New Gold’s (TSX: [stock_market_widget type=”inline” template=”generic” color=”default” assets=”NGD.TO” markup=”{symbol} {currency_symbol}{price} ({change_pct})” api=”yf”]) stock price was hammered big time despite a strong showing in the recently-reported fourth quarter as the stock market wasn’t pleased with its 2019 guidance. The intermediate gold producer tanked more than 26% in a single session after the earnings report came out, bringing an abrupt end to a three-month rally that had seen the stock pull up from its 52-week lows.
[stock_market_widget type=”chart” template=”basic” color=”blue” assets=”NGD.TO” range=”3mo” interval=”1d” axes=”true” cursor=”true” api=”yf”]Let’s take a closer look at New Gold’s quarterly performance and examine the reasons behind its massive drop.
New Gold Shows a Strong Q4 Performance
New Gold produced 97,428 ounces of gold from its continuing operations during the fourth quarter, up nearly 68% from the year-ago quarter’s output thanks to the ramp-up of operations at the Rainy River mine that began commercial production in October 2017. The company’s cash costs per ounce of gold stood at $540 an ounce as compared to $778 an ounce in the prior-year period.
All-in sustaining costs per ounce of gold went down from $945 in the prior-year period to $857 during the fourth quarter. Thanks to the higher production and lower costs, New Gold’s top line increased 27% annually while operating margin shot up to 81.5% as compared to 47.4% a year ago.
The higher revenue and improved margins helped New Gold deliver adjusted net earnings of $22.7 million from its continuing operations, which is a massive improvement over the prior-year period’s loss of $10.6 million. On a per share basis, New Gold’s earnings arrived at $0.04 as compared to analysts’ expectations of break-even.
However, New Gold’s revenue fell slightly behind consensus estimates of around $165 million, and the lower-than-expected production guidance for 2019 further dented investor confidence.
Tepid 2019 Guidance Causes a Stock Route
New Gold expects to produce somewhere between 300,000 ounces and 335,000 ounces of gold in 2019. The mid-point of that guidance range is almost in line with the company’s 2018 production of 315,483 ounces. The company expects all-in sustaining costs of $1,370-$1,470 an ounce for the full year.
However, analysts were expecting New Gold to deliver 336,000 ounces of production in 2019 at an all-in sustaining cost of $1,022 an ounce. The guidance suggests that New Gold will be missing those marks by a wide range, and its profitability will also take a hit this year thanks to an increase in costs. New Gold’s 2018 all-in sustaining costs from continuing operations stood at $1,051 an ounce. So, according to the mid-point of the company’s guidance, its all-in sustaining costs will rise by 35% in 2019.
The underperformance of the Rainy River mine is the biggest reason why the company’s cost profile will take a hit this year. The company estimates production of 245,000-270,000 ounces of gold at Rainy River in 2019 as compared to last year’s output of 227,284 ounces. But long-term focused investments at the mine to boost sustainable and profitable mining operations will inflate costs big time.
Rainy River expects all-in sustaining costs of $1,690-$1,790 an ounce this year, which is 16% higher than 2018’s all-in sustaining costs of $1,501 an ounce. As such, New Gold is unlikely to take advantage of the recent improvement in gold prices this year thanks to a flat production profile and spiking costs.
