Newmarket Gold Inc.
TSX : NMI
OTCQX : NMKTF

Newmarket Gold Inc.

November 05, 2015 06:30 ET

Newmarket Gold Delivers Record Production of 169,491 oz 9M 2015, Re-Affirms 2015 Top-End Production Guidance, Lowers Cost Guidance; 9M 2015 Cash Costs $693/oz, AISC $984/oz

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Nov. 5, 2015) - Newmarket Gold ("Newmarket" or the "Company") (TSX:NMI) (OTCQX:NMKTF) is pleased to announce financial results for the three and nine months ended September 30, 2015. Full Financial Statements and Management Discussion & Analysis documents can be found at www.sedar.com and the Company's website, www.newmarketgoldinc.com.

2015 Third Quarter ("Q3 2015") and Nine Months ("9M 2015") Highlights

(All figures are in United States ("U.S.") dollars, unless stated otherwise)

  • Strong Consolidated Production: Q3 2015 represented the ninth consecutive quarter of production over 53,000 ounces. Gold production of 53,817 ounces, included record production of 32,793 ounces from the Company's flagship asset, Fosterville Gold Mine. The Company experienced record production in the first 9M 2015 of 169,491 ounces, up 3.7% year-over-year.
  • Decreasing Costs: Operating cash costs decreased 20.4% to $715 per ounce sold in Q3 2015 from Q3 2014. All-in sustaining costs ("AISC") decreased 18.0% to $1,011 per ounce sold in Q3 2015 from Q3 2014. For the first 9M 2015, operating cash costs averaged $693 per ounce sold, while AISC averaged $984 per ounce sold.
  • Reaffirming 2015 Production Guidance, Lowering 2015 Cost Outlook: Top end of our FY 2015 production guidance of approximately 220,000 reaffirmed following record quarterly production from Fosterville. Outlook for 2015 operating cash costs has been lowered to $700 - $750 per ounce (prior $780 - $860) and AISC lowered to $970 - $1,020 per ounce (prior $1,020 - $1,100) reflecting an increasing grade and recovery profile, a focus on Company wide cost reductions, and the impact of the weakened Australian dollar.
  • Operating Cash Flows: 9M 2015 operating cash flow of $65.9 million increased 34.8% year-over-year.
    Q3 2015 operating cash flow of $11.3 million declined 37.8% from Q3 2014 due to one-time transaction costs associated with the Newmarket Gold and Crocodile Gold amalgamation (the "Transaction"), increased spending on growth projects, and lower gold sales in a continued depressed gold price environment.
  • Mine Site Discoveries Drive Growth Initiatives: Increased investment in growth exploration programs, with $7.2 million spent to date including $3.8 million in Q3 2015, has resulted in mine site discoveries at Fosterville, Cosmo and Stawell. Investment in growth exploration programs are focused on targets in the project pipeline that can have a significant positive impact on near-term operations.
  • Cash and Working Capital: Cash balance of $37.2 million, reflecting the impact of one-time transaction cash costs of $3.3 million associated with the Transaction, increased growth exploration spending in Q3 2015 and the translation impact of a weakening Australian dollar. Working capital was $22.6 million, reflecting aforementioned transaction costs, up significantly from December 31, 2014 working capital of $12.6 million.
  • Net Income Impacted by One-Time Transaction Costs: 9M 2015 net income was $17.5 million or $0.14 per share, which included year-to-date one-time transaction costs of $16.7 million, or $0.14 per share. Excluding the one-time transaction costs, 9M 2015 net income was $34.2 million, or $0.28 per share. During the quarter, one-time transaction costs of $15.1 million (of which $13.4 million are non-cash costs) contributed to a Q3 2015 net loss of $10.3 million or $0.08 per share compared to Q3 2014 net income of $8.6 million or $0.07 per share. Transaction costs accounted for a $0.11 loss per share during Q3 2015. Excluding one-time transaction costs, Q3 2015 net income was at $4.8 million or $0.04 per share.

