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Edited Transcript of NGD.TO earnings conference call or presentation 27-Apr-17 1:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 New Gold Inc Earnings Call

VANCOUVER May 3, 2017 (Thomson StreetEvents) -- Edited Transcript of New Gold Inc earnings conference call or presentation Thursday, April 27, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian W. Penny

New Gold Inc. - CFO and EVP

* Hannes Philip Portmann

New Gold Inc. - CEO and President

* Julie Taylor

* Raymond Wesley Threlkeld

New Gold Inc. - Interim COO and Non-Independent Director

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Conference Call Participants

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* Anita Soni

Crédit Suisse AG, Research Division - Research Analyst

* David Haughton

CIBC World Markets Inc., Research Division - Research Analyst

* Mark Mihaljevic

RBC Capital Markets, LLC, Research Division - Senior Associate

* Michael Parkin

Desjardins Securities Inc., Research Division - Precious Metals Analyst

* Rahul Paul

Canaccord Genuity Limited, Research Division - Director

* Steven Howard Butler

GMP Securities L.P., Research Division - MD, Institutional Research

* Trevor Turnbull

Scotiabank Global Banking and Markets, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning. My name is Sally, and I will be your conference operator today. At this time, I would like to welcome everyone to the New Gold Inc. First Quarter 2017 Financial Results Conference Call. (Operator Instructions)

Julie Taylor, Director Investor Relations, you may begin your conference.

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Julie Taylor, [2]

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Thank you, operator, and good morning, everyone. We appreciate you joining us today for New Gold's 2017 First Quarter Earnings Results Conference Call and Webcast. On the line today, we have Hannes Portmann, President and CEO; Ray Threlkeld, our Interim COO; and Brian Penny, our CFO, will also be available during the Q&A period at the end of the call. (Operator Instructions).

Before the team begins the presentation, I would like to direct your attention to our cautionary language related to forward-looking statements found on Slide 3 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 implied in forward-looking statements. Slide 3 provides additional information and should be reviewed. We also refer you to the section entitled Risk Factors in New Gold's latest 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 endnotes that provide important information and should be reviewed in conjunction with the material presented.

I will now turn the call over to Hannes. Hannes?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [3]

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Thank you, Julie. Good morning, everyone, and thank you for joining us today. Slide 4 provides a few of the highlights from the quarter. Higher quarterly production from Mesquite and Peak resulted in consolidated gold production of 89,000 ounces and copper production of approximately 24 million pounds. Costs during the quarter were significantly lower than 2016 due to the combined benefit of improved operating performance at Peak and increase in byproduct revenues as well as lower sustaining capital. This decrease in all-in sustaining costs resulted in a record low for the metric and enabled our company to generate a very robust margin of $689 an ounce or 54%. In January, we indicated that we would actively evaluate cost savings opportunities to enhance our 2017 cash flow. I'm pleased to report that through the combination of business improvement initiatives, as well as capital savings and deferrals, we have identified a total of $15 million of cost reduction. In addition, we took further steps to enhance our cash flow certainty this year by fixing 44 million pounds of copper for the second half of 2017 at $2.73 per pound. The copper price benefit on these hedges relative to our guidance assumption provided an additional $10 million in byproduct revenues. Combining these benefits has enabled us to reduce our full year 2017 all-in sustaining cost guidance by $65 an ounce to $760 to $800 an ounce. In the first quarter, we generated $77 million of cash flow or $0.15 a share. We further increased our liquidity position by $230 million through an equity financing and the sale of our El Morro stream, finishing the quarter with $350 million in cash. Finally, at Rainy River, construction activity continues to move forward. After spending $126 million during the quarter, the project schedule and capital estimate are in line with the updated plans and start-up is targeted for September 2017.

