New Gold(NGD) - 2022 Q4 - Annual Report

Introduction and Overview Management's Discussion and Analysis Introduction This section introduces the MD&A, outlining its scope, IFRS compliance, and use of non-GAAP measures - The MD&A covers the consolidated financial condition and results of operations for New Gold Inc for the years ended December 31, 2022 and 2021[2] - The report is prepared in accordance with International Financial Reporting Standards (IFRS)[2] - All dollar figures are presented in United States dollars[1][2] Our Business New Gold is a Canadian-focused intermediate mining company with two core assets, the Rainy River and New Afton Mines - New Gold Inc is a Canadian-focused intermediate mining company[3] - The company's core producing assets are the Rainy River Mine and the New Afton Mine, both located in Canada[3] - New Gold's vision is to build a leading diversified intermediate gold company based in Canada that is committed to the environment and social responsibility[3] Use of Non-GAAP Financial Performance Metrics The MD&A utilizes non-GAAP measures like AISC and adjusted net earnings to provide supplemental investor information - The MD&A uses non-GAAP financial performance measures such as 'Total cash costs', 'all-in sustaining costs' (AISC), 'adjusted net earnings/(loss)', 'adjusted tax expense', 'sustaining capital and sustaining leases', 'growth capital', 'average realized gold/copper price per ounce/pound', 'open pit net mining cost per operating tonne mined', 'underground net mining costs per operating tonne mined', 'processing costs per tonne processed', 'G&A costs per tonne', 'cash generated from operations before changes in non-cash operating working capital' and 'free cash flow'[5] - These non-GAAP measures are intended to provide additional information to investors and do not have any standardized meaning under IFRS, thus should not be considered in isolation or as a substitute for GAAP measures[5] Operating and Financial Highlights Operating Highlights In 2022, gold equivalent production declined while operating expenses and all-in sustaining costs per ounce increased Operating Highlights (Year Ended December 31) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Gold equivalent produced (ounces) | 347,054 | 418,933 | 437,617 | | Gold equivalent sold (ounces) | 342,839 | 402,449 | 428,370 | | Gold produced (ounces) | 271,373 | 286,921 | 293,139 | | Gold sold (ounces) | 269,147 | 277,451 | 291,877 | | Copper produced (millions of pounds) | 31.1 | 61.7 | 72.1 | | Copper sold (millions of pounds) | 30.2 | 58.4 | 68.0 | | Average realized gold price ($/ounce) | 1,808 | 1,798 | 1,559 | | Average realized copper price ($/pound) | 3.94 | 4.24 | 2.86 | | Operating expenses per gold eq. ounce sold ($/ounce) | 1,116 | 938 | 794 | | Total cash costs per gold eq. ounce sold ($/ounce) | 1,150 | 991 | 840 | | All-in sustaining costs per gold eq. ounce sold ($/ounce) | 1,818 | 1,463 | 1,389 | - Gold equivalent production decreased by 17.2% in 2022 compared to 2021[9] - Copper production decreased by 49.6% in 2022 compared to 2021[9] Financial Highlights Financial performance in 2022 saw decreased revenue, a shift to a net loss, and reduced cash from operations Financial Highlights (Year Ended December 31, in millions of U.S. dollars) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Revenue | 604.4 | 745.5 | 643.4 | | Revenue less cost of goods sold | 26.3 | 172.5 | 110.4 | | Net (loss) earnings | (66.8) | 140.6 | (79.3) | | Adjusted net (loss) earnings | (26.1) | 82.9 | 19.2 | | Cash generated from operations | 190.7 | 323.7 | 294.8 | | Sustaining capital | 183.6 | 145.6 | 194.8 | | Growth capital | 109.2 | 101.7 | 89.4 | | Total assets | 2,243.5 | 2,476.8 | 2,250.1 | | Cash and cash equivalents | 200.8 | 481.5 | 186.3 | | Long-term debt | 394.9 | 491.0 | 489.2 | | Basic Earnings (loss) per share ($) | (0.10) | 0.21 | (0.12) | - Revenue decreased by 18.9% in 2022 compared to 2021[10] - The company reported a net loss of $66.8 million in 2022, compared to net earnings of $140.6 million in 2021[10] Sustainability and ESG Health and Safety The company achieved a 45% reduction in its TRIFR in 2022 and introduced a new 'Courage to Care' safety culture - Total recordable injury frequency rate (TRIFR) was 0.95 for the year, a reduction of 45% compared to the prior year[13] - New Gold introduced a 'Courage to Care' Health and Safety culture, focusing on 'We never compromise on safety', 'We look out for one another', and 'We stop work if it's not safe'[14] Environment Environmental efforts included publishing a TCFD report and committing to a 30% GHG emissions reduction by 2030 - Despite heavy rainfall around Rainy River, New Gold remained in compliance with regulatory requirements, with no additional discharge to the environment[15] - The company published its first Task Force on Climate-Related Financial Disclosure (TCFD) Report[16] - New Gold aims for a 30% reduction in Scope 1 & 2 greenhouse gas (GHG) emissions by 2030, with a baseline year of 2020[16] - New Afton ordered an additional four battery electric vehicles (BEVs) for its underground fleet and provided six on-site charging stations for employees' personal vehicles[17] Social Social initiatives focused on closure planning with community collaboration and establishing a local foundation at Cerro San Pedro - The Company continued to progress social closure planning at both New Afton and Rainy River, developing engagement plans focused on long-term value creation through collaboration with community stakeholders[20] - At Cerro San Pedro, the Company established Fundación Todos por Cerro San Pedro, a local foundation that served over five hundred people in 2022 with entrepreneurship and environmental education programs[21] Governance Governance was enhanced through the publication of the 2021 Sustainability Report and the inaugural TCFD Report - In 2022, the Company