TORONTO, Feb. 15, 2017 /CNW/ – New Gold Inc. ("New Gold") (TSX:NGD) (NYSE MKT:NGD) today announces its 2016 fourth quarter and full-year financial results and updates its year-end reserve and resource estimates. The company previously announced its preliminary 2016 operational results and 2017 guidance on January 30, 2017.

2016 FULL-YEAR HIGHLIGHTS

• Full-year gold production of 381,663 ounces achieved the mid-point of the guidance range of 360,000 to 400,000 ounces
• Copper production of 102 million pounds exceeded the high end of the guidance range of 81 to 93 million pounds by 10%
• 2016 operating expense of $640 per gold ounce and $1.14 per copper pound
• 2016 delivered record low all-in sustaining costs(1) of $692 per ounce, including total cash costs(2) of $349 per ounce
• Cash generated from operations before changes in non-cash operating working capital(3) of $302 million
• Cash generated from operations of $282 million
• Adjusted net earnings(4) of $24 million, or $0.05 per share
• Net earnings of $3 million, or $0.01 per share
• Year-end cash and cash equivalents of $186 million

2016 FOURTH QUARTER HIGHLIGHTS

• Fourth quarter production of 95,883 ounces of gold and 26 million pounds of copper
• Fourth quarter operating expense of $780 per gold ounce and $1.58 per copper pound
• Fourth quarter all-in sustaining costs of $619 per ounce, including total cash costs of $360 per ounce
• Cash generated from operations before changes in non-cash operating working capital of $69 million
• Cash generated from operations of $52 million
• Adjusted net loss of $2 million, or $nil per share
• Net loss of $20 million, or $0.04 per share

MINERAL RESERVES AND RESOURCES

• 2016 year-end mineral reserves of 14.7 million ounces of gold, 1.1 billion pounds of copper and 76 million ounces of silver

"Our solid operating performance in 2016 enabled us to deliver record low all-in sustaining costs, resulting in strong margins and cash flow," stated Hannes Portmann, President and Chief Executive Officer. "Our three primary areas of focus in 2017 are enhancing our financial flexibility, executing our updated Rainy River plan and continuing to deliver operationally. Looking further ahead, we feel well positioned for the long-term with a robust gold reserve base of 15 million ounces."

2016 FINANCIAL RESULTS

Fourth quarter revenues decreased by $29 million, or 14%, relative to the prior-year quarter, as the benefit from higher gold and silver prices and higher copper sales volumes was more than offset by lower gold and silver sales volumes. Fourth quarter production was in line with the first three quarters of 2016, however, production was lower than the same period last year, which was a record quarter for New Gold. Relative to the fourth quarter of 2015, the average realized price increased by $117 per ounce of gold, or 11%, $0.29 per pound of copper, or 13%, and $2.36 per ounce of silver, or 16%. The benefit of this was offset by a 29% decrease in gold sales to 93,936 ounces mainly attributable to the Peak Mines which benefitted from mining and processing significantly higher gold grade material in the prior-year and Cerro San Pedro transitioning into residual leaching. New Gold's 2016 revenues of $684 million decreased relative to 2015, as the benefit from higher gold and silver prices and higher copper sales volumes was more than offset by lower gold and silver sales volumes due to the planned decrease at Cerro San Pedro.

New Gold's fourth quarter operating margin decreased by $27 million relative to the prior-year quarter as a result of the $29 million decrease in revenues. The company's 2016 operating margin increased by $25 million, or 8%, relative to the prior year as a result of lower operating expenses, resulting from a reduction in mining activity at Cerro San Pedro and the company's business improvement initiatives, partially offset by lower revenues.

New Gold had an adjusted net loss of $2 million, or $nil per share, in the fourth quarter of 2016 relative to adjusted net earnings of $3 million, or $0.01 per share, in the prior-year quarter. Quarterly adjusted net earnings were impacted by the combination of a $29 million decrease in revenues from lower production and an aggregate $4 million increase in exploration, business development, and corporate general and administrative expenses. These items were partially offset by a total $25 million decrease in operating expenses, depreciation and depletion due to lower production, and a $6 million decrease in finance costs as more interest has been capitalized to Rainy River.  The company reported a net loss of $20 million, or $0.04 per share, in the fourth quarter. The net loss included the impact of a non-cash $27 million inventory write-down at Cerro San Pedro, a $7 million pre-tax foreign exchange loss and a non-cash $6 million after-tax impairment charge related to an early-stage royalty interest at Rio Figueroa, which was partially offset by a $16 million pre-tax unrealized gain on the company's gold price option contracts and a $3 million pre-tax unrealized gain on the company's gold stream obligation.

