New Gold Inc. (NYSEMKT:NGD)
Analyst Day Call
February 6, 2014 10:00 AM ET
Brian Penny – EVP and CFO
Robert Gallagher – President and CEO
Mark Petersen – VP, Exploration
Ernie Mast – VP, Operations
Kurt Keskimaki – Operations, Mining and Processing
Randall Oliphant – Executive Chairman
Well good morning everyone and a special welcome to those of you on the web who are joining us. And of course for people who are on the web there’s an opportunity to ask questions by typing them in. We’re excited as always to our Annual Analyst Day, to bring you up to date with what’s going on in our company 2013 our outlook for 2014 and perhaps even more importantly than that what’s going on with a lot of our projects.
We’ve got a lot of members of our team here with us, and we want to make them available to you both now and in the lunch that we’ll have afterwards and ask any questions that you want to about anything to do with legal. In terms of the format for the day we plan on our presentation being about an hour and a half. And as we get through each section, you’re most welcome to ask any questions that you want. We’ll also have a more fulsome Q&A period after we finish our presentation.
I encourage you to, if you don’t mind shutting off your mobile phones so that people on the web can hear better and we don’t have interruptions. In terms of the format for today, I’d like to give you a bit of an introduction, an overview of where our company’s at. After that Ernie Mast is on my right and your far left. Our Vice President of operations will walk you through what our operations did in 2013 and also what they’ll do in 2014.
Bob Gallagher on my left here, our President and CPO, will walk you through our development projects.
And here to help Bob with some of our [indiscernible] who head up our projects who are in the back corner over there. In terms of health and safety in the environment Bob will walk you through sort of what’s going on there and the achievements that we’ve made. And I think this is often an over-looked area. We’re particularly proud of what we achieved in 2013 in terms of our results in that area in terms of the safety of our people.
Mark Peterson who is in the middle here, our head of Exploration, Mark has a couple of roles that he wants us to bring you up to speed generally in terms of what’s going on from the exploration perspective of both our operations and our development projects. But also, quite importantly, what’s happening New Afton where he and Curt who’s at my far left and your far right. Who heads up our New Afton operation, we’ll walk you through some of the new developments there.
We set New Afton out separately to in fact reflect the importance of New Afton to our company, this is by far our most valuable asset. It contributes more earnings and cash flow than our other operations combined. And it’s pretty exciting not only what Curt and his team have achieved so far but the plans that they have going forward. And after that I’ll come back and summarize where we’re at.
Of course we’ll be making a lot of forward-looking statements, with us today, if you have any questions on this slide as we our general council. And Lisa that’s a, quite a work of art. In terms of the big themes for New Gold, they tend to be the same every year because our company is quite consistent in what we’re trying to accomplish.
We’re focused on quality assets and what we consider to be very friendly jurisdictions, or we like to mine where people want to have us. Where there’s a lot of expertise, it’s easier to build projects. And we don’t go looking for trouble in terms of difficulties whether it be altitude, political jurisdictions uncertain rules and things like that. And today we’ve now got 18.5 million ounces of reserves, which is a record for our company both on a per share basis and in gross values and our resources are bigger than they’ve ever been. And the importance of that to me is, this is really the lifeblood of the company and what our future is.
The other thing I think that I’m proud of is the team that we’ve assembled, not only on the management side but on the, our board of directors in terms of people who sincerely care about the company, who are personally invested in it. And we don’t have a disconnect between shareholders and the management of this company because our board and management are so heavily invested ourselves. Another thing that we like and particularly given what happened in 2013 to the gold price is to be amongst the lowest-cost producer, if not the lower cost producer in the world. We think that this gives us a great position to be able to whether any kind of gold market. And one of the things when we combine that with our growth pipeline that gives me some comfort, is with such low cost of gold prices are low.
We continue to build our cash balances year after year but if prices are high I think we have an unrivaled pipeline that can take our production to almost three times what it is today. And therefore take additional advantage of the higher prices with expect to come. With rather history of creating value for our shareholders it’s something that we take remarkably seriously, I’ll show you how we’ve done over the course for past five years. Our shares were down for the first time in five years in 2013, but we expected that as we continue to deliver and continue to execute on our projects that we’ll get things back on track.
In terms of 2013, I think we had some, some great successes and some disappointments. Our production performance at Mesquite and Cerro San Pedro were less than what we expected. Peak did well what we thought. And New Afton frankly [indiscernible] of exceeding any expectations that we had, that enabled us to finish the year with cash cost of $377 and ounces were down $44 an ounce from what was already low in 2012. And what’s exciting to me is that they’re going to be even lower in 2014.
In fact in the fourth quarter our cash costs were $316 an ounce which gives you an idea of sort of where we are from our run rate perspective. Another thing that we did is we, we took advantage of low prices acquire Rainy River and we also completed the feasibility study at Blackwater. And that’s what added to reserves you can see up by 127% per share in reserves and up 22% in resources. Again we measure everything on a per share basis because the shareholders ourselves we don’t really care about gross numbers, but we care about what we have per share.
We like to doing Rainy River, we thought it was an opportunity to buy something when a lot of the development companies were selling in about discount of about 80%. We saw a reluctance of people to step forward and buy something and to sort of have first choice of the projects that we wanted one that we knew so well and it was right on the strategy for us. I think will be probably the most important thing that happened in 2013. Again because we used half cash and half shares to acquire, we only increased our shares outstanding buyable 5% to pick up a property that we expect will produce with 325,000 ounces a year for us.
In terms of balance sheet, it continues to be strong. We finished the year with $414 million of cash. And I’ll show you in a moment in terms of our debt that we don’t have anything due until 2020. I mentioned our Board of Directors one of our directors is here Jim Estey who is sitting at the table over there. We think that this is a tremendous team of people who bring just a different collection of disciplines to help New Gold, given our significant presence in British Columbia with both New Afton and Blackwater having David Emerson who both has served with distinction, the government of Canada in many different capacities as a federal minister, but David has also been the CEO of Canfor, Head at the Vancouver airport authority so he knows both the politics of British Columbia but also how to get business done, had a deal with First Nations, had a deal with permitting.
He is a great asset to our company. Jim Estey who used to run UBS here in Canada is sort of our capital markets expert, you Bob Gallagher is another Toronto businessman and probably our third largest shareholder in terms of an individual on the company. Martyn Konig brings to us a lot of expertise in bullion having run the bullion desk in London for Rothschilds, UBS and Goldman Sachs. And Martyn also has experience in running gold companies and successfully sold European goldfields for about $2 billion a couple years ago which was probably excellent timing for its shareholders. Pierre Lassonde I don’t think requires any introduction, he is the chairman of Franco. And Ray Threlkeld of course who worked with us in many capacities in the past, was the CEO of Rainy River and brings a lot of geologic expertise to our company.
In terms of our properties I think you know where most of them are the red dots of the operating mines namely New Afton, Mesquite, Cerro San Pedro and Peak because Ernie will tell you a lot more about them, I won’t say too much and then of course the development properties of Blackwater and Rainy River here in Canada. And we own a 100% of all these assets, the only exception is El Morro where we own 30% Gold Corp owns the other 70% and they are the operator and the founder of that project.
Turning to our fourth quarter which we put out this morning it was our strongest quarter of year as we expected, it brought us in at the higher end of our, our outlook for the year of 390,000 ounces to 400,000 ounces. Our cash costs were in fact the lowest in our history for both the quarter and on an annual basis and on an all-in sustaining cost basis, again below $900 an ounce both the quarter and the year.
