New Gold shares hit a 12-month low on Rainy River's grade fade

New Gold Inc. (TSX: NGD; NYSE American: NGD) shares trading in Toronto fell to a 12-month low on Thursday after the company reported weaker than expected June-quarter financial results and cast doubt on whether it might achieve its full-year production guidance.

After markets closed on Wednesday, New Gold said it now expected to achieve the lower end of the 440,000 to 490,000 gold-equivalent ounces (GEO) range and possibly exceed its portfolio-wide all-in sustaining costs range of US$1,230 to US$1,330 per GEO at the higher end.

New Gold said in its earnings report the cornerstone Rainy River mine in Ontario recorded lower than expected grades from the East Lobe area in July.

The East Lobe deposit represents about half of the planned production from Rainy River for the second half of 2021.

Management went as far as to say Rainy River gold production might fail to achieve the lower end of the mine's initial forecast range of 275,000 to 295,000 oz. that the company had provided in March.

Rainy River has been in operation since 2017. (Image courtesy of New Gold.)

The lower grade at East Lobe could also compromise the profitability of Rainy River, the company warned. Management stated the lower grade could result in the company incurring all-in sustaining costs (AISC) over US$1,225 per gold-equivalent ounce for the operation.

New Gold said grades were also expected to be lower at the New Afton mine in British Columbia, with management reviewing potential changes to the mine plan.

During the first half of the year, New Gold produced 201,731 GEO, comprising 133,639 oz. of gold, 427,253 oz. of silver and 32 million lb. of copper, with the results broadly in line with the first six months of 2020.

For the second quarter, production was 105,705 GEO, better than the 98,079 GEO for the same quarter last year.

Despite the weaker outlook for two of New Gold's core assets, CEO Renauld Adams said in a statement the operations "performed well" in the second quarter and that the company expected an "improved performance" in the second half of the year.

"I am especially proud of the free cash flow generated in the quarter even at our planned lower grade," he said.

Free cash flow came in at US$21.4 million for the three months.

Adams said while the Rainy River mine experienced challenges in July, the mine had "reached an inflection point," and that "meaningful" free cash flow was expected going forward.

Revenue for the quarter was US$198 million and US$363 million for the six months.

New Gold reported a net loss of US$16 million in the period and adjusted earnings of US$27 million, or US$0.04 per share, broadly in line with average analyst forecasts.

New Gold shares fell to a new 12-month low of $1.50 on Thursday morning and last traded at $1.60 early in the afternoon. The stock is down 43% in the year to date, and nearly 80% over the past five years.

New Gold has a market capitalization of US$870.2 million ($1.09 billion).