By: Yiannis Mostrous
Gold investments remain the best long-term hedge against the volatility now wracking world markets. The case for gold is strong: The euro zone crisis continues to unfold, while US and European economies struggle.
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Gold stock prices now offer good entry points; my favorite remains Canada-based miner New Gold (NYSE: NGD). The company announced that it produced 99,274 ounces of gold in the first quarter of 2012, roughly equal to production in fourth-quarter 2011. Net cash costs averaged USD543/oz, a marginal improvement from USD553/oz in fourth-quarter 2011. The company forecasts between 405,000 and 445,000 ounces of gold production this year, with net cash costs averaging between USD410-430/oz.
In late April, the Chilean Supreme Court suspended the environmental permit for the El Morro project that New Gold is developing with Goldcorp (NYSE: GG). The ruling came in response to an action filed against the Chilean governmental permitting authority, Servicio de Evaluacion Ambiental (SEA), by a local landowner group the Comunidad Agricola Los Huasco Altinos (CAHA), on the grounds that the SEA had neither adequately consulted nor compensated the indigenous people in the project area.
The 9 percent drop in New Gold’s share price in the wake of the court’s announcement is an overreaction. Goldcorp, which owns 70 percent of the project, is working with the SEA to address the issue and an eventual resolution is likely. The court delay shouldn’t last more than a year, with the project’s start date slated for 2018.
New Gold also is moving ahead with its New Afton project in British Columbia. New Afton will be an underground mine, annually producing an average of 75 million pounds of copper and 80,000 ounces of gold.
For this year, New Afton should produce 35,000 ounces of gold and 23 million pounds of copper. For next year, the project is expected to produce 91,000 ounces of gold, 148,000 ounces of silver and 67 million pounds of copper. New Afton is forecasted to generate free cash flow of around USD200 million in 2013.
The Blackwater project in central British Columbia is another of the company’s growth prospects, with initial production expected to begin in the first half of 2017.
The company has issued USD300 million in debt, of which USD200 million will be used to refinance old debt obligations. The new debt agreement permits the company to pay dividends; a decision on dividend policy is expected in the latter half of the year.