New Gold cuts production forecasts, but shares rise

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New Gold Inc. [NGD-TSX, NYSE American] on Monday reduced its gold production forecast for its Rainy River mine in Ontario, resulting in a company-wide decline of 8.0%

The company now expects to produce between 405,000 and 450,000 ounces of gold this year at an all-in -sustaining cost of between US$1,415 to US$1,495 an ounce, which marks a cost increase of 14% from earlier forecasts.

However, New Gold shares were up 5.0% or $0.075 to $1.58 on volume of 1.3 million. The shares are currently trading in a 52-week range of $3.05 and $1.30.

New Gold is a Canada-focused intermediate gold mining company. It’s two core producing assets are the Rainy River mine and the New Afton copper-gold mine, which is located in British Columbia. The company also holds an 8% gold stream on the Artemis Gold Inc.  [ARTG-TSXV]  Blackwater project, which is also in B.C.

Rainy River is located northwest of Fort Frances, Ontario and the New Afton mine is located west of Kamloops in B.C.

At Rainy River specifically, production was 20,000 ounces less than expected in July and August in the East Lobe and gold production guidance for the operation is now down 13% to 235,000 to 250,000 ounces with the all-in-sustaining cost rising 19% to US$1,365 to US$1,440 an ounce.

A Scotiabank analyst said there remains an element uncertainty with respect to the modeled grade at Rainy River in the ODM zone, although on the East Lobe of the ODM the company has not experienced any issues to date. Additional drilling does not guarantee the modeled grade will continue to reconcile well for the full open pit life of the mine, Scotiabank said.

Back in February,2020, New Gold released an updated life of mine plan for the Rainy River mine. It envisaged average annual gold production of 289,000 ounces at an all-in-sustaining cost of US$967 an ounce. Full depletion of the open pit was expected in early 2025. Underground mining is expected to begin in 2022. Peak production is expected to occur from 2025 to 2027.

The company has said it sees the potential to extend the underground mine life beyond 2028 should the prevailing gold price support the development of additional mining areas during that period and/or exploration efforts increase the resource inventory.

New Gold is engaged in a $300 million partnership with the Ontario Teachers’ Pension Plan that gives Ontario Teachers’ a stake in its New Afton mine.

Under the terms of the strategic partnership, Ontario Teachers’ agreed to acquire a 46% cash flow interest in New Afton and retains an option to convert the 46% interest into a joint venture stake in four years, or have the cash flow interest reduced to 42.5%. In return, New Gold received $300 million, money that will be used to improve the mining company’s flexibility and to reduce debt, New Gold said in a press release.

However, New Gold retains the option to potentially re-acquire 100% of New Afton. The mining company will also retain 100% of the exploration claims outside the New Afton mining permit area. But under the deal, it has granted Ontario Teachers’ an option to acquire its proportionate share of these claims upon conversion into the joint venture interest.

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