liquidity is impacted by several factors which include, but are not limited to, gold and copper market prices, capital expenditures, operating costs, interest rates and foreign exchange rates.  These factors are monitored by the Company on a regular basis and will continue to be reviewed.

 

The Company’s cash flows from operating, investing and financing activities, as presented in the audited consolidated statements of cash flows, are summarized in the following table for the three months and year ended December 31, 2017 and 2016:

 

Three months ended

December 31

Year ended

December 31

(in millions of U.S. dollars, except where noted) 2017 2016 2017 2016 2015
cash flow information          
Cash generated from operations 119.0 51.9 342.2 282.2 262.6
Cash used by investing activities (capital expenditures and other) (108.6) (164.8) (598.6) (568.6) (386.9)
Cash generated from investing activities (sale of El Morro stream and sale of the Company’s 30% interest in EI Morro) - - 65.0 - 62.4
Cash generated from financing activities - 148.5 219.8 128.4 45.7
Effect of exchange rate changes on cash and cash equivalents (1.3) (0.9) 1.9 8.4 (18.8)
Change in cash and cash equivalents 9.1 34.7 30.3 (149.6) (35.0)

 

Operations

For the year ended December 31, 2017, the increase in cash generated from operations was primarily due to an increase in total operating margin.

 

Investing Activities

Cash used in investing activities is primarily for the continued capital investment in the Company’s operating mines and development projects. Spending was $598.6 million for the year ended December 31, 2017 compared to $568.6 million in the prior-year period. In both the current and prior-year periods, investing activities primarily focused on continued project advancement at Rainy River. In addition to growth capital spending at Rainy River, the Company received $65.0 million of net proceeds from the sale of the El Morro stream during the first quarter of 2017.

 

57 

 

 

 

The following table summarizes the total growth and sustaining capital expenditures (mining interests per the audited consolidated statements of cash flows) for the years ended December 31, 2017 and 2016:

 

Three months ended

December 31

Year ended

December 31

(in millions of U.S. dollars) 2017 2016 2017 2016 2015
CAPital EXpenditures by site          
Rainy River 83.4 145.9 499.3 466.4 245.5
New Afton 8.6 10.4 42.2 40.9 62.1
Mesquite 3.9 1.9 12.8 35.6 53.2
Cerro San Pedro  -    0.2 0.7 1.0 1.3
Blackwater 2.4 3.0 11.3 10.0 7.1
Corporate 0.2 0.3 0.6 2.0 0.1
Capital expenditures from continuing operations 98.5 161.8 567.0 555.9 369.5
Peak Mines 13.1 3.1 34.7 11.1 20.2
Total capital expenditures 111.7 164.8 601.7 567.0 389.5

 

Financing Activities

Cash generated from financing activities was primarily related to the bought deal financing of common shares in March 2017 for net proceeds of $165.7 million, partially offset by interest paid. Please refer to the “Corporate Developments” section of this MD&A for further information on the bought deal financing transaction.

 

The Company’s December 31, 2017 cash balance of $216.2 million, together with the $30.8 million available for drawdown under the Credit Facility at December 31, 2017 provide the Company with $247.0 million of liquidity, in addition to the net cash the Company’s operating mines are expected to generate and the enhanced liquidity resulting from the sale of Peak Mines.

 

A decrease in gold or copper prices or depreciation of the U.S. dollar relative to the Canadian dollar, or, to a lesser extent, the Australian dollar or Mexican peso, could negatively impact the Company’s liquidity.

 

The net cash generated by operations is highly dependent on metal prices, including gold and copper, as well as other factors, including the Canadian/U.S. dollar exchange rate. To mitigate a portion of this risk, in particular during the Rainy River construction period, New Gold entered into gold price option contracts covering 120,000 ounces of New Gold’s second half of 2017 production. Specifically, New Gold purchased put options at a strike price of $1,250 per ounce and sold call options at a strike price of $1,400 per ounce for 120,000 ounces of gold production between July 2017 and December 2017. At December 31, 2017, the contracts have expired. No further gold price option contracts have been entered for 2018.

 

In February 2017, the Company entered into copper swap contracts for 7.3 million pounds of copper per month from July 2017 through December 2017 at a fixed price of $2.73 per pound. As at December 31, 2017, all copper forward contracts have expired.

 

58 

 

 

 

In October 2017, the Company entered into copper price option contracts by purchasing put options at a strike price of $3.00 per pound and selling call options at a strike price of $3.37 per pound for 27,600 tonnes (approximately 60 million pounds) of copper production during 2018.

 

The Company has outstanding notes in the principal amount of $500 million maturing in 2022 and $300 million maturing in 2025. The Company also has $230 million outstanding under the credit facility, excluding letters of credit. Assuming the continuation of prevailing commodity prices and exchange rates, and operations performing in accordance with mine plans, the Company will be able to repay indebtedness from internally generated cash flow during the projected life of the operating mines. 

