New Gold: Stock To Outperform On Favorable Metal Prices And New Growth

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New Gold: Stock To Outperform On Favorable Metal Prices And New Growth

seekingalpha07-08

New Gold Inc. is an attractive small-cap mining stock benefitting from strong gold and copper prices.New Gold's investments should help drive strong growth in 2024 and 2025.New Gold's above-average ...

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fauziisbetter
·07-09
Let make new gold become viral to all investor
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(NYSE:NGD). New Gold has an attractive low valuation with strong expected revenue and earnings growth. The stock has positive upward momentum that can continue as the company continues to invest in growth projects as it capitalizes on higher gold and copper prices. New Gold's Business Background New Gold is an intermediate mining company based in Toronto, Canada that explores for gold and copper deposits. NGD has a market cap of $1.67 billion. The company has 100% interest in the Rainy River mine, which is located in Northwestern Ontario, Canada. New Gold also has interests in the New Afton project in South-Central British Columbia, Canada. Here is an overview of NGD's recent production. For Q1 2024, New Gold achieved total production of 70,900 gold ounces and 13.3 million pounds of copper. New Gold's total revenue for Q1 was $192.1 million. The Rainy River mine produced 52,700 gold ounces while New Afton produced 18,200 gold ounces and 13.3 million pounds of copper. New Gold stated that its Q1 production was 20% of the total projected production for 2024. Therefore, we can see that NGD will produce about 354,500 ounces of gold and 66.5 million pounds of copper for the full year. Balance Sheet/Cash Flow New Gold has a solid balance sheet for a capital intense business such as mining. The company has $164.3 million in total cash and short-term investments and $400 million in total debt, leaving NGD with net debt of $235.7 million. The higher amount of debt as compared to cash is a result of the capital intense nature of gold mining. New Gold needs a lot of expensive mining equipment and time to explore in order to achieve successful gold and copper yields. This creates the need for the company to heavily finance its business. New Gold has 1.5x more current assets than current liabilities and 1.5x more total assets than total liabilities for total equity of $736.4 million. New Gold's most valuable long-term asset is Gross Property Plant & Equipment, which is valued at $4.1 billion. After accumulated depreciation, NGD's Net Property Plant & Equipment is worth $1.9 billion. The largest long-term liability is listed as Other Non-Current Liabilities for $834 million. For the trailing 12 months, New Gold brought in $282 million in operating cash flow. During that time frame, New Gold paid back $8.2 million in debt, issued $5.3 million in common stock, paid $264 million in CapEx and was left with $87 million in unlevered free cash flow. With sufficient positive cash flow, New Gold can effectively handle its debt. New Gold's Positive Catalysts New Gold is benefitting from the rally in the price of gold and copper in 2024. The higher prices for these metals will help the company get more revenue for its mined metals. Here's a look at this year's price rally:   New Gold (NGD) Stock Chart vs. Gold and Copper (TradingView) We can see in the chart above that NGD stock has been rising since Q4 2023 along with the price of gold and copper. NGD has been significantly outperforming the price of the underlying metals. The price of gold has been increasing as investors anticipate the eventual Federal Reserve shift to begin lowering interest rates. Gold tends to increase as interest rates decrease. So, a shift in Fed policy to lower interest rates is likely to drive the price of gold higher over the next year. On the other hand, if the inflation rate moves higher again, it could lead to a sell-off for gold and gold-related stocks such as NGD. Therefore, investors should keep an eye on what the Federal Reserve says at their meetings. The next Federal Reserve meeting is July 30 - 31 2024. Currently, the Fed is indicating that there may only be one rate cut in 2024 (depending on how inflation data trends). The price of copper is also expected to remain strong in 2024. In April 2024, a Reuters' poll of 28 analysts shows that the price of copper is expected to average $8,625 per ton in 2024. However, the price of copper already increased to $9,809 per ton as of July 5, 2024. This strength is being driven from strong copper demand for decarbonization projects and electricity consumption in China, offset by a decline in China's property market. China is the world's largest consumer of copper. Also, mine disruptions have led to