Douglas Forster, President & CEO, Newmarket Gold commented: "We achieved record production of 169,491 ounces in the first nine months of 2015 following another quarter of over 53,000 ounces of gold production, driven by record results from our flagship gold mine, Fosterville. Based on production to date, we have reaffirmed our top-end full-year production guidance of approximately 220,000 ounces. Total operating cash costs per ounce sold decreased year-over-year by 20.4% to $715 in Q3 2015, resulting in year-to-date operating cash costs of $693 per ounce sold, while all-in sustaining costs decreased 18.0% to $1,011 per ounce sold in Q3 2015, and year-to-date all-in sustaining costs were a record low $984 per ounce sold. We are pleased to see our continued focus on productivity and strategic cost reduction initiatives reflected in our results even before the impact of a markedly weaker Australian dollar. Given our results to date, we are revising our 2015 costs guidance lower and now expect operating cash costs of $700 - $750 per ounce sold (prior $780 - $860) and all-in sustaining costs of $970 - $1,020 per ounce sold (prior $1,020 - $1,100)."

"Despite the weak commodity price environment, in the first nine months of 2015 we generated revenues of nearly $200 million, even though year-over-year gold prices were 15% lower in the third quarter. Operating cash flow of $66 million was up 34.8% compared to the prior year period. Q3 2015 net income was impacted by one-time transaction costs of $15.1 million and by increased exploration spending of $3.8 million. Our primary focus is to generate cash flow, maintain our production and cost profiles, increase our reserves and resources and pursue mine site growth initiatives that can have a significant impact on ongoing operations. Mine site discoveries at Fosterville including the high grade Eagle Fault are already having a positive impact on operations with record mill grades of 6.42 g/t being achieved during Q3 2015. Additional growth initiatives at Cosmo and Stawell have also led to new discoveries close to existing mine infrastructure."

Updated Production and Cash Cost Guidance for Fiscal 2015 - at September 30, 2015

(U.S.) $ Fosterville Cosmo Stawell Consolidated 2015
Gold Production (ounces) - New 115,000 - 120,000 60,000 - 65,000 ~35,000 Approximately 220,000
Gold Production (ounces) - Prior 100,000 - 105,000 75,000 - 85,000 ~ 30,000 205,000 - 220,000
Operational Cash Costs per ounce* - New $525 - $575 $875 - $925 $945 - $995 $700 - $750
Operational Cash Costs per ounce* - Prior $670 - $750 $850 - $930 $945 - $1,025 $780 - $860
AISC per ounce*(1)- New $970 - $1,020
AISC per ounce*(1) - Prior $1,020 - $1,100

* See Non-IFRS Disclosures (1) All-In Sustaining Cash Costs per Ounce ("AISC") Includes Corporate General and Administrative Expenses.

Third Quarter 2015 Financial Results

(in thousands, except per share and per ounce amounts) Q3 2015 Q3 2014 YTD 2015 YTD 2014
Revenue ($) 60,664 73,337 199,605 212,956
Cost of operations, including depletion and depreciation ($) (48,082 ) (60,754 ) (147,743 ) (184,947 )
Mine operating income ($) 12,582 12,583 51,862 28,009
Net (loss) income ($) (10,325 ) 8,583 17,450 9,192
Net (loss) income per share ($/share) - basic and diluted*($) (0.08 ) 0.07 0.14 0.08
Cash generated from operating activities ($) 11,345 18,232 65,903 48,876
Capital investment in mine development, property, plant and equipment ($) 13,794 17,645 44,412 51,456
Average realized gold price per ounce ($) 1,109 1,298 1,164 1,292
Average quoted gold price per ounce ($) 1,124 1,282 1,178 1,288
Operating cash costs per ounce sold ($)** 715 898 693 944
All-in sustaining cash costs per ounce sold ($)** 1,011 1,233 984 1,285

* Income per share is presented after giving effect to the Arrangement share exchange ratio of 0.2456.

** Refer to non-IFRS measure disclosures below.

Consolidated Operational Results Q3 2015 Q3 2014 YTD 2015 YTD 2014
Ore Milled (t) 565,254 631,716 1,739,356 1,961,642
Grade (g/t Au) 3.32 3.14 3.40 3.04
Recovery (%) 86.5 86.0 87.1 84.2
Gold Oz Produced 53,817 55,909 169,491 163,516
Gold Oz Sold 54,521 56,486 170,968 164,833