Slide 5 provides a summary of our first quarter consolidated and mine-by-mine operating results. With our operations having a strong start to 2017, we are pleased to reiterate full year gold production guidance of 380,000 to 430,000 ounces. At New Afton, both gold and copper production decreased relative to the first quarter of 2016 due to a planned decrease in grade and recovery. New Afton's average mill throughput increased by 4% in the first quarter, which helped to partially offset the aforementioned decreases. Operating expenses increased during the quarter due to higher costs associated with processing more ore tonnes. All-in sustaining costs decreased in the quarter as the benefit of an increase in byproduct revenues and lower sustaining costs was only partially offset by the appreciation of the Canadian dollar. As a result of the cost saving initiatives and copper hedges solidified in the quarter, New Afton's full year all-in sustaining cost guidance has been reduced to negative $520 to negative $480 an ounce, representing a $240 an ounce reduction from the original guidance range.

At Mesquite, gold production increased in the quarter due to higher recoveries as ore tonnes mined and placed included less transitional material compared to 2016. Operating expenses increased in the quarter as no mining costs were capitalized, while Mesquite's all-in sustaining costs decreased primarily due to lower sustaining costs.

Peak had a strong start to the year. The 45% increase in gold production was due to mining and processing of higher grade material. Copper production also increased by 13%, benefiting from higher copper grades. Operating expenses for the quarter decreased due to higher gold sales volumes, and all-in sustaining costs also decreased due to the combined benefit of higher gold sales volumes and byproduct revenues, only being partially offset by the appreciation of the Australian dollar. Similar to New Afton, as a result of the cost saving initiatives solidified in the quarter, Peak's full year all-in sustaining cost guidance has been reduced to $975 to $1,015 an ounce, representing an $85 an ounce reduction from the original guidance range.

As planned, Cerro San Pedro's gold production decreased as the mine finished active mining late in the second quarter of 2016 and has now transitioned into residual leaching.

Slide 6 provides additional details on our financial results. Revenues during the quarter increased by 10% to $170 million, primarily due to higher metal prices. Despite the appreciation of the Canadian and Australian dollars, quarterly operating expenses remained consistent, leading to a 19% increase in operating margin. New Gold reported net earnings of $38 million or $0.07 per share. This included a $33 million pretax gain on the disposal of the El Morro stream, a noncash $6 million foreign exchange gain and a $14 million pretax loss on the revaluation of the company's gold price option contracts.

The company reported adjusted net earnings of $9 million or $0.02 per share. The increase in earnings relative to 2016 was primarily due to the increase in operating margin as well as a decrease in finance costs, which were only partially offset by an increase in income tax expense. Underpinned by our solid operating performance and record low quarterly costs, we generated quarterly cash flow of $77 million or $0.15 per share.

Slide 7 provides an overview of our liquidity position. During the first quarter, we increased our liquidity position by $230 million through our equity financing and the sale of our El Morro stream. At the end of the quarter, we had $350 million in cash and $177 million undrawn on our credit facility. This combination provides us with over $0.5 billion in liquidity, which exceeds the remaining Rainy River capital, even before taking into account the free cash flow that will be generated from our current operations.

Slide 8 provides key highlights of our progress at Rainy River. Mining activities have progressed well during the first quarter. I'm pleased to report that the mining rate average over 110,000 tonnes per day, which was in line with our updated plan. We will continue to see the rate increase leading up to the September start-up with our plans factoring in both planned productivity gains as well as the impact of changing weather conditions through the spring and then summer. Overall earthworks are approximately 70% complete and through March, over 800,000 cubic meters of construction material was placed at the starter tailings cell. The starter cell is scheduled to be completed in August. Construction of the water management pond is tracking in line with our updated plan and very late yesterday, we received approval to pump 1.4 million cubic meters into the pond for storage.

All of the key structural components of the process facilities have been completed. The team is setting mechanical equipment and installing piping, electrical and instrumentation services, which are now approximately 85% complete. The primary crusher and conveyor system are approximately 95% complete. Commissioning of the crusher commenced in March and we expect the first crush in early May. Commissioning of the ball and SAG mills should start during the second quarter. Dry and wet commissioning of the full process facility is scheduled for August, leaving 1 month before targeted first production.

