Investing in gold mining stocks offers a way to gain exposure to the precious metal while diversifying your equity portfolio. As gold prices approach all-time highs, many mining stocks remain reasonably priced, presenting a chance for investors to purchase solid companies at a discount.
New Gold (TSX: NGD), with a market cap of $5.2 billion, has delivered impressive returns, providing shareholders with a nearly 150% increase over the past year. But is this stock a good buy right now?
In its Q1 2025 earnings report, New Gold showed it had met its production targets and was positioned to generate substantial free cash flow over the next three years. During the March quarter, the company produced 52,200 ounces of gold and 13.6 million pounds of copper, with an all-in sustaining cost of $1,727 per ounce. These figures represent about 15% of their annual guidance, indicating strong operational performance.
The standout performer was New Afton, which generated $52 million in quarterly free cash flow. After factoring in copper credits, the all-in sustaining costs were a negative $687 per ounce, highlighting the mine’s profitability. Production at the B3 cave exceeded expectations, and C-Zone production continued to ramp up following its commercial launch in Q4 of last year. New Gold anticipates B3’s depletion by the end of Q2 and expects C-Zone to reach its target of 16,000 tonnes per day by early 2026.
In a strategic move, New Gold announced in April that it would acquire the remaining 19.9% interest in New Afton from Ontario Teachers’ Pension Plan for $300 million, bringing its ownership to 100%. This purchase, funded through a mix of cash, credit facilities, and a $100 million gold prepayment, enhances New Gold’s full exposure to New Afton’s exploration potential without diluting equity.
The company also made financial moves to strengthen its position, refinancing senior notes to 2032 at lower rates and extending its revolving credit facility to 2029. With a strong liquidity position of $590 million, New Gold has bolstered its financial flexibility.
Looking ahead, New Gold plans to extend New Afton’s mine life beyond 2040, focusing on various exploration targets such as the Key Zone, Hanging Wall Zone, and D-Zone. At current commodity prices, New Gold expects to generate around $1.9 billion in free cash flow over the next three years, which could increase to more than $2.5 billion if spot prices hold, roughly 90% of the company’s market cap.
Analysts project that New Gold’s adjusted earnings will grow from $0.20 in 2024 to $0.75 in 2027, while free cash flow is expected to rise from $122 million to $1 billion during the same period. If New Gold’s stock is valued at 10 times its free cash flow, it could have a market cap of $10 billion, representing a potential upside of over 150% in the next 18 months. Even with a lower multiple of eight times free cash flow, the stock should more than double from its current level.
In conclusion, New Gold’s combination of strong cash flow potential, strategic acquisitions, and promising exploration prospects makes it a strong candidate for long-term growth, and its stock could be significantly undervalued.
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