published its 2021 Sustainability Report and the inaugural TCFD Report[22] - New Gold continued to report against the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Local Procurement Reporting Mechanism (LPRM), and the United Nations Sustainable Development Goals (UN SDGs)[22] Corporate Developments Corporate Developments Summary Key 2022 developments included an updated Rainy River technical report, debt redemption, and a new CEO appointment - On March 31, 2022, an updated Technical Report for the Rainy River Mine extended its life of mine (LOM) to 2031, converting an additional 569,000 gold ounces to Mineral Reserves[23] - On May 15, 2022, the Company completed the redemption of its $100 million aggregate principal amount of outstanding 6.375% Senior Notes due in 2025[24] - In October 2022, New Gold announced the receipt of the C-Zone Mines Act Permit for New Afton[25] - On November 23, 2022, Patrick Godin was appointed as Chief Executive Officer[26] - On January 16, 2023, the Company sold its shares in Artemis Gold Inc for approximately C$31.5 million[27] Outlook for 2023 Consolidated Operational Estimates The 2023 outlook projects a 13% increase in gold equivalent production with lower AISC and increased growth capital New Gold Consolidated Operational Estimates for 2023 | Operational Estimates | Consolidated Guidance | | :--- | :--- | | Gold Eq. Produced (ounces) | 365,000 - 425,000 | | Gold Produced (ounces) | 280,000 - 320,000 | | Copper Produced (Mlbs) | 38 - 48 | | Operating expenses per gold eq. ounce | $950 - $1,030 | | All-in Sustaining Costs per gold eq. ounce | $1,505 - $1,605 | | Total capital ($M) | $290 - $350 | | Sustaining Capital ($M) | $140 - $170 | | Growth Capital ($M) | $150 - $180 | - Gold equivalent production is expected to be approximately 13% higher than 2022 production, with about 55% of annual production anticipated in the second half of the year[29] - All-in sustaining costs are expected to be lower than the prior year due to lower sustaining capital spend and higher sales volumes[29] - The increase in growth capital relates to C-Zone development, advancing underground development at the Intrepid underground zone, and commencing development at the Main underground zone at Rainy River[29] Rainy River Operational Outlook Rainy River's 2023 production is expected to increase, driven by higher grades and underground mining expansion Rainy River Operational Outlook for 2023 | Operational Estimates | Rainy River Guidance | | :--- | :--- | | Gold Eq. Produced (ounces) | 235,000 - 265,000 | | Gold Produced (ounces) | 230,000 - 260,000 | | Operating expenses per gold eq. ounce | $905 - $985 | | All-in Sustaining Costs per gold eq. ounce | $1,475 - $1,575 | | Total capital ($M) | $145 - $165 | | Sustaining Capital ($M) | $125 - $135 | | Growth Capital ($M) | $20 - $30 | - Gold equivalent production is expected to increase due to higher gold grade, increased tonnes mined and processed, and ramping-up ore extraction from the Intrepid underground zone[30] - The second half of 2023 is expected to represent approximately 55% of the annual production, following planned processing plant maintenance in the first half[31] - Growth capital of $20 million to $30 million is related to the continued development of the Intrepid underground zone and the commencement of development of the Main underground zone below the pit[31] New Afton Operational Outlook New Afton's 2023 production is forecast to rise by 30% due to steady-state B3 mining and higher grades New Afton Operational Outlook for 2023 | Operational Estimates | New Afton Guidance | | :--- | :--- | | Gold Eq. Produced (ounces) | 130,000 - 160,000 | | Gold Produced (ounces) | 50,000 - 60,000 | | Copper Produced (Mlbs) | 38 - 48 | | Operating expenses per gold eq. ounce | $1,035 - $1,115 | | All-in Sustaining Costs per gold eq. ounce | $1,320 - $1,420 | | Total capital ($M) | $145 - $185 | | Sustaining Capital ($M) | $15 - $35 | | Growth Capital ($M) | $130 - $150 | - Gold equivalent production is expected to be approximately 30% higher than 2022, as B3 production achieves steady-state mining rates (averaging 8,000 tonnes per day) and higher gold and copper grades[32] - All-in sustaining costs are expected to decrease due to lower sustaining capital spend with B3 development completed in 2022 and higher production and sales volume[32] - Growth capital of $130 million to $150 million is related to the continued advancement of the C-Zone project, primarily focused on mine development, infrastructure installation, and stabilization[32] - Exploration expenditures are expected to be approximately $15 million, focusing on underground exploration and infill drilling within the New Afton footprint, and reconnaissance drilling on regional targets[32] Mineral Reserves and Resources Mineral Reserves Summary Total Proven and Probable Mineral Reserves decreased by 10.5% in 2022, primarily due to mine production and depletion Total Proven and Probable Mineral Reserves (as at December 31) | Metric | 2022 | 2021 | Change (koz) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Gold (koz) | 3,297 | 3,682 | (385) | -10.5% | | Total Silver (koz) | 8,176 | 9,349 | (1,173) | -12.5% | | Total Copper (Mlbs) | 607 | 675 | (68) | -10.1% | - Rainy River's total Mineral Reserves decreased by approximately 306,000 gold ounces due to annual mine production (252,000 oz), a resource mineability adjustment (48,000 oz), and a slope design update (6,000 oz)[37] - New Afton's Mineral Reserves decreased by approximately 79,000 gold ounces due to annual mine depletion (44,000 oz) and conversion of Sub Level Cave and East Cave Recovery Level to Mineral Resources (45,000 oz), partially offset by mine plan optimization (10,000 oz)[37] Measured and Indicated Mineral Resources (Exclusive of Mineral Reserves) Measured and Indicated Mineral Resources saw a slight increase of 0.2% in 2022, driven by gains at New