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New Gold: A Turnaround Story Playing In Slow Motion

Mar. 02, 2020 9:06 AM ETNew Gold Inc. (NGD), NGD:CA3 Comments


  • New Gold posted revenue of $139.2 million for Q4’19, down 11.6% from the same quarter a year ago and down 17.3% sequentially.
  • On February 25, 2020, New Gold sold a 46% cash flow stake in New Afton mine to Ontario Teachers’ Pension Plan for an upfront cash infusion of $300 million.
  • NGD could be a good opportunity on any weakness below $0.80.
  • Looking for a helping hand in the market? Members of The Gold And Oil Corner get exclusive ideas and guidance to navigate any climate. Get started today »

Image: The Rainy River gold/silver mine in northwestern Ontario. Source: New Gold, Inc.

Investment thesis

The Canadian-based New Gold, Inc. (NYSE:NGD) is mainly a gold producer with two producing mines in North America, the New Afton, and the Rainy River mines. The company also owns the Blackwater project. The project presents proved and probable reserves of 8.2 Au M Oz and Ag 60.8, respectively.

The company’s limited assets portfolio tends to make it riskier and weaker, primarily when one mine has not performed well as it has been the case for the Rainy River.

As I have said in a precedent article, New Gold shows some potential of growth, particularly entering 2020, when the Rainy River mine turns fully operational, and CapEx will drop, allowing the company to generate enough free cash flow. However, we are not quite there.

The investment thesis for New Gold is complicated because it involves many vital ifs that could turn an investment now either way. The company has significant potential growth, and the recent gold price increase to a multi-year high is helping tremendously in this transition period, especially at the Rainy River mine.

The company has experienced liquidity issues, and the bought deal last year harmed the stock price and its shareholders. The recent agreement with the Ontario Teachers’ Pension Plan that I will develop later in this article has clarified the debt issue significantly and turned New Gold as a future takeover target.

The company is on a path to a prolonged recovery punctuated by unavoidable relapses here and there. Thus, while I do not see any particular interest in investing long term in the company yet, I believe the stock is an excellent tool for short term and mid-term trading.

Gold production details for the fourth quarter of 2019

The company

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This article was written by

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As an experienced investor, I will help you stay on task more efficiently.

I am a former test & measurement doctor engineer (geodetic metrology). I was interested in quantum metrology for a while.

I live mostly in Sweden with my loving wife.

I have also managed an old and broad private family Portfolio successfully -- now officially retired but still active -- and trade personally a medium-size portfolio for over 40 years.

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Note: I am not a financial advisor. All articles are my honest opinion. It is your responsibility to conduct your own due diligence before investing or trading.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in NGD over 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.

I trade short term NGD but I may keep a small position long term betting on a takeover in 2020.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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