I talked about increase in reserves and resources per share, moving Blackwater into reserves was one of the major factors and of course the second one was the acquisition of Rainy River. Our silver reserves also increased and our copper reserves stayed about the same as they were in 2012. In terms of our balance sheet I mentioned the $414 million that we’ve got in cash, we also have another $100 million which is undrawn on our line of credit which enables us to a lot of financial flexibility to be able to take advantage of what’s going on in the market just as we did in 2013 with compliance and cash to Rainy River rather than issuing shares.
Our debt you can see the maturity schedule there but with the first step during 2020 that’s after we expect our major development projects to be in production and generating cash, so we feel very comfortable with the debt position that we have. We’re also pleased that we took advantage of the high-yield market in 2012 to give the company a lot of financial flexibility on very unrestricted terms.
In terms of what we’re going to do in 2014, we expect our production to stay about the same as what it was in 2013 on New Afton will increase its gold production. Cerro San Pedro will produce little bit less than what it did in 2013 to give us a steady year. Our cash costs however will continue to go down. We expect them to be $320 to $340 an ounce which is lower than what was already a record for our company and our all-in sustaining costs were declined.
One of the advantage of lower costs is, we generate a lot more margin for each ounce to be produced as for us this is a business and how much money we make producing gold is very important. And you can see relative to the industry we’re significantly below where costs are. In terms of our all-in sustaining cost for 2014, our cash cost will be about $330 an ounce as I mentioned our G&A and exploration expense will be similar to what they were in 2013. And then we’ll have about $370 million, and $370 an ounce in sustaining capital and Brian Penny will walk through what our capital plans are for the year. As we go forward beyond 2014 we expect that sustaining capital to decline.
Now I mentioned that New Afton was a very special asset for us, we’re remarkably proud of Curt and his team and what they were able deliver there, not only did the mine reach commercial production six weeks earlier. And within about 7% to 8% of the original budget set about four or five years ago but this operation’s just continued to exceed all our expectation. As you know this is designed to be 11,000 tons a day we hope to get it to 12,000 tons a day by the end of 2013 and Kurt did that by September. We’ve already been running at its higher rates and it’s just producing a very significant amount of both our earnings and our cash flow but Kurt will tell you a lot more about that going forward. And then Mark will also tell you what we’ve got going on in the season.
We’re quite excited about our development pipeline, we’ve outlined here what we think are our new projects will be able to contribute production perspective. And again it’s important to remember that the well below industry average costs. Blackwater of course is the most significant of the group, Rainy River will probably come on stream before Blackwater contributing about 325,000 ounces for its first nine years. El Morro of course will make a contribution and then what the expansion that we’re outlining for you this morning, you can see that New Afton is also going to increase its production. Of the movement in the Canadian dollar over the course of the past few months is perhaps more significant to New Gold than you may think.
At Rainy River you can see that the $0.05 change in the Canada US exchange rate amounts to about another $141 million of NAV. Now relative to our in our feasibility study, dropped by about 32%. At Blackwater a $0.05 change is $270 million of NAV, which to me is really significant or about 27% ahead of the NAV that we published in December as part of the feasibility study for Blackwater. So I think that we’re really well positioned this doesn’t even include the benefit that we get at New Afton of the reclining Canadian dollar but I think this is something that’s really, really helping New Gold.
I talked about share price performance, we show our performance here against the S&P gold index and also the gold price. And although we were able for the first four years to be able to continue to have our stock price going up despite the fact gold equities were doing poorly. 2013 we performed in line with the rest of the industry, I think there’s a collection of reasons for that. In part it was some of the operational problems that we had at Mesquite and Cerro San Pedro. I think we also knew that we were inheriting a bit of a discount by taking on another project like Rainy River at a time when everybody was afraid of new things and capital cost. But we thought the right decision was to take advantage of a market that it looked so far in our favor. And given us an asset that we’ve been following for five years and be able to provide an attractive price, because we sincerely believe that the gold price will be much higher than it is today, in the future and we want to make sure that we picked up a significant asset.
Having said that, over the course of the past five years while gold equities have been down, our stock was up about 310%, which as a shareholder myself I’m pretty happy about. So with that I welcome any questions at this point, if you don’t have any I’d like to turn the podium off to Ernie who can walk you through our operations
Thank you, Randall. Good morning everyone, I will review 2013 mine-by-mine and overall as well. So the New Afton mine, we did achieve the target throughput of 12,000 tons a day earlier than expected. And also during the fourth quarter for about two thirds of the days we exceeded 12,500 tons a day. Including we had numerous days where we exceeded 14,000 tons 15,000 tons a day. So the team during these periods really had a good understanding of how the mill works for different ore types. And in fact even when we have shift changes the team is able to predict the power drills on the site will involve. So we have a really deep understanding of the New Afton property what it can do. And Curt will talk about that a little later in the presentation.
For Mesquite, we did have a negative model reconciliation during the year. And that lead to mining lower grades than were expected which was the result for the midst of the original guidance. However we did make... we were just a little bit short of the revised outlook. And again we realized the deeper areas of the, of one of the areas, the Western area of the mining of the mine where the Western areas weren’t as well-defined. Especially at deeper areas, we have a really good understanding of that now. And going forward we’re very confident with our predictions we achieved record annual throughput of 814,000 tons for the year.
This broke the previous record by about 3% or 4%, the team did that with very good understanding with some improvements in the mining and also process control improvements in the milling. And again were predicting for the future to continue along that path. And Cerro San Pedro we had a pit wall movement which was announced at the end of August, and that changed the mine plants. That area now is being mined and will be in mining areas where we’re supposed to mine in the fourth quarter of the previous year. I will be mining those areas again in the fourth quarter and will see those ounces come out in the fourth quarter of this year and also the first quarter of 2015.
[indiscernible] like to add, produced a higher range of its, of the revised outlook and we did see an improvement in recovery issues in the fourth quarter. So consolidated results, I’ll go over these quickly, this is what Randall... I’ll go over these quickly this is what Randall had mentioned. Gold production was 398,000 ounces, it’s the high-end of that outlook given in Q3. Silver production 1.6 million ounces, which was within the outlook and copper production of £85 million was at the high-end of guidance. And most of that attributed to New Afton where we had great throughput and grades were very consistent with what was predicted.
Our total cash costs $377, a lot of that’s driven by the by-products in the jurisdictions where we’re living. And again that was in line with outlook and all sustaining costs around $900, again that was consistent with outlook Our fourth quarter was by far the best quarter, producing 107,000 ounces. New Afton continued to improve very well and as I mentioned the team did some trials at very high throughputs, getting a better understanding of the entire operation. Mesquite did have its highest quarter as we entered an area where we had better predictability of ore. The peak the all un-sustaining costs decreased by over $200 an ounce compared to the third quarter of 2013. And the reason for that, a couple of reasons for that one of them was the decrease in the Australian dollar. Which was across the board for the industry but also we found we’re able to take advantage of some productivity improvements in a more competitive environment for contractors and in acquiring services.
Cerro San Pedro had higher recoveries during the fourth quarter and other production exceeded its outlook and every month consecutively at higher production going forward, is with New Afton’s numbers being 1,428 to put into context on the co-product cost you can see that our cost during the fourth quarter was $391 per ounce of gold and $1.08 per pound of copper. So on a co-product basis the mine is also a low-cost mine and obviously combining the two together we end up with the spectacular results which we see.