Afton Total Measured and Indicated Mineral Resources (Exclusive of Mineral Reserves) (as at December 31) | Metric | 2022 | 2021 | Change (koz) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Gold (koz) | 2,722 | 2,717 | 5 | +0.2% | | Total Silver (koz) | 8,122 | 8,081 | 41 | +0.5% | | Total Copper (Mlbs) | 1,035 | 1,006 | 29 | +2.9% | - Rainy River's Measured and Indicated Mineral Resources decreased by approximately 42,000 gold ounces due to an updated open pit design[38] - New Afton's Measured and Indicated Mineral Resources increased by approximately 47,000 gold ounces from the Sub Level Cave and East Cave Recovery Level converted to Mineral Resources and additional exploration drilling[38] Inferred Mineral Resources Consolidated Inferred Mineral Resources decreased by 3.1% to 375,000 gold ounces as of year-end 2022 Total Inferred Mineral Resources (as at December 31) | Metric | 2022 | 2021 | Change (koz) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Gold (koz) | 375 | 387 | (12) | -3.1% | | Total Silver (koz) | 782 | 831 | (49) | -5.9% | | Total Copper (Mlbs) | 135 | 137 | (2) | -1.5% | Key Performance Drivers Production Volumes and Costs Production volumes and costs are critical internal drivers for the company's strategic implementation and goal achievement - Production volumes and costs are critical internal drivers for New Gold's strategy and goals[40] Commodity Prices Gold prices are the most significant factor influencing profitability, with copper prices also playing a key role - The price of gold is the single largest factor affecting New Gold's profitability and operating cash flows[42] Average Realized Commodity Prices (Year Ended December 31, 2022) | Commodity | New Gold Average Realized Price | Market Average Price (LBMA/LME) | | :--- | :--- | :--- | | Gold | $1,808/ounce | $1,800/ounce | | Copper | $3.94/pound | $4.00/pound | Foreign Exchange Rates The company faces currency exposure as revenue is in U.S. dollars while most costs are in Canadian dollars - The Company has foreign currency exposure, particularly to the Canadian dollar, as revenue is in U.S. dollars but a significant portion of costs are in Canadian dollars[45] - The weakening of the Canadian dollar against the U.S. dollar in 2022 positively impacted costs in U.S. dollar terms at the Company's Canadian operations[46] Economic Outlook Gold and copper prices rose in Q4 2022, with long-term support expected from inflation and geopolitical uncertainty - The LBMA p.m. gold price increased by 8% during Q4 2022, finishing at $1,814 per ounce, supported by recession prospects and a decline in the U.S. Dollar Index[49] - Management anticipates that the long-term economic environment, including inflation concerns and geopolitical uncertainty, should provide support for gold and precious metals[49][50] - The LME cash copper price increased by 10% during Q4 2022, finishing at $3.80 per pound, driven by expectations of demand recovery in China and shrinking exchange inventories[51] - Inflationary pressures continue to impact the cost of labor and key consumables[52] Financial Results Analysis Summary of Financial Results New Gold reported a net loss of $66.8 million and an adjusted net loss of $26.1 million for 2022 Summary of Financial Results (Year Ended December 31, in millions of U.S. dollars) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Revenue | 604.4 | 745.5 | 643.4 | | Operating expenses | 382.7 | 377.3 | 339.9 | | Depreciation and depletion | 195.4 | 195.7 | 193.1 | | Revenue less cost of goods sold | 26.3 | 172.5 | 110.4 | | (Loss) income from operations | (15.7) | 137.3 | 81.4 | | Net (loss) earnings | (66.8) | 140.6 | (79.3) | | Adjusted net (loss) earnings | (26.1) | 82.9 | 19.2 | - The company reported a net loss of $66.8 million for the year ended December 31, 2022, compared to net earnings of $140.6 million in the prior year[54] - Adjusted net loss for 2022 was $26.1 million, a decrease from adjusted net earnings of $82.9 million in 2021[54] Revenue Revenue decreased in 2022 due to lower gold and copper sales volumes and reduced copper prices - For the year ended December 31, 2022, the decrease in revenue was due to lower gold and copper sales volume and lower copper average realized prices[55] - For the three months ended December 31, 2022, the decrease in revenue was due to lower copper sales volume and lower gold and copper average realized prices[55] Operating Expenses Operating expenses increased in 2022, driven by higher costs at New Afton and inflationary pressures - Operating expenses for the year and three months ended December 31, 2022, were higher than prior-year periods[56] - The increase was largely due to higher operating expenses at New Afton as B3 production ramped up, and inflation-driven price increases[56] Depreciation and Depletion Depreciation and depletion expenses remained consistent with prior-year periods - Depreciation and depletion expenses were consistent for the year and three months ended December 31, 2022, compared to prior-year periods[57] Revenue less Cost of Goods Sold Revenue less cost of goods sold decreased in 2022, primarily driven by the overall reduction in revenue - Revenue less cost of goods sold decreased for the year and three months ended December 31, 2022, compared to prior-year periods, primarily due to lower revenue[58] Corporate Administration Corporate administration costs remained consistent with prior-year periods - Corporate administration costs were consistent for the year and three months ended December 31, 2022, compared to prior-year periods[59] Corporate Restructuring Restructuring costs in 2022 were attributed to severance benefits from executive leadership changes - Corporate restructuring costs in 2022 were for severance and other termination benefits related to changes at the executive leadership level[60] Share-based Payment Expenses Share-based payment expenses were consistent