Loading ...FRED HICKEY ON MY NGD
New Gold Rises From the (almost) Dead
New Gold’s (NGD) stock hit rock bottom (61 cents per share) in the first week of September and rallied for most of the rest of the month (up 44% from that low by the end of the of the third quarter). Here too, I was able to (significantly) add to my NGD position near the low that week. My confidence in New Gold was bolstered by the heavy insider buying from NGD’s CEO, CFO and VP Secretary/General Counsel towards the end of August (see last month’s letter). A week after hitting those lows (September 15), to coincide with CEO Renaud Adams presentation in Denver, NGD issued a positive Rainy River update.
CEO Renaud Adams: “The team at Rainy River responded very well following the heavy rainfall and flooding during the second quarter.” “Over the past month, efforts continued on dewatering the pit along with additional operational improvements to position the open pit to its optimal conditions. In July and August, Rainy River produced a total of approximately 41,000 gold equivalent ounces and the mine is well positioned to have a strong finish to 2022 and deliver on its updated guidance.” “Open pit tonnes mined in July and August averaged approximately 21,000 ore tonnes mined per day, a 70% increase compared to the 12,295 tonnes mined per day during the second quarter.” The strip ratio was nearly cut in half in those two months (from 7.96 to 1 to approximately 4 to 1). A lower strip ratio leads to lower costs per ounce produced. “The strip ratio is expected to average below 3 to 1 for the remainder of the year,” Adams said in the press release.
In Denver, Adams gave an extremely upbeat presentation. “Our future looks much brighter than when we first saw this in 2019” (around the time when the new management team came to NGD). “We are very, very encouraged to where we are going with this,” he added. At the long troubled Rainy River mine, Adams explained that all the work they’d been doing rehabilitating and repositioning the mine are about to pay off with the transition to the underground operation, which will mean higher gold grades, significantly higher production (25+% over current levels for the next five years – through 2027), a strip ratio around 2 to 1 and far lower all-in sustaining costs. The dramatic reduction in the strip ratio means much lower volumes of waste rock that need to be moved, leading to the lower costs (lower materials, handling and diesel fuel costs). Capital expenditures at Rainy River will decline very sharply, “especially post-2023.” “The difficult years are behind us,” Adams exclaimed.
Adams forecast NGD would become free cash flow positive in 2023 – when the New Afton mine production levels return to the significantly higher rates it ran at throughout its history. This will occur as NGD ramps up production from the C-Zone next year (mid-2023). After a few years of “hard work” (and capital spending) NGD is almost through the “gap” years transition period. Additionally, Adams discussed the “all kinds of potential organic growth” around the C-Zone and near infrastructure (mill etc.). On Monday, RBC Capital upgraded their rating on NGD’s stock to “outperform” from “sector perform” following a site visit to Rainy River. The analyst explained that he expects 40% gold equivalent production growth at 30% lower all-in sustaining costs by 2024.