New Gold Inc

New Gold Inc (TSX: NGD) is an intermediate gold mining company and has operations across the globe. The company has a portfolio of four producing assets, the New Afton Mine in Canada, the Mesquite Mine in the United States, and the Cerro San Pedro Mine in Mexico.

Key Highlights:

• Production highlights: At the end of Q3FY21, the company reported total gold equivalent production of 105,628 oz, while its 9MFY21 production stood at 307,359 Gold eq. production from its Rainy River Mine was recorded at 172,462 oz in 9MFY21, higher than 164,960 oz in pcp. Notable gold eq. sales from the above mine stood at 168,682 oz in 9MFY21, higher than 163,137 oz in pcp.

• Improved cash position: At the end of Q3FY21, the company reported a higher cash balance of USD 151 million, as compared to USD 138.4 million in Q2FY21. The increase in cash balance is a key positive as it enhances the liquidity level. Moreover, the company reported its available liquidity of USD 477 million in Q3FY21, which is sufficient to fulfill the working capital and capex requirements.

• Bullish exploration outlook: The company operates across North America, Australia and Africa. Within the Peñasquito mine in North America, the group has a large resource base and prospective land package with an extended mine life till 2040. Within the Tanami Expansion across Australia, the company expects exploration opportunities at depth expected life beyond 2040, while NGT is actively developing brownfield deposits within the Oberon mine in Tanami. As per the management, there is a significant underground potential at Subika and Apensu mines in the Ahafo South region in Africa. While in the Ahafo North location, the company discovered open mineralization in all directions along 14 km strike with significant upside potential. We believe the above would result in stable mineral exploration and production in the coming years.

Q2FY21 Financial Highlights:

• NGD announced its quarterly results, wherein the company posted revenue of USD 198.2 million, jumped from USD 128.5 million in the previous corresponding period (pcp). The surge was driven a higher sales volume of gold and copper. Notably, gold price stood at USD 1,817/ounce as compared to USD 1,516/ounce in pcp. During the quarter, the company reported total sales of 57,304 Gold eq. ounce, higher than the 47,873 Gold eq. ounce in pcp.
• Income from operations were recorded at USD 40.9 million, climbed from USD 16.6 million in pcp. The strong growth was driven by elevated revenue. Meanwhile, a higher corporate administration expense remained as a drag,
• Net loss declined significantly to USD 15.8 million, from a net loss of USD 45.6 million in Q2FY20. The quarter witnessed other losses of USD 42.8 million, primarily attributable to the unrealized loss on revaluation of non-current derivative financial liabilities and loss on revaluation of investments.      

Q2FY21 Income Statement Highlights (Source: Company Report)  

Risks: The performance of the company is directly correlated with international gold and other metal prices. Thus, volatility in the commodity price would dampen the company’s income and would take a toll on the overall performance.

Valuation Methodology (Illustrative): Price to CF based 

Stock Recommendations:

The company reported decline in total debt of USD 515.1 million in Q2FY21 from USD 1,112.1 million in Q2FY20. A decline in the total debt provides higher financial flexibility and also reduces the finance costs for the company. We have valued the stock using Price to CF based relative valuation method and have arrived at a target upside of double digit (in percentage terms). For the said purposes, we have considered peers like Dundee Precious Metals Inc, Centerra Gold Inc etc. Hence, we recommend a ‘Buy’ rating on the stock of NGD at the last traded price of CAD 1.83 on November 02, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on November 02, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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