for the full year but increased in Q4 due to share price assumptions - Share-based payment expenses for the year ended December 31, 2022, were consistent with the prior-year period[61] - For the three months ended December 31, 2022, share-based payment expenses increased due to an increase in the share price assumption during the quarter[61] Exploration and Business Development Exploration expenses increased for the full year due to heightened activity at New Afton but decreased in Q4 - For the year ended December 31, 2022, exploration and business development expenses increased primarily due to increased exploration activity at New Afton[62] - For the three months ended December 31, 2022, exploration and business development expenses decreased primarily due to decreased exploration activity at New Afton[62] Finance Income and Costs Finance income increased due to higher interest rates, while finance costs decreased following debt redemption - Finance income increased for the year and three months ended December 31, 2022, due to an increase in interest rates[63] - Finance costs decreased for the year and three months ended December 31, 2022, mainly due to the $100 million redemption of the 2025 Unsecured Notes and additional capitalized interest at New Afton[65] Other Gains and Losses The company recorded unrealized losses on investments and its gold stream obligation, offset by gains on its cash flow obligation - For the year ended December 31, 2022, the Company recorded an unrealized loss of $28.0 million on investments, primarily due to decreases in the share price of Artemis Gold Inc and Talisker Resources Ltd[67] - For the year ended December 31, 2022, the Company recorded an unrealized loss of $25.0 million on the revaluation of the Rainy River gold stream obligation derivative instrument, primarily driven by the updated Technical Report and conversion of ounces from resources into reserves[68] - For the year ended December 31, 2022, the Company recorded an unrealized gain of $28.0 million on revaluation of the New Afton free cash flow interest obligation, primarily due to an increase in the market observable discount rate[69] - For the year ended December 31, 2022, the Company recorded a loss on foreign exchange derivatives of $2.3 million due to the strengthening of the U.S. dollar, while for the three months ended December 31, 2022, it recorded a gain of $6.0 million due to the weakening of the U.S. dollar[70] Income Tax The company recorded an adjusted tax recovery for the full year, though Q4 saw an increased income tax expense - Income tax expense for the year ended December 31, 2022, decreased due to a decrease in British Columbia mining tax payable and the impact of foreign exchange on the tax balance[73] - The adjusted tax recovery for the year ended December 31, 2022, was $7.2 million, compared to an adjusted tax expense of $19.9 million in the prior year[74] - Income tax expense for the three months ended December 31, 2022, increased due to the tax impact of the revaluation of the New Afton free cash flow obligation[73] Net (Loss) Earnings & Adjusted Net (Loss) Earnings Net earnings shifted to a net loss in 2022 due to lower revenue and higher operating expenses - Net earnings decreased for the year and three months ended December 31, 2022, resulting in a net loss, primarily due to lower revenue, higher operating expenses, and the gain on the sale of the Blackwater gold stream in the prior-year period[75] - Adjusted net earnings decreased over the prior-year periods primarily due to lower revenue and higher operating expenses[77] Key Quarterly Operating and Financial Information Quarterly performance in 2022 showed fluctuating production and revenue, with Q4 recording a net loss of $16.9 million Key Quarterly Operating and Financial Information (in millions of U.S. dollars, except where noted) | Metric | Q4 2022 | Q3 2022 | Q2 2022 | Q1 2022 | Q4 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Gold production from operations (ounces) | 80,694 | 70,147 | 52,431 | 68,101 | 81,072 | | Gold sales from operations (ounces) | 78,507 | 68,816 | 51,263 | 70,562 | 78,745 | | Revenue | 162.8 | 151.2 | 115.7 | 174.7 | 202.6 | | Net (loss) income | (16.9) | (4.2) | (37.9) | (7.8) | 150.9 | | Basic ($) | (0.02) | (0.01) | (0.06) | (0.01) | 0.22 | - Q4 2022 net loss was $16.9 million, a significant decrease from Q4 2021 net income of $150.9 million[79] - Q4 2022 revenue decreased to $162.8 million from $202.6 million in Q4 2021[79] Review of Operating Mines Rainy River Mine, Ontario, Canada Rainy River's 2022 production decreased, while costs rose due to inflation and higher sustaining capital Operating Results (Rainy River) Full-year production met updated guidance, but costs increased and free cash flow declined significantly Rainy River Operating Information (Year Ended December 31, in millions of U.S. dollars, except where noted) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Gold eq. Produced (ounces) | 235,194 | 242,961 | | Gold eq. Sold (ounces) | 233,788 | 237,061 | | Ore mined (thousands of tonnes) | 8,535 | 14,514 | | Ore processed (thousands of tonnes) | 8,602 | 9,250 | | Average gold grade (grams/tonne) | 0.91 | 0.88 | | Gold recovery rate (%) | 91 | 89 | | Revenue | 421.7 | 425.9 | | Operating expenses per gold eq. ounce sold ($/ounce) | 985 | 955 | | All-in sustaining costs per gold eq. sold ($/ounce) | 1,605 | 1,415 | | Total mining interest capital expenditures | 144.8 | 103.0 | | Free cash flow | 18.0 | 46.0 | - Full year gold equivalent production of 235,194 ounces was within the updated guidance range of 230,000 to 250,000 ounces[83] - Open pit net mining costs per operating tonne mined increased due to a decrease in tonnes mined and an increase in diesel prices[87] - Free cash flow for the year ended December 31, 2022, decreased to $18.0 million (from $46.0 million in 2021) due to an increase in capital