Earnings Call - NEW FOUND GOLD CORP

Hi, I'm Keith Boyle, I am the CEO of Newfound Gold. Our Hammerdown gold mine is in production, our Queensway gold project is in development, and our Pine Cove mill is being converted, soon to be expanded, to accept Queensway, on the island of newfoundland labrador and uh with a property package that has tremendous exploration upside good to see you just saw the pea release um i'm just going to work out what was genuinely improved in in the pea obviously stronger economics is that what's that coming from so you know highlight one we increased the overall m and i resource by 38 so basically added a half a million ounces uh all the while keeping the amount of inferred the same so you know adding that half a billion ounces uh we uh one thing we did do over the last year and a half was um drill infill drill so upgrade the resource increasing both the indicated but it you know Equally important, adding some measured, and that was the grade control drilling that we did and released at the sort of starting at the end of this last year and then into the beginning of this year. And that confirmed that high grade core. So our phase one production, you know, a really de-risked phase one production, if you will, has 97% of that phase one production in the measured and indicated category and really does bode well or outline for us that we can deliver a high-grade starter over 13 grams a ton over that period of time uh to the newly expanded pine cove mill okay and i'm going to come back to those grades in a second but maybe just stepping back a bit for for folks maybe need of this story looking in at that the headlines uh numbers how do you hammer down hammer down pine coive and queensway fit together commercially and i guess what does owning that infrastructure actually save you down the line Sure. So, you know, if we back up and we look at what we did as a company, we bought maritime resources. So we acquired the Hammerdown Gold Mine, which had just started developing, just starting developing. And then the Pine Cove Mill, which is operating, to accept the hammer-down ore. And that ore being sent is 700 tons a day, grades between, call it, two and a half and three gram material. So the mine we bought, we didn't buy it for the mine. We bought it for the fully permitted mill and tailings. What did it do for us? When we looked at Queensway as a project, our mandate was to get to cash flow as soon as we could. And by doing that, by acquiring the mill, we brought forward that production from Queensway about three years. so you know considering the permitting time the development time and then the production time on site at queensway we accelerated that production by three years and so we'll be sending first door uh to the expanded pine cove mill which we own um from queensway that'll be in the fourth quarter of 27 okay okay understood and so you reference uh what 13.4 grasp uh put on gold a second ago obviously people were getting are getting super excited about that if the chat rooms are to be bleeped i'm what gives you confidence that those grades will actually reach the mill after dilution and mining losses you're not well that that's why we did the great control uh drilling at a five by five meter center so very tight spacing one to demonstrate that our mineral resource estimate was uh was solid and that great control reconciled very well with uh with the um mineral resource estimator and two the feature at queensway is you know you've got these veins that are really easy to see and then you've Got the rest of the stock work which is a lower grade and so by drilling at five by five meter centers we'll have really clear demarcation of what it is we're going to mine to send that higher grade material and we're in fact doing it at uh hammer down where but the team there have learned how to do exactly that at hammer down and so buy uh doing that definition drilling or grade control drilling we are now in a position to know exactly where it is we're going to mine. Okay, so you've increased M&I resources by, was it 38%, something like that? 38%, yep. 38%. How much of that actually improves the mine plan rather than just simply adding ounces? Well, what it did do was add about 17. So if you look at the whole, add about 70% to the gold. So we, you know, we added that extra few hundred thousand, a couple hundred thousand ounces to the overall mine plan. Of course, when you convert those things, you never get 100% conversion. But we got, what was it? I think it was 70% of the gold came into the mine plan and then after recoveries, well, then it shows up different. So with that, what it did do was help us, one, increase the production in the front end and even out the production from starting in phase two and give us a flatter, smoother production profile as opposed to a very jagged one. And that's what you like to see as an operator is something that's, you know, steady and smooth when you're going forward. I mean, to that point, I mean how has operating Hammerdown taught you that you think you're gonna be able to kind of move over into kind of the Queens way or even design and come to the mining methods in terms of