As mentioned earlier, construction of the starter tailings cell is expected to be completed in August. This starter cell provides us with 6 months of tailings storage when operating at 100% mill capacity and does not require a Schedule 2 amendment. Based on recent discussions with Environment and Climate Change Canada, we now expect to receive the Schedule 2 amendment required to close 2 very small creeks within the broader tailings facility in January 2018. This compares to the previous guidance that was provided to us of September 2017. Importantly, the January 2018 timeline is based on a joint commitment from both the individuals handling our file as well as senior representatives in the minister's office. In addition, we are continuing to work collaboratively with Environment Canada to explore opportunities to allow for the completion of a thorough review in advance of January.

Given the lack of specifically prescribed timelines for Schedule 2, earlier this year, we began evaluating an alternative design approach to constructing the portion of the dams that intersect the 2 small creeks. The focus of the alternative approach was to both reduce the construction time required after receiving the Schedule 2 amendment and most importantly, to be able to complete the construction in the winter months. We are now completing the final engineering and are scheduled to meet the Ontario Ministry of Natural Resources and Forestry next week to review and discuss this design. Though the potential Schedule 2 delay is disappointing, based on the combination of the commitment to a January 2018 receipt of the Schedule 2 amendment and the successful implementation of this construction approach, we expect to be able to operate continuously once the starter cell is filled in spring of 2018. We continue to execute on our updated plan and look forward to updating you on our continued progress in the coming months.

At full production, Rainy River should enhance New Gold's growth significantly, producing an average of 325,000 ounces of gold annually at low cost.

In closing, Slide 9 highlights New Gold's investment thesis, which remains intact and directly supports our goal of long-term shareholder value creation. We are fortunate to have a portfolio that has 3 key characteristics: Our assets are low cost, our assets are in great jurisdictions and our assets provide us with significant growth opportunities. We firmly believe that by combining this portfolio with our focus on the long term, we are well positioned to extend our track record of value creation.

Thank you again for joining us today and for your continued support of New Gold. We look forward to providing you with updates on our operations and our progress at Rainy River. That concludes our presentation and now we would be happy to answer any of your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Rahul Paul of Canaccord Genuity.

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Rahul Paul, Canaccord Genuity Limited, Research Division - Director [2]

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So now that the Schedule 2 amendment is expected only by Jan 2018, you spoke of the different approach to construction that should reduce the construction time and some construction during the colder months. I'm wondering if you could talk about that in further detail, specifically on why you think this will let you complete the project quicker and in a possibly challenging weather conditions.

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Hannes Philip Portmann, New Gold Inc. - CEO and President [3]

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Sure, Rahul. The real key is using the sheet piling as the center of the dam constructions are perpendicular to where the creeks run. It enables us to use significantly less clay and clay is really the impediment when operating in the winter given the need to compact it. So by using less clay, it gives us the flexibility to work with it, to warm it up, to compact it efficiency. So that's the key difference versus our broader tailings dams, which have more substantial clay and thus are more seasonally driven.

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Rahul Paul, Canaccord Genuity Limited, Research Division - Director [4]

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And then, you mentioned that you'd require provincial and federal regulatory approvals for this? What's the approval process and timeline looks like?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [5]

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So Rahul, we -- on the provincial level, we will be working with the Ontario Ministry of Natural Resources and Forestry, which is the same group that we've worked with through the receipt of a whole number of our permits including the redesign of the tailings and the water management pond, et cetera. So as mentioned during the call, we will have a detailed review meeting with them next week, the first week of May, and then we will set out with them the timelines to complete the review. Effectively the permit we require is just because we are changing the construction methodology for a roughly 300-meter portion of the dam to incorporate this sheet piling method. At the federal level, we will be working both with Environment Canada as we talked about regarding just the overall timing of Schedule 2 because we still do need that in order to complete the dams. And then we'll also be in communication with the Department of Fisheries and Oceans as it relates to the timing of taking -- relocating the very small fish within these creeks to the compensatory fish habitat, which has already largely been completed.