expenditures, partially offset by an increase in cash generated from operations[89] Impact of Foreign Exchange on Operations (Rainy River) A weaker Canadian dollar positively impacted operating costs, reducing total cash costs per ounce - The weakening of the Canadian dollar against the U.S. dollar reduced total cash costs by $37 per gold equivalent ounce for the year ended December 31, 2022[90] Exploration Activities (Rainy River) Exploration in Q4 2022 included diamond drilling on a priority target and reconnaissance field activities - During Q4 2022, the Company completed 1,354 meters of diamond drilling in four completed drill holes on a priority target south of the Rainy River Mine footprint[91] - Planned reconnaissance field activities on regional landholdings were completed[91] New Afton Mine, British Columbia, Canada New Afton's 2022 production decreased significantly, while costs rose substantially, resulting in a net free cash flow outflow Operating Results (New Afton) Full-year production met updated guidance, but costs increased due to lower volume and inflation, leading to a cash outflow New Afton Operating Information (Year Ended December 31, in millions of U.S. dollars, except where noted) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Gold eq. Produced (ounces) | 111,860 | 175,972 | | Gold eq. Sold (ounces) | 109,051 | 165,387 | | Ore mined (thousands of tonnes) | 2,060 | 4,470 | | Ore processed (thousands of tonnes) | 3,323 | 4,886 | | Average gold grade (grams/tonne) | 0.47 | 0.41 | | Average copper grade (%) | 0.51 | 0.70 | | Gold recovery rate (%) | 84 | 81 | | Copper recovery rate (%) | 83 | 81 | | Revenue | 182.7 | 319.6 | | Operating expenses per gold eq. ounce sold ($/ounce) | 1,395 | 912 | | All-in sustaining costs per gold eq. sold ($/ounce) | 2,044 | 1,385 | | Total mining interest capital expenditures | 148.0 | 144.3 | | Free cash flow | (137.9) | 15.9 | - Full year gold equivalent production of 111,860 ounces was within the updated guidance range of 95,000 to 115,000 ounces[96] - Underground net mining costs per operating tonne mined and processing costs per tonne processed increased due to lower tonnes mined and milled and inflation-driven price increases[101] - Free cash flow for the year ended December 31, 2022, was a net outflow of $137.9 million, a decrease over the prior-year period due to a decrease in cash generated from operations and an increase in capital expenditures[104] Impact of Foreign Exchange on Operations (New Afton) A weaker Canadian dollar provided some relief to operating costs, reducing total cash costs per ounce - The weakening of the Canadian dollar against the U.S. dollar reduced total cash costs by $52 per gold equivalent ounce for the year ended December 31, 2022[104] Exploration Activities (New Afton) Exploration in Q4 2022 focused on underground drilling in target areas and reconnaissance surface drilling - During Q4 2022, the Company completed 4,629 meters of diamond drilling in ten drill holes[105] - Drilling focused on exploring potential mineralization on the Artificial Intelligence North target area and assessing the down plunge extension of the mineralization defined on the Upper East Extension target area[105] - Reconnaissance exploration drilling was also conducted on regional targets within the broader New Afton district[105] Financial Condition Review Balance Sheet Review Cash decreased due to debt repayment and capital expenditures, while total assets and long-term debt also declined Balance Sheet Information (as at December 31, in millions of U.S. dollars) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | 200.8 | 481.5 | | Other current assets | 176.7 | 204.8 | | Non-current assets | 1,866.0 | 1,790.5 | | Total assets | 2,243.5 | 2,476.8 | | Current liabilities | 171.2 | 172.9 | | Non-current liabilities excluding long-term debt | 717.9 | 857.0 | | Long-term debt | 394.9 | 491.0 | | Total liabilities | 1,284.0 | 1,520.9 | | Total equity | 959.5 | 955.9 | - The decrease in cash and cash equivalents was primarily driven by the repayment of $100.0 million of 2025 Unsecured Notes, interest payments, and development capital expenditure at New Afton[108] - Non-current liabilities excluding long-term debt decreased primarily due to cash settlements and higher market observable discount rates impacting the gold stream obligation and free cash flow interest obligation[112][114] - The long-term discounted portion of asset retirement obligations decreased to $119.5 million (from $154.6 million in 2021) due to higher discount rates[115] Liquidity and Cash Flow The company maintained strong liquidity despite a significant decrease in cash from operations and a $100 million debt redemption Cash Flow Information (Year Ended December 31, in millions of U.S. dollars) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Cash generated from operating activities | 190.7 | 323.7 | | Cash (used in) generated from investing activities | (281.9) | 57.4 | | Cash used in financing activities | (185.0) | (86.5) | | Change in cash and cash equivalents | (280.7) | 295.2 | - As at December 31, 2022, the Company had $200.8 million in cash and cash equivalents, and $372.5 million available for drawdown under its Credit Facility, providing $573.3 million of liquidity[131] - The Company redeemed $100.0 million of its 2025 Unsecured Notes in May 2022, recognizing a loss on repayment of $4.3 million[118] Financial Covenants (Twelve months ended December 31) | Financial covenant | 2022 | 2021 | | :--- | :--- | :--- | | Minimum interest coverage ratio (>3.0:1.0) | 4.5 : 1 | 7.2 : 1 | | Maximum Leverage Ratio (<4.5:1.0) | 2.1 : 1 | 0.6 : 1 | | Maximum Secured Leverage Ratio (<2.0:1.0) | 0.2 : 1 | 0.1 : 1 | Commitments Contractual commitments for capital items increased to $64.0 million as of year-end 2022 - Contractual commitments for capital items totaled $64.0 million as at December 31, 