New Gold Inc

TSX:NGD

Good morning. My name is [ Chester, ] and I will be your conference operator today. Welcome to the New Gold's First Quarter 2025 Earnings Call and Webcast. [Operator Instructions] Please be advised that today's conference call and webcast is being recorded. [Operator Instructions]

I would now like to hand the conference over to Ankit Shah, Executive Vice President of Strategy and Business Development.

Thank you.

Thank you, operator, and 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, 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 forward-looking statements found on Slide 2 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 2 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 4 highlights some of the key accomplishments during the first quarter of 2025. Over the first 4 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 3 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 to 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 tonnes per day by early 2026. At Rainy River, the first 4 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. And 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 5 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 5-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 2 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 5 years.

With that, I will now turn the call over to Keith.

Thank you, Ankit.

I'm on Slide 7, 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 2024 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 a focus on waste stripping to set up the open pit for low strip, high ore extraction for the balance of Phase 4. 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 primarily related to C-Zone underground mine development in Cape construction. At Rainy River, sustaining capital primarily related to capitalized waste, tailings dam raise and capital components, while growth capital related to underground development of underground Main and Intrepid. Turning to the assets, starting with New Afton on Slide 8. New Afton delivered another strong quarter. The B3 cave performed better than planned and C-zone ore production continued its ramp up following commercial production and crusher commissioning early in the fourth quarter of 2024.

First quarter production represented approximately 28% and 25% of the midpoint of guidance of 60,000 to 70,000 ounces of gold and 50 million to 60 million 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 9. 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 to 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 4 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 continue 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 5-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 4 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. 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 Pat.

Thanks, Keith.

Slide 13 reiterates our 3 years outlook. We expect continued significant growth in gold and copper production over the next 3 years. With the increase in production, unit cost per ounces of gold are expected to be reduced significantly. Softening in growth capital costs are expected to taper off over the next 3 years. This is primarily 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 3 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 USD 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 day and we'll have 4 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-mine targets. During the quarter, we also continued to advance technical studies on potential new mining zone not currently included in our 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 drilling has the potential of presenting open pit reserve in the short term and still show growth opportunities. Exploration drilling also targeted the down-plunge extension of ODM Main from surface as part of the company's strategy to explore for additional high-grade underground production.

This year's program at North West trend includes a combination of diamond drilling to test the down-dip extension of the current zone and RC drilling to infill and drove the zone along strike, spending up exploration -- speeding up exploration, sorry, and saving on costs. We continued our work in open pit expansion -- mining potential pushback [indiscernible]. Additional studies on underground mine design and optimization as well as tailings storage also continued 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 employee for the courage to care future. At New Afton, we will ramp up C-Zone and advance the development of this extension. At Rainy River, we'll continue to ramp up the underground mine, mining Phase 4 and advanced Phase 5 open pit development. Lastly, we are continuing to increase our exploration effort at both sides 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 community cycle. Combine that with our safe, well-established mining jurisdiction and exposure to what we view as preferred metal in gold and copper and New Gold offers a compelling investment opportunity.

The remainder of 2025 will see the company built on first quarter results, 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 of 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.

This completes our presentation. I will now turn it back to the operator for the Q&A portion of the call.

Operator?

Your first question comes from Michael Siperco from RBC Capital Market.

Maybe starting with the New Afton exploration update that you provided. And in the context of the -- a 2-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 K-Zone and the potential next block cave?

And 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, a study? How are you mapping that out over the next little while?

I think -- the first question, we consider Teachers as a partner. And the way that I think we start to know each other, Mike, the way that I'm working, I'm not out pregnant, I'm working and I'm fully engaged. And so we -- the objective will not change to bring the mine life of New Afton beyond 2040. So our investment where -- so 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 we'll continue to be aggressive.

Key zone for us is the potential to -- we want -- our objective is to find another C-zone there. Jean-Francois with the team at site is working extremely hard for this. The drift is going as expected. We need to have 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 we -- originally, we plan to have 3 drills in the drift. We're going to push to 5 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. So I hope that is before year-end, we'll be able to disclose a few of the discovery if we have. But it's -- we still have a lot of potential on our property, and we want to maximize that. And we will provide an exploration update probably at the end of Q3. It's mostly we're targeting that for September.

So would it be -- 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?

Depending on our success, it's what we are -- we will contemplate, yes. We're also having involved where we have indicated -- we're also, I think, involved with something that we don't want to park. It's on the -- it's just behind the upper lift that we mined between 2012 and 2022. We have indicated resources [indiscernible]. So we want to -- the main objective for the team is for Jean-Francois and Luke is to look at -- 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 [ NAV. ] But if we put the 3 and we align them one after the other, what is the good order to generate the maximum NAV and reduce the capital allocation to make sure that -- because one of the objective -- personal objective that it's our objective that we have is to be to continuously generate cash flow at New Afton.

