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New Gold (NYSEMKT:NGD) says its production and resource base are now fully leveraged to the price of gold.
According to a statement from May 15, the falling price of gold was an opportunity to eliminate the hedge that were associated with its Mesquite mine. The company says that 110,000 ounces of future production can now be sold at the prevailing spot gold price.
The news didn’t move the stock, which down along with the rest of the gold miners. New Gold has dropped 13.37% since May 13 to $6.47 today. The 52-week range is $6.25 to $12.84. The company was recently downgraded by The Street from a buy to a hold due to its “. . . disappointing performance in the stock itself and disappointing return on equity.”
New Gold is an intermediate mining company running the New Afton Mine in Canada; the Cerro San Pedro Mine in Mexico; the Mesquite Mine in the United States; and the Peak Mines in Australia.
Here is the company’s statement from May 15:
VANCOUVER, May 15, 2013 /CNW/ – New Gold Inc. (“New Gold”) (TSX and NYSE MKT:NGD) today announces that the company has eliminated its legacy gold hedges that were associated with the 2008 project financing put in place to develop the Mesquite mine. As a result of Mesquite’s successful start-up, the company repaid the loan in 2010, four years ahead of schedule. With the elimination of the hedges, New Gold’s gold production and gold resource base now have full leverage to the gold price.
“Our constructive view on the gold price has led us to unwind the gold hedges,” stated Randall Oliphant , Executive Chairman. “We believe the recent pullback in the gold price has provided us with a window to be opportunistic in eliminating the hedges. We look forward to the balance of 2013 and full year 2014 earnings and cash flow benefitting meaningfully as a result.”
By unwinding the hedges, New Gold has removed the requirement to deliver 5,500 ounces of gold monthly at a fixed price of $801 per ounce from May 2013 through the end of 2014. In total, an additional 110,000 ounces of future production can now be sold at the prevailing spot gold price rather than the contract price of $801 per ounce. In total, the company paid $65.7 million to eliminate the gold hedges. The transaction was executed at an average spot price of$1,396 per ounce.
New Gold continues to have a strong balance sheet with significant financial flexibility and anticipates that the elimination of the hedges should result in even more robust earnings and cash flow going forward.
Creative Commons image by uair01