2022, compared to $48.3 million as at December 31, 2021[134] Contingencies As of year-end 2022, no contingent losses were recorded related to legal proceedings or unasserted claims - As at December 31, 2022, there were no contingent losses recorded[135] Related Party Transactions The company did not engage in any reportable related party transactions during 2022 - The Company did not enter into any reportable related party transactions during the year ended December 31, 2022[136] Off-Balance Sheet Arrangements The company did not have any off-balance sheet arrangements in place during 2022 - The Company did not have any off-balance sheet arrangements during the year ended December 31, 2022[137] Outstanding Shares As of February 15, 2023, the company had 682.8 million common shares issued and outstanding - As at February 15, 2023, there were 682.8 million common shares of the Company issued and outstanding[138] - The Company had 4.8 million stock options outstanding under its share option plan[138] Non-GAAP Financial Performance Measures Total Cash Costs per Gold Equivalent Ounce This non-GAAP measure is used to assess operating earnings and cash flow from mining operations - Total cash costs per gold equivalent ounce is a non-GAAP financial performance measure used to evaluate the Company's ability to generate operating earnings and cash flow from its mining operations[141] - This measure is calculated in accordance with a standard developed by The Gold Institute, including mine site operating costs, royalties, and production taxes, but excluding amortization, reclamation, capital, and exploration costs[143] - Gold equivalent ounces are computed using a consistent ratio of copper and silver prices to the gold price, multiplied by the pounds of copper and silver ounces produced or sold[144] Sustaining Capital and Sustaining Lease These non-GAAP measures represent expenditures required to maintain existing gold production operations - 'Sustaining capital' and 'sustaining lease' are non-GAAP financial performance measures defined as net capital expenditures and lease payments intended to maintain operation of its gold producing assets[147] - These measures exclude expenditures that are capital expenditures to develop new operations or related to major projects at existing operations where these projects will materially increase production[147] Growth Capital This non-GAAP measure represents capital expenditures for new operations or major projects that increase production - 'Growth capital' is a non-GAAP financial performance measure that refers to non-sustaining capital costs[148] - It includes capital expenditures to develop new operations or related to major projects at existing operations where these projects will materially increase production[148] All-in Sustaining Costs per Gold Equivalent Ounce This non-GAAP measure provides a comprehensive view of the full costs associated with gold production - 'All-in sustaining costs per gold equivalent ounce' is a non-GAAP financial performance measure calculated based on guidance announced by the World Gold Council (WGC) in September 2013[149] - It is defined as the sum of total cash costs, capital expenditures that are sustaining in nature, corporate general and administrative costs, capitalized and expensed exploration that is sustaining in nature, lease payments that are sustaining in nature, and environmental reclamation costs, all divided by the total gold equivalent ounces sold[152] - Costs excluded from AISC include non-sustaining capital expenditures, non-sustaining lease payments and exploration costs, financing costs, tax expense, and transaction costs associated with mergers, acquisitions and divestitures[153] Cash Costs and All-in Sustaining Costs per Gold Equivalent Ounce Reconciliation Tables Consolidated total cash costs and all-in sustaining costs per ounce increased significantly in 2022 Consolidated Cash Costs and All-in Sustaining Costs per Gold Equivalent Ounce (Year Ended December 31) | Metric ($/ounce) | 2022 | 2021 | YoY Change (%) | | :--- | :--- | :--- | :--- | | Total cash costs per gold equivalent ounce sold | 1,150 | 991 | +16.0% | | All-in sustaining costs per gold equivalent ounce sold | 1,818 | 1,463 | +24.3% | Rainy River Cash Costs and All-in Sustaining Costs per Gold Equivalent Ounce (Year Ended December 31) | Metric ($/ounce) | 2022 | 2021 | YoY Change (%) | | :--- | :--- | :--- | :--- | | Total cash costs per gold equivalent ounce sold | 985 | 955 | +3.1% | | All-in sustaining costs per gold equivalent ounce sold | 1,605 | 1,415 | +13.4% | New Afton Cash Costs and All-in Sustaining Costs per Gold Equivalent Ounce (Year Ended December 31) | Metric ($/ounce) | 2022 | 2021 | YoY Change (%) | | :--- | :--- | :--- | :--- | | Total cash costs per gold equivalent ounce sold | 1,557 | 1,079 | +44.3% | | All-in sustaining costs per gold equivalent ounce sold | 1,870 | 1,330 | +40.6% | Sustaining Capital Expenditures Reconciliation Table Sustaining capital expenditures increased to $183.7 million in 2022 from $145.6 million in 2021 Total Sustaining Capital Expenditures (Year Ended December 31, in millions of U.S. dollars) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Mining interests per consolidated statement of cash flows | (292.9) | 247.3 | | New Afton growth capital expenditures | (91.5) | (90.1) | | Rainy River growth capital expenditures | (17.7) | (11.6) | | Sustaining capital expenditures | (183.7) | 145.6 | - Sustaining capital expenditures increased from $145.6 million in 2021 to $183.7 million in 2022[159] Cost per Tonne Measures Cost per tonne measures for both mining and processing increased significantly at both operations in 2022 - Non-GAAP measures like 'open pit net mining cost per operating tonne mined,' 'underground net mining costs per operating tonne mined,' 'processing costs per tonne processed,' and 'G&A cost per tonne processed' are used to assess