New Gold loses $102.7-million (U.S.) in 2008
2009-03-17 08:41 ET - News Release
Mr. Robert Gallagher reports
NEW GOLD ANNOUNCES 2008 FINANCIAL RESULTS FOR ITS FIRST YEAR AS A PRODUCER
New Gold Inc. has released the financial and operational results for the fourth quarter and year ended 2008(1), which represents the Company's first year in production. In addition, New Gold provided an update on the execution of its accretive growth strategy. All figures are in US dollars unless otherwise stated.
Highlights
- Gold production of 272,046 ounces in 2008(2);
- Total cash costs of $549 per ounce (net of byproduct sales)(2) in 2008;
- Adjusted net earnings(3) of $19.2-million or 13 cents per share;
- Cash flow from operations of $66.1-million in 2008(4);
- Year-end cash and equivalents of $185.6-million;
- Completed business combination with Peak Gold Ltd. and Metallica Resources Inc. as reported in Stockwatch news on June 30, 2008;
- New Afton project construction schedule extended with start-up expected in the second half of 2012;
- Successful ramp-up of Cerro San Pedro in its first full year of operation;
- Announced business combination with Western Goldfields Inc. in Stockwatch on March 4, 2009.
"Despite the unprecedented economic challenges which unfolded in 2008, New Gold made excellent progress on its strategic objectives while exceeding production targets by 9%," said Robert Gallagher, President and Chief Executive Officer. "New Gold made difficult decisions in a tough market environment to ensure that the Company was in a stronger position to execute our accretive growth strategy through operational excellence, continued development of our New Afton project, and further consolidation of junior gold producers. I'm thrilled about the next milestone in the exciting growth of this Company; the recent announcement of the business combination with Western Goldfields further delivers on our previously stated growth strategy."
Fourth Quarter and Annual Consolidated Financial Results(1)
Consolidated revenue for the fourth quarter of 2008 was $59.0-million for a total of $218.1-million for the full year. Gold sales in the fourth quarter were 78,194 ounces at a realized gold price of $792 per ounce and for the full year totalled 237,589 ounces at a realized gold price of $863 per ounce, which excludes production from Cerro San Pedro prior to the completion of the business combination with Peak Gold and Metallica.
Reported net earnings for the fourth quarter were $41.1-million and the reported net loss for the full year 2008 was $102.7-million. Reported earnings for 2008 were increased by foreign exchange gains ($50.0-million net of tax) and were decreased by the Amapari write down ($156.9-million net of tax) as well as certain expenses related to the business combination with Peak Gold and Metallica ($15.0-million, net of tax).
Cash flow from mining operations in 2008 was $20.3-million in the fourth quarter and $45.8-million for the year. Cash flow from mining operations for the full year including results from Cerro San Pedro for the period prior to the close of the business combination with Peak Gold and Metallica was $66.1 million.
2008 Operational Review
Cerro San Pedro
Cerro San Pedro completed its first full year of production exceeding expectations in operations, health and safety, environmental management systems and practices. Cerro San Pedro achieved gold sales of 21,180 ounces at a realized gold price of $799 per ounce sold in the fourth quarter and 85,362 ounces at a realized gold price of $872 per ounce for the full year. Total cash cost, net of byproduct sales was $522 per ounce for the fourth quarter and $432 per ounce for the full year. The increased cost in the fourth quarter is consistent with previous guidance as mining progressed through a lower grade, higher strip ratio phase. Also contributing were higher consumable costs, somewhat offset by depreciation of the Mexican Peso versus the US dollar. The fourth quarter operating loss at Cerro San Pedro was $18.2-million which includes an $18.0-million increase in operating expenses due to purchase price allocation adjustments related to the revaluation of heap leach inventory. For the full year earnings at Cerro San Pedro were $5.5-million(4).
Peak Mines
Peak Mines achieved gold sales of 28,815 ounces in the fourth quarter at a realized gold price of $788 per ounce sold and 102,928 ounces at a realized gold price of $877 per ounce for the full year. Record mill throughput of 768,727 tonnes in 2008 reflected New Gold's commitment to constant improvement at its operations and demonstrates the high level of competency of the Peak Mines' operating team. Total cash cost net of byproduct sales was $624 per ounce for the quarter and $477 per ounce for the full year. Higher cash cost is solely due to decreasing copper price through the latter half of the year with re-pricing of concentrate in process. Direct operating costs for 2008, in Australian dollar terms were only 10% higher than those of 2007, with the cost per tonne milled unchanged year on year. Earnings from Peak Mines were $2.5 million in the fourth quarter and $28.6-million for the full year 2008.