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Rahul Paul, Canaccord Genuity Limited, Research Division - Director [6]

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And a clarification, would you need the Schedule 2 amendment to be approved first before the revised -- the different approach is approved? Or can both be done in 2 separate processes?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [7]

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No, 2 separate processes. So the Ontario Ministry of natural resources will be the focus of the new design. Schedule 2 is very specific to just the impacting of the fish-bearing creeks.

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Rahul Paul, Canaccord Genuity Limited, Research Division - Director [8]

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Fair enough. And then last question, as a fallback, are you able to do anything to increase the capacity of the starter dam? Or is this the maximum you could do within your current permit?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [9]

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Yes, Rahul, in terms of the starter dam, the 6 months when operating at full capacity, there is fairly limited flexibility to do more there.

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Operator [10]

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Your next question comes from the line of Mike Parkin of Desjardins.

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Michael Parkin, Desjardins Securities Inc., Research Division - Precious Metals Analyst [11]

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You answered most of the stuff I have on the tailings dam. I was just wondering, assuming that Schedule 2 amendment does come in, in January, when would you expect assuming that everything goes according to plan and the sheet piling alternative gets approved? When do you see having a full dam ready to go? Would it be May or June of next year?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [12]

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Well, we have the starter dam effectively through to April. So the intent would be to move to the next dam thereafter.

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Michael Parkin, Desjardins Securities Inc., Research Division - Precious Metals Analyst [13]

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Okay. And then on the cost savings that you've identified, do you feel -- some of it was kind of mentioned as some CapEx deferral? So is that full $15 million sustainable on a go-forward basis? Or is more of a short-term cost savings that improve your cash flow while you're finishing off Rainy River?

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Brian W. Penny, New Gold Inc. - CFO and EVP [14]

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Excellent question, Mike. It's Brian here. Simply speaking, there's $10 million of additional byproduct that was a significant contributor to the lower guidance for the full year as well as -- and then in addition, we have about $15 million that we indicated. But half of that is deferrals and half of that is savings in our operating costs that will continue over time. And the deferrals will probably -- half of that $15 million would be deferred into '18 and '19.

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Michael Parkin, Desjardins Securities Inc., Research Division - Precious Metals Analyst [15]

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Okay. And just on the cash G&A for the quarter, obviously there's been a bit of movement on your management side of things. But it's -- where should we kind of expect cash G&A to be on a go-forward basis?

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Brian W. Penny, New Gold Inc. - CFO and EVP [16]

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This quarter is a bit of an anomaly. As we had some significant management changes, we paid some costs associated with that. The run rate is more in line with historical numbers of $5 million to $5.5 million a quarter.

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Michael Parkin, Desjardins Securities Inc., Research Division - Precious Metals Analyst [17]

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Okay, and that's with stock-based comp or just cash?

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Brian W. Penny, New Gold Inc. - CFO and EVP [18]

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Stock-based comp is a separate line item that is -- it should track more in line with our run rate. However, during the quarter, we had a large mark-to-market reduction of some of our deferred comp. That's why the quarter is less than the run rate.

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Operator [19]

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Your next question comes from the line of Trevor Turnbull of the Bank of Nova Scotia.

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Trevor Turnbull, Scotiabank Global Banking and Markets, Research Division - Analyst [20]

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Maybe just first to follow-up on Mike's question about the deferred capital. It sounds like the amount that's truly deferred isn't related to operational savings. It's pretty small, but it's always kind of begs the question, why -- what exactly is in the deferral? Can you give a little bit of detail about exactly what gets deferred? It just makes me a bit nervous when I hear about things being deferred down the road. I'm wondering if that sets you up to get behind on underground development or something like that.

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Hannes Philip Portmann, New Gold Inc. - CEO and President [21]

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Yes, sure Trevor. And it's a very fair question. And, again, just to reiterate the quantum we're talking about is, sort of, $7 million to $8 million spread across the business. So we felt again, it was prudent to seek out those opportunities, again without introducing really any risk to the future. It is primarily associated with some of the underground developments at both New Afton and Peak. Those are areas that we feel that we have, in both cases, in the case of New Afton sufficient drawbell availability, et cetera to maintain our higher mining and mill throughput. And at Peak, as you saw from the first quarter results, we are benefiting from some very solid grade there. So from a tonnage perspective, it gave us a little bit of flexibility to take a few dollars out of the business. And again, this is an area where if we see higher metal prices, if our other operations continue to perform as strongly as they did in the first quarter, we can begin to give some of that back towards late '17 and then in certainly '18 and '19 as Brian responded earlier.