In 2016, New Gold had adjusted net earnings of $24 million, or $0.05 per share, relative to an adjusted net loss of $11 million, or $0.02 per share, in the prior year. The increase in adjusted net earnings was driven by a net $54 million decrease in operating expenses, depreciation and depletion and a $28 million decrease in finance costs as more interest has been capitalized to Rainy River. These items were partially offset by a $29 million decrease in revenues from lower production, a $12 million increase in adjusted income tax expense and a $7 million increase in exploration, business development, and corporate general and administrative expenses. The company's 2016 reported net earnings of $3 million, or $0.01 per share, were impacted by the non-cash $27 million inventory write-down at Cerro San Pedro and the non-cash $6 million after-tax impairment charge related to Rio Figueroa. In 2015, the net loss was driven by the non-cash $14 million after-tax impairment charge related to the Peak Mines, the non-cash $13 million inventory write-down at Cerro San Pedro, a $98 million pre-tax foreign exchange loss and a non-cash $99 million after-tax loss associated with the sale of El Morro.

The company's fourth quarter cash generated from operations before changes in non-cash operating working capital of $69 million was $19 million, or 22%, lower than the prior-year period as the impact of lower revenues was only partially offset by the decrease in expense. Cash generated from operations in the fourth quarter of 2016 was $52 million relative to $85 million in the prior-year quarter. The major working capital difference at December 31, 2016 was an outstanding concentrate receivable of $21 million at New Afton which was collected in January 2017.

New Gold's 2016 cash generated from operations before changes in non-cash operating working capital of $302 million was $25 million, or 9%, higher than 2015. The increase was directly attributable to the higher operating margin. Full-year cash generated from operations of $282 million increased by $20 million compared to 2015.

FINANCIAL UPDATE

New Gold's 2016 year-end cash and cash equivalents were $186 million. During the fourth quarter, the company received the remaining $75 million of the stream deposit from RGLD Gold AG, a wholly-owned subsidiary of Royal Gold Inc. and drew $100 million from its $400 million revolving credit facility. At December 31, 2016, an additional $122 million of the facility was used to issue letters of credit for closure obligations at the company's producing mines and development projects, leaving $178 million undrawn.

In addition, on February 8, 2017, New Gold announced that the company has entered into a binding letter agreement with Goldcorp Inc. to the sell the company's gold stream on the El Morro project for $65 million cash. Including the El Morro proceeds, the company's pro forma liquidity totals $429 million (cash, undrawn credit facility and El Morro proceeds) plus its expected free cash flow generation from its operating mines in 2017.

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

After formally establishing a business improvement function in the second half of 2015, New Gold has continually looked for opportunities to maximize free cash flow from its portfolio of operating mines. One particularly successful business improvement initiative has been at New Afton, where improved mining and milling efficiencies have enabled the company to achieve significantly higher-than-targeted mill throughput after the successful completion of the mill expansion project in mid-2015. On a consolidated basis, the success of the multiple active business improvement initiatives was a key contributor to New Gold delivering an all-in sustaining cost of $692 per ounce in 2016, which was well below the company's mid-2016 updated guidance range of $750 to $790 per ounce.

In addition to the benefits of the ongoing business improvement initiatives included in New Gold's 2017 guidance, the company is actively evaluating further opportunities that could enhance cash flow during the remaining Rainy River construction period. The additional opportunities being assessed include further process improvements at New Afton as well as potential operating and capital cost savings at New Afton, Mesquite and the Peak Mines. In aggregate, these initiatives could have the potential to increase the 2017 free cash flow contribution from New Gold's four operations by approximately $20 million.

Since the company's January 30, 2017 news release, with the sale of the El Morro stream, New Gold has made solid progress in enhancing its liquidity position. The company will continue to assess additional opportunities to further increase its financial flexibility.  

At the end of 2016, the face value of the company's long-term debt was $900 million (book value – $890 million). The components of the long-term debt include: $300 million of 7.00% face value senior unsecured notes due in April of 2020, $500 million of 6.25% face value senior unsecured notes due in November of 2022 and $100 million drawn from the revolving credit facility. The company currently has approximately 514 million shares outstanding.

2016 OPERATIONAL RESULTS

The company has included new revenue and cost disclosures, namely, revenue and operating expense per ounce and per pound. Revenue per ounce and per pound is net of treatment and refining charges, whereas average realized price is before treatment and refining charges are taken into account. Operating expense per ounce and pound apportions the company's operating expense, as shown on New Gold's consolidated income statement, to each metal on a percentage of revenue basis.

