Why New Gold Bulls Have Gone Extinct

Worst stock performance

New Gold (NGD) stock has had one of the poorest showings YTD (year-to-date). As of September 24, it has fallen 75%, significantly underperforming its peers (GDXJ) (NUGT) Eldorado Gold (EGO), Iamgold (IAG), Alamos Gold (AGI), and Randgold Resources (GOLD), which have fallen 38.4%, 33.4%, 28.1%, and 31.1%, respectively.

Currently, no analysts are rating it a “buy,” and 64% are rating it a “sell.” A year ago, 50% of analysts were recommending a “buy” for the stock.

Why New Gold Bulls Have Gone Extinct

Issues at Rainy River

New Gold stock has tanked so far in 2018 due to delays at its Rainy River mine. In the most recent quarter, Rainy River’s gold grade, gold recovery, and ore throughput came in below the market’s expectations. The issues at Rainy River have not died down.

Previously, capex escalation and missed deadlines for the start-up of Rainy River were weighing down NGD, and now, operational and mechanical issues have surfaced. The company has thus increased its 2018 production costs and decreased its guidance for production volume.

Contraction in valuation multiple

Analysts have weighed heavily on NGD’s earnings estimates after its guidance downgrade and operational issues at the Rainy River mine. The downgrades still haven’t kept pace with the stock’s price decline. As a result, New Gold’s forward enterprise-value-to-EBITDA has fallen 28% YTD. Analysts still don’t think it’s cheap, as the issues at Rainy River could keep weighing down the stock.