New Gold Inc. (NGD, Financial) jumped 2.14% to $2.39 on Friday after the release of financial results for the first quarter.
Investors may want to consider this stock to gain exposure to the metal since the mining company is going to benefit from a 30% growth in gold production. The Rainy River mine in Ontario is ramping up in its first year of full production.
CEO Hannes Portmann said operational and financial results in the remaining three quarters of 2018 will be strongly impacted by increases in production volume, ore grade and recovery rates expected at Rainy River.
With its report, New Gold reaffirms a gold output. At 525,000 ounces and 595,000 ounces range, it represents a robust upside from a 2017 level of 430,864 ounces. The all-in sustain cost (AISC) is guided by the company to range between $860 and $900 per ounce.
New Gold is not just gold. The yellow metal makes up 70% of its total revenues while copper makes up 30%. Production from Rainy River plus the divestment of Peak Mines, Australian deposits of gold, silver and copper, for $58 million, will increase New Gold commitment in the yellow metal business.
The other assets of the company are Mesquite gold mine in U.S., Cerro San Pedro gold and silver mine in Mexico and New Afton gold, silver and copper mine in Canada.
As of April 2018, analysts tagged Rainy River and New Gold’s plan to enhance the company’s financial flexibility with a target price of $4.01 per share. That is a mean of 13 estimates ranging $2.85 to $5.00 per share, which represents a nearly 70% growth from current market valuations.
Gaining exposure to the metal in New Gold is still an option because the stock in the miner is yet to be overvalued, according to the below chart powered by GuruFocus.
New Gold is still underneath the 50 SMA line and abundantly below the 200 and 100 SMA lines. The current share price is only $17 cents off the 52-weeks low of $2.22 per share. While at $4.25 per share, the 52-weeks high is at nearly 80% distance from the current market price.
Let’s have a look at some figures on the first three months of fiscal 2018:
The Toronto-based intermediate gold mining company with operations in North America and Mexico, produced 96,882 ounces of gold versus an output of 60,980 ounces in the comparable of 2017. The production of copper was 22.2 million pounds, about 1.7 million pounds higher than first-quarter 2017, while 0.2 million ounces of silver were milked from the company’s reserves during the quarter. The production of the grey metal was flat on a year over year basis.
Because of higher output, the company sold more metal on a year over year basis at a gold price of $1,306 per ounce (up 5.5% from the prior-year quarter), at a copper price of $3.14 per pound (up 22.2% from the comparable of 2017) and at a silver price of $16.61 per ounce (down 5.9% year over year).
The chart below illustrates the trend in gold, copper and silver production and sales volume over the last five first quarters.
With $193.2 million, New Gold invoiced more metal customers in the first quarter of 2018 compared to the same quarter a year ago, however, the 55.2% revenue growth didn’t enable the miner to beat consensus. Analysts were for a quarterly revenue of $217.21 million on average.
Due to higher operating expenses, depreciation and depletion charges, and finance costs, first quarter 2018 economics dropped from the top line an adjusted loss of 3 cents per share. An improvement of 13.8 basis points in the operating margin to 75.9% together with lower income tax expenses and exploration, business development, and corporate general and administrative expenses, was not enough to counterbalance the negative effect from the aforementioned factors.Ă‚
A higher operating margin and lower expense lead to a 37% year-over-year growth in the operating cash flow to $67 million in the quarter.
In addition, New Gold reported that “at March 31, 2018, the company's liquidity totals $225 million (cash and undrawn credit facility).” The company says that its liquidity position will further improve on the heels of the sale of Peak Mines and expected free cash flow.
(Disclosure: I have no positions in any stock mentioned in this article.)