The fourth quarter of 2016 delivered gold production of 95,883 ounces, resulting in full-year gold production of 381,663 ounces. The combination of the Peak Mines' very strong year and solid operating performances at New Afton and Cerro San Pedro enabled the company to achieve the mid-point of its guidance range of 360,000 to 400,000 ounces. Full-year production was lower than 2015 primarily due to Cerro San Pedro's planned transition to residual leaching in mid-2016.

New Gold's fourth quarter copper production of 26 million pounds was consistent with the first three quarters of 2016 and slightly below the prior-year quarter. Full-year copper production of 102 million pounds was in line with prior-year production and 10% above the high end of the company's 2016 guidance range of 81 to 93 million pounds. Full-year silver production of 1.3 million ounces was below the guidance range of 1.6 to 1.8 million ounces.

Operating expense per gold ounce during the fourth quarter increased relative to the prior-year quarter primarily due to a heap leach inventory write-down of $24 million at Cerro San Pedro. Operating expense per gold ounce for the full year was in line with the prior year.  

The company delivered fourth quarter all-in sustaining costs of $619 per ounce, including total cash costs of $360 per ounce, which was the lowest cost quarter of the year and consistent with the prior-year quarter. The company's strong fourth quarter performance reduced New Gold's 2016 all-in sustaining costs to a record low $692 per ounce, including total cash costs of $349 per ounce. The significant decrease in costs enabled New Gold to generate an all-in sustaining cost margin of $563 per ounce, or 45%. The $117 per ounce decrease in all-in sustaining costs relative to the prior year was attributable to the combination of a $94 per ounce decrease in total cash costs, primarily driven by significantly lower costs at the Peak Mines, and a $27 million, or $23 per ounce, decrease in the company's consolidated sustaining costs. Consolidated sustaining costs include New Gold's consolidated sustaining capital, exploration, general and administrative, and amortization of reclamation expenditures.  

As indicated in New Gold's 2016 second quarter results news release, the company's original full-year guidance for consolidated total cash costs and all-in sustaining costs was lowered by $75 per ounce to $360 to $400 per ounce and $750 to $790 per ounce, respectively. The company's full-year costs ultimately came in below the reduced cost guidance. This was due to the positive impact of business improvement initiatives leading to higher copper production and lower sustaining costs, and higher realized copper and silver prices only being partially offset by the appreciation of exchange rates relative to what was assumed when setting guidance.

"2016 was a great operational year for New Gold," added Raymond Threlkeld, Interim Chief Operating Officer. "We are proud to extend our track record of meeting or beating our operational guidance. I thank the team for their hard work and for delivering these strong results."

For additional detail on the changes in production and costs at New Gold's four operations in the fourth quarter and full year, refer to the company's January 30, 2017 news release, New Gold Achieves 2016 Production Guidance at Lower Costs, Provides Rainy River Update, 2017 Guidance and Announces Board and Management Changes.

PROJECTS UPDATE

RAINY RIVER

Development activities at New Gold's Rainy River project, located in northwestern Ontario, continue to advance and the project is scheduled to transition from construction to operation in the third quarter of 2017.

RAINY RIVER – 2016 KEY HIGHLIGHTS

• Project spending during the fourth quarter totalled $146 million, bringing 2016 full-year capital spending at the project to $465 million
• Concrete placement, steelwork erection and cladding complete
• SAG and ball mill shells in place
• Pre-leach thickener tank and leach tanks complete
• Power line completed and main substation has been energized
• Installation of mechanical, piping, electrical and instrumentation in processing facilities over 65% complete through mid-February 2017
• Primary crusher and conveyor system over 80% complete

Mining activities at Rainy River have progressed well to start 2017. From the beginning of the year through the end of last week the company mined over 4 million tonnes of overburden and waste from the pit which was slightly ahead of the tonnage targeted in New Gold's updated plan announced on January 30, 2017. At the same time, approximately 350,000m3 of construction material has been placed at the starter tailings cell which is also slightly ahead of plan. The contractor that will mine the peat and basal till layers within the pit using smaller equipment has been mobilized and is scheduled to begin work in the pit tomorrow, which should result in increased daily mining rates by New Gold's team in the coming weeks. The September start-up is based on an expectation that the mining rate will continue to increase to an average of approximately 120,000 tonnes per day over the next six months, which includes both planned productivity gains and the impact of changing weather conditions through the spring. 