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Trevor Turnbull, Scotiabank Global Banking and Markets, Research Division - Analyst [22]

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Okay. And then my second question was going back to the Schedule A (sic) [Schedule 2] delays. You mentioned that there is a real commitment to the January 2018 approval date and I just wonder, if you can give us a bit of color. I mean, we -- you go back a year ago, we were looking at the first half of this year and then it kind of moved to the third quarter. And now we're looking at January and I'm also under the impression that the government kind of gets it and understands the importance of Rainy, but we certainly just aren't really seeing the evidence of that. And I'm wondering what gives you the confidence or maybe give us some background as to what the government is telling you in relation to why the slippage?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [23]

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Yes, sure, Trevor. I would say a few things in response. I definitely think the government gets it. I mean, from a capital investment standpoint in Northern Ontario, this is tremendously significant, the local employment, the First Nations employment. So the socioeconomic impacts of the project are very vast. So on that side, we're very confident. In terms of the slippage, I would say that we have continued to elevate the importance of this file and the receipt of Schedule 2 and the negative impact if this is further delayed up through the minister's office, Environment Canada specifically. And the reason for the heightened confidence in January, and again that's -- the January date is one that we will continue to try to bring back towards us as well. So that's sort of -- that's just where we've put the pin for now, but we will continue to work at it. It's really informed by the seniority of the representatives that we are speaking to in Environment Canada as well as the individuals handling our file. So it's both bottom-up and top-down that we're getting that January guidance, which gives us heightened confidence. In terms of the, I'll say, slippage or delay from September to January, that is one that we weren't provided a tremendous amount of clarity around. We were told that, that's just what the process and the review timelines look like. So I wish I had more tangible reasons for that, but that was what we were told.

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Operator [24]

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Your next question comes from the line of David Haughton of CIBC.

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David Haughton, CIBC World Markets Inc., Research Division - Research Analyst [25]

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Got 2 questions. Just with this sheet piling, so that I can visualize this. Are you looking at putting like a sheet piling wall on either side of these creeks in question of section 2, so effectively quarantining those creeks from the rest of the enclosure within the tailings dam?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [26]

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Not quite, David. So I wish I could draw through the phone, but that's difficult. Effectively, we build the dams up to -- and leave a gap of about 300 meters, which is where the creek runs through, where our dams would ultimately cross perpendicularly. The sheet pile goes vertically into the ground and acts as the center of the dam and again, runs perpendicular to the direction of the creek. So it's more of a wall, if you will, that goes in the center of the dam and then you put a thinner layer of clay on either side of that and then ultimately all of the rock that gives you the overall 11:1 slopes.

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David Haughton, CIBC World Markets Inc., Research Division - Research Analyst [27]

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All right. Okay. So that sheet dam then forms the core of the outer wall? Is that what you're suggesting?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [28]

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The inner wall.

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David Haughton, CIBC World Markets Inc., Research Division - Research Analyst [29]

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Oh the inner wall, okay.

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Hannes Philip Portmann, New Gold Inc. - CEO and President [30]

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Yes, the centerline.

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David Haughton, CIBC World Markets Inc., Research Division - Research Analyst [31]

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Yes. Now over to the material handling, you're doing a lot of rock movement at 110,000 tonnes a day, stepping up to 120,000 tonnes a day. I presume most of that is waste. Have you touched any ore at this stage?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [32]

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Very limited, David. Like I would say, so limited that it's not really significant. We are focused on getting those overburden layers off and then moving the waste rock and then opening up the orebody more as we head into the summer months and into September.

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David Haughton, CIBC World Markets Inc., Research Division - Research Analyst [33]

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So as we move towards the commercial start-up in November, what sort of stockpile would you anticipate to have built of ore ahead of your commercial production?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [34]

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We anticipate having about 0.5 million tonnes.