tighter supply, which is contributing to the higher price of copper. The other main positive growth catalyst for New Gold is the company's investments in growth projects. In May 2024, New Gold increased its free cash flow interest in the New Afton mine to 80.1% with an upfront payment of $255 million to Ontario Teacher's Pension Plan. New Gold previously had a 56% free cash flow interest in New Afton. The benefits to New Gold for the increased stake in New Afton include a new period of free cash flow growth driven by increased production and lower costs. At the same time, the increased stake will help to maintain New Gold's balance sheet strength and financial liquidity. New Gold expects to achieve growth at New Afton without adding any general & administrative expenses. The increased stake is also expected to improve New Gold's production and extend mine life. All of these benefits should also benefit shareholders in the form of a higher stock price, driven by the boost to future growth. New Gold also increased investments in the Rainy River mine. The company identified new targets for mining gold and invested $4 million to drill these targets in 2024. Valuation Since New Gold is expected to achieve strong earnings growth in 2024 and 2025, I think the forward PE ratio is an appropriate valuation metric. With a forward PE ratio of about 14x, New Gold is trading slightly below the Gold industry's forward PE of 14.6x. That is based on New Gold's expected EPS of $0.15 for 2024 (consensus). Looking further ahead, NGD is trading at about 9x expected EPS of $0.24 for 2025. That shows an undervaluation, since NGD is trading 38% below the industry based on expected earnings for 2025. NGD's 9x forward PE depends on the company's ability to achieve an impressive 60% earnings growth in 2025. This can be achieved if the price of gold and copper remain strong through 2025 as it can help widen New Gold's margins. Plus, NGD will get a boost from its increased stake in the New Afton mine and from its new mining targets in the Rainy River mine. There are three reasons why I think New Gold's stock has a good chance of outperforming the broader market in 2024 and possibly 2025. 1. New Gold's valuation is below the Gold industry's average. 2. NGD's earnings growth is expected to be significantly higher than the Gold industry's average of 11% for the next 3 - 5 years. NGD is expected to average about 61% annual earnings growth over the next 5 years. 3. NGD's earnings growth is significantly higher than the S&P 500's (SPY) expected earnings growth of 11% for 2024 according to consensus estimates from industry analysts. New Gold's Long-Term Investment Outlook I expect New Gold to outperform in 2024 and 2025 due to the company's above-average earnings growth and reasonable valuation. New Gold is likely to benefit from strong gold and copper prices. Plus, I expect NGD's higher stake in the New Afton mine to help drive strong growth. Drilling newly identified targets in the Rainy River mine is also likely to drive growth. The main risk for the company is lower than expected prices for gold and copper. This would likely squeeze margins as NGD would bring in less revenue from its mined metals. Higher than expected inflation could delay interest rate cuts and lead to lower gold prices. The price of copper could see lower than expected prices if China's demand is lower due to a poor property market and less than expected spending on other projects. Another risk could be an unexpected over supply condition in the market for gold and copper. It is possible that competitors increase production to the point of having a supply glut for copper or gold. This would likely drive prices for the metals down, negatively impacting New Gold's revenue and earnings.  Currently, conditions look favorable for New Gold. I expect the price of gold and copper to remain strong and to be a positive catalyst for the company. I also expect New Gold's growth investments to drive strong growth. As a result, I see New Gold as a 'Strong Buy' through 2025.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":325436196569160,"gmtCreate":1720481263509,"gmtModify":1720488302460,"author":{"id":"4135908285863472","authorId":"4135908285863472","name":"fauziisbetter","avatar":"https://community-static.tradeup.com/news/default-avatar.jpg","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"4135908285863472","authorIdStr":"4135908285863472"},"htmlText":"Let make new gold become viral to all investor","listText":"Let make new gold become viral to all investor","text":"Let make new gold become viral to all investor","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/325436196569160","repostId":2449343773,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":0,"commentSize":1,"repostSize":1,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}