NGD : TSX : C$6.77 NGD : NYSE MKT
HOLD Target: C$8.00
COMPANY DESCRIPTION:
New Gold is a junior gold company which produced approximately 412,000 oz at a total cash cost of $421/oz in 2012. Key producing mines include Cerro San Pedro (Mexico), Mesquite (California), Peak Mines (Australia) and New Afton (Canada). Key development projects include Rainy River (Canada), Blackwater (Canada) and El Morro (Chile, 30% stake).
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Metals and Mining — Precious Metals and Minerals NO SURPRISES WITH 2013 FINANCIALS
Investment recommendation
We maintain our HOLD rating on New Gold following the release of Q4/13 and FY/13. Given its leverage to higher gold prices through the Rainy River and Blackwater projects, we continue to view New Gold as an attractive investment for longer term risk-tolerant investors seeking high leverage to gold/copper prices with relatively low associated political risk. However, we see limited valuation upside potential in the context of the prevailing metal price environment.
Investment highlights New Gold reported adjusted EPS of $0.04 vs. consensus of $0.03 and our estimate of $0.02, with the variance to our estimate explained by lower corporate G&A, expensed exploration and lower taxes. The company had pre-released 2013 operational results, 2014 guidance and year-end reserves so there were no operational surprises with these results.
The company took an after-tax $206 million impairment charge ($0.51 /share), writing off reserves and resources at the bottom of the Cerro San Pedro pit due to metallurgy. Those ounces had already been taken out of reserves when the company’s 2013-end reserves and resources were announced.
Valuation We are lowering our 12-month target price to C$8.00 (from C$8.25) per share, based on 0.95x our operating NAVPS estimate of C$9.46 (from $9.88) plus working capital changes. Our reduced NAVPS is explained by the application of a 15% risk-discount to our 5%/NPV for Blackwater to reflect the relatively long timeline to production (est., start-up 2020) and the potential for capital/cost escalation in the interim. Our 2014 EPS and CFPS estimates are $0.05 (unchanged) and $0.59 (from $0.60) respectively, a result of slight revisions to our estimates to better align to 2014 guidance levels.
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