cost, grade control, etc.? Yeah. Confirming for us that the great control drilling at five by five meter centers is critical in determining where it is we want to mine. Two is how to approach those veins in the pit face, how to do it in flitches. So we do, you know, we do a full bench and then we mine in fliches. So half and half. And the third piece is making sure you size the equipment right. So starting with a smaller fleet so that you can mine more selectively. And then once we go to phase two with the larger production equipment, we'll have, you know, the smaller shovels for the small bits and then the bigger shovels. You know, people have the, what's the way I want to put this? 70% of the gold is in 30% of the tons. So we want to first focus on that small amount with smaller equipment. Then once we get going, we'll be focusing on moving more dirt and more material in order to get a lower cost, lower unit cost to deliver the lower grade material to the mill that we'll build at Queensway. Okay, so talk to me about the economics around the kind of having like two processing circuits and what are the benefits other than financial? So I'm going to actually back up and not just talk about the circuits themselves. I'm going to back up this PEA that we've just put out is a more thought through PEA based on information that we've gained over the last year and a bit. So first, the two circuits that you refer to, one is the CIL, it's a gravity CIL circuit. The next one's a Gravity Flotation Circuit. In last year's PEA, we had just one big circuit that kind of combined things. And um with the metallurgical test work it was pretty clear that the high grade material should go through its own circuit and the lower grade material going through its circuit so 70 this way 30 this way and by doing that what we did do was improve the overall one recovery of gold from the CIL circuit, but more importantly, the payability. And so that required a bit more capital. We have to grind a bit More in there and we have to add grinding. We added some gravity and we also added some CIL. So it added more capital, but it did improve the pay ability of that. And we're investing again for the long term, but that's the first part. The second part was the underground so we increased the underground ounces by about 87 percent so almost double that took significantly more capital and on a per ounce basis it's a lot more capital than if you had those ounces at surface but everything's open at depth it's open it's strike we just haven't drilled it all and so that's the piece that um you know shows up as a much higher capital cost both growth and sustaining uh having said that we're investing for the future and the future expansion to deliver high grade ounces uh once we're underground uh those were the two main ones we did have to flatten the pit wall a bit uh based on the geotechnical drilling so our our strip ratio went from six to six and a half and uh and uh so you know adding all that together uh we've got a really more robust de-risked uh product okay so you say there's a couple questions as you're talking with with the um the payables there's there's something about sort of um less concentrate penalties as well isn't there in in that can you explain that to folks when we take the high grade or when you take material and you put it through the gravity cil circuit we get to pour a dore and we sell that to the mint we get paid over 99 of the gold that's in the bar from the mint if we were to take it and put it Through the gravity ci uh flotation circuit where we're floating uh concentrate we can get some recovery in gravity but a lot of it sneaks through to the flotation we float it we put it into a concentrate now we sell that concentrate to a metals trader basically the smelters that they sell it to but it's a metals trade and what they do is they take their cut so we only end up getting paid 87 88 percent of the gold that's recovered there so we're better off to mine more clean if you will the high grade piece focus on that high grade piece with the grade control drilling and send that this is the cil circuit and get better payment from there that's the additional capital to be able to process it separately got it and then then so just want to get clarification you said like it was 86 87 percent of the underground increase in the underground ounces can you can you explain because there's maybe a bit counterinsured in terms of those trade-off studies um that you will have done there in terms because people go open pets cheaper underground is more expensive broadly uh people would think So what makes those ounces underground more profitable for the company in the long run? So when you look at the, first, when you Look at the open pit, you know, we mined down to a certain depth, and then there were underground ounces below. You have to start the ramp at surface. And so you're still going all the way down. and now what we have to compare is that slice that last slice that goes to get the bottom ounces from the pit how much did we pay for that as opposed to the ramp is going by those ounces how much does it cost to just go and excavate them and hold them to surface because