New Gold Gets Bogged Down by Weak Copper Prices

The spurt in gold prices has been a big catalyst for New Gold [stock_market_widget type="inline" template="generic" color="default" assets="NGD.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] stock, but the recent results delivered by the company have led to a pullback in the stock price. New Gold stock is down nearly 13% in the past month, but is this an opportunity for savvy investors to buy more shares given the favourable conditions for gold prices? Let’s find out.

New Gold Falters as Gold’s Shine Hindered By Copper

New Gold missed Wall Street estimates on both the top and bottom lines last quarter, and that has caused investors to panic and book profits in the stock.

New Gold was able to reduce its net loss to $0.06 per share as compared to $0.54 per share in the year-ago period. On an adjusted basis as well, the company’s loss fell to $0.01 per share, down a cent as compared to the prior-year quarter.

More importantly, New Gold’s production for the quarter came in at 132,556 gold equivalent ounces, up from last year’s output of 127,603 ounces. More specifically, gold production increased to 85,216 ounces as compared to 76,751 ounces last year. New Gold’s average realized price of gold also increased to $1,304 an ounce from $1,300 an ounce a year ago.

The problem, however, was with copper. Though copper production increased slightly year over year to 21.6 million pounds, the average realized price of the commodity plunged. New Gold recorded average realized copper price of $2.74 per pound, down nearly 14% as compared to the year-ago period.

This is probably the reason why investors are wary of remaining invested in New Gold, as the prospects of copper might overshadow the tailwind it enjoys from gold.

Weak Copper Pricing Could Be a Headwind

The U.S.-China trade war is proving to be bad news for the copper industry. That’s because China is the biggest importer of copper in the world, and as the trade war is hurting the region’s economy, demand for copper is falling.

According to Reuters, imports of copper into China were down 27% in the month of June. The publication wrote:

Factory activity in China, which is embroiled in a trade war with the United States, shrank more than expected in June in a bearish sign for the manufacturing sector that is a key source of copper demand.

Demand for copper could fall further in the coming months as the U.S. and China have now escalated the trade war. This could lead to further weakness in the Chinese economy, which is bad news for copper exporters around the globe. As reported by the Nikkei Asian Review:

China contributed 16% of the world’s gross domestic product last year, trailing only the U.S.’s 24%. While some might think the impact from China’s economic downturn will be limited, Australians would likely disagree. So would the International Monetary Fund. According to IMF estimates, China last year was the biggest buyer of 34 countries’ exports. In 2007, before the global financial crisis, China was 13 countries’ top customer.

So the bottom line is that investors shouldn’t be surprised to see copper prices fall further in the coming months, and this will be bad news for the likes of New Gold that rely on the commodity.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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