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David Haughton, CIBC World Markets Inc., Research Division - Research Analyst [35]

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And would that 0.5 million tonnes...

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Hannes Philip Portmann, New Gold Inc. - CEO and President [36]

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Yes.

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David Haughton, CIBC World Markets Inc., Research Division - Research Analyst [37]

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And would that be kind of indicative of the ore grade that you've got of about the 1.2 kind of level or would it be lower grade material? What's (inaudible)

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Hannes Philip Portmann, New Gold Inc. - CEO and President [38]

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We would be starting up -- the very first ore that will be go through will be a bit lower grade intentionally and then as we ramp up towards the end of the year and into next year we'll be into that, I'll say, run rate grade for the first few years of the 1.4 gram material.

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David Haughton, CIBC World Markets Inc., Research Division - Research Analyst [39]

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Okay, because 0.5 million tonnes doesn't really give you a lot of buffer there. I presume that as you're going through time, you will have an excess of mine rate compared to production rate, so that the stockpile will build up to a more healthy level through time.

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Hannes Philip Portmann, New Gold Inc. - CEO and President [40]

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Yes, I mean, the 0.5 million tonnes equates to about 24 days at the full 21,000 tonnes per day. So you're right. That's the starting point. But as you can see, we're mining now with long hauls to the tailings facility, 110,000 tonnes per day, as you articulated going to 120,000 tonnes. When we're up and running, we'll be doing much shorter hauls either to the crusher or to the waste stockpiles at 21,000 tonnes a day of targeted ore even with a 4:1 strip, you end up at a little over 100,000 tonnes. But we'll be mining much more than that, so we can begin to build that stockpile.

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David Haughton, CIBC World Markets Inc., Research Division - Research Analyst [41]

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Right. And at this stage, it's still comfortable, once it gets up and running that the mining rate and the processing rate that we've been picking up from the technical report, you're happy with that or are there any modifications that you'd anticipate given what you've learned so far?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [42]

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No, we are happy with that.

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Operator [43]

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Your next question comes from the line of Mark Mihaljevic of RBC Capital markets. Please go ahead.

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Mark Mihaljevic, RBC Capital Markets, LLC, Research Division - Senior Associate [44]

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I guess a lot of the question have already been asked on the tailings. But just a couple of quick follow-ups to that. I was just wondering what type of incremental capital do you see from the redesign that you'll be doing to accommodate the new timeline.

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Hannes Philip Portmann, New Gold Inc. - CEO and President [45]

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Yes, Mark. It's -- as I mentioned during the call itself, we are just in the final stages of completing all of the engineering. So this number, I don't want to have treated as refined, but we expect it to be less than $5 million.

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Mark Mihaljevic, RBC Capital Markets, LLC, Research Division - Senior Associate [46]

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It's good. And then, how much capital do you think might be deferred from what you're expecting to spend during 2017 into 2018 given the construction timeline on the tailings?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [47]

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Well, the deferred capital number for '18 from a tailings perspective might be in the $30 million range.

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Mark Mihaljevic, RBC Capital Markets, LLC, Research Division - Senior Associate [48]

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Okay. And shifting gears a little. Obviously, Peak, you've had some pretty spectacular grades coming through. I was just wondering what you see coming out of there over the next few quarters? Again, obviously, the fact that you've been willing to scale back the developments as that you're relatively comfortable that you should be in some pretty good grade going forward?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [49]

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Yes, Mark, I think with that Chronos discovery that we had at Peak that has very, very high gold grade, the individual quarters can be quite impacted by even a small portion of tonnage coming from that orebody. I think maybe what informs the response is, we did not adjust our Peak gold production guidance. So we wouldn't necessarily expect to have maybe as robust a next 3 quarters as we did in the first quarter, just as a function of getting that higher grade in the first quarter. But we expect Peak to have a very solid year as it has done in the last few years.

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Operator [50]

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Your next question comes from the line of Steven Butler of GMP securities.

