New Gold - Earnings Call - Q1 2025

Transcript

Operator (participant)

Good morning. My name is Chester, and I will be your conference operator today. Welcome to New Gold's first quarter 2025 earnings call and webcast. All lines have been placed on mute to prevent any background noise. Please be advised that today's conference call and webcast is being recorded. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star button, then the number one on your telephone keypad. If you would like to withdraw your question, please press the star button, then the number two. I would now like to hand the conference over to Ankit Shah, Executive Vice President of Strategy and Business Development. Thank you.

Ankit Shah (EVP of Strategy and Business Development)

Thank you, Operator. Good morning, everyone. We appreciate you joining us today for New Gold's first quarter 2025 earnings conference call and webcast.

On the line today, we have Patrick Godin, President and CEO, and Keith Murphy, our CFO. In addition, we have Travis Murphy, Vice President of Operations; Luke Buchanan, Vice President of Technical Services; and Jean-Francois Ravenelle, Vice President of Geology, available to assist during the question and answer period. Should you wish to follow along with the webcast, please sign in from our homepage at newgold.com. Before the team begins the presentation, I would like to direct your attention to our cautionary language related to the forward-looking statements found on slide two of the presentation. Today's commentary includes forward-looking statements relating to New Gold. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in the presentation. You are cautioned that actual results and future events could differ materially from those expressed or implying forward-looking statements. Slide two provides additional information and should be reviewed.

We also refer you to the section entitled Risk Factors in New Gold's latest AIF, MD&A, and other filings available on SEDAR+, which set out certain material factors that could cause actual results to differ. In addition, at the conclusion of the presentation, there are a number of end notes that provide important information and should be reviewed in conjunction with the material presented. Slide four highlights some of the key accomplishments during the first quarter of 2025. Over the first four months of the year, we have made excellent progress on advancing and completing many of the objectives we presented at the beginning of the year. Safety, highlighted by our Courage to Care culture, continues to be a focus and strength for the company.

During the quarter, we delivered a low total recordable injury frequency rate of 0.55, a 40% improvement compared to the first quarter of last year, and continuing the downward trend over the last three years. During the quarter, the company produced just over 52,000 ounces of gold and 13.6 million pounds of copper at an all-in sustaining cost of $1,727 per ounce. First quarter gold production represented approximately 15% of the midpoint of the consolidated production guidance of 325,000-365,000 ounces of gold, slightly ahead of the planned first quarter guidance of 14%. The company generated over $107 million in cash flow from operations and $25 million in free cash flow, with New Afton contributing an impressive $52 million in quarterly free cash flow. The company successfully achieved several critical path items, which will enable us to realize the increased production profile throughout the year.

At New Afton, cave construction progress is now more than 50% complete, facilitating the ongoing ramp-up in the mining rate towards the target of 16,000 tons per day by early 2026. At Rainy River, the first four months of the year have focused on waste stripping. The pit is now positioned to deliver ore at a low strip ratio through to the end of the year. In the underground mine, we achieved an important milestone with the pit portal breakthrough, allowing for increased underground development and production rates. As a result, Rainy River is on track to deliver higher gold production and lower costs in the upcoming quarters, in line with our 2025 guidance. The quarter was also successful in improving our financial flexibility.

The company refinanced and extended its senior notes to 2032 and amended and extended the revolving credit facility to 2029, both at lower rates, thereby increasing New Gold's financial flexibility. Lastly, in April, we announced that New Gold would acquire the remaining 19.9% free cash flow interest at New Afton, consolidating our interest to 100%. We successfully delivered the first quarter as planned, with the primary goal of creating meaningful value for our shareholders. Before getting into the quarterly details, I would like to take a moment on slide five to reiterate the April transaction, where we announced that New Gold would acquire the remaining 19.9% free cash flow interest on New Afton, held by Ontario Teachers' for $300 million. The transaction will be funded with a mix of cash on hand, our credit facility, and $100 million gold prepay.

