In a series of recent articles we investigated the country risk of various mining jurisdictions in which US-listed precious metal miners are active. We collated country risk ratings for these countries from eight different sources and averaged these ratings into compounded country risk scores. The most recent results from this work can be found in this article. Most definitions of country risk include factors such as political risk, exchange rate risk, economic risk, sovereign risk, transfer risk, socio-economic risk and others. Depending on the source, various contributing factors of country risk are weighted differently. Readers interested in the specific definitions are encouraged to follow the links to our sources given in this article. We used our compounded country risk score to evaluate country risk exposure for selected gold and silver mining companies using 2011 production results and reserve statements. As 2012 data becomes available we are providing updates and in the present article we would like to do so for New Gold (NYSEMKT:NGD).
New Gold is a growing mid-cap gold mining company with four operating mines in Canada, Mexico, the US and Australia. The market capitalization is $3.4B and the forward P/E is given as 12.54 on Yahoo.com. The median price target is $13.00 and compares very favorably with the share price of $7.15 at the time of writing. New Gold is not paying dividends at present. Last year's production amounted to 450,000 gold-equivalent ounces. For this article only precious metals were considered. For the computation of gold equivalent ounces we used a silver-to-gold ratio of 50. The table below gives the 2012 numbers for production, reserves and resources at each of New Gold's mines and projects.
Consolidating the production and reserve data into summations for each country of exposure results in the table below. The data is already calculated in percentages of gold-equivalent ounces. Country risk ratings as documented here are also shown in the central column of the table. Country risk ratings range from 0 to 100 with low numbers indicating low risk and high numbers indicating high risk. The right side of the table shows the weighted risk contributions for each country separately for production, reserves and resources with summarized risk scores in the bottom line. The individual ratings can be interpreted as ratings going from present risk (production) into the future (inferred resource).
The country risk rating for New Gold based on production computes to 26.61 indicating relatively low country risk levels. The risk rating decreases further when considering reserves due to the strong contribution of the Canadian Blackwater mine. A further reduction is noted when looking at resources with ratings of 19.53 (measured and indicated) and 22.07 (inferred).
The country-risk ratings for New Gold are only slightly higher than for Agnico Eagle (NYSE:AEM) which we have found to be the gold mining company with the lowest country risk exposure. However, it needs to be noted that New Gold's operations in Canada are situated in British Columbia where country risk is considered to be above the Canadian average. A similar situation is found for the exposure to the US with ratings for California also being considered above the country average. Operations in Chile are currently facing a hold-up, awaiting a decision of a local court of appeals.
Disclosure: I am long AEM. 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.