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New Gold: A Weak Proxy For Gold

May 03, 2020 10:00 AM ETNew Gold Inc. (NGD), NGD:CA26 Comments


  • New Gold posted revenue of $142.3 million for Q1’20, down 15.2% from the same quarter a year ago, and up 2.2% sequentially.
  • Gold production was 103,435 Au Eq. Oz. in 1Q’20. It was down 16.1% from the same quarter a year ago.
  • I think the stock is an excellent tool for short-term and mid-term trading.
  • 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) released its first-quarter results on April 29, 2020. The preliminary results were published a few weeks ago, and we knew already that the production was weak because the company was required to curtail operation at the Rainy River.

New Gold announced a two-week suspension of operations at its Rainy River mine, northwest of Fort Frances. The company said Friday that about 70 per cent of its workforce of 550 is made up of local residents who make frequent trips across the border to Minnesota.

The issue with this gold miner continues to be the company’s limited asset portfolio and a shaky financial position that has been solved in part recently. The company exploits and produces gold from only two producing assets, and it makes this investment riskier compared to other gold miners. The last quarterly result is an example of that weakness, where we can see that an unpredictable event like the COVID-19 can significantly reduce production.

New Gold shows some potential for growth, particularly in 2020, with the Rainy River mine turning fully operational, which will help to lower CapEx and generate faster free cash flow, which has been a weakness until now.

The investment thesis for New Gold is a tricky one because the financial situation is not particularly well established, as we will see later in this article. However, management is innovative and makes an effort to improve the company's balance sheet. The recent partnership at the New Afton mine is a good example that illustrates this continuous effort.

Hence, while I recognize that the company has improved its position and could perform very well with gold prices now over $1,700 per ounce, I am not still prepared to

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