This was an excellent transaction for New Gold and its shareholders for many reasons. There was no equity dilution and no due diligence risk. We consolidated 100% of the free cash flow as we enter a period of strong free cash flow at both New Afton and at New Gold, and it provides the company with full exposure to the significant exploration upside and mine life extension possibilities at New Afton. This transaction concludes a five-year journey that sees New Gold's free cash flow interest return to 100%. The initial transaction in 2020 was one of the critical first steps to improve New Gold's balance sheet. Following two successful transactions for our shareholders, we enter an incredibly exciting period of free cash flow generation with a strong balance sheet and financial flexibility to continue to build from here.

We would also like to thank Teachers for their support and partnership over the last five years. With that, I will now turn the call over to Keith.

Keith Murphy (CFO)

Thank you, Ankit. I'm on slide seven, which has our operating highlights. As Ankit noted, Q1 delivered production and costs on plan. Production totaled approximately 52,200 gold ounces and 13.6 million pounds of copper. This decrease in gold production compared to Q1 2023 was driven by planned lower feed grades at both sites. Consolidated all-in sustaining costs for the quarter were $1,727 per gold ounce on a byproduct basis due to the lower planned production in Q1. Costs will continue to trend down throughout the year as production increases. New Afton delivered an excellent quarter as the B3 cave continued to deliver strong grades better than planned. As a result, New Afton achieved an all-in sustaining cost of negative $687 per ounce after considering the copper credits.

Rainy River delivered on plan with the focus on waste stripping to set up the open pit for low strip, high ore extraction for the balance of phase IV. All-in sustaining costs were $2,758 in the quarter and should trend lower throughout the year as production ramps up. Our total capital expenditures for the quarter were approximately $75 million, with $42 million spent on sustaining capital and $33 million on growth capital. At New Afton, sustaining capital is primarily related to equipment and vehicles, while growth capital is primarily related to seasonal underground mine development and cave construction. At Rainy River, sustaining capital is primarily related to capitalized waste, tailings dam raise, and capital components, while growth capital is related to underground developments of underground main and Intrepid. Turning to the assets, starting with New Afton on slide eight, New Afton delivered another strong quarter.

The B3 cave performed better than planned, and seasonal ore production continued to ramp up following commercial production and crusher commissioning in early in the fourth quarter of 2024. First quarter production represented approximately 28% and 25% of the midpoint of guidance of 60,000-70,000 ounces of gold and 50,000,000-60,000,000 pounds of copper, respectively, higher than the quarterly guidance of 20% due to those higher B3 grades. The B3 cave is expected to be exhausted by the end of the second quarter, and annual production is expected to be in line with the guidance profile previously provided. All-in sustaining costs for the quarter decreased substantially compared to the prior year period, driven by lower operating expenses, lower sustaining capital spend, and higher byproduct revenues.

With increased production at lower costs, New Afton generated an impressive $52 million of free cash flow while continuing to complete the construction of the C-Zone block cave. Turning now to Rainy River on slide nine, gold production in the first quarter was in line with plan, producing 33,900 ounces. First quarter production represented approximately 12% of the midpoint of guidance of 265,000-295,000 ounces of gold, slightly ahead of the quarterly guidance of 11%. Production in the first quarter was lower than prior period, as planned, as the majority of ore processed was from the lower grade stockpile, while phase IV stripping was advanced. With the quarter delivering as planned, production is expected to step up meaningfully going forward, and we remain on track to deliver our production and cost guidance for the year. Our financial results can be found on slide 10.

First quarter revenue was $209 million, higher than the prior year quarter due to higher metal prices and higher copper sales, slightly offset by lower gold sales. Cash generated from operations before working capital adjustments was $90 million, or $0.11 per share for the quarter. This was higher than the prior year period, primarily due to higher revenues. New Gold generated quarterly free cash flow of $25 million, as higher revenue was only partially offset by the higher capital expenditure as key growth projects were advanced. The company recorded a net loss of approximately $17 million, or $0.02 per share during Q1. After adjusting for certain other charges, net earnings was $12 million, or $0.02 per share in Q1. Our quarterly adjusted earnings include adjustments related to other gains and losses.