Third Quarter Highlights Ended September 30, 2015

On a consolidated basis, Newmarket Gold produced 53,817 ounces of gold, representing the ninth consecutive quarter of production above 53,000 ounces. Quarterly production declined 3.7% compared to Q3 2014 despite a 5.7% increase in average consolidated mill grade in Q3 2015 and improvement in consolidated mill recovery over the same period in 2014, as the consolidated tonnes mined decreased 11.5%. The lower quarterly consolidated mined tonnes reflects the decreased tonne profile at Fosterville which now exclusively mines from the Phoenix and Lower Phoenix areas of the mine, as well as a decrease in tonnes from Cosmo in Q3 2015 due to equipment availability and mine contractor personnel issues. Fosterville achieved record quarterly production and was the primary contributor comprising 61% of third quarter consolidated gold production while also setting new quarterly records in grade and recovery. Lower than expected production at Cosmo Gold Mine, due to challenges with the mining contractor resulted in lower than expected mined tonnes, and lower than expected production at Stawell Gold Mines, due to lower grade, accounted for the year-over-year decrease in consolidated production during the quarter. The improvement in consolidated mill grade is attributable mainly to record mill grade of 6.42 g/t achieved at Fosterville, a 27.9% increase over Q3 2014. Consolidated mill recovery of 86.5% included strong recovery of 89.7% at Fosterville and 92.2% at Cosmo.

For the quarter ended September 30, 2015, consolidated revenues of $60.7 million declined 17.3% compared to $73.3 million in the corresponding quarter of 2014. The decline reflected the impact of lower gold ounces sold and a 14.6% decline in the average realized gold price per ounce to $1,109, down from $1,298 in Q3 2014.

Operating expenses decreased 23.2% resulting in significantly lower operating cash costs of $715 per ounce sold compared to $898 in the prior year. The decrease in costs is attributable to an improving grade and recovery profile, a focus on cost management across the business, productivity initiatives, and the weakening Australian dollar. In particular, greater productivity at Fosterville coupled with higher grades and recoveries, lower fuel costs, general cost reduction initiatives including, hiring freezes and supply tender processes, all contributed to lower year-over-year operating cash costs. A 21.6% year-over-year weakening of the average Australian dollar exchange rate further contributed to the decline. As a result, mine operating income was $12.6 million in Q3 2015, consistent with Q3 2014, as the decrease in operating costs and lower depletion and depreciation costs were offset by the comparatively lower revenues during the most recent quarter.

On a consolidated basis, Q3 2015 net income included one-time transaction costs of $15.1 million (of which $13.4 million was non-cash), which accounted for $0.11 per share of the third quarter net loss of $10.3 million or $0.08 per share, compared to net income of $8.6 million or $0.07 per share in the corresponding quarter of 2014. Excluding the one-time transaction costs, Q3 2015 net income was $4.8 million or $0.04 per share. Net income for the most recent quarter also included $3.8 million in exploration expenses as the Company has invested its operating cash flows into near-term growth exploration projects. On a year-to-date basis, net income was $17.5 million or $0.14 per share, which includes the $0.14 per share impact of transaction costs for the first nine months of 2015. Excluding the year-to-date one-time transaction costs, net income was $38.2 million or $0.28 per share. Nonetheless, this represents a significant increase over the same period in 2014 when net income was $9.2 million or $0.08 per share for the first nine months of 2014, despite a 9.9% drop in the average realized gold price.

Operating cash flow for the quarter ended September 30, 2015 was $11.3 million, a 37.8% decline. The significant decrease in operating costs was offset by a more challenging gold price environment coupled with slightly lower gold sales. Operating cash flow also reflects the Company's decision to invest a further $3.8 million in growth expenditures. Mine development in Q3 2015 was $10.2 million, largely at Fosterville and Cosmo. An additional $3.6 million was invested into plant and equipment. Capital expenditures are relatively comparable to the corresponding quarter of 2014, due to the timing of certain projects and capital development and the weaker Australian dollar.

Due to a significant decrease in operating cash costs and consistent gold production, all-in sustaining cash costs improved to $1,011 per ounce sold from $1,233 in Q3 2014, an 18.0% decrease reflecting the net impact of the weakened Australian Dollar and the Company's increased spending in growth exploration.

Financial Position

For the period ended September 30, 2015, the Company held a cash balance of $37.2 million and working capital of $22.6 million. The Company's financial position reflects the impact of one-time transaction costs during the quarter, the continued investment into accretive growth projects, and the translation impact of the weakening Australian dollar, which decreased 8.4% relative to the US dollar since June 30, 2015.

Foreign Exchange

The significant drop in the Australian dollar exchange rate has markedly increased the gold price in Australian dollar terms (the functional currency of the Company's current operations) while having the effect of lowering cash costs in US dollar terms. The Australian dollar closed at $0.7045 on September 30, 2015, down 13.8% from year-end. Consequently, Australian dollar denominated gold has traded above A$1,500 per ounce consistently since mid-January, and has recently traded above A$1,600 for an extended period of time. The average quarterly exchange rate has dropped 21.6% compared to Q3 2014, which accounted for a portion of the decrease of operating and all-in sustaining cash costs per ounce sold, complementing the reduction in local currency costs achieved through cost reduction and productivity initiatives.

