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Why New Gold Stock Is Getting Hammered Today

Matthew DiLallo, The Motley Fool
Updated

What happened

Shares of New Gold (NYSEMKT: NGD) sold off on Thursday, plunging more than 20% by 11 a.m. EST after the gold mining company reported its fourth-quarter results as well as its outlook for 2019.

So what

New Gold had previously reported that it produced 97,428 ounces of gold during the quarter, including 77,202 from its Rainy River mine in Canada, bringing its full-year total to 315,483 ounces. Today, it filled investors in on its financial results, highlighted by adjusted net earnings, which came in at $22.7 million, or $0.04 per share. That number was $0.04 per share ahead of analysts' expectations because the company kept a lid on costs.

Closeup of big gold nugget.
Closeup of big gold nugget.

Image source: Getty Images.

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While those results were better than anticipated, the company's guidance for 2019 underwhelmed. New Gold stated that gold production from its key Rainy River mine would be between 245,000 and 270,000 ounces this year, which puts it ahead of last year's total of 227,284 ounces. However, the company noted that its all-in sustaining costs at that mine would be $1,690 to $1,790 an ounce, which is well above last year's average of $1,501 because the company is investing more money into that mine to improve its long-term profitability.

CEO Renaud Adams noted that: "2019 is a pivotal year for the Company as we reposition New Gold for long-term success. In 2019, we will work to establish Rainy River as a profitable and sustainable mining operation." That's part of the company's strategy for the coming year to reposition its operations so that it can generate strong free cash flow by 2020.

Now what

Investors were hoping that Rainy River would turn into a cash flow machine for New Gold as it ramped up production. But that's not going to happen in 2019 because the company needs to continue investing in that mine so it can deliver higher margins and free cash flow in the future. Given the company's troubles with this mine in recent years, investors are better off watching from the sidelines to see whether New Gold can deliver on this promise.

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Matthew DiLallo 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.