Turning to slide 11, Q1 was a very productive quarter as we continued to strengthen our balance sheet and increase our financial flexibility. In March, we completed a $400 million senior notes offering with an interest rate of 6.875% and due in 2032. This was used to tender approximately $289 million of the $400 million 2027 senior notes, with the remainder to be redeemed in mid-July when the call price steps down. This five-year extension, as well as the lower interest rate, significantly enhances our financial flexibility. We also executed an amendment to our existing revolving credit facility with strong support from our syndicate of lenders. Under the amendment, the term has been extended by four years, now maturing in March 2029.

An accordion feature has also been added, which will allow the principal amount of the credit facility to be increased by up to $100 million, subject to certain conditions. Lastly, as Ankit mentioned, after the quarter, we announced plans to acquire the remaining 19.9% free cash flow interest in New Afton. This is expected to close in the coming days, and as part of the financing, New Gold entered into a gold prepayment in mid-April. The company has agreed to deliver approximately 2,771 ounces of gold per month over the July 2025 to June 2026 period at an average price of $3,157 per gold ounce. We will utilize cash on hand and the revolving credit facility to pay the remaining $200 million, with the expectation that the credit facility will be fully paid off by year-end from the meaningful free cash flow we expect to generate throughout the year.

At the end of Q1, we had cash on hand of $213 million and a liquidity position of $590 million with the credit facility undrawn. To sum up, we are in a very healthy financial position while utilizing our balance sheet to consolidate our interest in New Afton to 100%. With that, I'll turn the call over to Patrick.

Patrick Godin (President and CEO)

Thanks, Keith. Slide 13 reiterates our three-year outlook. We expect continued and significant growth in gold and copper production over the next three years. With the increasing production, unit cost runs of gold are expected to be reduced significantly. Sustaining and growth capital costs are expected to taper off over the next three years. This is probably due to the completion of major projects and the reduction in open pit stripping at Rainy River. With the increase in production combined with the reduction in unit costs and tapering capital costs over the next two years, the company is well positioned to deliver significant free cash flow. I want to reintroduce this free cash flow slide. It was a focal point of our operational outlook presentation back in February. This has been updated to include New Gold's 100% free cash flow interest in New Afton.

We continue to expect to generate significant free cash flow. At current consensus commodity price, this translates to approximately $1.86 billion in free cash flow over that period. At current spot prices, the figure exceeds $2.5 billion, over 90% of our market cap. Touching on exploration briefly on slide 15, at New Afton, the Lower Key Zone exploration drift is progressing as planned, with more than 65% of advancement, and I'm happy to report that we start drilling for the first exploration bay, and we'll have four additional drills in the drift by the end of Q2. Key Zone drilling activities will therefore ramp up significantly throughout the year, with the objective of defining Key Zone indicated resources by year-end. In addition, we are conducting exploration drilling from surface to develop new near-mining targets.

During the quarter, we also continue to advance technical studies on potential new mining zones not currently included in our February life of mine plan. These are Key Zones, Hanging Wall Zone, and D Zone. The focus continues to be on utilizing existing infrastructures and advancing growth projects to maximize net asset value and extend the mine life to 2040, generating significant free cash flow and value for our shareholders. At Rainy River, exploration focus during Q1 was on the Northwest Trend, which, based on last year's drilling, has the potential of presenting open pit reserve in the short term and still shows growth opportunities. Exploration drilling also targeted the down-plunge extension of the Main from surface as part of the company's strategy to explore for additional high-grade underground ore.

