New Gold’s Q1 Results Are Not A Disaster, But They Won’t Be Able To Push The Share Price Notably Higher

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New Gold’s Q1 Results Are Not A Disaster, But…

According to the Q1 financial results, New Gold Inc. (NGD) seems to be on track to meet its 2019 production guidance. However, the Q1 results were saved by the New Afton mine once again, as the Rainy River mine had to face some issues – once again. However, this time the issues were only weather-related and temporary.

In Q1 2019, the Rainy River mine produced 61,557 toz gold (chart below). It is a notable 20% drop in comparison to 77,202 toz gold produced in Q4 2018. The steep decline was caused not only by the lower ore gold grades (1.19 g/t gold vs. 1.42 g/t gold), but also by the lower mill throughput rate that declined to 19,725 tpd. However, this time the issues were caused by external forces:

Mill throughput for the quarter averaged 19,725 tonnes per day, below the annual target of 22,000 to 24,000 tonnes per day. The lower average mill throughput was negatively impacted by the significant buildup of ice in the crushed ore stockpile above the apron feeders. Average mill throughput returned to target levels at the end of the quarter.

What is positive is gold recoveries have improved again, reaching the 90% level. Moreover, the mill availability set a new record, 89%, in Q1, and it climbed even to 95% in March.




(Source: Own processing, using data of New Gold)

Rainy River’s gold equivalent production equaled 62,278 toz gold in Q1. After annualizing the gold and gold equivalent production data, it seems like the 2019 production guidance of 250,000-275,000 toz of gold equivalent and 245,000-270,000 toz of gold should be missed slightly. However, the lag is not too big, and it is possible to expect that it will be closed over the remaining three quarters. Rainy River’s total cash costs equaled $801/toz of gold equivalent, which is well below the overall 2019 guidance of $870-950/toz of gold equivalent. The AISC equaled $1,330/toz of gold equivalent, which compares very favorably to the guidance of $1,690-1,790/toz of gold equivalent. However, this situation will worsen rapidly in the following quarters, as the sustaining CAPEX will increase significantly. The 2019 sustaining CAPEX is projected at $210-230 million, which equals to $52.5-57.5 million per year on average. In Q1, the sustaining CAPEX equaled only $36.6 million.

While Rainy River operated slightly below expectations, New Afton did very well, producing 17,841 toz gold and 19.5 million lb copper, or 60,986 toz of gold equivalent. It means that the mine seems to be on track to reach the upper border of the 2019 production guidance of 215,000-245,000 toz of gold equivalent. New Afton’s total cash cost was only $578/toz of gold equivalent, which is less than the 2019 guidance of $600-640/toz of gold equivalent. The AISC equaled $714/toz of gold equivalent, which is well below the projected range of $810-890/toz of gold equivalent. Similar to Rainy River, also at New Afton the Q1 sustaining CAPEX was much lower than 25% of the projected overall 2019 sustaining CAPEX. It means that in the coming quarters, the New Afton AISC should also climb to higher levels.




(Source: New Gold)

New Gold’s total Q1 2019 production equaled 79,398 toz gold and 19.5 million lb copper, or 123,263 toz of gold equivalent. The AISC equaled $1,083/toz of gold equivalent. At a realized gold price of $1,301/toz and copper price of $2.79/lb, the company generated revenues of $167.9 million. Operating cash flow equaled $0.13 per share ($0.12 – adjusted) and net earnings equaled -$0.02 per share ($0 – adjusted). The cash balance equaled $132.2 million as of the end of Q1.

New Gold also provided some information about exploration programs at Rainy River and New Afton. The first one will consist of 15 drill holes totaling 7,500 meters, and it will focus on the exploration targets near the Rainy River mine. The drilling should start in May. The second program is already underway. It consists of 10 holes totaling 8,000 meters and is focused on the area named D-zone that is located below the New Afton mine C-zone. Moreover, a New Afton regional drill campaign will include a further 7,500 meters that will test the Cherry Creek Trend. This drilling should start in late Q3.

Chart


Data by YCharts

Conclusion

As can be seen in the chart above, New Gold shares experienced a significant price decline last year due to the Rainy River mine underperformance. In early 2019, the positive news regarding the Rainy River mine Q4 2018 performance helped to push the share price to the $1.2-1.3 range. However, in February, New Gold announced the 2019 production and cost guidance that included huge Rainy River sustaining CAPEX and the rally was over. New Gold share price declined back below $0.9. Although the positive operational results pushed the share price up to the $1 level again, this psychological barrier wasn’t broken and the share price declined back below $0.9. Although the Q1 financial results are not a disaster, they will hardly be able to push the share price higher. There doesn’t seem to be any reason to expect a strong and sustainable uptrend in the near future, barring a strong gold price growth or a great exploration success.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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