Cash Position and Working Capital

Strong operating and financial performance in the first nine months of 2015 resulted in a strong cash balance of $37.2 million at September 30, 2015, reflecting the impact of one-time transaction costs, growth exploration expenses and translation of a weaker Australian dollar. Working capital at September 30, 2015 was $22.6 million, up significantly from $12.6 million at December 31, 2014. The increase in working capital in 2015 demonstrates the strong operational performance to date, and includes the impact of funding a $7.2 million investment in exploration and growth projects, one-time transaction costs associated with the amalgamation with Crocodile Gold Corp., and a cash payment of C$20 million to AuRico Gold Inc. to terminate a cash flow sharing arrangement between the two companies.

Third Quarter 2015 Operational Results

Fosterville Gold Mine Q3 2015 Q3 2014 YTD 2015 YTD 2014
Ore Milled (t) 175,687 200,708 524,337 624,014
Grade (g/t Au) 6.42 5.02 6.03 4.42
Recovery (%) 89.7% 86.8% 89.4 85.5
Gold Oz Produced 32,793 28,313 91,576 76,297
Gold Oz Sold 32,770 27,517 93,141 74,835

Cosmo Gold Mine
Ore Milled (t) 161,351 198,168 544,742 642,798
Grade (g/t Au) 2.65 3.03 3.12 3.17
Recovery (%) 92.2% 92.8% 92.2 88.2
Gold Oz Produced 12,672 17,942 50,357 57,628
Gold Oz Sold 13,297 18,899 50,017 60,292

Stawell Gold Mines
Ore Milled (t) 228,216 232,840 670,277 694,830
Grade (g/t Au) 1.42 1.62 1.58 1.67
Recovery (%) 80.0% 79.5% 81.1 79.3
Gold Oz Produced 8,352 9,654 27,559 29,591
Gold Oz Sold 8,454 10,070 27,810 29,706
Consolidated Gold Oz Produced 53,817 55,909 169,491 163,516
Consolidated Gold Oz Sold 54,521 56,486 170,968 164,833

Newmarket Gold Board of Directors

On November 4, 2015, Edward Farrauto, CGA was appointed to the Newmarket Gold Board of Directors. Over the past 20 years Mr. Farrauto has been involved with TSX Exchange and TSX Venture Exchange listed public companies in the capacity of Chief Financial Officer and independent director. Mr. Farrauto has worked on natural resource projects on a world-wide basis and he has been involved in all facets of regulatory compliance and financial reporting.

Third Quarter 2015 Earnings Conference Call Details

In connection with our third quarter 2015 financial results, Douglas Forster, President and Chief Executive Officer, and Robert Dufour, Chief Financial Officer, will also host a conference call to discuss the results on Thursday, November 5, 2015, at 10:00 a.m. (EDT).

Participants may listen to the call by dialing toll free 1-800-319-4610 or 1-416-915-3239 at approximately 9:50 a.m. (EDT) and ask to join the Newmarket Gold conference call. International or local callers should dial 1-416-915-3239 at approximately 9:50 a.m. (EDT) and ask to join the Newmarket Gold conference call.

The call will also be webcast live at http://services.choruscall.ca/links/newmarketgold20151105.html and at www.newmarketgoldinc.com in the Events and Webcast section under the Investor Relations tab.

The live audio webcast will be archived and made available for replay at www.newmarketgoldinc.com.

Presentation slides which accompany the conference call will be made available in the Investors section of the Newmarket Gold website, under Presentations, prior to the conference call.

Qualified Person

Mark Edwards, MAusIMM (CP), MAIG, General Manager, Exploration, Newmarket Gold, is a "qualified person" as such term is defined in National Instrument 43-101 and has reviewed and approved the technical information and data included in this press release.

ON BEHALF OF THE BOARD

Douglas Forster, M.Sc., P.Geo., President & Chief Executive Officer

About Newmarket Gold Inc.