So for the full year, production was 400,000 ounces 398 to be exact. And Randall just talked about the overall cost of 377, and here you can see on a mine-by-mine basis how each mine performs, and again New Afton’s ability on a mine-by-mine basis. I’ll just reiterate, this was the lowest cash cost in the company’s history and the prediction for next year will be sitting as part of this 2014 outlook coming up. So production is going to be in the range of 380,000 to 420,000 ounces. This is in line with what we produced last year, we have a slight increase occurring in New Afton. And that is going to be offset by I saw a slight decrease in Cerro San Pedro with the other mines very close to what they produced in 2013. Silver production between 1.35 and 1.75 million ounces, again that’s consistent with 2013. And in 2014 we’re expecting a 12% increase in copper production between £92 million and £100,000,000.
A large portion of that coming from New Afton and also with, as both mines will produce more than what’s produced in 2013. Total cash costs will again be the lowest in the company’s history between $320 and $340 per ounce. That’s driven by the higher copper production but it’s also driven by some exchange depreciation of the Canadian and Australian dollars and also just some cost, lot of cost savings opportunities that were taken advantage of last year and these also are helping that number. And the oil and sustaining cost will be between $815 and $835 per ounce’ this is a $75 per ounce decrease. And it’s driven by the lower total cash costs and also there’s the lower sustaining capital. That trend will be explained a little later on by Brian, but we did, we are reaching our peak in capital and sustaining capital and as we decrease that going forward we will see a decrease in our: all and sustaining costs.
Side-by-side New Afton gold production, just over 100,000 ounces between 102,000 thousand ounces and 112,000 thousand ounces copper production, £74 million to £84 million pounds were mining areas. Very similar to what was mined in 2013 so we have a high degree of confidence with the operational results in New Afton. Cash costs again were quite negative 1,250 and all un-sustaining negative 610. And again we can see the co-product costs our grades in New Afton will be very, will be slightly, gold grades will be slightly higher than last year but really we’ll have better throughput and higher copper grades and that’s driving improved performance for New Afton for 2014.
Our leader in the presentation, Curt will talk about the expansion and New Afton results in a little more detail. Mesquite guidance is between 113,000 ounces and123,000 ounces, the production compared to 2013 is driven by more ore and slightly higher grades. It’s a peak year for peak for sustaining capital and I’d like to add that we’re adding four trucks to the fleet to take full advantage of our loading capacity. With those four trucks we will be able to increase the amount produced in 2015 going forward as well as we will be moving towards the central part of the ore body and with that we will be getting more predictable grades as well. So we will see the situation improving for Mesquite going forward.
Cash costs will be between £900 and $950 an ounce, the costs are driven in the large part by fuel. Mesquite is a very well-run operation, very efficient and 25% of its costs are related to the diesel. And all un-sustaining costs are average of $1,320 an ounce reason again why it’s high is because of, it’s a peak year for sustaining capital. There’s the four trucks which I mentioned but also we’ll be initiating construction of the new leach pad. And this will be the final phase leach pad in the mine and a large portion of that will be spent in 2014. So again once this peak sustaining capital costs will be behind us we will see a decrease in the all un-sustaining cost of Mesquite going forward.
At Peak Mines the gold production is going to be similar to 2013, again we’re targeting record throughput at similar grades, we do see the copper production increase between £14 million and £16 million. A large portion of that is due to slightly more ore coming from the new, which traditionally has higher copper grades. Again cash costs are down. We’re predicting $640 per ounce as I mentioned that’s driven by a change in the changing currency increase in productivity. And also there’s been a large decrease in our employee turnover, and that’s allowed the mine to really optimize.
Previously we had turnovers at Peak in excess of 20%, that really put a strain on the team in terms of bringing in new employees, trading new employees and let clients having to have contractors come in and do work which is normally done by an operation. With this lower turnover which is approximately just less than10% now and the mine has been able to take on some of the tasks that previously were done by high cost contractors, so that’s why we see this decrease in the cost of Peak.
And in Cerro San Pedro production is targeted between 70 million ounces and 80 million ounces for gold. And 1.1million ounces to 1.3 million ounces for silver, the gold amount during this year there’s some stripping to get into what we call the sweet spot of the face five ore body which we get into in Q4. So we do see those ounces coming on the pad in the latter part of 2014 and a lot of the production coming out in that latter part of 2014 but also 2015. So again we do see an increase in production from Cerro San Pedro into 2015. I won’t get into any more details regarding that but this year’s a year really where we’ll be stripping quite a bit of ore.
And then higher cash costs are driven by this lower production of gold, and also there is on the sustaining side that the final leach pad phase is also being constructed on the large leach pad, but we do need to do a small edition and those costs will be incurred this year. After that we don’t anticipate to have very much sustaining capital at CSP going forward so again it’s all un-sustaining costs should decrease. And with that I’ll pass it on to Brian for discussion on capital expenditures. Thank you very much.
Thanks everybody. First of all I’d like to talk about our investment thesis as far as capital expenditures, Now later Curt’s going to talk about specifically the new extension at New Afton. And basically we’ll put our business plans together for the next three years. We went to the sights and said “guys, if we’re looking at expansion projects, the payback has to be less than three years and we’ll see later on the 50% rate of return and a payback of less than two years, that’s why the focus on expanding New Afton,” but more importantly the expansion gives us more revenue more cash flow and more flexibility. Because our goal is to fund the development of from our existing cash reserves and operating cash flow.
And one thing Rainy River saw... and one thing I can say about that is that at today’s metal prices we can do that with the plan that we’ve laid out today and we’ll carry on over the next few years. If you’re looking at page 29 capital expenditures for the next 12 months is about 340 million, 40% was sustaining 60% as growth, and we’ll talk further on the coming pages.
Moving on to page 30, if you look at capital expenditures mine-by-mine I’ll give you a brief discussion but with New Aston we’ll be spending about 150 million. 60 million is on the sustain side, the continued underground development adding some trucks. Increasing ventilation where the [indiscernible]. An on the growth side we’re looking at investing continually for the C zone, study by the end of the year and the mill expansion which Curt will talk about in more detail.
Rainy River, we made a decision to go forward with Rainy River, so over the next 12 months we’re working on the promoting and the engineering and environmental studies and all that, very necessary and interesting stuff. Continue to explore the resources near the west end of the pit and the intrepid zone. And getting into some of the, like mills and stuff like that, that we need to commit to over the next 12 months. At Mesquite we’re committed to this is a year where we’re adding four trucks to our fleet, and we started the expansion, we will start the expansion of the leach pad and that will be the last expansion for the remaining life of Mesquite.
At Peak, we noticed our $40 million was less than what we had spent in the past, so we focus on Peak, we’re looking at how we maintain production there less the required capital expenditures. We’re down a bit so we don’t get ahead of ourselves again to achieve the overall goal of being fully financed. Cerro San Pedro, this year we got the big phase five push backs, spending about $20 million in capitalized stripping. The last leach pad expansion of $8 million, that gives us a capacity for the remaining life of the mine and obviously the residual leaching that comes after mine in few years.
What I can tell you about that is that after this, any capital expenditures are insignificant for CSP for the remaining life of the mine for this year. In Blackwater we want to be in a position with Blackwater that... I’m confident that metal prices will improve over the mid to longer term. We continue advance the permitting and the studies so that we’re in a position that with metal... when metal prices recover I will be in a position to re-engage and start that project up and get it into our pipeline. And then the last item which we don’t talk a lot about because the costs and cash in El Morro. Bob’s going to talk a little bit more about El Morro but our share, the expenditures this year $6 million and is fully funded by our partners and friends at [indiscernible]. So with that if there are any questions, if not I’ll turn it to Bob to go through development aspects.