This year's program at the Northwest Trend includes a combination of diamond drilling to test the down-dip extension of the current zone and RC drilling to infill and draw the zone along strike, speeding up exploration and saving on costs. We continued our work in open pit expansion studies, undermining potential pushback, goals of keeping the mill full for longer. Additional studies on underground mine design and optimization, as well as tailings storage, also continue to make progress. In closing, Q1 was positive for New Gold, and we continue to deliver on our stated strategic goals. We will continue to build on these goals from here. This includes delivering on 2025 production and cost guidance with the same attention to health and safety. Our continuous improvement of our total reportable incident frequency rate performance is a direct indicator of the support from our employees for the Corage to Care future.

At New Afton, we will ramp up seasonal and advance the development of its extension. At Rainy River, we'll continue to ramp up the underground mine, mining phase IV, and advance phase V open pit development. Lastly, we are continuing to increase our exploration effort at both sites with a combined $30 million of investment for 2025, targeting further reserves replacement. This is a very exciting time for New Gold, with increasing production and significant free cash flow generation in a robust commodity cycle. Combine that with our safe, well-established mining jurisdiction and exposure to what we view as our preferred metal in gold and copper, and New Gold offers a compelling investment opportunity. The remainder of 2025 will see the company build on the first quarter result, which is expected to create meaningful value for our shareholders and provide increased financial flexibility and optionality for New Gold moving forward.

Before I turn the call over to questions, I would like to just take a minute to welcome Travis Murphy to our team. Travis joined the New Gold team as our VP Operations in late March and has spent his first month at site. Travis will take a more active role in our quarterly calls as he settles in, but for now, I hope you will join me in welcoming him to our team. Please complete our presentation. I will now turn it back to the operator for the Q&A portion of the call. Operator.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your telephone keypad. You will hear a prompt that your hand has been raised. Should you wish to cancel your request, please press the star button followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Michael Siperco from RBC Capital Markets. Please go ahead.

Michael Siperco (Director of Global Mining Research)

Thanks very much for taking my question. Maybe starting with the New Afton exploration update that you provided, in the context of the two-part question, I guess, in the context of the additional consolidation of New Afton getting up to 100% and maybe the gold price as well over the last few months, does anything change in terms of how you're approaching that exploration and the outlook for the Key Zone and the potential next block cave? The second part is, can you give us maybe an indication of the cadence of what we should expect in terms of a potential for a resource study? How are you mapping that out over the next little while?

Patrick Godin (President and CEO)

I think the first question, you know, we consider Teachers as a partner, and the way that I think we start to know each other, Mike, and the way that I'm working, and I'm not out pregnant, I'm working, and I'm fully engaged. The objective will not change to bring the mine life of New Afton beyond 2040. Our investment, we cannot spend more money for now than what we are doing because we are mainly limited by the drift itself and our capacity to add more drills at site, but we are pretty aggressive and will continue to be aggressive. Key Zone for us is a potential to—we want—our objective is to find another C zone there. Jean-Francois with the team at site is all working extremely hard for this. The drift is going as expected.

We need to intersect the ore body and to go deeper and to go more east. We need to push this drift. We will be—I think originally we planned to have three drills in the drift. We're going to push to five drills this year, mainly to complete the drilling as much as we can for the beginning of Q4 to be able to have indicated resources in Key Zone for year-end. That we are doing, but in parallel, Jean-Francois and the team are looking for other targets. I hope that before year-end we'll be able to disclose a few of the discoveries if we have. You know, we still have a lot of potential on our property, and we want to maximize that. We will provide the exploration update probably at the end of Q3. It's mostly—we're targeting that for September.

Michael Siperco (Director of Global Mining Research)

Would it be reasonable—I know I'm skipping ahead a bit here—but would it be reasonable if you have, let's say, the success that you think you'll have at K zone and under the C zone, would it be realistic to think about maybe an initial study in 2026, or how are you thinking about that pacing?

Patrick Godin (President and CEO)

Depending on our success, it's what we will contemplate, yes. We are also having a wall where we have indicated—we are also having a wall with something that we do not want to park. It's just behind the upper lift that we mined between 2012 and 2022. We have indicated resources in a wall. The main objective for the team is for Jean-Francois and Luke is to look at the—to have a holistic approach of the resource that we have.

