With news that the Federal Reserve would leave interest rates lower coupled with the continued skepticism surrounding the European banking system along with the single European currency and the accelerated levels of inflation in China and India gold prices have climbed above the $1550.00 per ounce level and triggered significant investor interest in gold mining company New Gold Inc. (AMEX: NGD).
Making interest in New Gold Inc. even more pronounced is the gold mining company’s recently acquired Blackwater Project in British Columbia and their aggressive commitment to more than double the original drilling target originally set by the previous owner and operator Richfield Ventures Corp. NGD has already announced plans to target 40,000 to 50,000 meters of drilling by the end of the year which is in addition to the 20,000 meters that have already been drilled by Richfield and with a $20 million budget for their exploration program it stands to reason that they will reach their target.
That target has the potential to produce significant results as Randall Oliphant, Executive Chairman, said the Blackwater Project “adds a multi-million ounce gold resource with significant exploration potential to our portfolio of assets. We look forward to drilling the property aggressively to increase its already significant gold resource.” The Blackwater Project alone is said to have 1.8 million ounces of indicated gold resources and an additional 2.0 million ounces of inferred gold resources. With NGD’s plans to expand the project’s existing infrastructure to support as many as 10 drills by the end of 2011 they should certainly maximize the resources available.
It’s all welcome news to NGD shareholders who endured a miserable 2010 when shares were consistently floating in the 4.00 – 5.00 range and while shares have slide from a 52-week high of 11.95 in late March they are currently trading around the 10.00 – 10.10 level, above their 50-day moving average of 9.88 and 200-day moving average of 9.03 with trading volume consistently eclipsing its average.
The addition of the Blackwater Project along with NGD’s New Afton Project (said to have the potential to more than double the cash flow of the company) and their joint venture partnership in the El Morro Project located in the Atacama Region in north-central Chile provide a solid foundation for future growth which should start producing results in 2012.
In the meantime NGD has been putting together impressive results from their three producing assets; the Mesquite Mine in the United States, the Cerro San Pedro Mine in Mexico and the Peak Gold Mines in Australia. The company has said they expect to produce between 380,000 and 400,000 ounces of gold in 2011 while lowering their guidance for total cash cost per ounce sold, net of by-product sales, to $390 to $410 per ounce.
Looking at NGD’s 2011 first quarter results provides even more reason for optimism among shareholders after increasing their cash flow from operations by 120% to $51 million from $23 million during the same period in 2010. As pointed out by Oliphant, “We feel fortunate that with the prevailing strength in commodity prices our margins and cash flows continue to grow significantly.” Oliphant went on to state that the “growth will be further enhanced through the development of our two fully-funded organic growth projects as well as by our proposed acquisition of Richfield.”
New Gold was also able to increase earnings from their mine operations by 119% to $80 million in the first quarter while increasing their net earnings by 85% to $25 million. At the end of the 2011 first quarter NGD posted a cash balance of $520 million, a $29 million increase over the 2010 year-end cash balance, a level that should be enough to internally fund their exploration projects. That’s an important point for NGD as they are carrying $240 million of debt outstanding at the end of their first quarter with $184 million of 10% senior secured notes due in 2017, $44 million of 5% convertible debentures due in 2014 and $12 million in El Morro project funding loans.
While the focus of New Gold Inc. is obviously gold production the exploration company has also been able to capitalize on the silver and copper produced at their various projects. NGD has said these by-product commodities have been an effective offset against cost pressures related to input costs and foreign currencies.
It really appears as if NGD has placed themselves on stable ground for the future and they should benefit from the numerous financial problems plaguing Europe along with economic uncertainty inside the U.S. and the worrisome inflation being endured by India and China. NGD has increased production and lowered operational costs and with gold prices climbing shareholders who opt to hold long after buying on a low could see a nice payday down the road.