All of the key structural components of the process facilities have been completed and the setting of mechanical equipment and installation of piping, electrical and instrumentation services is well advanced. New Gold plans to complete the testing of the various components of the process facility using a staged approach, after which the company will complete dry and wet commissioning of the full process circuit.

The primary crusher and conveyor system are over 80% complete and commissioning of the crusher is scheduled to commence in March of 2017. Thereafter, the commissioning of the ball and SAG mills should start during the second quarter. Finally, the refining portion of the circuit should be completed and ready to begin commissioning early in the third quarter. Dry and wet commissioning of the full process circuit is scheduled to take place in August, which should leave approximately one month before targeted first production for any required adjustments to the circuit.

The company continues to work closely with Environment and Climate Change Canada towards obtaining an amendment to Schedule 2 of the Metal Mining Effluent Regulations, required to close two small creeks and deposit tailings, which is targeted to be received in the third quarter of 2017. However, as previously disclosed, New Gold's redesign of the tailings management facility incorporated a starter tailings cell within the broader facility that does not require a Schedule 2 amendment from the Federal government. The inclusion of a starter cell is an approach that has been used at other Canadian mining operations. Based on its location and scale, the starter cell would provide capacity for approximately six months of tailings. Once the Schedule 2 amendment is received, New Gold would need approximately three months, in good construction weather, to complete construction of the tailings dam.       

Based on the company's targeted September production start, New Gold expects total 2017 production at Rainy River to be 50,000 to 60,000 ounces. Approximately 15,000 ounces are planned for the pre-commercial production period with revenue for this production being credited against the development capital estimate.

Over Rainy River's targeted two months of commercial production in 2017, the operating expense is expected to be $905 to $945 per gold ounce with all-in sustaining costs expected to be $1,200 to $1,240 per ounce. Both the operating expense and all-in sustaining costs are well above the levels targeted once Rainy River reaches full capacity. The 2017 costs are negatively impacted by lower gold sales resulting from the combination of throughput being lower than design during commissioning and ramp-up and planned lower grade to be processed during the commissioning phase. In addition, there is approximately $12 million, or $305 per ounce, of sustaining costs budgeted during the commercial production period. 

Project spending at Rainy River during the fourth quarter totalled $146 million, bringing 2016 full-year capital spending at the project to $465 million. The total Rainy River project development capital spending through the end of 2016 was $777 million.

Based on a C$1.30/US$ exchange rate, the remaining capital cost from the beginning of 2017 to the targeted November commercial production is estimated to be approximately $515 million, inclusive of $40 million of contingency.

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

2016 YEAR-END MINERAL RESERVES AND RESOURCES AND 2017 EXPLORATION PLANS

2016 YEAR-END MINERAL RESERVES AND RESOURCES

As part of New Gold's estimate of 2016 year-end mineral reserves and resources, the company increased the gold price assumptions used to estimate mineral reserves and resources by $50 per ounce to $1,250 per ounce and $1,350 per ounce, respectively. The updated gold reserve pricing assumption is consistent with long-term consensus estimates. The reserve pricing assumptions for copper of $2.75 per pound and silver of $15.00 per ounce remained the same as 2015. In calculating its cut-off grades for 2016 year-end mineral reserve and resource estimates, the company used exchange rate assumptions of $1.25, $1.30 and $17.00 for the Canadian dollar, Australian dollar and Mexican peso relative to the U.S. dollar.

On a consolidated basis, the company's total gold mineral reserves of 14.7 million ounces remained in line with year-end 2015. New Gold was able to partially offset approximately 0.5 million ounces of depletion from 2016 mining activity through the addition of 0.1 million ounces of reserve conversion at our Peak Mines and 0.1 million ounces from Rainy River as a result of updates to the open pit and underground mine plans. At Mesquite, gold mineral reserves decreased relative to the end of 2015 due to a combination of 2016 mine depletion and an updated mineral resource estimate that incorporates lowered metallurgical recoveries for non-oxide transitional material in the life-of-mine plan. New Gold's consolidated 2016 year-end copper mineral reserves of 1.1 billion pounds decreased slightly due to depletion from mining activities in 2016.

The change in consolidated Measured and Indicated gold resources, exclusive of reserves, was primarily attributable to an updated open pit and underground mine plan at Rainy River, conversion of mineral resources to reserves at the Peak Mines and the exclusion of the Capoose resource, located approximately 25 kilometres west of the Blackwater deposit, from the current mineral resource statement. The Peak Mines base metal inferred resource increased significantly with the addition of approximately 100 million pounds of copper from Great Cobar/Anjea and approximately 400 million pounds of combined lead-zinc primarily from the recently discovered Chronos zone. 