If we're just having one target and we run after this, yes, we'll generate a NAV, but if we put the three and we align them one after the other, what is the good order to generate the maximum in NAV and reduce the capital allocation to make sure that, because one of the personal objectives that it's our objective that we have is to continue to generate cash flow at New Afton. Based on that, I think if we do our job appropriately, we'll be able to balance our capital allocation and the revenue generation and the NEV for shareholders. I think for now, as Jean-Francois is in the team, we're blasting the exploration, if I can say that, to bring us, and our objective, as I said to you, is to find another C zone there.

If it's inconsequently, I think we can easily bring this mine beyond 2040.

Michael Siperco (Director of Global Mining Research)

Make sure that.

Patrick Godin (President and CEO)

We target studies for—we target resource updates for the end of this year. We provided an update to the market for exploration work at the end of Q3. We want to have new Indicated resources for year-end, and we will probably blast—we're already doing work, so Luke is working extremely hard with the team. We're already doing prep works to have studies for 2026.

Michael Siperco (Director of Global Mining Research)

Okay, makes sense. Just one follow-up on M&A then. I mean, it sounds to me like you've got a lot of optimism about New Afton. There's the upside at Rainy River. Again, in the context of the consolidation from 50%-100% of New Afton, are you thinking much about growth opportunities outside of the portfolio, or do you think for now you've got more than enough on your plate to look at longer-term growth?

Patrick Godin (President and CEO)

I think the first thing is what we control is our organic growth. That's something that we—I’m sorry, we cannot control what is in the ground with exploration, but the thing is we control our destiny through if we develop our resources and develop our assets. It is what we can control, and it is where we are investing the majority of our effort and capital allocation in terms of organic growth. For M&A, you know, it all will depend on the opportunity. As I explained to you before, our intent is not to be bigger to be bigger. Our intent is to be bigger to be better. We are prudent in our approach, and our focus is to increase value per share. It is mainly what this data we are actioning here.

Michael Siperco (Director of Global Mining Research)

Okay, perfect. Thank you very much. I'll pass it on.

Operator (participant)

Thank you so much for that question. The next question comes from Lawson Winder from Bank of America. Please go ahead.

Lawson Winder (Senior Equity Research Analyst)

Thank you, Operator. Good morning, Patrick and team. Thanks so much for the update. Thinking of Rainy River and the future there, with the gold price where it is, to what extent might you now consider a more significant layback on the open pit to continue to access additional ore there as opposed to just focusing on underground? In thinking of that, what are your options for tailings?

Patrick Godin (President and CEO)

Yeah, I think Luke and I, we can answer to this, but the new is that we are looking at this because we're already having indicated resources. We have a part, we have gains that we can have if we push the open pit, and we have part of the answers that will be transferred from underground to the open pit mining method. What we are looking at actually is the CapEx allocation, not necessarily for the pushback itself, but for the tailings storage facility. For the 43-101 that we present to the market in the beginning of Q1 of this year, the tailings storage facility is close to its maximum capacity. We have all the infrastructure that we—all the approach and profile that we present in the technical report will be stored in the tailings storage facility, but we are close to the maximum capacity.

We are looking at different possibilities to reduce the CapEx that we will have to invest in tailings storage facility if we want to do the pushback. It is all this balance that Luke is working on. Do you want to add something?

Lawson Winder (Senior Equity Research Analyst)

No, I think that covers most of it. I think just to add that this exploration drilling that we're doing in Northwest Trend is providing the opportunity for a potential small pit at Northwest Trend as well. If that works out, then that also provides an extra opportunity for in-pit tailings in the future as well. We are looking at lots of different scenarios and different options at the moment.

