New Gold's Q1 Results: Revenue Rises Amid Strategic Gains, But Costs Remain a Headwind

New Gold (NGD) reported mixed results for Q1 2025, with revenue growth driven by higher metal prices offsetting operational challenges and rising costs. While adjusted earnings remained flat year-over-year, the company highlighted strategic progress in its core assets—New Afton and Rainy River—and reaffirmed its long-term financial and production targets. However, investors must weigh these positives against persistent cost pressures and near-term production headwinds.

Financial Performance: A Delicate Balance

New Gold’s Q1 revenue rose 8.8% to $209.1 million, benefiting from stronger gold and copper prices. Despite this, the company posted a net loss of $16.7 million, narrower than the $43.5 million loss in Q1 2024. Adjusted net earnings of $12 million were slightly below the prior-year’s $13.1 million, reflecting higher operating costs.

The most encouraging sign was the turnaround in free cash flow, which surged to $24.9 million from negative $14.9 million a year earlier. This improvement was largely due to strong cash generation at New Afton, which alone contributed $52 million in free cash flow. However, these gains were partially offset by elevated costs at Rainy River, where all-in sustaining costs (AISC) jumped to $2,758/oz—nearly double the prior-year’s $1,638/oz—due to higher sustaining capital and inflationary pressures.

Operational Challenges and Strategic Progress

New Gold’s gold production fell 26% to 52,186 ounces, driven by lower output at Rainy River, which transitioned to underground mining. Copper production, however, held steady at 13.6 million pounds, aided by stable performance at New Afton.

The operational highlights were strategic moves to solidify control over its assets. The company completed the acquisition of the remaining 19.9% stake in New Afton for $300 million, consolidating full ownership of the mine’s free cash flow. This move eliminates dilution risk and unlocks upside from New Afton’s high-quality asset, which now operates with negative AISC due to strong copper by-product revenue.

At Rainy River, progress on the pit portal breakthrough reduced haulage distances and improved ventilation, setting the stage for a production ramp-up. The mine’s strip ratio—a key efficiency metric—dropped to 1.8, from 15.36 in Q1 2024, signaling better ore access.

Long-Term Outlook: Ambitious but Dependent on Execution

New Gold’s three-year plan is ambitious: it projects 38% gold production growth and 94% copper growth by 2027, with AISC falling 64% to $600–800/oz. Cumulative free cash flow over the period is expected to hit $1.86 billion, assuming stable gold prices around $2,650/oz and copper at $4/lb.

The company’s confidence stems from its operational roadmap:
1. New Afton: Plans to expand production to 60–70 thousand ounces of gold annually by 2025, leveraging ongoing exploration at the K-Zone and HW Zone.
2. Rainy River: Aims to boost gold output to 265–295 thousand ounces in 2025, with Phase 5 open-pit development and underground expansion.

However, risks remain. The cost outlook hinges on Rainy River’s ability to reduce AISC, which was a staggering $2,758/oz in Q1. Meanwhile, New Gold’s success in extending mine lives at both assets depends on exploration success.

Investment Considerations

• Valuation: New Gold’s stock trades at a forward price-to-free-cash-flow ratio of roughly 10x, which is reasonable given its growth profile but leaves little room for error.
• Liquidity: With $590 million in liquidity—including $213 million in cash and a $400 million undrawn credit facility—the company is well-positioned to fund its capital-intensive projects.
• Hedging: The Q2–Q3 hedging strategy (75% FX hedging in Q2 and 50% in Q3) mitigates currency risks, but sensitivity to gold prices remains a wildcard.

Conclusion: A Company with Clear Potential, but Execution Will Be Key

New Gold’s Q1 results reflect a company at a critical juncture. While its financial performance shows progress—particularly in free cash flow—the path to sustained profitability hinges on cost discipline and operational execution.

The buyback of New Afton’s minority interest and advancements at Rainy River are strategic wins that position the company to capitalize on rising metal prices. However, investors must remain cautious: Rainy River’s high AISC and the need to deliver on exploration targets pose material risks.

If New Gold can reduce costs as projected and meet production targets, its $620 million annual free cash flow goal by 2027 could make it a standout performer in the mid-tier gold sector. For now, the stock appears fairly valued, but its success will depend on turning operational milestones into consistent financial results.

Investors should monitor two key metrics:
1. Rainy River’s Q2 AISC: A decline from Q1’s $2,758/oz would signal progress.
2. Gold and copper prices: A sustained $2,650/oz gold price and $4/lb copper are critical to the company’s financial model.

In a sector where execution often trumps potential, New Gold’s story will be written in the coming quarters.