Well good morning everybody and again thanks for coming out here, it’s good to see you all again and it’s been a while since we’ve seen you out at the sites but hopefully we’ll have an opportunity of that soon as well. I guess the height of the pleasure of talking about our development projects here and the first one is the Rainy River project located as you know in north western Ontario just off Lake of the Woods. And one of the great accomplishments of last year as Randall mentioned was we picked up this project, Mike Anderson is corporate development role and his team supported by Peter and the construction group, do a great job and due diligence. And we acquired the property and we’re very excited about it. It’s an opportunity to put into production a significant producer and over 300,000 ounces a year at low cash cost. This is for the first nine years averages about 1.4 grams per ton. And it’s in a great jurisdiction, we’re in Canada, we’re in Ontario very consistent with our corporate, really our corporate strategy going forward.
As far as building a mine it’s a great territory, it’s not in the far north, it’s close to the highway, close to railway. Great, pretty much flat terrain there’s a great ridge that we can put an area but cost of it, the rivers, lakes are very minimal there. So it’s really a fine place to be building a mine. And importantly we’ve got a good size line package of almost 170 square kilometers. Lots of upside for building on our 3.8 million ounce reserve. And I know that we’re continuing to drill there now in the winter we can drill on the ice and we’ll continue trying to upgrade that reserve and resource statement as we go forward.
Just, I think most of – we a feasibility study was published by Rainy River last year and then we just published an update on that. I think most of you are familiar with it. Basically we didn’t change any of the concepts, it’s still at 21,000 tons a day mill. 20,000 from open pit, 1,000 from underground, it’s really the major changes we did as we primarily updated the capital cost and the big moves there were we moved the cost of the mine fleet into preproduction capital. Previously it was capitalized as a lease and then we updated the construction labor unit cost efficiencies and materials.
We will focus going forward now is the permitting, the objective is to get all the permits in place by the end of 2015 to get us into construction mode. The engineering now is in a basic stage, we’re moving that onto detailed engineering. After which we’re ordering, along the equipment at this time. is our second development project, we’re at... again we’ve put a feasibility study out. It was one of our primary goals for last year, feasibility came out emote towards the end of the year. And the decision was that we will stage develop these two projects in the current economic conditions and I’ll start with Rainy River and then moving to Blackwater.
is a bigger mine, looking at 60,000 tons a day almost 500,000 ounces a year production and cash cost again are very low and very attractive. And once Rainy River’s developed we’ll look at the current prevailing market conditions. And what’s, look for the future and make a decision on developing Rainy. It is a conventional open pit, truck and shovel operation, it’s about $1.9 billion capital investment. Good low-cost, with low cost producer and a very suitable environment in central BC. Thirdly we’ve got our moral, our moral was beyond 30% of it. And the production from this mine will be about 10% more than New Aston.
So this is a New Aston for us, we’re fully funded by Gold – was the operator. Currently we’re working through the local landowner issues, they’re also taking opportunity with that situation to further optimize the project. And were looking forward to when they get round to building this thing, we certainly want to enjoy the benefits of El Morro. As I mentioned we are fully funded and I think most of you have seen this graph before. we will enjoy cash flow immediately on production with 20% of our share paid to us. The other 80% we’re paying the construction capital to Gold.
Now I’d like to talk a little bit about health safety and corporate responsibility for the company. Now this is an area that’s not often talked about but it’s taking care of our employees. It’s about having a reputation so you can – And really importantly it’s to do with access to meet projects, to build ability to get those permits, those projects permitted, developing relationships with the local people whether they’re aboriginal and non-aboriginal. And I think we’ve got a great track record here, and it has enabled us to and you get into Rainy River area You really move the permitting on in a timely manner.
I think the is of all companies have policy statements and commitments and whatnot and there’s really a lot of stuff out there, people that are focusing on whether it’s Mine Association of Canada it’s sustainable mining whether it’s the ISOs standards that are out there, the UN standards labor organization standards. It can be overwhelming for operators, so we really focused on developing our own standard systems which include safety environment and social responsibility. And I’ll show you some of the results of those, these are some highlights and I’ll let you go through them but they’re kind of things that we’ve been focusing on. And we’ll see that there. We talk about our standards and we really focused on that so the guys at the sites can get the job done.
And mostly is our safety standard and what people tend to focus on and safety is how many accidents they have. Our focus is on how we’ve done the things we need to do to prevent accidents. And the service what we call our leading indicators focus, we actually count how people perform in those. And if you do those things you don’t have accidents and we basically are results for last comments which was from 2012 and 2013 which the orange and light brown and you can see all of them have improved wherever its blank so that means there’s no lost ton expenses. And compares those to the dark brown which is the jurisdictions in which we operate leach numbers. And so in 2013 we really implemented this focus on what we call the leading indicators and you can see the impact just to try and listen to the safety and we’re really at the leading edge in this area.
The other form of whether you’re actually performing your standards are working for third-party recognition. And this is a list of some of the recognition awards we received during 2013 and that picture was put in there from another. So I was looking forward to 2014, again we’re, we’re really going to focus on our safety orientation program, that’s induction of more employees and its particularly important when we look at the ramp up of employees of Rainy River project such as particular area in our standards we want to focus on, on the share. And then similar to our safety standards we finalized last year the environmental and community responsibility standards. We started implementing those and we want to complete the implementation of those so that we can get the results like we’re getting our safety.
And certainly we’re, we’re you know our one of them international standards or external standards we do comply with or working to comply with is international cyanide code in Cerro San Pedro and Peak what they call substantial compliance which we as a couple of things we got to take care so we’ll have that done and have those mines on all our mines complaint. And of course Rainy River has been built, that’s been built to be complaint with the standard.
And finally and importantly we’re going to complete the environmental assessment of Rainy River and Blackwater. We want to have in the case of Blackwater, we want to have all major improvements in place by the end of the year so that when we make a decision to go forward there’d be no delays its basically what we call so we’re ready to start construction at Rainy River of course we expect have the, by the end of year we’ll have our environmental assessment. We’ll have our mines absolutely in place and be able to start construction at the start of 2015. And finally during the 2016 we’ll get our schedule two permit which will allow us to start building dams and collecting water for startup.
So if there’s any questions we’re happy to take before I’m going to turn it over to Mark on exploration. Alright thank you.
Thanks Bob, and good morning everyone. Moving on to our reserves and resources overview on page 50. 2013 was a real milestone year for us Randall mentioned we’ve grown our reserves significantly with the completion of the Blackwater feasibility study and the acquisition of Rainy River resources which moved us from my 7.8 million ounces in reserves at the end of last year to 18.5 million ounces of reserves at the end of 2013. At the same time are measured and indicated inventory has also grown on a reserve basis that’s 127% increase per share. So we’re quite happy, we’re quite happy with the progress we’ve made along those lines.
Page 51, apologize for that. Okay on page 51 you can just see the geographic distribution of our reserves and resources and a clearly that’s, that’s weighted toward more than two-thirds of our reserves and resources being in Canada, with the balance also being in friendly jurisdictions. So our risk in terms of jurisdiction, jurisdictional risk is quite low.