Patrick Godin (President and CEO)

Yes, but you're right. The capital is behind us in the mill. We have trained people who are trained and qualified to do open pit mining. We have motivated people. We improved drastically our performance in health and safety. We improved drastically also our maintenance mill availability with the maintenance in the mill. We want to maximize that as much as we can. For the first time this year, we are investing in Jean-Francois is looking for targets on our land package at Rainy River. With the vision that our vision is ultimately at the end of the when we'll exhaust the mining reserve that we have, is that we have a pit that will be a really low and no-cost tailings storage facility.

If we can find another pit and we're connected to the national grid, we have a really efficient mill that is performing extremely well in terms of recovery compared to the grade that we are feeding the mill with. I think it's what we're looking at. We are initiating work for the first time on the property to find additional resources this year.

Lawson Winder (Senior Equity Research Analyst)

Intriguing. Yeah, looking forward to hearing more about that. Could I follow up on Mike's question just about growth and your desire to get bigger? When you think about the ideal asset to add to the portfolio, do you think of a project, an operating mine? When you think of jurisdiction, I mean, are you primarily focused on Canada? You've mentioned the Americas in the past, but maybe you could just elaborate on what your thinking is in terms of jurisdiction as well.

Patrick Godin (President and CEO)

You know, because we're not a company with two assets, actually, we are pretty agile. We have an outfit that is not necessarily, I would say, extremely tight. We are modest. We have experience in the Americas. Basically, it's something that if we have to look back, it's something that we will, to be opportunistic, we're looking at. You know, it's difficult to find a project that is perfect. We have expertise in open pit. We have expertise in underground. We have, like myself, I built two mines and two companies from scratch. You know, it was prior. Today it's a bit different. We have the capital risk. It's different. You know, in terms of, it's difficult to be precise on this. We look at the safety of people first, and we are looking at stability first.

We cannot afford to invest time and effort and capital in a project and to a government where we are looking, we are doing business, it's calling back the permits. We cannot afford that. For me, personally, the security of my people is the most important thing. I do not want to compromise the security of people where we are doing works. Maybe it guides that we know where we want to play, and I think it's where we're looking at.

Lawson Winder (Senior Equity Research Analyst)

Now, just the other part of my question was kind of project versus operating mine. Is there a strong preference between the two?

Patrick Godin (President and CEO)

I think the purpose is becoming small. My preference will be to have a mine that is operating with cash flow and subsequently to build something. You know, we will have to see. Again, we want also our company as we add to my predecessor. They did an amazing work to readdress the balance sheet of this company, and I do not want to get back in the same position. That is why we want to be presenting that. If we can, the priority will be to add to both our two assets, a productive asset that is in production that is trading in cash and subsequently is to build something. You know.

Lawson Winder (Senior Equity Research Analyst)

Thanks very much.

Patrick Godin (President and CEO)

It's the last time that I checked on Amazon, it was not possible to find this.

Lawson Winder (Senior Equity Research Analyst)

Yeah, not easy. Okay, thanks for that color, Patrick. Thanks very much, appreciate it.

Patrick Godin (President and CEO)

Thank you. You're welcome.

Operator (participant)

Thank you so much for that question. For the next question, we have here, Eric Winmill from Scotiabank. Please go ahead.

Eric Winmill (Mining Equity Research Analyst)

Hi, Patrick and team. Appreciate you taking my question. Just New Afton, I wonder if you could elaborate a little bit. You're doing the float cleaner circuit upgrade here to bump the recoveries. I know you're saying it's commissioning in Q3. Just wondering what some of the key milestones you're looking for there. If you could please remind us on the CapEx. I guess second part, are you seeing any challenges in the supply chain here as it relates to geopolitics and tariffs and what we're seeing? Thanks.

Patrick Godin (President and CEO)

Yeah, so we have a few questions. Eric, I'll try to, if I'm missing some points, you let me know. On CapEx, we're buying on. I think what we present in the technical report, what we present to you in the guidance, we are, so what we are doing, our forecast for year-end, we are buying on. We're progressing extremely well because this year we have in the capital allocation is for the stabilization of the tailings. We are a year in advance. When we did the bathymetry of the tailings storage facility, we have 20% less water than expected. We are really well positioned to stabilize that more than a year in advance. We are really satisfied. We have an investment in the mill that will increase the recovery in our concentrate that is just replaced for additional cells. It's going extremely well.