 

Taking into consideration the Company’s current cash position, volatile equity markets and foreign exchange rates, global uncertainty in the capital markets and increasing cost pressures, the Company regularly reviews expenditures and assesses business opportunities to enhance liquidity in order to ensure adequate liquidity and flexibility to support its growth strategy, including the development of its projects, while continuing production at its current operations.

 

In addition, the Company entered into a binding agreement to sell the Peak Mines. New Gold expects the transaction to close in the first quarter of 2018. The transaction will provide the Company enhanced liquidity and an opportunity to develop and grow its core assets. The sale of Peak Mines will further enable the Company to focus on its America’s centric portfolio of operating mining and development projects.

 

Commitments

The Company has entered into a number of contractual commitments for capital items relating to operations and development. At December 31, 2017, these commitments totalled $51.4 million, $48.5 million of which are expected to fall due over the next 12 months. This compares to commitments of $130.2 million as at December 31, 2016, $103.2 million of which was expected to fall due over the upcoming year. In addition, the decrease when compared to the prior year is due to Rainy River achieving commercial production in the fourth quarter of 2017. Certain contractual commitments may contain cancellation clauses; however, the Company discloses its commitments based on management’s intent to fulfill the contracts.

 

Contingencies

In assessing the loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company and its legal counsel evaluate the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency suggests that a loss is probable, and the amount can easily be estimated, then a loss is recorded. When a contingent loss is not probable but is reasonably possible, or is probable but the amount of the loss cannot be reliably estimated, then details of the contingent loss are disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the Company discloses the nature of the guarantees. Legal fees incurred in connection with pending legal proceedings are expensed as incurred. If the Company is unable to resolve these disputes favourably, it may have a material adverse impact on our financial condition, cash flow and results of operations.

 

59 

 

 

 

Contractual Obligations

The following is a summary of the Company’s payments due under contractual obligations:

 

          

As at

December 31

As at December 31
  < 1 year 1-3 Years 4-5 Years After 5 Years

2017

Total

2016

Total

CONTRACTUAL OBLIGATIONS(1)            
Long-term debt  -    230.0  500.0  300.0  1,030.0  900.0
Interest payable on long-term debt  43.5  100.8  100.8  47.8  292.9  252.5
Operating lease commitments  2.1  2.8  2.2  3.2  10.3  2.6
Capital expenditure commitments 48.5  2.7  0.2  -    51.4  130.2
Reclamation and closure cost obligations  3.4  14.7  17.7  151.0  187.1  105.9
Gold stream obligation 24.7 52.4 54.8 158.6  290.5  277.7
Total contractual obligations  122.2 403.4 675.7 660.6 1,862.2 1,668.9

1.The majority of the Company’s contractual obligations consist of long-term debt and interest payable. Long-term debt obligations are comprised of senior unsecured notes.

 

Related Party Transactions

The Company did not enter into any related party transactions during the three months or year ended December 31, 2017.

 

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

 

Outstanding Shares

As at February 20, 2018, there were 578,635,838 common shares of the Company outstanding. The Company had 12,282,466 stock options outstanding under its share option plan, exercisable for up to 12,282,466 common shares.

 

60 

 

 

 

 

NON-GAAP FINANCIAL PERFORMANCE MEASURES

Total Cash Costs per Gold Ounce

“Total cash costs per gold ounce” is a non-GAAP measure that is a common financial performance measure in the gold mining industry but with no standard meaning under IFRS. New Gold reports total cash costs on a sales basis. The Company believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company’s performance and ability to generate liquidity through operating cash flow to fund future capital expenditures and working capital needs. New Gold believes that this measure, along with sales, is a key indicator of a Company’s ability to generate operating earnings and cash flow from its mining operations. In addition, the Compensation Committee of the Board of Directors uses all-in sustaining costs, together with other measures, in its company scorecard to set incentive compensation goals and assess performance.

 

Total cash cost figures are calculated in accordance with a standard developed by The Gold Institute, a worldwide association of suppliers of gold and gold products that ceased operations in 2002. Adoption of the standard is voluntary and the cost measures presented may not be comparable to other similarly titled measures of other companies. Total cash costs include mine site operating costs such as mining, processing and administration costs, royalties, production taxes and realized gains and losses on fuel contracts, but are exclusive of amortization, reclamation, capital and exploration costs and net of by-product sales. Total cash costs are then divided by gold ounces sold to arrive at the total cash costs per ounce sold.

 

The Company produces copper and silver as by-products of its gold production. The calculation of total cash costs per gold ounce for Rainy River and Cerro San Pedro is net of by-product silver sales revenue, and the calculation of total cash costs per gold ounce sold for Peak Mines and New Afton is net of by-product silver and copper sales revenue. New Gold notes that in connection with New Afton, the copper by-product revenue is sufficiently large to result in a negative total cash cost on a single mine basis. Notwithstanding this by-product contribution, as a Company focused on gold production, New Gold aims to assess the economic results of its operations in relation to gold, which is the primary driver of New Gold’s business. New Gold believes this metric is of interest to its investors, who invest in the Company primarily as a gold mining Company. To determine the relevant costs associated with gold only, New Gold believes it is appropriate to reflect all operating costs, as well as any revenue related to metals other than gold that are extracted in its operations.

