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New Gold Bulls: Where Are They Now?

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Dec. 4 2020, Updated 10:53 a.m. ET

Worst stock performance

New Gold (NGD) stock has had one of the poorest showings YTD (year-to-date). Until June 14, it has fallen 34.7%, significantly underperforming its peers (GDXJ) (NUGT), including Eldorado Gold (EGO), IAMGOLD (IAG), Alamos Gold (AGI), and Randgold Resources (GOLD).

Currently, only 23% of the analysts covering it rate it as a “buy” compared to the 62% who rate it as a “hold.” A year ago, 50% of analysts recommended “buys” on the stock.

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Issues at Rainy River

New Gold’s first-quarter earnings came in below consensus expectations. The woes at its Rainy River mine have been hurting its stock for a long time now. In the quarter, Rainy River’s gold grade, gold recovery, and ore throughput came in below the market’s expectations. Rainy River’s processing facility faced some challenges during the quarter. The company also reported higher-than-expected milling costs at one of its facilities.

The issues at Rainy River have refused to die down. Previously capex escalation and missed deadlines for the startup of Rainy River were weighing down on NGD, and now operational and mechanical issues have surfaced.

Contraction in valuation multiple

While the company has maintained its full-year guidance even after a worse-than-expected first quarter, analysts have started weighing down on estimates, but they haven’t kept the pace with the stock’s price decline. As a result, New Gold’s forward enterprise value-to-EBITDA has fallen 22% YTD. Analysts still don’t think it’s cheap, as the issues at Rainy River could keep weighing down on the stock.

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