mining operations performance[160] Rainy River Cost per Tonne (Year Ended December 31, in millions of U.S. dollars, except where noted) | Metric ($/tonne) | 2022 | 2021 | | :--- | :--- | :--- | | Open pit net mining cost per operating tonne mined | 3.93 | 2.92 | | Processing costs per tonne processed | 10.28 | 8.31 | | G&A cost per tonne processed | 4.10 | 3.39 | New Afton Cost per Tonne (Year Ended December 31, in millions of U.S. dollars, except where noted) | Metric ($/tonne) | 2022 | 2021 | | :--- | :--- | :--- | | Underground net mining costs per operating tonne mined | 26.80 | 13.68 | | Processing costs per tonne processed | 15.66 | 10.67 | | G&A cost per tonne processed | 5.70 | 3.44 | Adjusted Net Earnings and Adjusted Net Earnings per Share The company reported an adjusted net loss of $26.1 million in 2022, a reversal from adjusted net earnings in 2021 - 'Adjusted net earnings' and 'adjusted net earnings per share' exclude 'loss on repayment of long-term debt', 'corporate restructuring' and 'other gains and losses' to better understand the underlying operating performance[163][164][165] Adjusted Net (Loss) Earnings Reconciliation (Year Ended December 31, in millions of U.S. dollars, except where noted) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Adjusted net (loss) earnings | (26.1) | 82.9 | 19.2 | | Adjusted net (loss) earnings per share (basic and diluted) ($/share) | (0.04) | 0.12 | 0.03 | Cash Generated from Operations, before Changes in Non-Cash Operating Working Capital This non-GAAP measure shows cash generation from operations excluding temporary working capital changes - 'Cash generated from operations, before changes in non-cash operating working capital' excludes changes in non-cash operating working capital to assess the Company's ability to generate cash from operations before temporary working capital changes[168] Cash Generated from Operations, before Changes in Non-Cash Operating Working Capital (Year Ended December 31, in millions of U.S. dollars) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Cash generated from operations, before changes in non-cash operating working capital | 181.6 | 322.7 | 278.6 | Free Cash Flow Consolidated free cash flow was a net outflow of $148.0 million in 2022, a significant decrease from 2021 - 'Free cash flow' is a non-GAAP financial performance measure defined as cash generated from operations and proceeds of sale of other assets less capital expenditures on mining interests, lease payments, and settlement of non-current derivative financial liabilities[171] Consolidated Free Cash Flow Reconciliation (Year Ended December 31, in millions of U.S. dollars) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Cash generated from operations | 190.7 | 323.7 | | Less Mining interest capital expenditures | (292.9) | (247.3) | | Add Proceeds of sale from other assets | 0.9 | 1.4 | | Less Lease payments | (10.3) | (10.4) | | Less Cash settlement of non-current derivative financial liabilities | (36.4) | (32.3) | | Free Cash Flow | (148.0) | 35.1 | - Rainy River's free cash flow decreased to $18.0 million in 2022 (from $46.0 million in 2021), while New Afton's free cash flow was a net outflow of $137.9 million (from $15.9 million in 2021)[173] Average Realized Price The average realized gold price was $1,808 per ounce in 2022, consistent with the prior year - 'Average realized price per ounce of gold sold' is a non-GAAP financial performance measure used to better understand the price realized in each reporting period for gold sales[174] Total Average Realized Gold Price (Year Ended December 31, in millions of U.S. dollars, except where noted) | Metric ($/ounce) | 2022 | 2021 | | :--- | :--- | :--- | | Total average realized price per gold ounce sold | 1,808 | 1,798 | - Rainy River's average realized gold price was $1,807/ounce in 2022 (vs $1,797/ounce in 2021), and New Afton's was $1,808/ounce (vs $1,804/ounce in 2021)[175] Enterprise Risk Management and Risk Factors Financial Risk Management The company manages credit, liquidity, and market risks, with significant exposure to currency and commodity price fluctuations - Credit risk is managed by selling gold to large international organizations with strong credit ratings and investing in high investment-grade financial instruments[179][180] Credit Risk Exposure (Year Ended December 31, in millions of U.S. dollars) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | 200.8 | 481.5 | | Trade and other receivables | 14.1 | 26.4 | | Total financial instrument exposure to credit risk | 214.9 | 507.9 | - Total contractual debt commitments (undiscounted principal and interest) were $1,512.8 million as at December 31, 2022[187] - A 10% strengthening of the U.S. dollar against the Canadian dollar would have increased the Company's net earnings from financial instruments by $23.7 million for the year ended December 31, 2022[193] - A 10% change in gold price would impact the Company's net loss by $48.6 million for the year ended December 31, 2022[200] Other Risks The company faces a broad spectrum of operational and strategic risks beyond financial management - Production estimates are subject to risks such as accuracy of Mineral Reserve and Mineral Resource estimates, ore grades, recovery rates, weather, ground conditions, and equipment reliability[201] - Mining operations involve a high degree of risk, including unexpected ground conditions, seismic activity, equipment failure, and other hazards that could lead to reduced production, damage, or legal liability[204][207] - The Company's operations are dependent on receiving and maintaining licenses, permits, and approvals, with risks of delays, suspensions, or revocations[208][211] - Development projects, such as the New Afton C-Zone, are prone to material cost overruns and delays due to various factors including weather, ground conditions, and government approvals[212][215] - Changes