 

To provide additional information to investors, New Gold has also calculated total cash costs on a co-product basis, which removes the impact of other metal sales that are produced as a by-product of gold production and apportions the cash costs to each metal produced on a percentage of revenue basis, and subsequently divides the amount by the total gold ounces, silver ounces or pounds of copper sold, as the case may be, to arrive at per ounce or per pound figures. Unless indicated otherwise, all total cash cost information in this MD&A is net of by-product sales.

 

Total cash costs are intended to provide additional information only and do not have any standardized meaning under IFRS and may not be comparable to similar measures presented by other mining companies. They should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The measure is not necessarily indicative of cash flow from operations under IFRS or operating costs presented under IFRS.

 

As the Company has classified the Peak Mines as a discontinued operation during 2017, total cash costs per gold ounce have been disclosed on a continuing (not including Peak Mines) and total basis (including Peak Mines).

 

61 

 

 

 

All-in Sustaining Costs per Gold Ounce

“All-in sustaining costs per gold ounce” is a non-GAAP measure based on guidance announced by the World Gold Council (“WGC”) in September 2013. The WGC is a non-profit association of the world’s leading gold mining companies established in 1987 to promote the use of gold to industry, consumers and investors. The WGC is not a regulatory body and does not have the authority to develop accounting standards or disclosure requirements. The WGC has worked with its member companies, including New Gold, to develop a measure that expands on IFRS measures such as operating expenses and non-GAAP measures to provide visibility into the economics of a gold mining Company. Current IFRS measures used in the gold industry, such as operating expenses, do not capture all of the expenditures incurred to discover, develop and sustain gold production. New Gold believes the all-in sustaining costs measure provides further transparency into costs associated with producing gold and will assist analysts, investors and other stakeholders of the Company in assessing its operating performance, its ability to generate free cash flow from current operations and its overall value.

 

All-in sustaining costs per gold ounce is intended to provide additional information only and does not have any standardized meaning under IFRS and may not be comparable to similar measures presented by other mining companies. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The measure is not necessarily indicative of cash flow from operations under IFRS or operating costs presented under IFRS.

 

New Gold defines all-in sustaining costs per ounce as the sum of total cash costs, net capital expenditures that are sustaining in nature, corporate general and administrative costs, capitalized and expensed exploration that is sustaining in nature, and environmental reclamation costs, all divided by the total gold ounces sold to arrive at a per ounce figure. To determine sustaining capital expenditures, New Gold uses cash flow related to mining interests from its statement of cash flows and deducts any expenditures that are non-sustaining. Capital expenditures to develop new operations or capital expenditures related to major projects at existing operations where these projects will materially increase production are classified as non-sustaining and are excluded. The table “Sustaining Capital Expenditure Reconciliation” reconciles New Gold’s sustaining capital to its cash flow statement. The definition of sustaining versus non-sustaining is similarly applied to capitalized and expensed exploration costs. Exploration costs to develop new operations or that relate to major projects at existing operations where these projects are expected to materially increase production are classified as non-sustaining and are excluded.

 

Costs excluded from all-in sustaining costs are non-sustaining capital expenditures and exploration costs, financing costs, tax expense, transaction costs associated with mergers and acquisitions, and any items that are deducted for the purposes of adjusted earnings.

 

By including total cash costs as a component of all-in sustaining costs, the measure deducts by-product revenue from gross cash costs. Refer to the discussion above regarding total cash costs per gold ounce for the discussion of deduction of by-product revenue as the Company has classified the Peak Mines as a discontinued operation.

 

62 

 

 

 

Cash Costs and All-in Sustaining Costs (“AISC”) per Ounce Reconciliation Tables

The following tables reconcile these non-GAAP measures to the most directly comparable IFRS measure on an aggregate and mine-by-mine basis.

 

