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Why Shares of New Gold Lost Their Luster Today

By Scott Levine – Aug 11, 2021 at 5:41PM

Key Points

  • The company failed to meet analysts' revenue and earnings expectations.
  • New Gold may fail to achieve 2021 production and cost guidance.

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After digging into the earnings report, investors weren't pleased.

What happened

Failing to provide investors with a glittering earnings report, New Gold's (NGD 6.86%) stock plunged 10% today. Besides the company's disappointing earnings report, investors chose to exit their positions after learning that New Gold's expectation for the rest of 2021 is not as bright as it had originally been.

So what

Failing to meet analysts' revenue estimates of $217.3 million, New Gold reported $198.2 million on the top line for the second quarter of 2021. The bottom line didn't sparkle in investors' eyes, either, as the company reported a $0.02 per-share net loss, coming up short of analysts' expectations of $0.01 earnings per share.

A woman rubs her eyes while sitting in front of a laptop.

Image source: Getty Images.

The greater point of concern for investors, though, was management's inauspicious announcement regarding the company's Rainy River asset. In July, gold production at the East Lobe area of Rainy River was not as high as the company had expected, due to a lower gold grade. Additionally, management stated that gold production at Rainy River may fail to achieve the lower end of the initial forecast range of 275,000 ounces to 295,000 ounces that the company had provided in March.

But wait, there's more. The lower grade at East Lobe could also compromise the profitability of Rainy River. Management stated the lower grade could result in the company incurring all-in sustaining costs (AISC) over $1,225 per gold equivalent ounce.

With the lower gold production at Rainy River and management anticipating lower-than-expected grades at the New Afton mine, New Gold believes it will report annual gold equivalent production at the lower end of its guidance range: 440,000 ounces to 490,000 ounces. Similarly, the company expects that AISC will land at the higher end of its forecast range of $1,230 per gold equivalent ounce to $1,330 per gold equivalent ounce.

Now what

While the second quarter failed to dazzle investors, the company's performance wasn't as bad as the stock's sell-off would lead one to believe. New Gold reported free cash flow of $21.4 million in the second quarter, and there was no indication that the company will be unable to achieve its free cash flow forecast of $1.5 billion from 2021 through 2025.

Investors may not be happy today, but it may provide an opportunity for patient gold investors to pick up shares in the bargain bin tomorrow.

Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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