Replies to post #371 on New Gold Inc. (NGD)

[JohnCM]

St Maarten

[JohnCM]

Update: New Gold Earnings
Oct. 30, 2014 7:01 PM ET

The Investment Doctor
Long/short equity, value, debt, base metals

"New Gold’s production rate was okay, but costs have been higher than expected.
I’m surprised by the extremely high AISC at both the Mesquite and Cerro San Pedro mines, but things should improve this quarter.
I might turn positive about New Gold if its 2015 production and cost guidance can convince me.

New Gold (NYSEMKT:NGD) has reported its financial statements for the third quarter of this year. As the company produced just over 93,000 ounces of gold and more than 25 million pounds of copper. The AISC of the gold production increased to $848/oz and this warrants some attention as the production costs per ounce have been increasing lately.


If you look at the numbers, which break down the cost per mine, you immediately see that both the Mesquite and the Cerro San Pedro mine were producing gold at an AISC of respectively $1625/oz and $1700/oz. This means that -taking all things into consideration - these two mines were loss-making, as the average AISC at New Gold's two other gold mines would have been around $100/oz. Fortunately, the operating performance of Mesquite and Cerro San Pedro should improve from this quarter on and the cost should be substantially reduced as more ounces will be produced whilst the fixed costs won't change that much.

The cash flow statements don't look to great as if you add the interest and tax expenses to the equation (New Gold added these expenses back to the operating cash flow), the operating cash flow was just $20M for the quarter and this wasn't sufficient to fund the almost $74M which has been spent on capital expenditures during the quarter (of which $20M was spent on the Rainy River project). Fortunately, there's no reason to panic as New Gold's working capital position remained at elevated levels at almost $600M.

The third quarter probably won't impress anyone, but as the production levels at Mesquite and Cerro San Pedro should be increasing again, I'm expecting a much better fourth quarter. Additionally, New Gold has reconfirmed it is on track to complete the mill expansion at the New Afton mine which should increase the throughput and recovery rate of the gold and copper. That being said, I'm still on the side lines and I prefer to see New Gold's guidance for 2015 before changing that position."