Three months ended December 31, 2017
(in millions of U.S. dollars, except where noted) Gold Copper Silver Total
COnsolidated Opex, Cash cost and aisc reconciliation        
Operating expenses(1) 80.3 34.5 2.2 117.0
Units of metal sold from continuing operations (ounces/millions of pounds/millions of ounces) 108,782 22.0 0.2  
Operating expenses per unit of metal sold ($/ounce or pound) 738 1.56 9.44  
Operating expenses(1) 80.3 34.5 2.2 117.0
Treatment and refining charges on concentrate sales 2.5 5.8 0.1 8.4
Adjustments(2) 0.1 - - 0.1
Total cash costs from continuing operations 82.9 40.3 2.3 125.5
By-product silver and copper sales from continuing operations       (63.3)
Total cash costs net of by-product revenue from continuing operations       62.2
Units of metal sold from continuing operations (ounces/millions of pounds/millions of ounces) 108,782 22.0 0.2  
Total cash costs on a co-product basis from continuing operations (3) ($/ounce or pound) 762 1.83 9.90  
Total cash costs per gold ounce sold from continuing operations ($/ounce)       572
Total cash costs on a co-product basis(6) 107.2 44.9 2.9  
Total cash costs net of by-product revenue(6)       76.5
Units of metal sold (ounces/millions of pounds/millions of ounces)(6) 143,644 24.9 0.3  
Total cash costs on a co-product basis(3) ($/ounce or pound) (4) 746 1.80 9.73  
Total cash costs per gold ounce sold ($/ounce) (4)       533
Total co-product cash costs from continuing operations(6) 82.9 40.3 2.3  
Total cash costs net of by-product revenue from continuing operations(6)       62.2
Sustaining capital expenditures(4) 10.4 4.5 0.3 15.2
Sustaining exploration - expensed 0.4 0.2 - 0.6
Corporate G&A including share-based compensation(5) 2.6 1.1 0.1 3.8
Reclamation expenses 1.8 0.8 - 2.5
Total co-product all-in sustaining costs from continuing operations(6) 98.0 46.8 2.8  
Total all-in sustaining costs net of by-product revenue from continuing operations(6)       84.3
All-in sustaining costs on a co-product basis from continuing operations(3) ($/ounce or pound) 901 2.12 11.67  
All-in sustaining costs per gold ounce sold from continuing operations ($/ounce)       774
Total co-product all-in sustaining costs (6) 131.6   54.4 3.6    
Total all-in sustaining costs net of by-product revenue (6)       110.8
All-in sustaining costs on a co-product basis(3) ($/ounce or pound) (4) 916 2.17 11.91  
All-in sustaining costs per gold ounce sold ($/ounce) (4)       771
1.Operating expenses (“Opex”) are apportioned to each metal produced on a percentage of revenue basis.
2.Adjustments include non-cash items related to inventory write-down reversals and social closure costs incurred at Cerro San Pedro that are included in operating expenses.
3.Amounts presented on a co-product basis remove the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
4.See “Total Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.
5.Includes the sum of corporate administration costs and share-based payment expense per the income statement, net of any non-cash depreciation within those figures.
6.Includes the impact of Peak Mine, which has been classified as a discontinued operation as at and for the year ended December 31, 2017. Please refer to Peak Mine’s Opex, Cash Cost and AISC Reconciliation tables for a more detailed reconciliation of the total cash costs and all-in sustaining costs from discontinued operations.

 

63 

 

 

 

Year ended December 31, 2017
(in millions of U.S. dollars, except where noted) Gold Copper Silver Total
COnsolidated Opex, Cash cost and aisc reconciliation        
Operating expenses(1) 200.0 113.5 7.6 321.1
Units of metal sold from continuing operations (ounces/millions of pounds/millions of ounces) 309,454 84.5 0.9  
Operating expenses per unit of metal sold ($/ounce or pound) 646 1.34 8.54  
Operating expenses(1) 200.0 113.5 7.6 321.1
Treatment and refining charges on concentrate sales 9.6 20.7 0.4 30.6
Adjustments(2) (0.5) (0.3) - (0.8)
Total cash costs from continuing operations 209.0 133.9 8.0 350.9
By-product silver and copper sales from continuing operations       (239.6)
Total cash costs net of by-product revenue from continuing operations       111.3
Units of metal sold from continuing operations (ounces/millions of pounds/millions of ounces) 309,454 84.5 0.9  
Total cash costs on a co-product basis from continuing operations (3) ($/ounce or pound) 675 1.58 8.98  
Total cash costs per gold ounce sold from continuing operations ($/ounce)       360
Total cash costs on a co-product basis(4) 285.8 156.0 9.9  
Total cash costs net of by-product revenue(4)       165.2
Units of metal sold (ounces/millions of pounds/millions of ounces)(6) 410,086 96.6 1.1  
Total cash costs on a co-product basis(3) ($/ounce or pound) (4) 697 1.62 9.22  
Total cash costs per gold ounce sold ($/ounce) (4)       403
Total co-product cash costs from continuing operations(6) 209.0 133.9 8.0 111.3
Total cash costs net of by-product revenue from continuing operations(6)        
Sustaining capital expenditures(4)(7) 34.8 19.7 1.3 55.8
Sustaining exploration - expensed 1.3 0.8 0.1 2.1
Corporate G&A including share-based compensation(5) 17.6 10.0 0.7 28.3
Reclamation expenses 5.6 3.2 0.2 9.0
Total co-product all-in sustaining costs from continuing operations(6) 268.3 167.6 10.3  
Total all-in sustaining costs net of by-product revenue from continuing operations(6)       206.6
All-in sustaining costs on a co-product basis from continuing operations(3) ($/ounce or pound) 867 1.98 11.52  
All-in sustaining costs per gold ounce sold from continuing operations ($/ounce)       668
Total co-product all-in sustaining costs (4) 372.8 198.9 12.9  
Total all-in sustaining costs net of by-product revenue (4)       298.2
All-in sustaining costs on a co-product basis(3) ($/ounce or pound) (4) 909 2.06 12.01  
All-in sustaining costs per gold ounce sold ($/ounce) (4)       727
1.Operating expenses (“Opex”) are apportioned to each metal produced on a percentage of revenue basis.
2.Adjustments include non-cash items related to inventory write-down reversals and social closure costs incurred at Cerro San Pedro that are included in operating expenses.
3.Amounts presented on a co-product basis remove the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
4.See “Total Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.
5.Includes the sum of corporate administration costs and share-based payment expense per the income statement, net of any non-cash depreciation within those figures.
6.Includes the impact of Peak Mines, which has been classified as a discontinued operation as at and for the year ended December 31, 2017. Please refer to Peak Mines Opex, Cash Cost and AISC Reconciliation tables for a more detailed reconciliation of the total cash costs and all-in sustaining costs from discontinued operations.
7.For the year ended December 31, 2017, sustaining capital expenditures are net of $0. 3 million in proceeds from disposal of assets.

