New Gold at turning point after $1 billion loss

New Gold Inc. [NGD-TSX, NYSE American] shares fell in active trading Thursday February 14 after the company released production forecasts for 2019 as well as financial results for the fourth quarter of 2018. They included a loss of $1.07 billion from continuing operations in 2018.

The forecast for 2019 includes high all-in sustaining costs of US$1,790 an ounce at the company’s Rainy River gold mine in Ontario where production is forecast at between 245,000 and 270,000 ounces.

The company’s New Afton Mine in British Columbia is expected to produce between 55,000 and 65,000 ounces of gold in 2019 as well as between 74 million and 85 million pounds of copper. All-in sustaining costs at New Afton are forecast at between US$500 and US$420 per ounce.

Investors reacted by sending New Gold shares down 24% or 39 cents to $1.24 on volume of 7.9 million. The shares are trading in a 52-week range of 90 cents and $3.65.

Meanwhile, in the fourth quarter of 2018, New Gold posted a net loss from continuing operations of $727.7 million or $1.26 per share, which includes a $671.1 million ($1.16 per share) impairment loss related to the Rainy River Mine ($452.9 million) and Blackwater Project ($218.2 million). The Blackwater Project is located in British Columbia.

The net loss from continuing operations for the year was $1.07 billion or $1.85 per share, including a $953.2 million ($1.65 per share) after-tax impairment loss related to the Rainy River Mine ($735 million) and Blackwater Project ($218.2 million).

New Gold shares went into freefall last year when the company reduced production forecasts at Rainy River to between 210,000 and 250,000 ounces from an earlier target of between 310,000 and 350,000 ounces.

That prompted a management restructuring that resulted in the elimination of five vice-president positions. The company also reduced its core asset base to two operating assets including the Rainy River and New Afton mines. This follows the divestment of the Mesquite and Peak mines last year.

New Gold said its 2018 annual production came in at 455,448 ounces, including 110,559 ounces of gold in the fourth quarter. That included 97,428 ounces and 315,483 ounces respectively from continuing operations.

“The fourth quarter was a turning point for the company as operations at Rainy River continued to improve as part of our short-term operational strategy to establish this asset for efficient and sustainable mining,” said New Gold President and CEO Renaud Adams.

“Combined with the solid performance from the New Afton Mine, the company reported a fourth quarter that delivered very encouraging results and we will build on that momentum in 2019,” he said.

Plans for this year include completion of all remaining construction and mill upgrades at Rainy River that will position the asset for profitable operations beginning in 2020.