We are buying on time and slightly under budget. For underground, we are exactly where we want to be in terms of the progression of the construction of the cave. We are 53% progression in the cave. We expect to be at 94% at year-end. We're still adding few drawbells to build in Q1 2026 as planned. Actually, we are buying on in terms of CapEx. The next milestone is what is exceptional for New Afton is in Q1, we overperformed B3 in terms of recovery and in terms of grade. It was excellent. Also, the progression, it helped because we slowed down the progression of C-Zone to go forward with C-Zone because we have more tons to extract. The progression of C-Zone is as planned and we'll reach slightly more tons.

In terms of tons that will convey, we're still expecting to be at 60 tons per day by the end of this year. We will do the exploration update that is a major milestone at New Afton in Q3. We'll have our new reserve at the beginning of Q4. I think it's the major milestone that we're going to have there this year. The mine is, we're really pleased. It's performing as expected, if not better than expected, mainly at B3. We'll complete the extraction of B3 in Q2 in this quarter, in Q2 2025.

Keith Murphy (CFO)

Eric, it's Keith on supply chain. We're not really seeing a material impact right now. There's a relatively small portion of our cost profile that comes from the US and is subject to tariff. We have seen some pressures, I'd say, overall on supply chain, but our team has done a really good job to mitigate. We haven't seen any impact on critical supplies, right?

Like that. A little bit, but not much impact at the moment.

Eric Winmill (Mining Equity Research Analyst)

Okay, fantastic. Yeah, I really appreciate all the added color. Maybe just on the float cleaner circuit upgrade, any specific milestones we should be looking for there as it comes into service in Q3?

Luke Buchanan (VP of Technical Services)

Yeah, hi, Eric. It's Luke here. We've just finished the major shutdown in the plant at New Afton this month, which was planned. As part of that, we completed the bypass of the third stage of cleaners. That has put us in position to complete the project in Q3 without any major delays or interruptions to the operation. That's the really major milestone, which was just completed. The fabrication of the actual Jameson cells itself is also on the way. That's everything in contract there.

Eric Winmill (Mining Equity Research Analyst)

All right, great to hear. Really appreciate it. Yeah, congrats on a good start to the year. I'll hop back in a few. Cheers.

Patrick Godin (President and CEO)

Thank you.

Operator (participant)

Thank you for that question. For our next question, that would be for Jeremy Hoy from Canaccord Genuity. Please go ahead.

Jeremy Hoy (VP of Mining and Metals Equity Research)

Thank you, operator. Hi, Pat, Ankit, Keith, thanks for taking my questions and welcome to Travis. Just two questions from me. You guys completed a milestone at Rainy River in the underground development. That's the breakthrough of the pit portal. Two other key items that you had talked about was the fresh air raise and the vent loop. Can you comment on progress there and if those are still expected to be complete in Q2? My second question is on grades in B3. I know that's going to be culminating this quarter, but just wondering so far if we're seeing elevated grades as that cave tails off.

Patrick Godin (President and CEO)

Just for maybe the first point for Rainy River, the fresh air raise, you know the excavation, the raise boring was completed last year. The raise is cased for now. I think we're close to receive all the components. Our objective is to commission that during mid-June and to be fully operational for the end of June. I think it's going to be in Q2. That's an important milestone for us. In the vent loop, I think we're still having 170 meters of development to complete. We are ramping up and we are working for both sides of the decline and we're ramping up. We plan to complete the vent loop again in Q2 this quarter. Basically, there's two major milestones, but a lot of possibilities to speed up the development too. The portal, we are using the portal actually.

We're allowing the material for mainly the waste from the development to the pit. We re-handled that from the pit to the storage facility.