 

64 

 

 

 

Three months ended December 31, 2016
(in millions of U.S. dollars, except where noted) Gold Copper Silver Total
COnsolidated Opex, Cash cost and aisc reconciliation        
Operating expenses(1) 58.5 33.1 2.6 94.2
Units of metal sold from continuing operations (ounces/millions of pounds/millions of ounces) 75,887 21.1 0.2  
Operating expenses per unit of metal sold ($/ounce or pound) 771 1.57 10.66  
Operating expenses(1) 58.5 33.1 2.6 94.2
Treatment and refining charges on concentrate sales 2.7 4.7 0.1 7.5
Adjustments(2) (15.1) (8.1) (0.6) (23.8)
Total cash costs from continuing operations 46.1 29.6 2.1 77.8
By-product silver and copper sales from continuing operations       (56.0)
Total cash costs net of by-product revenue from continuing operations       21.8
Units of metal sold from continuing operations (ounces/millions of pounds/millions of ounces) 75,887 21.1 0.2  
Total cash costs on a co-product basis from continuing operations (3) ($/ounce or pound) 607 1.41 8.80  
Total cash costs per gold ounce sold from continuing operations ($/ounce)       288
Total cash costs on a co-product basis(4) 60.5 36.2 2.6  
Total cash costs net of by-product revenue(4)       99.3
Units of metal sold (ounces/millions of pounds/millions of ounces)(6) 93,936 24.6 0.3  
Total cash costs on a co-product basis(3) ($/ounce or pound) (4) 647 1.47 9.11  
Total cash costs per gold ounce sold ($/ounce) (4)       360
Total co-product cash costs from continuing operations(6) 46.1 29.6 2.1  
Total cash costs net of by-product revenue from continuing operations(6)       21.8
Sustaining capital expenditures(4) 7.9 4.4 0.3 12.7
Sustaining exploration - expensed 1.5 0.9 0.1 2.5
Corporate G&A including share-based compensation(5) 4.2 2.4 0.2 6.8
Reclamation expenses 0.6 0.3 - 1.0
Total co-product all-in sustaining costs from continuing operations(6) 60.3 37.6 2.7  
Total all-in sustaining costs net of by-product revenue from continuing operations(6)       44.8
All-in sustaining costs on a co-product basis from continuing operations(3) ($/ounce or pound) 795 1.79 11.39  
All-in sustaining costs per gold ounce sold from continuing operations ($/ounce)       590
Total co-product all-in sustaining costs (4) 76.0 44.3 3.2  
Total all-in sustaining costs net of by-product revenue (4)       57.8
All-in sustaining costs on a co-product basis(3) ($/ounce or pound) (4) 812 1.80 11.40  
All-in sustaining costs per gold ounce sold ($/ounce) (4)       619
1.Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
2.Adjustments include non-cash items related to inventory write-downs, the amortization of Mesquite’s Purchase Price Allocation (“PPA”) associated with royalties and social closure costs incurred at Cerro San Pedro that are included in operating expenses.
3.Amounts presented on a co-product basis remove the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
4.See “Total Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.
5.Includes the sum of corporate administration costs and share-based payment expense per the income statement, net of any non-cash depreciation within those figures.
6.Includes the impact of Peak Mine, which has been classified as a discontinued operation as at and for the year ended December 31, 2017. Please refer to Peak Mines Opex, Cash Cost and AISC Reconciliation tables for a more detailed reconciliation of the total cash costs and all-in sustaining costs from discontinued operations.
7.For the three months ended December 31, 2017, sustaining capital expenditures are net of $0.1 million in proceeds from disposal of assets.

 

65 

 

 

 

