While the quarterly results disappointed some investors, looking deeper, there is a lot to like about NewGold. We already highlighted them as our top pick for 2020 and a potential target for M&A.
The Bottom Line
Over the past year, NewGold has been in a period of development. They have been working towards stabilizing operations and completing the planned mine improvements.
While Q4 was a challenging quarter in respect to costs and production, the company still maintained its annual production guidance and is indicating they will maintain their cost guidance as well.
As the mine improvements take hold, 2020 is setting up to be a pivotal year for NewGold.
With work being completed on tailing dams, mill throughput should stabilize in 2020 after seeing a slight dip in Q4. Management has also stated they will continue to focus on optimizing the unit economics of their mines for sustainable value creation.
While gold, silver, and copper are expected to maintain strong pricing throughout 2020, the most appealing aspect of the NewGold story is the potential for significant catalysts.
Management has announced 2019 Q4 conference call on Feb. 13, however they will discuss much more than financials. The company is expected to also release 2020 operation outlook, updated reserves and resource and updated lie of mine plans for both Rainy River and New Afton.
With such significant news flow expected, we believe there is substantial upside to be had with NGD. Until more information is released, we expected volatility in NGD and we see any significant dips as buying opportunities.
Consolidated Annual Highlights
Total production for the fourth quarter was 101,423 gold equivalent ounces (GEO), with an annual production of 486,141 ounces. This falls within their guidance of 465-520K GEO.
Lower quarterly production was largely driven by lower grades entering the mill at Rainy River as they transition from Phase 1 to Phase 2 of their mine plan. The New Afton mine also saw slightly lower production due to lower copper grades.
Cash costs and AISC are expected to be higher for Q4, however annual guidance will still be maintained.
Cash costs were guided to $740-820 per GEO for the year and are expected to be on the higher end of that range. AISC was guided to $1,330-1,420 per GEO and is expected to be slightly below annual guidance.
This is despite an accelerated sustaining capital spend at their Rainy River Mine, where total annual spend for NGD is expected to fall within the guidance of $220-245 million.
As of quarter end, NGD had available liquidity of $335 million, with $83 million in cash and cash equivalents.
Management highlighted 2019 as a year of repositioning where they focused on stabilization and mine development. They reiterated they will continue to be focused on optimizing operations and driving sustainable value for 2020.
The Rainy River mine saw a lower quarterly gold production of 51,122 GEO despite higher throughput. This was driven largely by lower grades as the ore from Phase 1 was mined out. Recovery and mill availability was on track.
Cash costs are expected to hit the midpoint of their guided range ($870-950), while AISC are expected to be much higher for the quarter, but still within the total annual guided range ($1,690-1,790 per GEO).
This is driven by sustaining capital spend to complete differed capital improvements, which should fall within reduced annual capital estimates of $175-190 million.
The New Afton mine produced 49,507 GEO for the quarter. This was lower than expected due to unscheduled repairs and lower realized copper price, but still fell within total annual guidance.
Cash costs are expected to be higher on the quarter, slightly above guidance of $600-640 per GEO, due to lower copper pricing. AISC are expected to increase on the quarter, but still achieve the low end of annual guidance of $810-890 per GEO.
Capital spending is expected to be below annual guidance of $45-55 million due to cost efficiencies realized with mine development. These costs are expected to be incurred in Q1 of 2020.
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