Keith Murphy (CFO)

Okay, great. Jeremy, with the grades, you know as we said, we continue to see the B3 cave progress well. As I said, you know we expect that to be completed and exhausted in Q2. We will be in that transition period between C-Zone and B3 grade. You know we do expect the production profile to be aligned with what we guided previously.

Patrick Godin (President and CEO)

You know, Jeremy, on the grade in the block caves, we simulate that. We're using sophisticated software. We call that PCBC to do the model of the grade. At the end of a block cave, usually you have more dilution because you have less material in the slope and the dilution is coming from the wall. We plan for the worst and we wish for the best. In this situation, we got the best because we had less dilution. The grade is wider than expected. It's mainly what is happening here.

Jeremy Hoy (VP of Mining and Metals Equity Research)

Yeah, it was a nice little surprise for the quarter. Okay, great.

Patrick Godin (President and CEO)

Sometimes it's good to have some positive.

Jeremy Hoy (VP of Mining and Metals Equity Research)

Yeah, absolutely. I'm in agreement there. If you can't find any assets on Amazon, maybe you can look at Temu out here. Cheap prices are cheaper there as well.

Patrick Godin (President and CEO)

Thank you.

Operator (participant)

Thank you for that question. For our next question, that would be for Mohammed Siddiqui. Please go ahead.

Thank you. Patrick and Tim, thanks for taking my question. Just to follow up on Jeremy's question, I guess, at New Afton on the grades, I just wanted to focus maybe on the split. You mentioned that we can still, I guess, model that 45% in the first half of 2025 at New Afton. Does that imply basically a weaker Q2 with grades coming down there?

Luke Buchanan (VP of Technical Services)

Yeah, as I said, the Q2 with B3 coming off and C-Zone ramping up, there is that kind of transition point with the caves and with the startup of the C-Zone cave. We did expect them, and we do expect that to be lower grade. Yeah, we're still in line with that production profile that we outlined at the start of the year.

Patrick Godin (President and CEO)

What I mentioned is this is the bottom part of C-Zone. We have some lower grade that is expected because it's part of the reserves itself. It's not homogeneous. With the lower part, we also have some drawbells or in waste, and the ore is over and above. It's planned. In 2025, we will process more tons than we did in 2024 to produce the same metal, more or less. It's mainly because at the beginning of C-Zone, the grade is lower. It's what is in the plan. It's what we forecast.

Great. Thanks a lot for that color. That's pretty helpful. Just the second question on the capital allocation priority, I think our analysts already touched on the M&A front, but I was just wondering if as part of, you know, as you look over the next three years and the amount of free cash you'll be generating, if there was any thinking around maybe potential capital returns to shareholders or that's really not top of mind currently. Thank you.

It's something that I, so we are working on that. For now, for sure, for this year, we have to, just the buyback of the 19.9%, we didn't want to dilute our shareholders. It was our strategy. Yes, we have the prepay and we have the revolver that we want to refill for year-end as much as possible. We want also to maintain a minimum of cash based on what happened with COVID. COVID can re-appear or it's mining. We want to make sure that we have sufficient capital. I'm not talking to have a billion, but was there $150 million in cash in the bank account to react appropriately to what we have to face and to be opportunistic.

If the projects are not, if we have, so we have our project that we want to support, if they are providing value for shareholders, if not, for sure, we will have to return the money to the shareholders. Something that with the board, we are really vigilant and we know that the cash flow that we'll generate and we know that it's shareholder money. It is why we're working for. We will probably look at this in the medium term, for sure.

Thanks a lot, Patrick. Congrats on a good quarter.

Thank you.

Operator (participant)

Thank you for that question, Mohammed. Since there are no further questions at this time, I'll be transferring the conference again to Mr. Ankit Shah. Please continue.

Ankit Shah (EVP of Strategy and Business Development)

Thank you. Thank you to everybody who joined us. As always, should you have any additional questions, please do not hesitate to reach out to us by phone or email. Have a great rest of your day.

Operator (participant)

This concludes today's call. Thank you for participating. You may now disconnect.