Year ended December 31, 2016
(in millions of U.S. dollars, except where noted) Gold Copper Silver Total
COnsolidated Opex, Cash cost and aisc reconciliation        
Operating expenses(1) 171.3 94.6 9.6 275.5
Units of metal sold from continuing operations (ounces/millions of pounds/millions of ounces) 274,843 84.9 1.1  
Operating expenses per unit of metal sold ($/ounce or pound) 623 1.11 8.55  
Operating expenses(1) 171.3 94.6 9.6 275.5
Treatment and refining charges on concentrate sales 10.8 16.8 0.4 28.0
Adjustments(2) (14.9) (8.2) (0.8) (23.9)
Total cash costs from continuing operations 167.2 103.2 9.2 279.6
By-product silver and copper sales from continuing operations       (208.3)
Total cash costs net of by-product revenue from continuing operations       71.3
Units of metal sold from continuing operations (ounces/millions of pounds/millions of ounces) 274,843 84.9 1.1  
Total cash costs on a co-product basis from continuing operations (3) ($/ounce or pound) 608 1.22 8.19  
Total cash costs per gold ounce sold from continuing operations ($/ounce)       259
Total cash costs on a co-product basis(4) 239.9 124.5 10.8  
Total cash costs net of by-product revenue(4)       132.3
Units of metal sold (ounces/millions of pounds/millions of ounces)(6) 378,239 99.2 1.3  
Total cash costs on a co-product basis(3) ($/ounce or pound) (4) 634 1.26 8.64  
Total cash costs per gold ounce sold ($/ounce) (4)       349
Total co-product cash costs from continuing operations(6) 167.2 103.2 9.2  
Total cash costs net of by-product revenue from continuing operations(6)       279.6
Sustaining capital expenditures(4)(7) 47.0 25.9 2.6 75.5
Sustaining exploration - expensed 3.1 1.7 0.2 5.0
Corporate G&A including share-based compensation(5) 19.1 10.6 1.1 30.8
Reclamation expenses 2.0 1.1 0.1 3.2
Total co-product all-in sustaining costs from continuing operations(6) 238.4 142.5 13.2  
Total all-in sustaining costs net of by-product revenue from continuing operations(6)       185.7
All-in sustaining costs on a co-product basis from continuing operations(3) ($/ounce or pound) 861 1.66 11.74  
All-in sustaining costs per gold ounce sold from continuing operations ($/ounce)       675
Total co-product all-in sustaining costs (4) 325.7 164.5 14.6  
Total all-in sustaining costs net of by-product revenue (4)       261.9
All-in sustaining costs on a co-product basis(3) ($/ounce or pound) (4) 861 1.66 11.74  
All-in sustaining costs per gold ounce sold ($/ounce) (4)       692
1.Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
2.Adjustments include non-cash items related to inventory write-downs, the amortization of Mesquite’s Purchase Price Allocation (“PPA”) associated with royalties and social closure costs incurred at Cerro San Pedro that are included in operating expenses.
3.Amounts presented on a co-product basis remove the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
4.See “Total Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.
5.Includes the sum of corporate administration costs and share-based payment expense per the income statement, net of any non-cash depreciation within those figures.
6.Includes the impact of Peak Mine, which has been classified as a discontinued operation as at and for the year ended December 31, 2017. Please refer to Peak Mine’s Opex, Cash Cost and AISC Reconciliation tables for a more detailed reconciliation of the total cash costs and all-in sustaining costs from discontinued operations.
7.For the year ended December 31, 2017, sustaining capital expenditures are net of $0.7 million in proceeds from disposal of assets.

 

66 

 

 

 

Year ended December 31, 2015
(in millions of U.S. dollars, except where noted) Gold Copper Silver Total
COnsolidated Opex, Cash cost and aisc reconciliation        
Operating expenses(1) 277.4 126.6 15.6 419.6
Units of metal sold (ounces/millions of pounds/millions of ounces) 428,852 92.9 1.8  
Operating expenses per unit of metal sold ($/ounce or pound) 647 1.36 8.66  
Operating expenses(1) 277.4 126.6 15.6 419.6
Treatment and refining charges on concentrate sales 12.4 20.0 0.5 32.9
Adjustments(2) (6.0) (3.0) (0.4) (9.4)
Total cash costs 283.8 143.6 15.7 443.1
By-product silver and copper sales       (253.0)
Total cash costs net of by-product revenue       190.1
Units of metal sold (ounces/millions of pounds/millions of ounces) 428,852 92.9 1.8  
Total cash costs on a co-product basis(3) ($/ounce or pound) 661 1.54 8.70  
Total cash costs per gold ounce sold ($/ounce)       443
Total co-product cash costs 283.8 143.6 15.7  
Total cash costs net of by-product revenue       190.1
Sustaining capital expenditures(4) 80.4 36.6 4.5 121.5
Sustaining exploration - expensed 2.7 1.2 0.1 4.0
Corporate G&A including share-based compensation(5) 17.6 8.1 1.0 26.7
Reclamation expenses 3.0 1.4 0.2 4.6
Total co-product all-in sustaining costs 387.5 190.9 21.5  
Total all-in sustaining costs net of by-product revenue       346.9
All-in sustaining costs on a co-product basis(3) ($/ounce or pound) 903 2.06 11.94  
All-in sustaining costs per gold ounce sold ($/ounce)       809
1.Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
2.Adjustments include non-cash items related to inventory write-downs, the amortization of Mesquite’s Purchase Price Allocation (“PPA”) associated with royalties and social closure costs incurred at Cerro San Pedro that are included in operating expenses.
3.Amounts presented on a co-product basis remove the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
4.See “Total Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.
5.Includes the sum of corporate administration costs and share-based payment expense per the income statement, net of any non-cash depreciation within those figures.

