New Gold (NGD) is a Canadian based gold producer with operating assets in Canada, the United States, Mexico, and Australia. In addition, the company has development projects in Canada and Chile. Headquartered in Vancouver, Canada, NGD is a low cost producer with operations in politically stable jurisdictions. The gold miner has potential for significant growth in production in the coming years.
For an intermediate gold producer, NGD has delivered enviable production growth under its experienced management. YTD the stock has outperformed its peers Barrick Gold (ABX), Kinross (KGC), Goldcorp (GG) in part by growing its portfolio of assets in relatively safer jurisdictions.
New Afton - The Game Changer
NGD's key asset New Afton achieved the targeted increase in throughput to 12,000 tons per day from a design capacity of 11,000 tons per day (achieved 12,400 tons per day on average in September) three months ahead of schedule. Following this achievement, NGD plans to now move toward a sustainable throughput level of 14,000 tons per day and potentially up to 15,000 tons per day. NGD is expected to provide details regarding timeline and estimated costs to reach this rate early next year. NGD also plans to incorporate exploration efforts at New Afton, specifically results from the East Cave and C-Zone programs, into an updated mineral reserve and resource estimate at the end of the year.
Other Development Projects
The company continues its review and update of the Rainy River feasibility study as well as the Blackwater feasibility study. An updated Rainy River study is expected to be completed by late 2013 to early 2014, while the Blackwater study is on schedule for completion in December 2013. New Gold will make a decision regarding the sequencing of the Rainy River and Blackwater projects in 2014. The Rainy River project, once fully operational, is expected to produce over 225,000 ounces of gold annually, at below industry average costs.
Experienced Management Team
New Gold has a strong management team, which has worked in senior positions in the gold industry for many years. The management team's experience and operational expertise have laid the groundwork for the transactions that have built the company, and should also help NGD navigate the transition from a focus on growth to a focus more on cash flows.
3Q13 Results - No Surprises Here
The Vancouver, Canada based company reported adjusted 3Q13 EPS of $0.04, in line with consensus estimates of $0.04. The headline EPS of $0.02 was adjusted for several one-time items, including a non-cash charge related to NGD's legacy hedge position closed in May 2013; transaction costs related to the Rainy River acquisition; a pre-tax foreign exchange gain; and a pre-tax mark-to-market gain on the company's share purchase warrants.
The company revised its 2013 production guidance down to 390,000-400,000 ounces of gold from previous estimates of 400,000-480,000 ounces. NGD also revised its total cash costs guidance to $375 per ounce up from previous estimates of $350 per ounce, and all-in sustaining costs of $900 per ounce up from previous estimates of $875 per ounce. However, the changes shouldn't necessarily come as a surprise; the company had already warned with its pre-announced results that production at Cerro San Pedro and Mesquite would be below initial guidance for 2013. Cerro San Pedro is now expected to produce 95,000-100,000 ounces, down from earlier guidance of 140,000-150,000 ounces, while Mesquite is expected to produce 110,000-115,000 ounces, below previous estimates of 130,000-140,000 ounces of gold. The company also lowered its silver production guidance, while the forecast for copper production remains unchanged.
We have a buy rating on New Gold. NGD is a low cost producer of gold, silver, and copper and the company operates in low risk political jurisdictions. The company also has a strong growth pipeline with potential for significant growth in production in the next few years. Finally, NGD offers a strong management team with extensive experience in senior positions in the gold industry. This should help the company navigate the transition from a growth focus to one that is driven more by cash flows. NGD being a low cost producer with good operational track record provides investors a relatively safer play in a choppy gold market.
Notably, NGD also has a strong balance sheet, maintained primarily for the purpose of funding its projects currently in the development stage. Currently the company is well positioned to fund its exploration and development initiatives presently in the growth pipeline. The company has grown its production profile through both acquisitions and development in a relatively short period of time. Each of the company's acquisitions in particular has strengthened NGD resulting in a politically safe portfolio. Going forward, NGD's seasoned management team has the skills and expertise to add assets to company's portfolio that will enhance the company as a whole.