New Gold (NGD) recently reported second-quarter results, lacking analysts' estimates of revenue and earnings. The company reported earnings of $ 128.5 million and GAAP earnings of $ 0.07 per share. As I wrote in my previous article on New Gold, the company's production level for the second quarter was lower than expected due to lower grades, while revenues remained under pressure due to unfortunate hedging programs.
The company produced 98,079 gold equivalent ounces (GEO) at all maintenance costs (AISC) of $ 1283 per ounce. The main driver for high AISC was the Rainy River mine, which had an AISC of $ 1567 per ounce, as the mine continued to relocate for future production levels outlined in the last lifetime of my plan.
In my opinion, the management of New Gold has done everything right, as they prioritized the company's survival over potential stock prices upwards. The company ended the second quarter with $ 700 million in cash, up from $ 83 million at the beginning of the year, when it increased liquidity in various ways.
There is no way that the company's management could have predicted a COVID-19 pandemic and the resulting money pressure from the world central banks that has led to a major rally in gold prices. However, the conservative moves made by New Gold's management team are putting pressure on the company's shares despite being up almost 90% so far this year:
While gold prices have risen above $ 2,000 per ounce, New Gold's short-term prospects remain subdued. Due to the unfortunate hedging program, the company cannot benefit from the higher gold prices. Investors and traders have many gold mining stocks to choose from, so New Gold is not on their priority list.
In addition, the company's production levels in New Afton are expected to suffer due to lower ratings by at least the end of this year, which does not bode well for mining performance in the second half of 2020 despite the recent upside on the copper price front.
At this point, it seems that new gold stocks will show some sensitivity to gold price action, as some investors will buy them in anticipation of better results in 2021, but it is difficult to expect a large increase in demand for New Gold. shares at times when many gold mining companies without restrictive hedges are available in the market.
Source: Seeking Alpha Premium
Analysts expect the company to report negative earnings, which is not surprising given the bad times hedging programs in place. The high gold price makes a real difference for manufacturers of higher costs such as New Gold, so the stocks are positioned to be very sensitive to gold price movements when the current hedging program ends. Until then, the upside of the New Gold stock will be limited, as traders can choose from many stocks that will be able to deliver instant cash flow thanks to high gold prices.
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Disclosure: I / we have no positions in the aforementioned shares, and no plans to fill any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I do not receive compensation for it (other than from Seeking Alpha). I have no business relationship with any company mentioned in this article.
Further Disclosure: I may trade any of the above shares.