Amapari Mine
Amapari achieved gold sales of 28,199 ounces in the fourth quarter at a realized gold price of $791 per ounce and 87,412 ounces at a realized gold price of $859 per ounce for the year. Total cash cost for the quarter was $568 per ounce and for the full year was $748 per ounce. Earnings from Amapari were $1.6-million in the fourth quarter and a loss of $177.1-million for the full year 2008, net of the $156.9-million impairment charge (net of tax).
The full impact of the improved operating performance was realized in the fourth quarter with record quarterly gold production. However, due to depletion of ore suitable for treatment at the existing facilities, Amapari was placed on temporary care and maintenance on January 2, 2009. New Gold is evaluating a recently completed Preliminary Economic Assessment on the economics of exploiting the underlying sulphide resources which would require installation of a conventional crush/grind/carbon-in-leach mill. Considering the large land package in a geologically interesting setting and the occurrence of several interesting targets, the Company is also investigating other strategic alternatives for the Amapari project.
Development Projects Update
New Afton
New Afton is an exciting project currently under construction in Western Canada, a region known as an attractive destination for development. At today's gold and copper prices, New Afton will be a significant cash flow generator, expecting to more than double the current cash flow from our two operating assets in 2013.
On November 12, 2008, the Company announced that due to New Gold's cash position coupled with the funding requirements of the fast track construction of the New Afton project and the uncertainty of today's capital markets, it was extending the development schedule of the project. Under the revised development plan, surface construction is being curtailed while the critical path development of the underground workings will continue at a reduced rate. Under the original fast track schedule, operations were to commence in late 2009 ramping up to achieve full production in the second quarter of 2011. With the revised plan, surface construction would resume at the end of 2010 with full production achieved in the second half of 2012. The delayed start up provides additional time to arrange the required capital with initial production more likely being achieved in robust metal markets.
The total project development spend excluding interest was $167.8-million up to December 31, 2008 (at an average CDN:USD exchange rate of 0.95). Under the revised development schedule the estimated remaining spend (excluding interest) to bring the project into production is $60-million in 2009 and $340 million between 2010 and 2012 (at an average CDN:USD exchange rate of 0.88).
El Morro
The El Morro copper-gold project entered the permitting stage in November 2008, with delivery of the project's Environmental Impact Statement to the Chilean Authorities. Permitting is expected to take from 12 to 18 months, after which development activities could proceed. Total capital cost of the project has been estimated at $2.5 billion. New Gold has an agreement with Xstrata whereby Xstrata will finance 70 percent of New Gold's 30 percent share of El Morro's project development costs. New Gold will repay the funds advanced by Xstrata through 80 percent of its share of cash flow from the project. With this funding agreement in place and the project entering the permitting stage, New Gold is well positioned to participate in this world class development project, in one of the most mining friendly jurisdictions.
Liquidity and Capital Review
At December 31, 2008, the Company's cash balance was $185.6-million. The face value of the debt at December 31, 2008 was CDN$292-million, comprised of CDN$237-million in Senior Secured Notes and CDN$55-million in Convertible Debentures. On January 9, 2009, the Company reduced its debt position by CDN$50-million, through the buy back of a portion of its Senior Secured Notes for cash consideration of CDN$30-million. As a result of this transaction, New Gold's total debt position was reduced to CDN$242-million.
The Company's capital expenditures for 2008, as per the consolidated statement of cash flows, was $133.8-million, which includes $87.5-million for New Afton (including interest), $29.4-million for Peak Mines, $7.1-million for Amapari and $9.8-million for Cerro San Pedro and El Morro. Exploration expense in 2008 was $8.5-million.
Corporate Outlook
New Gold is forecasting 2009 gold production of between 190,000 and 210,000 ounces at a cash cost of between $465 and $485 per ounce, net of byproduct sales. Capital expenditures for 2009 are expected to be $107.0 million, which includes $78.5-million for New Afton (including capitalized interest), $24.5-million for Peak Mines and $2.8-million for Cerro San Pedro. Exploration expense in 2009 is expected to be $6.2-million.