 

67 

 

 

 

Three months and year ended December 31, 2017
(in millions of U.S. dollars, except where noted) Gold Silver Total
RAINY RIVER OPEX, cash costs and AISC reconciliation      
Operating expenses(1) 37.8 0.7 38.5
Units of metal sold (ounces/millions of ounces) 26,359 39,739  
Operating expenses per unit of metal sold ($/ounce) 1,432 18.52  
Operating expenses(1) 37.8 0.7 38.5
By-product silver and copper sales     (0.7)
Total cash costs net of by-product revenue     37.8
Units of metal sold (ounces/millions of ounces) 26,359 39,739  
Total cash costs on a co-product basis(3) ($/ounce) 1,432 18.5  
Total cash costs per gold ounce sold ($/ounce)     1,436
Total co-product cash costs 37.8 0.7  
Total cash costs net of by-product revenue     37.8
Sustaining capital expenditures(4) 2.6 0.1 2.6
Reclamation expenses 0.3 - 0.3
Total co-product all-in sustaining costs 40.7 0.8  
Total all-in sustaining costs net of by-product revenue     40.8
All-in sustaining costs on a co-product basis(3) ($/ounce) 1,543 19.96  
All-in sustaining costs per gold ounce sold ($/ounce)     1,549

1.Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
2.Adjustments include social closure costs that are included in operating expenses.
3.Amounts presented on a co-product basis remove the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
4.See “Rainy River Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.

 

68 

 

 

 

Three months ended December 31, 2017
(in millions of U.S. dollars, except where noted) Gold Copper Silver Total
NEW AFTON OPEX, cash costs and AISC reconciliation        
Operating expenses(1) 7.3 17.1 0.3 24.7
Units of metal sold (ounces/millions of pounds/millions of ounces) 20,132 22.0 0.1  
Operating expenses per unit of metal sold ($/ounce or pound) 362 0.78 4.45  
Operating expenses 7.3 17.1 0.3 24.7
Treatment and refining charges on concentrate sales 2.5 5.8 0.1 8.4
Total cash costs 9.8 23.0 0.5 33.1
By-product silver and copper sales       (60.5)
Total cash costs net of by-product revenue       (27.4)
Units of metal sold (ounces/millions of pounds/millions of ounces) 20,132 22.0 0.1  
Total cash costs on a co-product basis(2) ($/ounce or pound) 484 1.04 5.96  
Total cash costs per gold ounce sold ($/ounce)       (1,363)
Total co-product cash costs 9.7 23.0 0.4  
Total cash costs net of by-product revenue       (27.4)
Sustaining capital expenditures(3) 2.4 5.8 0.1 8.3
Sustaining exploration expense 0.1 0.2 - 0.3
Reclamation expenses 0.2 0.3 - 0.5
Total co-product all-in sustaining costs 12.4 29.3 0.5  
Total all-in sustaining costs net of by-product revenue       (18.2)
All-in sustaining costs on a co-product basis(2) ($/ounce or pound) 617 1.33 7.60  
All-in sustaining costs per gold ounce sold ($/ounce)       (909)
1.Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
2.Amounts presented on a co-product basis remove the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
3.See “New Afton Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.

 

69 

 

 

 

Year ended December 31, 2017
(in millions of U.S. dollars, except where noted) Gold Copper Silver Total
NEW AFTON OPEX, cash costs and AISC reconciliation        
Operating expenses(1) 33.4 72.3 1.4 107.1
Units of metal sold (ounces/millions of pounds/millions of ounces) 81,067 84.5 0.3 81,067
Operating expenses per unit of metal sold ($/ounce or pound) 412 0.85 5.36 1,321
Operating expenses 33.4 72.3 1.4 107.1
Treatment and refining charges on concentrate sales 9.6 20.6 0.5 30.7
Total cash costs 43.0 92.9 1.9 137.8
By-product silver and copper sales       (229.0)
Total cash costs net of by-product revenue       (91.2)
Units of metal sold (ounces/millions of pounds/millions of ounces) 81,067 84.5 0.3  
Total cash costs on a co-product basis(2) ($/ounce or pound) 530 1.10 6.89  
Total cash costs per gold ounce sold ($/ounce)       (1,126)
Total co-product cash costs 43.0 92.9 1.9  
Total cash costs net of by-product revenue       (91.3)
Sustaining capital expenditures(3)(4) 12.2 26.3 0.5 39.1
Sustaining exploration expense 0.3 1.0 - 1.3
Reclamation expenses 0.6 1.2 - 1.8
Total co-product all-in sustaining costs 56.1 121.4 2.4  
Total all-in sustaining costs net of by-product revenue       (49.0)
All-in sustaining costs on a co-product basis(2) ($/ounce or pound) 692 1.44 9.00  
All-in sustaining costs per gold ounce sold ($/ounce)       (605)
1.Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
2.Amounts presented on a co-product basis remove the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
3.See “New Afton Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.
4.For the year ended December 31, 2017, sustaining capital expenditures are net of $0.3M in proceeds from disposal of assets.