In terms of our measuring indicated resource base which includes our reserves this is just a waterfall chart showing the change from the end of 2012 till the end of 2013. We mined approximately 700,000 ounces and we added about 6.8 million ounces to get to the 27.5. In the M&I category this is a 22% increase on a per share basis. And then looking longer-term over the past four years we’ve got about a 60% increase on a per-share basis in an M&I categories.
Now to breakdown of where M&I changed over the past, past year on an absolute, on absolute terms about 16% increase in New Afton, at New Afton largely driven by the growth of the seasonal resource down below the main reserve. And 18% increase in Blackwater which largely came from additional drilling information from the fourth quarter of 2012, it was brought into the feasibility study during the first quarter 2013. And then of course the acquisition of Rainy River was accretive to M&I, M&I base.
If we also look at our M&I inventory on a gold equivalency basis it using our current guidance pricing work we’re at more than 40 million ounces of gold equivalent when we take into account the silver at Blackwater and Cerro San Pedro and a bit of Rainy River and the copper at New Afton and El Morro.
So that’s an overview of our reserves and resources there are detailed statements in the back in the appendices of his presentations as well. Moving over onto the exploration side our outlook for the coming year here is a program that’s on par with what we did last year in terms of budget it’s all in about $50 million across the sites. There is a breakdown in terms of drilling meters in the pie diagram down below. And its, then I’ll get into more detail in the next few slides but capitalized exploration is at Rainy River and New Afton, Blackwater is expensed and Peak is about 50-50 capitalized and expensed.
At Rainy River we’re really quite excited for two reasons first, we’ve updated the feasibility study with Peter Marshall and Paul Stevens getting that done at the last year and with the results announced in January looking forward we will be working to complete the combination drilling program that was completed or we’ll complete that in the first quarter of this year. we’re well on track with that and that we’ll be drilling just to confirm we don’t have any potential resources below the site facilities that are planned right now, we’re drilling beneath the Tailings storage facility and I can report right now, we really not tapped into anything so all is moving according to plan there.
In addition we’re going to be working to test the potential to expand the known resources in the center of the diagram there. The shaded gray is the outline of the current open pit plan. We know we have resources with this expand it off to the west that don’t have as much drilling right now. We have some conceptual exploration targeting maybe reorienting the direction of drill holes we’re going to test off to the west. And with, if that’s successful we’ve got additional meters in our budget to pursue that and flush that out to at least an inferred level during the course of the coming year.
Likewise on over at Intrepid and for those of you perhaps not familiar with the Rainy River project. The Rainy River Company discovered the intrepid deposit off to the east of the main, the main open pit area. They discovered that in 2012 and in 2013 completely drilled that off and it is now incorporated into the feasibility study for the project that’s an entirely underground mineable resource. It’s got a bit higher grade than, than the main ODM and 433 and other deposits where the open pit is planned to be. So it’s, it’s a nice bonus to help improve the head grades at the mill.
In addition to getting intrepid into the, in to the mine plan for the project the exploration team at Rainy River has been very successful at developing some of the just basic drill targeting methods that we apply and we will have diagram to the right illustrates where the intrepid deposit is and then the lighter red shading that bend that wraps around from the top to the bottom of the slide shows the outline of the continuation of the zone as it was defined by surface geochemical sampling.
Now we’ve proven that we can see through the surface cover with these drill holes that have positive mineralization hits in all of them as we’ve tracked the zone down to the south. So we’re getting to be more predictive in our drill targeting, moving out more to the still of the project development area a combination of reinterpreted geology and geophysics. And surface as identified more of these prospective trends that are largely undrilled or only have a few drill holes in them. So we’re quite excited about the overall upside potential right in the immediate mining areas. So we will be testing these concepts through the course of the coming year.
And seeing what else we can add to grow the resource and add value to the project above what we already have. Moving over to , at the end of last year we have expanded our basically our regional coverage of our thousand square kilometer property block to about half ,about 50% of our ground. We’ve got some level of exploration coverage on it. What we found during the past two years are a couple of things, one there is quite a lot of prospect. Quite a lot of perspective geology in the area, the map here and the yellow diamonds show where we are getting detectable gold in the surface covering. The western side of the property shows a higher density of values largely because the till profile is not as thick as it is to the east. But we know of course with the presence of over on the eastern side of our claim block and the scattering of gold in the surface cover where we’ve done the sampling that the eastern side is just as perspective.
To date we’ve identified more than 14 areas using a combination of surface geochem, geophysics, geologic mapping the normal things that you typically do to identify targets. We’ve identified 14 perspective areas, last year we managed to get out and do some first pass reconnaissance level drilling on seven of those and out of the seven, three have returned encouraging gold results, encouraging indications of gold mineralization. That to me, is given that this is a very early stage, new gold district in central BC, it’s quite encouraging because it tells us two things. One that our integrated approach toward targeting in the subsurface is working, and two that there’s a lot more going on geologically with multiple mineralized centers across our property block beyond the known resources at and...
So looking forward in 2014 we are continuing with our efforts to integrate and integrate all the information we’ve collected over the past two years. And really develop a regional scale framework from which to explore so that ideally like at Rainy River we can start becoming more predictive in our exploration efforts at . Ultimately the big price at would be the discovery of another resource. Ideally I’d like to find something, a higher grade to enhance the near-term of – the economics of the project during the early years of mining. But again this it’s early days at this is a brand-new district ,we’re still climbing the knowledge curb but we’re really very, very encouraged by what’s emerging so far.
On to Peak, 2013 was the year of essentially resource development upgrading resources from inferred indicated categories. The net result was we actually measured and indicated resources we replaced 2013 mine depletion and then some. We replaced, plus another 40,000 ounces in the measured and indicated categories. The same time inferred resources were not drawn down, rather they were replenished about the same levels as the end of 2012. Looking forward into 2014 will be a year that focuses on upgrading those measured and indicated resources into reserves. And we’ve got about 40,000 meters of drilling plan to do that. So as in years past the objectives for Peak will be to continue to mine and explore and replace reserves as we’ve been doing for the past 20 years.
With that I’ll pause for any questions, yes?
One of the things I’m going to come back to a little more what we did last year but to answer your question. One of the things in addition to the drilling we did on the seasonal was we went back and 130,000 meters of drill court through the main reserve ore body. The reason we did that was we really needed to get a comprehensive upgraded geologic model that support the resource estimate. That hadn’t been done before and the past resource models were based largely on statistically driven grade shells. This time around we’ve got a more robust geologic model in place and so that’s one of the underpinning reasons. The grade went down on the outer margins of the deposit, largely because we had moved out a bit. We are now capturing a bit more mineralized material in the estimate, but also and importantly Curt will be able to speak a bit more to this. We’ve managed to identify volumes of rock that they clearly are waste volumes of material which were clearly delineated in the past. And now we.ve applied hard boundaries around those volumes, some of it is internal to the ore body, some of it is along the margins but that also explains some of the decrease in the tons. Does that answer your question?
The question was the reserves at Peak are down and I think what you’re really asking is – of mine depletion what accounts for the additional decrease. And the key drivers there are this time there was a more rigorous treatment of the reserve estimates. They looked at revised mining methods, revised scope design revisions to the cut off strategy so especially in deeper parts of the perseverance where body were most of the gold occurs. Some of the cut offs down a bit. and there was some influence from the resource estimation but it was primarily changes to the engineering criteria applied to the final reserves.
I will turn that one to Ernie.
Yeah with larger, we obviously are going to decrease in our mining cost just more efficient in terms of ore access and in terms of the equipment flow and the amount of manpower needed. So –
It depends on which part of the mine that as you know we have four different mines but in area of, you’re looking at about 15% to 20% decrease in cost in that point zone. Yes Steve?