the ramp's going past it we're paying for that ramp anyway and so that's where uh you know we do the trade-off and the bottom of the pit always comes up when you've got this high grade shoot that's well defined and you don't have enough if you will lower grade material either side to make the pit be the predominant one and in our case in this case it really did come up quite a bit um when you know i just bad part figures you know we were looking at well over 300 million dollars that we put back into the profit uh because of uh because of that trade-off that we did in particular rob kick interesting okay i think it's worth discussing because people will would perhaps have puzzled over that you're gonna eventually have to start committing major capital towards this i mean so how much can you do um in terms of um building on this pea you know there's no mineral reserves yet what how much more work is there before we start committing that capital the initial capital is 150 million uh last year was 155 now we did start spending uh back in uh uh back and may uh where we uh are now uh retooling if you will changing the circuit at pine cove so we're moving it from a um flotation merrow crow circuit to a gravity CIL. Now, hammer down ore will see an improved recovery of about 5%. So from the 85 to 87% up to the 92 and change percent. So we're going to see an improvement in recovery from retooling it to gravity Cil. And that's the kind of circuit we need at Queensway for sure so that circuit will be then expanded to 1400 tons a day and that's where queensway will get sent so as we started that retooling um that's the money we've been spending to uh in the in the early part as part of that um as partof our project once we get our permit from queensway we'll then double the size of the circuit to be able to accept the queen's first queensway material in q4 and so you know what we've done is do the detailed engineering get the quotes in place hire the contractors we know very well we have a very good idea what the costs will be for the capital and that's why we have a high confidence on the on the the initial capital of 150 million and so and then with the great control drilling that we did at Queensway we have high confidence in that material that will get sent to Pine Cove starting in Q4 of next year. So, you know, we're advancing on that, I'll say, smaller CapEx. And then this year, we'll be completing all the work required, infill drilling, geotechnical, metallurgical, all that's getting done now in order to then move to a full feasibility study next year, and that will be for Phase 2 and 3. Okay. This is why I like talking to people who have built and operated mines before. There's a kind of sequencing to the... and get a better product through this process. That's what every study does. But that small mine, it's right at surface. We've drilled it. And now we've got a very small, really a really small mill that we're expanding. When you look at the risk, the overall risk profile, we've Got the money now to get it done. Well, I hear you say I'm confident in that process that I just heard. Just talk about some phrases. It doesn't need to be a long explanation because you've touched upon some of this already. When you say fully funded, you mean fully funded. We're not going out to markets next week, surprise me, and the market, right? Fully funded. One, I'm really glad we're fully funded I'm really glad we raised the $220 million in April at the then stock price. Unfortunately, we're not happy about where it is today. And the market has just pulled us all down. But the market should start recognizing that, look, we are going to deliver what we say. We have been the whole time. We've laid it out And we continue to deliver on our milestones. And for us, with the $167 million in the bank, plus the marketable securities, plus $35 million that we have left to draw on, plus The $17 million of warrants that we know are in the money, we'll get between now and September of next year. we're fully funded to build queensway and get to the end and get the cash flow so no need to go out to market okay i think that's it i think this i kind of kind of run through um where i'm at um you know because obviously i think we people are looking forward to when queensway feed moves potentially into its own mill maybe well look i mean for us it's you know again i just mentioned, you know, we continue to deliver on our milestones. Hammerdown will continue to deliver on their production. And at Queensway, we've got our milestones that are coming out. Now that the revised PEA is out, we'll be submitting our environmental project or preview report to the government for our environmental assessment, which we would expect a decision from the government in the early in the new year after that we'll get our early works permit shovel in the ground if you will um at queen's way in the second quarter and we'll start seeing you know the progress uh through next year uh for the development and build of the mill uh all lining up to deliver that first gold to uh in the fourth quarter Keith, I appreciate your time today. Really solid PEA. Appreciate your time. Thank you. Thanks, Matthew.