 

70 

 

 

 

Three months ended December 31, 2016
(in millions of U.S. dollars, except where noted) Gold Copper Silver Total
NEW AFTON OPEX, cash costs and AISC reconciliation        
Operating expenses(1) 10.1 17.8 0.4 28.3
Units of metal sold (ounces/millions of pounds/millions of ounces) 24,171 21.1 -  
Operating expenses per unit of metal sold ($/ounce or pound) 415 0.84 5.64  
Operating expenses 10.1 17.8 0.4 28.3
Treatment and refining charges on concentrate sales 2.7 4.7 0.1 7.5
Total cash costs 12.8 22.5 0.5 35.8
By-product silver and copper sales       (53.1)
Total cash costs net of by-product revenue       (17.3)
Units of metal sold (ounces/millions of pounds/millions of ounces) 24,171 21.1 0.1  
Total cash costs on a co-product basis(2) ($/ounce or pound) 525 1.07 7.14  
Total cash costs per gold ounce sold ($/ounce)       (720)
Total co-product cash costs 12.8 22.5 0.5  
Total cash costs net of by-product revenue       (17.3)
Sustaining capital expenditures(3)(4) 3.6 6.5 0.1 10.2
Sustaining exploration - expensed 0.3 0.5 - 0.8
Reclamation expenses 0.1 0.2 - 0.3
Total co-product all-in sustaining costs 16.8 29.7 0.6  
Total all-in sustaining costs net of by-product revenue       (6.0)
All-in sustaining costs on a co-product basis(2) ($/ounce or pound) 691 1.41 9.39  
All-in sustaining costs per gold ounce sold ($/ounce)       (253)
1.Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
2.Amounts presented on a co-product basis remove the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
3.See “New Afton Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.
4.For year ended December 31, 2016, sustaining capital expenditures are net of $0.7M in proceeds from disposal of assets.

 

71 

 

 

 

Year ended December 31, 2016
(in millions of U.S. dollars, except where noted) Gold Copper Silver Total
NEW AFTON OPEX, cash costs and AISC reconciliation        
Operating expenses(1) 40.4 62.8 1.6 104.8
Units of metal sold (ounces/millions of pounds/millions of ounces) 96,851 84.9 0.3  
Operating expenses per unit of metal sold ($/ounce or pound) 415 0.74 6.02  
Operating expenses 40.4 62.8 1.6 104.8
Treatment and refining charges on concentrate sales 10.8 16.8 0.4 28.0
Total cash costs 51.2 79.6 2.0 132.8
By-product silver and copper sales       (194.0)
Total cash costs net of by-product revenue       (61.2)
Units of metal sold (ounces/millions of pounds/millions of ounces) 96,851 84.9 0.3  
Total cash costs on a co-product basis(2) ($/ounce or pound) 527 0.94 7.63  
Total cash costs per gold ounce sold ($/ounce)       (634)
Total co-product cash costs 51.2 79.6 2.0  
Total cash costs net of by-product revenue       (61.2)
Sustaining capital expenditures(3)(4) 14.2 22.2 0.6 37.0
Sustaining exploration - expensed 0.8 1.3 - 2.1
Reclamation expenses 0.4 0.7 - 1.1
Total co-product all-in sustaining costs 66.6 103.8 2.6  
Total all-in sustaining costs net of by-product revenue       (21.0)
All-in sustaining costs on a co-product basis(2) ($/ounce or pound) 686 1.22 9.95  
All-in sustaining costs per gold ounce sold ($/ounce)       (218)
1.Operating expenses are apportioned to each metal produced on a percentage of revenue basis.
2.Amounts presented on a co-product basis remove the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.
3.See “New Afton Sustaining Capital Expenditure Reconciliation” below to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.
4.For year ended December 31, 2016, sustaining capital expenditures are net of $0.7M in proceeds from disposal of assets.

 

72 

 

 

 

Year ended December 31, 2015
(in millions of U.S. dollars, except where noted) Gold Copper Silver Total
NEW AFTON OPEX, cash costs and AISC reconciliation        
Operating expenses(1) 36.2 60.4 1.1 97.7
Units of metal sold (ounces/millions of pounds/millions of ounces) 99,458 79.7 0.2  
Operating expenses per unit of metal sold ($/ounce or pound) 364 0.76 4.68  
Operating expenses 36.2 60.4 1.1 97.7
Treatment and refining charges on concentrate sales 10.3 17.0 0.3 27.6
Adjustments(2) (0.4) (0.5) - (0.9)
Total cash costs 46.1 76.9 1.4 124.4
By-product silver and copper sales       (196.4)
Total cash costs net of by-product revenue       (72.0)
Units of metal sold (ounces/millions of pounds/millions of ounces) 99,458 79.7 0.2  
Total cash costs on a co-product basis(3) ($/ounce or pound) 464 0.96 5.95  
Total cash costs per gold ounce sold ($/ounce)       (724)
Total co-product cash costs 46.1 76.9 1.4  
Total cash costs net of by-product revenue       (72.0)
Sustaining capital expenditures(4) 17.3 28.9 0.5 46.7
Reclamation expenses 0.5 0.8 - 1.3