Newmarket Gold is a Canadian-listed gold mining and exploration company with three 100% owned operating mines across Australia. The Company is focused on creating substantial shareholder value by maintaining a strong foundation of quality gold production, over 200,000 ounces annually, generating operating cash flow and maintaining a large resource base as it executes a clearly defined gold asset consolidation strategy. The Company is focused on sustainable operating performance, a disciplined approach to growth, and building gold reserves and resources while maintaining the high standards that the Newmarket Gold core values represent.

NON-IFRS MEASURES

Newmarket Gold has included in this press release certain non-IFRS performance measures as detailed below. In the gold mining industry, these are common performance measures but do not have any standardized meaning. The Company believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company's performance and ability to generate cash flow. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Operating Cash Costs per Ounce of Gold - Newmarket Gold calculates operating cash costs per ounce by deducting silver sales revenue as a by-product from operating expenses per the consolidated statement of operations, then dividing by the gold ounces sold during the applicable period. Operating expenses include mine site operating costs such as mining, processing and administration as well as royalties, however excludes depletion and depreciation, share-based payments and rehabilitation costs.

All-In Sustaining Costs per Ounce of Gold - Newmarket Gold has adopted an all-in sustaining cost performance measure that reflects all of the expenditures that are required to produce an ounce of gold from current operations. While there is no standardized meaning of the measure across the industry, the Company's definition conforms to the all-in sustaining cost definition as set out by the World Gold Council in its guidance dated June 27, 2013. The World Gold Council is a non-regulatory, non-profit organization established in 1987 whose members include global senior mining companies. The Company believes that this measure will be useful to external users in assessing operating performance and the ability to generate free cash flow from current operations.

The Company defines all-in sustaining costs as the sum of operating cash costs (per above), sustaining capital (capital required to maintain current operations at existing levels), capital lease repayments, corporate general and administrative expenses, mine exploration within the known resource, and rehabilitation accretion and amortization related to current operations. All-in sustaining costs excludes capital expenditures for significant improvements at existing operations deemed to be expansionary in nature, exploration and evaluation related to growth projects, rehabilitation accretion and amortization not related to current operations, financing costs, debt repayments, share-based compensation not related to operations, and taxes.

The operating cash costs per ounce and all-in sustaining costs per ounce are reconciled to the condensed interim consolidated statement of operations as follows:

(in thousands, except ounces and per ounce amounts shown) Q3 2015 Q3 2014 YTD 2015 YTD 2014
Operating expense per the condensed interim consolidated statement of operations, including royalties 39,066 50,848 118,688 155,894
By-product silver sales credit (80 ) (102 ) (249 ) (273 )
Operating cash costs ($) 38,986 50,746 118,439 155,621
Sustaining mine development (1) 10,160 15,299 33,691 42,916
Sustaining capital expenditures, including capital lease payments 3,862 2,250 11,319 8,531
General and administration costs 1,736 1,028 3,647 3,191
Rehabilitation - accretion and amortization (operating sites) 297 281 827 943
Mine exploration 101 63 393 556
All-in sustaining cash costs ($) 55,142 69,667 168,316 211,757
Gold ounces sold 54,521 56,486 170,968 164,833
Operating cash costs per ounce sold ($ / ounce) 715 898 693 944
All-in sustaining cash costs per ounce sold ($ / ounce) 1,011 1,233 984 1,285

(1) Sustaining mine development are defined as those expenditures which do not increase annual gold production at a mine operation and exclude expenditures for growth projects and mine development to commercial production. Total sustaining capital is calculated as follows:

(in thousands) Q3 2015 Q3 2014 YTD 2015 YTD 2014
Expenditure on mine development per the statement of cash flows 10,183 16,092 34,121 45,851
Less: Big Hill Project development costs (23 ) (793 ) (430 ) (2,935 )
10,160 15,299 33,691 42,916

Cautionary Note Regarding Forward Looking Information

Certain information set forth in this news release contains "forward-looking statements", and "forward-looking information under applicable securities laws. Except for statements of historical fact, certain information contained herein constitutes forward-looking statements, which include the Company's expectations about its business and operations, and are based on the Company's current internal expectations, estimates, projections, assumptions and beliefs, which may prove to be incorrect. Some of the forward-looking statements may be identified by words such as "will", "expects", "anticipates", "believes", "projects", "plans", and similar expressions. These statements are not guarantees of future performance or outcomes and undue reliance should not be placed on them. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made and they are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements or forward-looking information. Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements or forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements and forward-looking information. The Company does not undertake to update any forward-looking statements or forward-looking information that are included in this press release or incorporated by reference herein, except in accordance with applicable securities laws.

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