Rising Gold Price to Improve Business Performance: New Gold (TSX: NGD) is a Canada based intermediate gold mining company with a portfolio of two core producing assets and a development project.

On April 03, 2020, the company reported that it had resumed its operation in its Rainy River mine after a voluntary 14-day suspension owing to the COVID-19 outbreak.

FY19 Financial Highlights: For the period ended December 31, 2019, NGD posted revenue of US$ 630.6 million, as compared to US$ 604.5 million in FY18. The y-o-y increase was driven by higher gold ounces sold, and an increase in average realized prices, partially offset by a reduction in copper prices and copper sales. The company posted an adjusted loss of US$ 47.2 million, as compared to the adjusted net loss of US$ 25.4 million in FY18, reflecting higher operating expenses, partially offset by higher revenues and lower finance costs. Cash and cash equivalents as on December 31, 2019, stood at US$ 83.4 million, declined from US$ 103.7million in FY18. Capital expenditure in FY19 stood at US$ 253.3 million, higher than US$ 213.9 million in FY18.

FY19 Income Statement Highlights (Source: Company Reports) 

Stock Recommendation: The stock of NGD is quoting at CAD 1.06 with a market capitalization of CAD 716.51 million. The stock corrected ~15% and 12% in the last three months and one year, respectively amidst sharp correction across the broader market. However, the stock surged about 53% in the last one month, outperforming the index by ~47%. The stock is trading above its 20-days and 50-days simple moving average (SMA) of CAD 0.82 and CAD 0.98, respectively. The company derives the majority of its income from gold sales and the stock price is co-related with the international gold prices. During FY19, gold as an asset class has generated stellar returns, while the economy was struggling. Historically, gold has remained investors friendly when the macroeconomic outlook looks bleak. Currently, gold is quoting at seven-year high as the fear of a global recession is driving investors towards safe bets. Increase gold price augers well for NGD, and we expect the company to post improved performance in the coming quarters. The stock is currently trading at a forward P/CF multiple of 1.9x against the industry average of 3.4x which suggest that the stock is trading at a discount. However, given the current challenging environment and recent volatility in the stock’s price movement, we recommend a ‘Speculative Buy’ on the stock at the closing market price of CAD 1.06, up 6% as on April 14, 2020.

NGD One-Year Daily Price Chart (Source: Thomson Reuters)

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