Again you should have had just, the intrepid zone could you elaborate its contribution to the reserve base? It actually, sure it’s actually in terms of its size, its relatively small it’s, it’s I think 300,000 ounces or so but in terms of its contribution to the grade, the average grade is about correct me if I’m wrong but it’s on the order of 4, 4.5 grams. So and that, the nice thing about Intrepid is it comes right up to the to the surface effectively to strip off tail and you’re in it. So we can portal into decline very quickly. And start mining even at a low rate of the addition of that higher grade mill feed really, really as opposed to overall economics, it’s in the plan. And Peter and Paul I think can speak more specifically to some of the details around that. Any other questions? Okay with that I’ll hand it over to Kurt.
Good morning everyone. I see a few faces in the room from the October visit on the Analyst retinue often and some that have been there previously so happy to see you her again. At New Afton continued good news we ramped up after we got the Gyro started about a year ago, continued to ramp up through the next three quarters of the year we’re running at about 12.5,000 tons a day of right now and our plans would be to stand about level through this year. The underground operation has really performed well block caving was something it wasn’t known very well in Canada about few years ago but so far the block cave at New Afton has performed as well as we expected it to internally and probably better than everybody in the audience anticipated it may, that we’re capable of producing well over 12,000 tons a day with the minors and it’s an obstacle to expanding the mill at all.
For the last eight months we’ve had to surface our stockpile as a lot of the mills really fine tune their operation has been for any of you mill guys in here there’s been no shortage of ore for the mill so that’s been a real good thing. We’ve got 89 broad belts developed underground as we sit here. And that’s about 14,500 tons of a broken reserves only have to do draw them all with the OHD and crust them and send them to surface to the mill so about three years of broken reserves. So we ramped up we said we get to 12,000 tons a day last year and we achieved that in September and have been operating at about that, that run rate.
We did test up to 15,500 tons a day through the mill, recoveries aren’t where we want them to be at those high throughputs. And hence that’s driving us to a mill expansion project that I’ll talk about in a little bit more detail. Bob mentioned it bit I’m going to reiterated it, we’re on underground operation within 14 months without a reportable lost time incident. Excellent performance on the safety site, especially considering most of our miners were, not miners before we hired them. We bought them in from [indiscernible] trained them and we’ve just, we’ve done really with our in-house training program. And well in-house development right now that mining contractors that we did have working for us did developed about 40% of New Afton in house about 60%.
The last mining contractor run away last summer, so we’re on our own and things are moving ahead extremely well. So working out the process when we run high throughputs, we find that we need to grind finer. If we grind finer we can get higher recoveries and basically we’ve got our SAG mill and our ball mill maxed out horsepower. So we’re going to add tertiary crushing and we find that we need some, some additional, got caught up in the slides here not too far. We do need some additional flotation pre cleaner.
So we’ve got a project that reached visibility stage and we’ve already ordered the tertiary grinding mill which is eroding now 3000 horsepower unit, deliveries are approximately a year on that unit. So looking at the bottom of the photo on the slide there we’re going actually expand the mill building a bit to the east which is the far side of the building that you can see in the photograph. I also mentioned that our piles which underneath the conveyor having that weak of inventory sitting there and really allows the mill to run well.
You know we’re not having irregular mill feed, that’s one of the advantages of our blockade operation materials we’re drawing from a wide basal area across the footprint of the ore body. So the mill feed is quite consistent much more so than a truck and shovel operation might give you. It’s really lot as to hone in under mill and what we need to do to make it run a while. So we’re moving, we’re moving into the final engineering stage on our project and we will start digging in the dirt in the second half of the year basically designing the building, the process piping the electrical, the foundations all that’s about to occur. We’ll our EPCM contractor hired up we’ll spend about $35 million this year and additional $10 million next year.
And we will get to the 14,000 tons a day – on a straight throughput basis its 12% increase and we anticipate the recoveries from all of our testing said we will get 2% or 3% additional recoveries on copper and gold and bring those up. Brian mentioned their payback is excellent Investor Relations of 50% less than two year payback’s, it’s a good project. So moving onto the schematic the snow building expansion – now the cycle impact in a couple of pre cleaners basically relative to the scope of the New Afton project its fairly small but Peter Marshall’s group will be helping us construct that ensuring we, we bring it in on time and on budget.
So the timeline as I said were done preface and her feasibility right now in the mill has ordered basically we’re getting the EPCM contract awarded and then we’ll be designing it, building it and or commissioned it in the first half of 2015. And we should see the results by certainly, by the end of the first half of 2015 we’ll be running at the higher throughputs of good recoveries. Any questions on New Afton? Non-geological because Mark’s going to come back and talk about the C-zone drilling? We’re really excited about that tenfold increase that is found down there and the C-zone for us and anyway that’s, he’ll talk about that geologically.
At New Afton it sounds like you got to better handle on some of internal ways. Is there much you can do about that with the block cave as it’s already starting to get broken?
The question would be internal waste. [indiscernible] puts up the bottom on our column, we have the ability with New Afton to apply it off at the belt. And we take it to the old open pit and dump it over the edge. So we got an inability to waste. Low grade waste if it’s at the bottom of columns it’s easy if it’s within the column you got to really watch your sampling because you want to go in out of grade and it be wasting. Building copper that are profitable, saleable so we do have an extensive sampling program on a daily basis and we do monitor those stuff. So if there’s much quantity we do waste, you been our, if you remember we have a truck crusher there and we can use that to segregated our waste and crush it through that we draw and send it up during a certain part of the shift. And that is our plan to get rid of low-grade waste rather than to run it through the mill. Yes.
Thanks Kurt question on what percentage of your operating costs to earn Canadian dollars?
What percentage of our operating costs earned to Canadian dollars, Mr. Penny do you have a good answer for that one?
Okay, and just a quick, I know benchmark TCRCs have got, can you remind us what your off take deal is and concentrate on, are you often are you exposed to the higher benchmark rate fund?
Yes, our contracts are just a name that were based on the benchmark rates, and unfortunately I don’t have that information with me but if you call me, when I get back to the office I can give you those numbers.
Thanks. [Question Inaudible]?
I’m sorry New Afton’s consumed in the new expansion. You know the – to nominating in US dollars and that’s $7 million of the $35 so it’s a larger percentage in US dollars but I would guess it’s 60-40 and we’ll figure that over time this week, you know commit to things. But looking at Rainy River on that spend we believe and again subject that final engineering and all that stuff. It’s substantial in Canadian dollars, if I were to guess right now I would guess somewhere around 80%. We will try to maximize the use of local contractors and that may maximize the benefit of the appreciating the Canadian dollar.
Oh yes it’s predominantly on Canadian dollars, but there isn’t too many suppliers that are coming out of the shortage, submit some suppliers for – and Sandbach and the mining suppliers but it’s not a high portion. I’m going back over to Mark.
Thanks Kurt. Turning to slide 66 and I’ll go into a bit more depth here on the C-zone. This first slide is an asymmetric view of the ore body and it’s quite colorful. I’ll explain those colors quickly here. The colors are indexed to resource classification and as well to the different zones that we break out in our reserve and resource statements. The red is measured material, the yellow and the orange are down in the C-zone as indicated as well as that kind of light green off on the right side. And the blue and the bright greens are inferred material.