And 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 NAV for shareholders. So I think for now, as Jean-Francois and the team are 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. And consequently, I think we can easily bring this mine beyond 2040.

We target resource update for the end of this year. So 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 work to have studies for 2026.

Okay. Makes sense. And then 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% to 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?

I think the first thing is what we control is our organic growth. That's something that we -- so we cannot control what is in the ground with exploration. But I think is we have -- we control our own destiny through if we develop our resources and develop our assets. So it's what we can control, and it's where we are investing the majority of our effort and capital allocation in terms of organic growth.

For M&A, 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. And so -- and we are prudent in our approach, and our focus is to increase value per share, and it's mainly what displays our action here.

The next question comes from Lawson Winder from Bank of America.

Thinking of Rainy River and the future there. So 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? And then in thinking of that, what are your options for tailings?

Yes. So I think we -- Luke and I, we can answer to this. But the new is that we're -- we're 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 ounces 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.

So we -- for the 42-101 that we present to the market in the beginning of Q1 of this year, the tailings storage facility is close to its maximum capacity. So we have all the infrastructure that we -- all the production profile that we present in the technical report is -- will be stored in the tailings storage facility, but we are close to the maximum capacity. So we are looking at different possibility to reduce the CapEx that we will have to invest in tailings storage facility if we want to do the pushback. And it's all this balance that Luke is working on. Do you want to add something?

No, I think that covered 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. And if that works out, then that also provides an extra opportunity for in-pit tailings in the future as well. So we're looking at lots of different scenarios and different options at the moment.

Yes, you're right. It's -- 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. So we want to maximize that as much as we can. And also for the first time this year, we are investing Jean-Francois is looking for targets on our land package at Rainy River.

So with the vision that if we -- our vision is that 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. So if we can find another pit and we have -- 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're 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.

Intriguing. Yes, looking forward to hearing more about that. 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? And then when you think of jurisdiction, I mean, are you primarily focused on Canada? You mentioned the Americas in the past, but maybe you could just elaborate on what your thinking is in terms of jurisdiction as well.

Well you know is -- so because we're not -- we're a company with 2 assets actually, we are pretty agile. We have a head of this that is not necessarily I would say, extremely fast, we are modest. We have experience in the Americas. So basically, it's something that if we have to look back, it's something that we will -- we are -- to be opportunistic, we're looking at. But it's difficult to find a project that is perfect.

We have expertise in open pit. We have expertise in underground. We have myself, I built 2 mines and 2 companies from scratch, but it was prior. So today, it's a bit different. We have the capital risk, it is different. But in terms of -- it's difficult to be precise on this. And so -- and 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 the project and to -- in the government where we are looking -- we are doing business is calling back the permits. We cannot afford that.

And also, for me, personally, the security of my people is the most important thing. And I just -- I don't want to compromise the security of people we are doing work. So maybe it guides -- we know where we want to play, and I think it's where we're looking at.

Now just the other part of my question was kind of project versus operating mine. Is there a strong preference between the 2?

I think the perfect is becoming small. So it's -- my preference will be to have a mine that is operating with cash flow and subsequently to build something. But we'll have to see. Again, we want also -- our company is -- we add to my predecessor. They did an amazing work to readdress the balance sheet of this company, and I don't want to get back in the same position. That's why we want to be presenting that. So -- but if we can, the priority will be to add to both to our 2 assets, an asset that is in production that is generating cash and subsequently is to build something. But...

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

And for the next question, we have here Eric Winmill from Scotiabank.

Just New Afton, I wonder if you could elaborate a little bit. So you're doing the flow 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 we should be looking for there. If you could please remind us on the CapEx? And then 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?

Yes. So we -- we have a few questions, Eric. I'll try to -- if I'm missing some points, you let me know. So on CapEx, we're bang on. So I think what we present in the technical report, what we present to you in the guidance, we are -- so we -- what we are doing our forecast for year-end, we are bang on. We are progressing extremely well in -- because this year, we have -- in the capital allocation is for the stabilization of the tailings, we are a year in advance. And when we did the dosimetry of the tailings storage facility, we have 20% less water than expected. So we are really well positioned to stabilize that more than a year in advance. So we are really satisfied.

We have an investment in the mill that will increase the recovery in our concentrate that is just replace flotation cells. It's going extremely well. We are bang on time and slightly under budget. And for underground, we are exactly where we want to be in terms of the progression of the construction of the cave. So we are 53% progression in the cave. We expect to be at 94% at year-end. So we're still having a few draw mills to build in Q1 2026 as planned. And actually, we are bang on in terms of CapEx. So 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.