2017 EXPLORATION PLANS

New Gold's 2017 exploration plans will be focused on three assets, the Peak Mines, New Afton and Rainy River. Targeted exploration spending totals $17 million, of which $16 million is expected to be expensed. New Gold's consolidated 2017 guidance for all-in sustaining costs includes this $16 million, or approximately $40 per ounce, of the total $17 million of planned exploration spending.

Consistent with prior years, the objective at the Peak Mines in 2017 is to further extend the mine's history of mineral reserve and resource replacement, with a particular focus on gold-dominant targets identified in the Southern Mine Corridor (Peak, Perseverance and Chronos), and to a lesser extent, on copper dominant targets in the Northern Mine Corridor (Chesney, New Cobar and Great Cobar). At New Afton, the 2017 program is scheduled to be split between underground infill drilling to upgrade the lower portion of the C-zone to a measured confidence level and reconnaissance drilling on positive 2016 results and other emerging prospects. At Rainy River, the 2017 program is focused within a five-kilometre radius of the mine development area and is scheduled to include surface drilling and target generation. New Gold has also allocated $2 million towards the Fifield project in New South Wales, Australia, where the company has the opportunity to earn a 70% interest. 

2017 GUIDANCE

Going forward, New Gold's asset by asset cost guidance will include operating expense per gold ounce, operating expense per copper pound and all-in sustaining costs. Operating expense per ounce and pound apportions the company's operating expense, as shown on New Gold's consolidated income statement, to each metal on a percentage of revenue basis. New Gold will continue to provide total cash cost guidance on a consolidated basis, but not at the asset level.

New Gold's 2017 consolidated gold production is expected to increase relative to the prior year due to the planned September start-up of Rainy River. Consolidated gold production from New Afton, Mesquite and the Peak Mines should remain in line with 2016 production levels, however, production at Cerro San Pedro is scheduled to decrease as the mine enters its first full year of residual leaching. Copper production is expected to increase slightly at New Afton due to higher copper grades, while copper production from the Peak Mines is expected to be in line with 2016. Consolidated silver production is scheduled to remain in line with the prior year at approximately 1.1 million ounces.

Consistent with previous years, New Gold's 2017 full-year gold production is not scheduled to be evenly distributed across the four quarters. Quarterly consolidated gold production is expected to build steadily throughout the year with the fourth quarter benefitting from the start-up of Rainy River.

New Gold's by-product pricing assumptions for 2017 are $2.50 per copper pound and $16.00 per silver ounce. The 2017 assumptions for the Canadian dollar, Australian dollar and Mexican peso exchange rates are $1.30, $1.35 and $20.00 to the U.S. dollar.

The company's 2017 operating expense will increase due to the advancement of Rainy River into production, however, operating expense per gold ounce and operating expense per copper pound should both remain in line with 2016.

Consolidated total cash costs for the year are expected to increase by approximately $65 per ounce to $395 to $435 per ounce as a result of higher gross operating costs attributable to the start-up of Rainy River, partially offset by higher by-product revenues. New Gold's 2017 all-in sustaining costs are expected to increase by approximately $150 per ounce when compared to the $692 per ounce delivered in 2016. 2017 sustaining costs, including sustaining capital, exploration, general and administrative and amortization or reclamation expenditures, are expected to increase by approximately $35 million relative to the prior year with the increase in sustaining capital expenditures from the start-up of Rainy River, and increased underground development costs at New Afton and Peak Mines, partially offset by lower capital expenditures at Mesquite.

New Gold 2017 All-In Sustaining Costs Key Sensitivities

Sensitivities to silver price and the Mexican peso are not shown as the sensitivities are limited.

WEBCAST AND CONFERENCE CALL

A webcast and conference call to discuss these results will be held on Thursday, February 16, 2017 at 10:00 a.m. Eastern time. Participants may join the webcast by registering on our website at www.newgold.com. You may also listen to the conference call by calling toll free 1-888-231-8191, or 1-647-427-7450 outside of the U.S. and Canada. A recorded playback of the conference call will be available until March 15, 2017 by calling toll free 1-855-859-2056, or 1-416-849-0833 outside of the U.S. and Canada, passcode 62154111. An archived webcast will also be available until May 15, 2017 at www.newgold.com.  

ABOUT NEW GOLD INC.

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

Original Article: http://www.newgold.com/investors/NewGoldNews/PressReleaseDetail/2017/New-Gold-Announces-2016-Financial-Results-with-Record-Low-Costs-Driving-Strong-Margins-and-Cash-Flow/default.aspx