You can see here the main zone that hosts really the reserve we’re mining now is up in the central part of the diagram. And the black line there marks the 40-900 meter elevation, that separates, that’s the elevation where we split the A and the B zone our hosting the reserve from the deeper C-zone that we’re exploring right now. In addition not labelled here but off on the right side is a separate kind of a satellite deposit called the Hanging Wall Lens. That’s also broken out on our mineral resource statement.
We don’t have reserves there, that resource right now is new. We did some drill, some additional drilling there during 2013 to further delineate that. And right now although it doesn’t, it’s situated too far off trend from the main zone reserve mine plan. It does represent some potential resource that we might be able to develop in converting the reserves later on towards the end of the mine life. But I’m going forward here right now, I’m going to focus entirely on the C-zone which is down below that 40-900 meter elevation,
2013, our program in 2013 really exceeded our overall expectations for the C-zone. Originally the C-zone when mining began, originally the C-zone was only defined by a dozen or so drill holes that had been drilled from the surface back in 2006-2007 timeframe. They were very deep holes, there wasn’t any way to drill from underground at that time. So we knew there was something down there but we really didn’t have an opportunity to come back and address, explore it properly until about midway through 2012 when we began drilling from the underground. The underground decline after mining development had been completed and construction had begun.
At the end of 2012 we had about 300,000 ounces of inferred and 66,000 ounces of vindicated comprising the entire C-zone. During the course of the past year we drilled about 27,000 meters from underground drill stations. We have three separate drills drilling down into the zone. And we’re really, really pleased with the overall result because we’ve managed to not only maintain an inferred inventory, inferred resource inventory that we can continue to develop and expand further.
But the real impact is a tenfold increase on our inventory, most all of that is of course in the indicated category because we’re dealing with an underground deposit situation. But we went from 66,000 to nearly 700,000 ounces of gold and roughly 50 million pounds of copper to end in the year it’s slightly above 50 million pounds of copper. So as I said we’re really quite excited at how the C-zone is continuing to hang together.
And moving on to the next slide here, this illustrates really our plan for 2014. There’s several boxes here. The central darkest gray box represents the core of the indicated portion of the resource as its defined now. That’s what we currently could see would fit into a block case scenario but we also know that the limits of the deposit haven’t been fully flushed out, so our objective for 2014, our primary objectives will be to convert the existing inferred inventory up into measured and indicated as well to support more detailed engineering studies after going into 2015.
And we’ll do that both laterally to the west as well as vertically. We’re targeting a vertical profile of about another 100-150 meters below where the lineated indicated resources until now. And the purpose of that is to really give Kurt and Peter their development teams sufficient resource to start doing some more detailed engineering design work. In addition to that toward the end of this year’s drill program, the holes shown in magenta are step-out exploration holes. We’ve got about a half a dozen of step-out exploration holes to see if we can further push the limits of the deposit out laterally to the west and the bit to the east. But it does remain open both vertically but also laterally out to the west.
We do come up against limitations of our existing underground infrastructure in terms of how far out we can do step-out drilling, but for right now I think we’re in good shape and we’re confident of the outcome of this year’s program will continue to grow the C-zone resource incrementally in order to get a scoping study done by the end of this year. And ideally lead toward more advanced development work in 2015, but stay tuned we still have quite a bit more exploration to do. With that I’ll pause for questions, if not I’ll hand it back over to. Oh I’m sorry.
Just, what about the column – of the C-zone and how it relates to the – if you spin it around does it look like you’ve got the width around so you can drop the – to develop it within one columniation drop it to the bottom of the C-zone – or would it require a sort of separate drop?
It sits, if I were to show you a cross section, because this is a long section, if I were to show you a cross section you would see that the C-zone sits below that’s slightly offset to the north of the main zone. Its overall width is on average right now about 75 meters again we haven’t fully delineated it, compared to the main zone reserve above which is, has an average width of about a 135 meters. So it is narrower but vertically it’s got a greater vertical reach as we delineated it so far. And again its open, open at that, the portion of it that’s defined as inferred right now, if you go to resource state and you’ll see that the inferred portion is lower grade than the indicated portion.
I think that’s largely a function of less drilling down deep and it’s not really a reflection of the true grade of the deeper parts as we need to get more drilling in there to get it more fully delineated. But in terms of vertical profile that we see Kurt you may have some comments along those lines of comparing it through the reserve the main zone reserve.
Part of your body and you know we’re because a lot of drilling information that Mark is still gathering up 2014 for us to acquire footprint finder. We’re in the preliminary stages of working at it so it’s, it does appear like we could cave it. Given the offset that it would require a zone to set the clock and yeah its deeper so it’ll be at its own level completely new mining level from where we’re at right now. Very good. Well with that I’ll hand it back to Randall.
Well thank you Mark. And thank you very much for your patience. Just a sort of pull some of the things together, we like the jurisdictions that we’re in. We like operating in Canada, the United States, Mexico, Chile and Australia. We’re happy about the New Afton acquisition that we made last year to continue to increase our presence in the countries in which we already operate where we got experience permitting, dealing with First Nations where we have tax synergies and of course Blackwater will just further that along and the feasibility study that we’ve done and as Bob mentioned the permitting we’ll get that shovel ready about the end of this year or early next.
Our team we think continues to get strong and Peter Marshall and Paul Hosford we have tremendous confidence in terms of being able to execute on the projects that we’ve got and the feasibility studies that we have. I think Kurt has shown you that we have a track record of being able to deliver on projects not only on time but on budget. Being a low cost producers important to us as I told you before because of flexibility that, that gives us and our ability withstand you know what market comes out as.
Our pipeline we think that we will a few years from now we’ll be producing about three times as much old as we are today. Our a large projects keep getting larger, we’ve been finding gold at both Blackwater, at Rainy River and at New Afton which were really the heart of our company. And of course value creation is something that we’re continuingly focused on. In terms of cost again we estimate our all-in in sustaining cost about $825 an ounce for this year. We compared that to those who put out guidance for 2014 which is about six companies. And you can see them all listed at bottom of the page but we expect to be about $235 an ounce less than companies that have reported so far.
In terms of the projects I think what’s important is Rainy River, Blackwater and El Morro are all brand new gold districts. Mark was involved in the first hold or whatever sound fit at El Morro. And what we know is that these fresh districts with millions of ounces already discovered. We feel fortunate to have the two newest gold districts in Canada within our control with feasibility studies done. And where we can believe that we’ll continue to be able to find more ounces of gold and convert our resources in reserves.
Our $825 an ounce is low cost you can see the cash cost for Rainy River at $613 and $555 an ounce at Blackwater, on an all-in sustaining cost basis they’re both about $700 an ounce or even lower than the $825 that we’ve got now. Now we’ve been steadily trying to grow reserves per share NAV per share has also been growing and our stock price tends to fall off as we continue to increase our reserves and our NAV.
In terms of things that you can look forward to in 2014 we’ll continue to report our cost and our production were expect our cost to continue to come down. New Afton you’ll see how the cash flow will continue increase I also see your update from what we’re fighting in the seasonal and what we found in 2013 as we need to come up with an interim announcement before year end one because the resources was changing so much. Rainy River will continue to be exploring there as we go be it Blackwater as Mark has articulated.
The permitting is advancing at Rainy River, Blackwater is also going through the permitting process and I think we’re very fortunate about the team that we’ve got doing this. And I think its led by Bob Gallagher who between, his track record of what he’s done to his sincere respect for First Nations has really led a lot of groundwork in terms of helping us. Both Rainy River and Blackwater happened to be in areas that have been hurt by the forestry industry and this reason it was another 160 people laid off up in Fort Frances and the government is really trying to do everything they can to help us advance these projects because they really want this highly paid job at long life mines.