in climate conditions, including extreme precipitation and weather events, can adversely affect operations through water management challenges, production disruptions, and increased costs[230][231][282] - The Company's operations are subject to risks from emerging infectious diseases like COVID-19, potentially leading to labor shortages, supply chain disruptions, and operational suspensions[235][238] - Mineral Reserves and Mineral Resources are estimates only and may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, and geotechnical factors, potentially requiring revisions or write-downs[242][243] - Properties may be subject to the rights or asserted rights of Indigenous peoples, which can impact the Company's ability to develop or operate its mining properties and projects[247][248] - Mining operations face innate risks with respect to tailings dams and structures, with unexpected failures potentially leading to extensive environmental damage, operational suspension, and significant costs[259][261] - Inflationary pressures on labor, energy, and other input costs can materially adversely affect the Company's operating and capital expenditures[268] Critical Judgments and Estimation Uncertainties Critical Judgments and Estimation Uncertainties Summary Financial statement preparation requires significant management judgments, estimates, and assumptions about future events - The preparation of consolidated financial statements requires management to make significant judgments, estimates, and assumptions about future events[296] - Estimates and assumptions are continually evaluated based on management's experience and other facts and circumstances, with revisions accounted for prospectively[296] - The areas requiring significant judgments, estimates, and assumptions are described in Note 3 of the Company's audited consolidated financial statements for the year ended December 31, 2022[297] Accounting Policies Accounting Policies Summary Significant accounting policies are detailed in the audited consolidated financial statements for year-end 2022 - The Company's significant accounting policies and future changes are presented in the audited consolidated financial statements for the year ended December 31, 2022[298] - These policies have been consistently applied in the preparation of the unaudited condensed consolidated financial statements[298] Controls and Procedures Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2022 - The Company's disclosure controls and procedures were evaluated and concluded to be effective as of December 31, 2022[299] - These controls provide reasonable assurance that information required to be disclosed is recorded, processed, summarized, and reported within appropriate time periods[299] Internal Controls over Financial Reporting Management concluded that internal controls over financial reporting were effective as of December 31, 2022 - New Gold's management concluded that the Company's internal controls over financial reporting are effective as of December 31, 2022, based on the Integrated Framework (2013) issued by COSO[301] - The effectiveness of these internal controls was audited by Deloitte LLP, the Company's independent registered public accounting firm[302] Limitations of Controls and Procedures All internal controls can only provide reasonable, not absolute, assurance due to inherent limitations - Management believes that any internal controls and procedures can provide only reasonable, not absolute, assurance that objectives are met[303] - Inherent limitations include faulty judgments, simple error or mistake, circumvention by individual acts or collusion, or unauthorized override control[303] Changes in Internal Controls over Financial Reporting No material changes were made to the design of internal controls over financial reporting during the period - There has been no material change in the Company's design of internal controls and procedures over financial reporting during the period covered by this MD&A[304] Supplementary Information Endnotes The endnotes provide detailed explanations and definitions for terms and non-GAAP measures used in the MD&A - Endnotes provide detailed explanations for various terms and non-GAAP measures used in the MD&A[315] - Gold equivalent ounces are calculated by converting silver and copper production/sales to gold equivalent based on consistent metal price ratios (e.g., $1,800/gold ounce, $24.00/silver ounce, $4.00/copper pound for 2022 guidance)[315] Cautionary Notes This section warns readers about differences in mineral disclosure standards and the risks of forward-looking statements - Mineral Reserve and Mineral Resource estimates are prepared in accordance with Canadian National Instrument 43-101 (NI 43-101), which differs significantly from the disclosure requirements of the United States Securities and Exchange Commission (SEC)[318] - Forward-looking statements are based on opinions and estimates of management and are subject to important risk factors and uncertainties, many of which are beyond New Gold's control or ability to predict[321] - Key assumptions for forward-looking statements include no significant operational disruptions, consistent political/legal developments, accurate Mineral Reserve and Mineral Resource estimates, stable commodity prices and exchange rates, consistent input costs, and timely receipt of permits[321] Technical Information The technical information in this MD&A has been reviewed and approved by designated 'Qualified Persons' under NI 43-101 - Scientific and technical information relating to Mineral Resources and Reserves has been reviewed and approved by Michele Della Libera, John Ritter, and Gord Simms, who are 'Qualified Persons' as defined by NI 43-101[325] - The estimates of Mineral Reserves and Mineral Resources may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, marketing, and other risks and relevant issues[326]