Assumptions used in the 2009 forecast for Peak Mines and Cerro San Pedro include copper and silver prices of $2.00 per pound and $10.00 per ounce, respectively, and Australian dollar and Mexican peso exchange rates of $0.70 and $12.00 to the U.S. dollar, respectively.
Robert Gallagher, President and Chief Executive Officer said "As we look forward to 2009, we are committed to delivering on our operational targets. We will continue to demonstrate prudent financial management and take the steps necessary to maintain a strong financial position. We see sizable opportunity for growth through the development of our New Afton project, and through further consolidation of junior gold producers."
To view the 2008 financial statements and management discussion and analysis please click here: http://files.newswire.ca/764/NewGold...
Business Combination with Western Goldfields Inc.
On March 4, 2009, the Company announced a business combination with Western Goldfields Inc. ("Western Goldfields"). Under the terms, New Gold will acquire by way of a plan of arrangement all of the outstanding common shares of Western Goldfields on the basis of one New Gold common share and CDN$0.0001 in cash for each common share of Western Goldfields (the "Transaction"). Upon completion of the Transaction, existing New Gold and Western Goldfields shareholders will own approximately 58% and 42% of the combined company, respectively.
Based on the closing price of New Gold's common shares on the TSX of CDN$2.30 on March 3, 2009, this offer represented a premium of 19.2% to the closing price of Western Goldfields shares on the TSX on March 3, 2009 and 20.1% to the 20-day volume weighted average trading price of both companies' shares on the TSX.
Highlights of the Transaction:
- Diversified gold production base from three gold mines in mining-friendly jurisdictions with forecasted gold production of approximately 335,000 ounces in 2009, expected to increase to over 400,000 ounces in 2012;
- Strong cash flow to finance fully development at the New Afton copper-gold project in British Columbia;
- Delivers on industry consolidation in a rising gold price environment;
- Combines experienced management teams and boards of directors;
- Enhances market presence;
- Increases minable reserves to a total of 7.6 million gold ounces within a measured and indicated resource of 12.2 million gold ounces.
The parties expect to complete and mail the joint information circular in April 2009 and plan to hold the special meetings in May 2009. The Transaction is expected to close at the end of May 2009.
Robert Gallagher, President and Chief Executive Officer said "We are excited about the opportunity of building the leading intermediate gold producer with the recent announcement of the business combination with Western Goldfields. This is in line with our growth strategy and vision of becoming a million ounce gold producer by 2012. This represents significant value for both the New Gold and Western Goldfields shareholders with a greater leverage to gold, immediate increase in production and operating cash flow, strengthened financial position to contribute to the funding of our New Afton development project, while remaining in mining-friendly jurisdictions."
Notes:
- Due to the business combination between New Gold, Peak Gold and Metallica which closed on June 30, 2008 the consolidated financial statements of the company are presented on the basis that Peak Gold is the acquirer for accounting purposes. Therefore consolidated income and cash flow statements for January 1 through December 31, 2008 include results of Peak Gold for the period of January 1 to December 31 and results of Metallica and New Gold assets from July 1 to December 31. The consolidated balance sheet at December 31, 2008 reflects the balances of the merged entity. For convenience, the operating highlights, including total cash costs include full year results from the operations of the three entities.
- Includes 12 months commercial operations for Peak Mines, Cerro San Pedro and Amapari. Total production excluding Cerro San Pedro for the first six months of 2008 was 237,589 ounces of gold and cash cost per ounce of gold sold was $569.
- This data is furnished to provide additional information and is a non-GAAP measure. It should not be considered in isolation as a substitute for measures of performance prepared in accordance with GAAP and is not necessarily indicative of net earnings presented under GAAP.
- Includes 12 months commercial operations for Cerro San Pedro.
Conference Call-in Details
New Gold will hold a conference call on Tuesday, March 17, 2009 at 1:00 p.m. Eastern time to discuss these results. You may join the call by dialing toll free 1-888-789-9572 or 1-416-695-7806 to access the call from outside Canada or the U.S. Passcode 3281215. You can listen to a recorded playback of the call after the event until April 14, 2009 by dialing 1-800-408-3053 or 1-416-695-5800 for calls outside Canada and the U.S. Passcode 3281215.
