Can New Gold’s Rainy River Help It Outperform in 4Q17 and Beyond?



New Gold’s performance

While the year-to-date (or YTD) performance of New Gold (NGD) stock has lagged the VanEck Vectors Gold Miners ETF (GDX), the situation has reversed in 3Q17. New Gold stock gained 16.7% in 3Q17 compared to a gain of just 4.0% in GDX.

Investors have punished NGD’s stock due to the capital expenditure blowout and delays to its Rainy River project in 2017. The situation has now started to reverse as the company has shown progress on all fronts.

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Rainy River’s first gold pour

Rainy River is currently the company’s most important project. At its full capacity, it’s expected to produce as much as all of New Gold’s other mines. In June 2017, the company announced that it expects to receive the amended permit for its tailings dam by 4Q17 instead of the previous expectation of early 2018.

In late July, New Gold announced that the Rainy River project is on schedule and on budget. On October 6, 2017, the company announced the first gold pour at the Rainy River mine. It also noted that its commissioning plans remain on schedule. This positive momentum also helped its stock price in 3Q17.

Financing Rainy River

New Gold implemented a bought deal financing totaling $150 million in February. It also sold its El Morro gold stream to Goldcorp (GG) for $65 million. As a result, New Gold has abundant liquidity.

New Gold is also a cost-efficient company. Its AISC (all-in sustaining costs) of $692 per ounce in 2016 were lower than many senior gold miners’ (GDX) AISC readings, including those of Newmont Mining (NEM), AngloGold Ashanti (AU), Eldorado Gold (EGO), and IamGold (IAG). The complete ramp-up of Rainy River could reduce NGD’s unit costs even further.

Next, let’s look at IamGold’s 3Q17 results expectations.


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