New Gold: A Hidden Gem Among Canadian Gold Producers

When we think of big names in the gold mining world, giants like Newmont and Agnico Eagle often dominate the conversation. We recently covered the junior mining trade, and how second tier producers are suddenly going to be much more attractive. Today, we’re going to look at New Gold (TSX: NGD) —a Canadian producer that might not have the headline allure of its larger peers but offers a fascinating mix of production, exploration prowess, and proven management.

Let’s take a closer look at what makes New Gold a compelling story right now.

Two Mines, One Balanced Portfolio

New Gold operates two mines: Rainy River in Ontario and New Afton in British Columbia. Together, these mines churn out about 400,000 gold-equivalent ounces (GEOs) annually. Why GEOs? Because New Afton also produces significant amounts of copper and silver, which contribute to its profitability.

At the end of 2023, Rainy River boasted 2.5 million gold-equivalent ounces in reserves, while New Afton held just under 2 million ounces. Both figures were calculated using a conservative $1,400/ounce gold price, meaning there’s room for upward revision if gold prices continue to hover above $2,500.

In terms of mine life, the current reserve base supports five years of production at Rainy River and eleven years at New Afton. That might sound short compared to industry giants, but exploration remains a key part of New Gold’s DNA—a trait that could extend these horizons significantly.

Rainy River: A Modern Success Story

Rainy River is a textbook example of the challenges and opportunity of modern gold exploration. Situated near Ontario’s border with Minnesota, this deposit was hidden under 30 meters of glacial till—essentially a chaotic mix of boulders and sediment left behind by ancient glaciers.

Finding it was no small feat. Prospectors drilled systematic reverse-circulation holes into the overburden, analyzing gold traces and grain shapes to zero in on the deposit. The result? A high-grade open pit and underground operation that began production in 2017.

Though the open pit is scheduled to close this year, exploration at the Intrepid zone and the main underground zone is keeping Rainy River alive and well. With $3 million allocated for further drilling in 2024, there’s hope for new discoveries to extend its life. Management’s past success has us optimistic that they will extend the mine life.

We talked about this strategy at length with Kelly Malcolm from Borealis last week, who previously worked on Detour Lake, Canada’s largest gold mine. Kelly’s new company, Borealis is trying a similar strategy in Nevada.

New Afton: Polymetallic Powerhouse

New Afton, located near Kamloops, BC, has a rich history. Once an open-pit copper mine operated by Teck-Cominco, the site was abandoned in the 1990s when Teck shifted focus to larger copper projects. New Gold saw the potential for an underground operation focused on its gold-rich polymetallic reserves and began commercial production in 2012.

The mine’s economics are bolstered by its copper and silver byproducts, which lower the cost of mining gold to what the company describes as “negative cash costs.” It’s a term that might sound like marketing fluff, but the math checks out when copper and silver revenues more than cover mining expenses.

This quarter, New Afton started producing from its C-zone—a promising extension that keeps costs and emissions in check with modern materials handling systems. Beyond the C-zone, the company is actively exploring targets in the adjacent K-zone and deeper areas, signaling plenty of growth potential.

Strategic Capital Management

Mining gold isn’t just about digging; it’s about managing costs and resources effectively. In 2020, New Gold sold a 46% free cash flow interest in New Afton to the Ontario Teachers’ Pension Plan for $300 million. This strategic move allowed the company to finance ongoing projects without heavily diluting its share count.

Fast forward to today, and New Gold has repurchased nearly half of that interest for $43 million—a savvy move as it ramps up production in the C-zone. Meanwhile, royalties on Rainy River gold production provide further financial flexibility, though they do chip away at top-line revenue.

All told, New Gold’s capital structure is a case study in balancing short-term cash needs with long-term shareholder value.

Positioned for Upside

At a glance, New Gold is fairly valued, trading at approximately 5x cash flow and 2x book value. But the real story lies in its exploration potential. Both Rainy River and New Afton are high-grade systems with open-ended resource possibilities.

The kicker? The heavy lifting—capital investment in mine construction and commissioning—is already done. Any new discoveries simply extend the life of already-operating projects, offering a low-cost path to growth.

With all-in sustaining costs of $1,381/ounce, New Gold sits comfortably in the 30th percentile of global gold producers. Coupled with high gold prices and a disciplined approach to exploration, the company has all the ingredients for success in this market.

What’s Next for New Gold?

Like all gold companies, New Gold’s fortunes are tied to the price of gold (and, to a lesser extent, copper). As prices rise, so does investor optimism. But the company’s commitment to exploration—backed by a proven track record of resource expansion—sets it apart as a miner with both stability and growth potential.

For those looking to bet on a rising gold market without venturing into the uncertainty of early-stage exploration plays, New Gold offers a compelling middle ground.

Have thoughts on New Gold or another mining company? Let us know—we’re always on the hunt for the next big story in the world of precious metals.

---

Information for this story was found via the sources mentioned and company filings. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.