New Gold: Better 4Q 2021 Gold Production Helps Keeping The Faith (NYSE:NGD)

mound of gold — bodnarchuk/iStock via Getty Images

Introduction

Canada-based New Gold Inc. (NYSE:NGD) released its fourth quarter of 2021 production results on January 12, 2022. The company also indicated that it would release its fourth quarter and full-year 2021 financial results and 2022 operational outlook before markets open on Wednesday, February 23, 2022.

CEO Renaud Adams said in the press release:

2021 was not without its challenges for New Gold, but we continued to execute on our plans, with the fourth quarter representing our strongest quarter of the year, allowing us to meet our updated consolidated gold equivalent production guidance

Q3 Gold Production Snapshot

The numbers came in barely within what was expected. As a reminder, the production guidance has been revised during the preceding quarter.

The East Lobe issue at the Rainy River has been a severe drag for the stock. However, despite a 3-day mill shut down in December, the company produced more than expected. The improved grade came from other areas of the Rainy River mine to lower contribution from the East Lobe.

Investment Thesis

However, production numbers were insufficient to classify NGD as attractive for the long term. Even if the fourth-quarter production shows some apparent improvements, the investment thesis is quite uncertain.

I recommend trading LIFO about 80% of your position and keeping only a tiny amount long term.

At one point, New Gold will have to mine the East Lobe more vigorously, and production will suffer again. The company used higher-grade ore (1.03 g/T) to boost 4Q21 production results and barely reached the lower guidance range. But the issue, discovered in July 2021, is still ongoing.

I see the 4Q21 production as a temporary fix that cannot be considered an excellent long-term solution, and investors must be aware of that subtle distinction. It is an essential issue because production from the East Lobe represents 15% of the remaining open pit high and medium grade reserves.

Stock Performance

NGD has underperformed the VanEck Vectors Gold Miners ETF (NYSEARCA: GDX) significantly, especially after the news related to the Rainy River. However, NGD is recovering fast and is now down 18% on a one-year basis.

Gold Production Details for the Fourth Quarter of 2021

Total gold equivalent production was 111,574 Eq. Oz for 4Q21, down 7.5% compared to the same quarter a year ago and up 5.6% sequentially.
New Gold produced 81,072 Au Oz, 214,030 Ag Oz, and 14.2 Mlbs of copper.
The Company achieved the updated consolidated gold equivalent guidance range. For the year, production was 418,933 gold eq. Oz (guidance of 405K to 450K gold eq. Oz) consisting of 286,921 ounces of gold (direction of 287K to 312K ounces), 867,961 ounces of silver, and 61.7 million pounds of copper (guidance of 56 to 66 million pounds).

Note: New Gold has a gold stream obligation with Royal Gold (NASDAQ:RGLD) on Rainy River, reducing the quarterly gold price realized.

Renaud Adams said in the press release:

Rainy River’s fourth quarter production was up 16% compared to the third quarter, representing Rainy River’s strongest quarter over the last two years, despite a 3-day mill shutdown in December, mainly driven by improved grade due to lower contribution from the East Lobe. At New Afton, the team was able to execute on its plans and achieved both gold and copper production guidance.

Details per metal comparing 2Q21, 3Q21, and 4Q21:

New Gold is producing gold, silver, and copper. Copper is produced at the New Afton mine only. Below is the chart of the gold grade per Tonne.

Gold production was lower than the same quarter a year ago, especially for Rainy River, slightly decreasing at the New Afton.

The Company indicated that the Rainy River Mine produced 68,356 GEOs and sold 70,500 GEOs (68,356 ounces of gold and 154,364 ounces of silver) in 4Q21.

The New Afton mine produced 41,074 GEOs and sold 40,835 GEOs (12,716 ounces of gold and 14.2 million pounds of copper and 59,666 Ag Oz) in 4Q21.

New Gold Inc. – Balance Sheet In 3Q21 – The Raw Numbers. I am waiting for the 4Q21.

_{New Gold NGD}	3Q20	4Q20	1Q21	2Q21	3Q21
_{Total Revenues in $ million}	173.7	198.9	164.9	198.2	179.8
_{Net Income in $ million}	15.7	-21.1	15.1	-15.8	-11.3
_{EBITDA $ million}	81.5	45.1	72.2	49.1	50.6
_{EPS diluted in $/share}	0.02	-0.03	0.02	-0.02	-0.02
_{Cash from Operating Activities in $ million}	92.2	98.5	53.3	110.3	54.3
_{Capital Expenditure in $ million}	59.4	109.3	53.8	80.2	55.4
_{Free Cash Flow in $ million}	32.8	-10.8	-0.5	29.9	-1.1
_{Total cash $ million}	416.4	231.7	190.9	203.9	203.0
_{Total Long-Term Debt in $ million}	681.2	489.2	489.6	490.1	490.6
_{Shares outstanding (diluted) In millions}	677.9	677.2	682.8	680.8	680.8

Data Sources: Company release

Note: More historical data are available for subscribers only.

2021 Guidance was revised on September 13, 2021 (down about 9%). 2021 production was 418,933 GEOs (286,921 Au Oz).

Gold production was expected between 287K Oz and 312K Oz, with copper production unchanged at 56-66 Mlbs.

2021 Gold production was slightly below the guidance range, but Gold equivalent production was in line with guidance.

Gold Equivalent production was expected in the range of 405K – 450K GEOs with AISC between $1,365 and $1,440 per ounce, which is very high, well above the average in the industry, around $980 per ounce.

New Gold did not indicate the AISC for 4Q21, and I believe the gold price will be approximately $1,795 per ounce.

Technical Analysis

Chart NGD — TA Chart Analysis

Stockcharts plus my TA interpretation

NGD forms a Descending channel pattern with resistance at $1.74 and support at $1.35. The trading strategy is to trade LIFO about 60% of your total position and keep a core long-term position for a higher return.

I suggest selling at or above $1.74, 30% of your position, and waiting for an eventual breakout to sell 30% from $1.85 to $2.10.

However, if gold turns bearish again due to the FED hawkish action, NGD will likely drop below $1.51 (50MA) and could cross it to retest $1.35-$1.30 again in the worst-case scenario assuming no catastrophic new news. I suggest accumulating below $1.51 (50MA).

Watch the gold price like a hawk.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

Author’s note: If you find value in this article and would like to encourage such continued efforts, please click the “Like” button below as a vote of support. Thanks!