So it was excellent. And also it's the progression it helped because we had -- we slowed down the progression of C-zone to go forward with the D-zone because we have more tonnes to extract. And also the progression of C-zone is as planned and will reach slightly more -- so -- and in terms of tonne that we will convey. So we're still expecting to be at 60 tonnes per day by the end of this year. And we have -- we'll do the exploration update that is a major milestone at New Afton in Q3. We'll have our new reserve at the end -- at the beginning of Q4. And so I think it's the major milestone that we're going to have there this year.

So the mine is -- we're really pleased. It's performing as expected, if not better than expected, mainly at B3. So -- and we'll complete the extraction of B3 in Q2 -- in this quarter, in Q2 2025.

And Eric, it's Keith on supply chain. We're not really seeing a material impact right now. And there's a relatively small portion of our cost profile that comes from the U.S. 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 or anything like that. So a little bit, but not much impact at the moment.

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

Eric, it's Luke here. So we just finished a major shutdown in the plant at New Afton this month, which is planned. So as part of that, we completed the bypass of the third stage of cleaners. So that's put us in position to complete the project in Q3 without any major delays or interruption to the operation. So that's the really major milestone which was just completed. And the fabrication of the actual [indiscernible]. That's everything is on track there.

And for our next question, that would be for Jeremy Hoy from Canaccord Genuity.

Welcome to Travis. Just 2 questions from me. You guys completed a milestone at Rainy River in the underground development as 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? And 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.

Just for maybe the first point for Rainy River, the fresh air raise, the excavation, the raise boring is completed -- was completed last year. The raise is cast for now. And -- but we -- I think we're close to receive all the components and our objective is to commission that during mid-June and to be fully operational for the end of June. So I think it's going to be in Q2. That's an important milestone for us.

And in the vent loop, I think we're still having 170 meters of development to complete. We are ramping up, and we are -- we have -- we're working for both sides, the decline, and we're ramping up, and we plan to complete the vent loop for again in Q2 this quarter. So basically, there's 2 major milestones and a lot of possibility to speed up the development. So the portal, we are using the portal actually, we [indiscernible] the material for the waste from the development to the pit, and we rebuild that from the pit to the storage facility.

And then Jeremy, with the grades, yes, as we said, we continue to see the B3 cave progress well. As I said, we expect that to be completed and exhausted in Q2. And then we'll be in that transition period between C-zone and B3 grade. So we do expect the production profile to be aligned with what we guided previously.

Jeremy is on the grade and the block cave is we simulate that. We're using sophisticated software, we call that [ PCBC ] to do the model of the grade. And at the end of the block cave, usually, you have more dilution because you are -- you have less material in the stope and the dilution is coming from the wall. So we plan for the worst, and we wish for the best. And in this situation, we got the best because we had less dilution. So the grade is higher than expected. It's mainly what is happening here.

Yes. Well, it was a nice little surprise for the quarter.

Sometimes it's good to have some positive...

Yes, absolutely. I'm in agreement there. And if you can't find any assets on Amazon, maybe you can look at -- prices are cheaper there as well.

And for our next question, that would be from Mohamed Sidibe.

So just to follow up on Jeremy's question, I guess, at New Afton and the grades. I just wanted to focus maybe on the split. So 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?

Yes. As I said, the Q2 with the B3 coming off and the C-zone ramping up, there is that kind of transition point with the caves and with the start-up of the C-zone cave, we did expect -- we do expect that to be lower grade. So yes, we're still in line with that production profile that we outlined at the start of the year.

And also on 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. So with the lower part and also, we have some drawbells are in waste and the ore is over and above. So it's planned. So in 2025, we will process more tonnes 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, and it's what is in the plan. It's what we forecast.

Great. That's pretty helpful. And just the second question on the capital allocation priority. I think our analyst already touched on the M&A front. But I was just wondering if as part of -- as you look over the next 3 years and the amount of free cash flow you'll be generating, if there is any thinking around maybe potential capital returns to shareholders or that's really not top of mind currently?

It's something that -- so we are working on that. So for now, for sure, for this year, we have to -- so just the buyback of the 19.9%, we didn't want to dilute our shareholders. It was our strategy. So yes, we have the prepay and we have the revolver that we want to refill for year-end as much as possible. And we want also to maintain a minimum of cash in -- based on what happened with COVID, COVID can be happen or it's mining. So we want to make sure that we have sufficient capital. I'm not talking to add $1 billion, but was $150 million in cash in the bank account to react appropriately to what we have to face and to be opportunistic.

And after that, if the projects are not -- so we have our project that we want to support if they are proving value for shareholders. If not, for sure, if we have -- we'll have to return the money to the shareholders. It's 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. And so it's why we're working for. And so we will probably look at this in the medium term for sure.

And since there are no further questions at this time, I'll be transferring the conference again to Mr. Ankit Shah. Please continue.

Thank you, and 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 e-mail. Have a great rest of your day.

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