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Steven Howard Butler, GMP Securities L.P., Research Division - MD, Institutional Research [51]

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Ray, maybe a question for you, I guess on the throughput -- excuse me, the mining rate out of the Rainy River operation. So 120,000 tonnes per day is where you need to be over the next several months to get there by September or November. Where did you exit on mining rate in the end of the first quarter because I think January was 100,000 tonnes per day and you did 110,000 tonnes for the quarter. So I assume you're exiting Q1 on a fairly decent run rate, maybe if you could share that with us.

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Raymond Wesley Threlkeld, New Gold Inc. - Interim COO and Non-Independent Director [52]

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Yes, the exit run rate was in that 110,000 tonnes range.

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Raymond Wesley Threlkeld, New Gold Inc. - Interim COO and Non-Independent Director [53]

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A little bit higher.

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Steven Howard Butler, GMP Securities L.P., Research Division - MD, Institutional Research [54]

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To end the quarter?

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Raymond Wesley Threlkeld, New Gold Inc. - Interim COO and Non-Independent Director [55]

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Yes, we were probably closer to 120,000 tonnes.

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Steven Howard Butler, GMP Securities L.P., Research Division - MD, Institutional Research [56]

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Okay, closer to 120,000 tonnes. So -- and you alluded to -- is that -- how is April looking so far?

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Raymond Wesley Threlkeld, New Gold Inc. - Interim COO and Non-Independent Director [57]

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April has been a down month, and it always was planned to be a down month because of the runoff and the water. And since we've received the permit for getting water into the mine rock pond -- excuse me, the water management pond. That water level is dropping considerably, so that our rock production will definitely increase.

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Steven Howard Butler, GMP Securities L.P., Research Division - MD, Institutional Research [58]

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Have you got all the contractors at site that you plan to add into the mix?

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Raymond Wesley Threlkeld, New Gold Inc. - Interim COO and Non-Independent Director [59]

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Yes, we do. In fact, there's a couple of contracts coming up that will be completed very shortly and so we'll start losing contractors.

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Steven Howard Butler, GMP Securities L.P., Research Division - MD, Institutional Research [60]

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Ray, you talked about the water management pond being commissioned. You talked about the -- in addition the additional construction rock source. Then you talked about other operational improvements in the mining and maintenance areas. Can you allude to or just maybe glance on a couple of these other things that are helping to improve your confidence in the 120 rate?

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Raymond Wesley Threlkeld, New Gold Inc. - Interim COO and Non-Independent Director [61]

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Yes. We've got a continuous improvement in our business improvement initiative on site with all of the people. We have 5 people there that are looking and outlining programs in which to increase efficiencies. So we've developed a plan to our utilization of equipment, our maintenance of equipment will show much greater availability than we have had in the past. So as those rates come up over the next few months, those efficiencies will add to just much more increased production.

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Steven Howard Butler, GMP Securities L.P., Research Division - MD, Institutional Research [62]

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How low is the availability -- have you seen improvements yet in the availability of equipment?

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Raymond Wesley Threlkeld, New Gold Inc. - Interim COO and Non-Independent Director [63]

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We've gone -- we've had months in the mid-80s and then we have some issues with the maintenance and they've been down in the 70s. So we now have a program in place to have that maintenance schedules increased to have increased availability of that equipment and so will be up into the mid-80s here probably in 2 to 3 months at the most.

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Operator [64]

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(Operator Instructions) Your next question comes from the line of Anita Soni of Crédit Suisse.

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Anita Soni, Crédit Suisse AG, Research Division - Research Analyst [65]

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I just wanted to get an understanding of the amount of material that needs to be placed in 2018 to build the tailings dam?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [66]

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In terms of cubic meters of construction rock, I don't have that number handy. But I will get that back to you, but as mentioned earlier, there is probably in the range of $30 million of tailings-related construction in 2018.

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Anita Soni, Crédit Suisse AG, Research Division - Research Analyst [67]

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So what, $3 a tonne kind of thing?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [68]

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Yes. I mean, I guess, that's a reasonable proxy.

