New Gold falls short of 2024 gold guidance

New Gold (TSX, NYSE-A: NGD) shares fell on Friday after the company missed its production forecast in a challenging finish to the year.

The mid-tier miner cited December mechanical failures at its Rainy River mine in northwest Ontario. They disrupted throughput and lowered output. The company produced 298,303 oz. of the yellow metal, falling short of its revised guidance of 300,000-310,000 ounces. Copper production came in at 54 million lb., meeting the midpoint of its guidance range.

Jeremy Hoy of Canaccord Genuity called the results “slightly negative.” The mining analyst also raised concerns about Rainy River’s operational reliability.

“Unexpected downtime at Rainy River underscores the operational risks New Gold must address to build investor confidence,” Hoy said in a note Friday.

New Gold plans to release updated technical reports for both its mines in February. They are to detail efforts to increase production, cut costs and extend mine life. On the plus side, the company expects 2024 all-in sustaining costs to settle at the low-end of its US$1,240-US$1,340 per oz. guidance range.

Despite the cost control, the mixed production results on Friday weighed on investor sentiment.

New Gold shares, after more than doubling over the past year, fell 3.7% Friday to $3.89 in Toronto. The shares have tested $1.47 and $4.38 over the past 12 months and it has a market capitalization of $3.1 billion.

Long-term strategy

The company has signalled optimism about its long-term strategy. From this year New Gold aims for 600,000 gold-equivalent oz. per year through 2030. This is to be achieved by underground work at Rainy River and resource conversion at New Afton, in British Columbia.

Brian Quast of BMO Capital Markets noted that consistent operations could have a big impact.

“Stringing together some strong quarters as the company transitions into the C-Zone at New Afton and underground at Rainy River should make this stock re-rate to a premium to the group, given the growth profile and premium jurisdictions,” Quast said in a note Friday.

Challenging year

Rainy River, New Gold’s flagship open-pit and underground mine 400 km west of Thunder Bay, faced setbacks throughout the year.

The mine produced 225,694 oz. gold last year, below its revised guidance of 230,000-240,000 ounces. The failure of the crushing and conveying system last month worsened earlier issues. These included a fatality in July that halted operations.

In the three months to December, Rainy River produced 60,786 oz. gold, but full-year output remained 3% below expectations.

Despite these challenges, CEO Patrick Godin highlighted progress on underground development. Its production is expected to ramp up, increasingly supplementing open-pit operations.

“Rainy River delivered its first underground ore ahead of schedule,” Godin said.

New Afton highlight

Hoy also noted that the New Afton mine, about 10 km west of Kamloops, delivered a strong performance last year, beating guidance. New Gold has been using block cave mining to good effect there.

The mine benefited from the ramp-up of its C-Zone, which entered commercial production early in the fourth quarter, the company said.

The underground copper-gold mine produced 72,609 oz. gold and 54 million lb. copper last year, besting the gold guidance of 60,000-70,000 ounces. Fourth-quarter output reached 19,652 oz. gold and 14.5 million lb. copper, a 19% and 15% increase over the prior quarter, respectively.