New Afton will get on with the mill expansion we’ve already ordered a lot of the materials and we’ll give you updates as we go through the year but being able to increase the annual cash flow at New Afton through processing more or improving the recovery rates while at the same time looking to expand the life of Life Afton we think it will add a lot of value to our company.
So with that I think you been very patient in listening to us present what’s new at New Gold. If you have any questions on any subject from any of us including our development teams who are here. We also have our Treasurer, our Controller so any topic that you want we’d be happy to answer.
Thanks Randall. Question on the reserves and resources. You guys are using the 100 year end. Can you guys give any guidance on sort of what percentage [indiscernible] trying to buy $100?
Hi I think well our resources are stated I can do that not there’s not a clean way to do that but because we have open pit, open pit operations, underground operations but the $100 change upward to $1400 that’s our resource pricing. So you can get a feel for at least for the open pits where we would capture on an open pit design on $1400 basis all the costs and other parameters stay fixed. So that answers that’s the first part of your question. In terms of sensitizing $100 downward we haven’t really done that work. So I can’t really provide you with a very accurate answer.
Thanks a question on Rainy River. What would be sort of – so what if prices maybe through another words than can you could you guys consider spending construction work spending the time on?
Andrew our plan is to build Rainy River. And as Brian said at current prices we can fund that internally. We did have a circumstance at New Afton probably about five years ago were places went down the company was constrained for capital. And it was put on hold for a bit and then started up again. What we like about the jurisdictions in which we operate is the timing of development of these projects whether it be Rainy River or Blackwater is up to us. There’s regions as you known in the world where if you got a permit you have to start construction in twelve months you have to be in production in three years. That’s not the case here so the timing’s under our control, the development of these projects is really driven by how much can we fund internally without looking to deliver shareholders.
Thank you. Kurt you can just elaborate on your exceptional development option. Your options for the C-zone development and would it be from A and B C-zone thereafter or is it something that you can develop sooner than that?
The question is when the timing for C-zone would occur, and it would be basically as your nearing depletion of the A and B-zone area and C-zone would replace it. There’d be a small overlap obviously, given the importance of New Afton and copper revenue to the company and generating an up cash Rainy River, in terms of thinking about hedging copper – ?
Well right now, the only hedging with copper we do is – period because once we ship it, it goes over the rail. Our contract is priced for the QP period selective. So in that case to make sure that we get the same by-product credit that we’re accounting basis, we use three month QP hedging which is insignificant. We like copper, copper’s got a great place where it’s at, I’m optimistic of copper prices going forward. I think looking at the supply demand for the – it looks positive for copper. I wouldn’t rule out that we would never do anything but right now we’re comfortable where we are. We focus on it, we get various QP periods during the year. Our [indiscernible] pretty consistent and then we tend to add compose to add between the average. Although from quarter-to-quarter there could be gyrations depending on how the accounting behind it works.
Brian I just want to talk about your hedging, Given the benefit lower Canadian dollar could have on the rating – costs. Are you looking at – hedge the currency exposure there?
Martin and I have talked about it, I wouldn’t be doing my job if we weren’t looking at it. But my opinion obviously various stages is I don’t see the Canadian dollar improving dramatically over the of Rainy River. We’ll look at it to do our jobs but I don’t anticipate being too aggressive on that one. I think we want to maximize the use of Canadian contractors and employers and stuff to get as much Canadian dollar of the capital cost Canadian dollars to our current situation.
Rainy River, if there were I guess a more orderly decline in gold pricing and you find yourself not being able to fund the project completely internally. How do you think about sourcing alternative capital sources and what threshold would you, in terms of capital – that you would require externally would you consider just kind of pushing it off?
The New Afton experience is probably quite aligned with what we do at Rainy River. And we’ve had a few alternatives available number one is if you just delayed it by six months you have under six months of cash flow to be able to fund that development. There’s other, Bob mentioned that we’re buying all the mobile equipment, The original plan was to lease it, so there’s lots of alternatives there. And of course this will involve over the next three years as we’re building the project. So we’ll be able to see each year in terms of how much we have in the way of financial resources and we’ll never commit more than we have the ability to pay for. And what the timing of that under our control we don’t foresee it as being a problem – revolver available to us. So we think that we’ve got lots of flexibility, lots of alternatives and fortunately the timing involved is expenditure as we determine.
Right and just on – sources, is the unsecured market notes, is that something that is from a more philosophical perspective not something that you’re interested in taking on that kind of longer return debt?
I think we’ve got room that we could take on more but we like what we did in 2012 in terms of the pricing of that debt. The amount of debt that we’ve got is very comfortable for us, we’ll probably be in the order of like one year’s cash flow when our development projects are built, will probably be less than that. So that’s an alternative available to us, but over the course of the next three years we’ll see what the actual gold price is for 2014 and for 2015. And I know it’s trying to put it all in a spreadsheet today it needs to sort of assume that price but it will be something. It might be higher, might be lower, it might be where we are today but each year we’ve got the chance to figure out where we’re at and how much do we have in terms of financial flexibility. Randall, last year you made is that still on the table or are you looking at other opportunities right now to build that pipeline or is that happening for –
I think I had something else on you’d have to be really, really compelling. We thought was because of what we’ve... our experience in BC and why we were the logical owner of that. I think Mark saw that the four million ounces that we had at the time that we acquired it. It more than doubled since then, Rainy was something that we’ve been watching closely for five years and it was such an opportune time in the market. Today we’ve got arguably the most significant growth pipeline of anybody in our industry. They’re both highly prospective properties where we’ll likely find more. So for us to take on something else we’d have to see why are we the logical owner of that and why is this really compelling to have because we need more projects probably less than anybody else in our industry. So we’re pretty happy with where we are.
Maybe a follow on, more abstractly, how do you see the environment today versus when you made the Rainy acquisition. Do you see it as improved or more attractive or less attractive?
More attractive for acquisitions or for gold equities generally? I think things are probably a bit more expensive than they were then and there seems to be, whether it be Gold Corps offer for (indiscernible) or just the positive tone that we’ve had this year. Things seem like they’ve improved and the actual prices of things are up. We try to... in the middle of last year when we bought Rainy River when we was in a period of despair for our industry. And we thought that thousands of years of gold mining were going to end at the end of 2013. We didn’t share that view, so I still think that there’s an attractive things around. It’s what’s right for New Gold – somebody than it does for us. And what are we really doing this for because we have lots of projects, we love the simplicity of the company in terms of geographic spread, in terms of a few real key operations going forward. And we’re happy with that.
Julie, are there any questions from the web?
Well, look, I appreciate you coming out to hear the New Gold story, as you can probably figure it’s something that we’re pretty excited about. A lot of work’s gone into today and the materials that you’ve got and of course – and Julie who not only do our corporate development but also do our IR put together all this excellent material and organize this event. Also like to thank Crystal who we met coming in through the door, who also helps out making us look good and leads us to an efficient meeting. We have lunch on the way, we have a lot of members of our team here so I welcome you to speak to any of them. If you’d like to get more details whether it be on the Rainy River project. What’s happening at New Afton, the C-zone exploration and anywhere else. Brian’s here if you want to talk more about financing but we sincerely appreciate you coming out and thank you very much.
[No formal Q&A for this event]
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