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Anita Soni, Crédit Suisse AG, Research Division - Research Analyst [69]

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Okay. And then just in terms of the design with the sheet pile. So can you just back up to when you first started to design this and who did the construction of that? And has the ministry -- have you have had any discussions about this design with the sheet pile?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [70]

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Yes. So I guess to break the question into its parts. We began evaluating the construction early this year, so January. We are working with our engineering teams in conjunction with AMEC on that design and yes, we have had preliminary discussions about the concept, et cetera, with the MNRF and they are favorably disposed to it as a concept. Obviously, they want to see the design, the factors, the safety, et cetera. And as I mentioned earlier, that meeting to go through the final engineering and design is taking place next week.

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Anita Soni, Crédit Suisse AG, Research Division - Research Analyst [71]

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All right. And then just to -- I mean, further to David's question, I guess, just to visualize. You talked sort of like about the layout of it. But from a cross-section standpoint, the sheet pile, are you basically -- I mean, normally you use sheet piling where you have some solid kind of foundation for it to be embedded in. I'm just wondering -- below that slick inside the clay layer, which appears or maybe doesn't appear in this area where you're going to put the sheet piling. How much sort of competent soil do you have before you hit bedrock?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [72]

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Yes. So I'd say more clay slick inside-ish material will get stripped off first. And then ultimately, the sheet pile will be the last piece to go in once the center clay portion is built, all the rock -- the 11:1 rock slopes are built outside, then you drive the sheet pile down in it and it will be somewhere between 5 and 10 meters into the ground and then about 10 meters high consistent with the height of the first lift of the dam.

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Anita Soni, Crédit Suisse AG, Research Division - Research Analyst [73]

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So the sheet pile goes in after the dam is constructed in substitute for clay core, I guess?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [74]

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In addition to a thinner clay core is maybe the best way to think about it, Anita. There's still clay, but it's more just on either side of where the sheet pile will be driven down.

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Anita Soni, Crédit Suisse AG, Research Division - Research Analyst [75]

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All right. And then just 1 last question. In terms of -- with respect to the deferred capital. This -- I mean, obviously, if you're deferring some capital from this year into next to be building it, did you revise your capital estimate for this year or not downwards, I mean, to accommodate for the fact that you're now pushing that tailings construction into 2018?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [76]

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Yes. No that, Anita, has always been included in the capital plans for next year. I assume you're speaking about Rainy River.

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Anita Soni, Crédit Suisse AG, Research Division - Research Analyst [77]

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Yes, I'm speaking about Rainy River. So I'm just -- I'm basically saying, was there not supposed to be any sort of construction in 2017 for the tailings -- for the full tailings dam in 2017?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [78]

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No, there was none.

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Operator [79]

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There are no further questions at this time. I'll turn the call back over to the presenters.

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Hannes Philip Portmann, New Gold Inc. - CEO and President [80]

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Thank you very much operator. And to all of you who have joined us today, thank you again. As always, should you have any additional questions, please do not hesitate to reach out to us by phone or e-mail. Have a good day.

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Julie Taylor, [81]

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There is a question over the webcast.

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Hannes Philip Portmann, New Gold Inc. - CEO and President [82]

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Sure. We are happy to take the question over the webcast.

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Julie Taylor, [83]

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And I have a question here for you. If Rainy River successfully ramps up (inaudible), will you move forward with Blackwater in 2018? Would you prefer to consolidate operations and pay down debt on further evaluating Blackwater?

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Hannes Philip Portmann, New Gold Inc. - CEO and President [84]

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Thanks for the question from the web. Once Rainy River ramps up, certainly one of the priorities will be to address and reduce the debt and the leverage of the business. Having said that, at current metal prices, we will be generating fairly significant amount of cash flow. So I think, we can do a number of different things, so we can address the debt as well as beginning to advance Blackwater to look at opportunities to optimize that project. Clearly, we won't be in full construction in 2018 at Blackwater. But there are other avenues to begin to move it forward.

Again, thank you everyone for your time this morning. And we look forward to speaking to you soon.

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Operator [85]

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This concludes today's conference call. You may now disconnect.