New Gold stock tumbles on Rainy River project delay, further capex overrun

VANCOUVER (miningweekly.com) – The TSX-listed stock of intermediate gold producer New Gold tumbled nearly 26% on Monday after the company announced a three-month start-up delay at its billion-dollar-plus Rainy River project, in Ontario, and a $195-million cost increase.

Analysts noted that the Rainy River update increased uncertainty for the project, which had seen capital expenditure (capex) shifting several times over 2016 - up from the initial 2014 capex estimate of $885-million, and might require the company to seek further funding to complete the project.

Management stated that it expected the remaining 2017 Rainy River capex to total $515-million, including a $40-million contingency provision, to achieve commercial production on November 1.

Meanwhile, construction is progressing, with the installation of mechanical, piping, electrical and instrumentation in processing facilities currently more than 60% complete.

About 24-million tonnes of overburden and waste stripping has been completed to date, and the mining rate in January averaged about 100 000 t/d.

New Gold expects to start staged commissioning of the processing facilities, with the primary crusher in March. Dry and wet commissioning of the entire process facility is scheduled for August.

New Gold expects Rainy River to produce between 50 000 oz and 60 000 oz, including pre-commercial production of about 15 000 oz, in the 2017 financial year. Operating expense is pegged at $905/oz to $945/oz of gold and all-in sustaining costs (AISC) are targeted to come in at $1 200/oz to $1 240/oz, the company advised.

PRODUCTION UPDATE
Despite the construction difficulties at Rainy River, New Gold on Monday reported solid production results for the full-year 2016 of 381 700 oz of gold from its four producing assets, which was in line with guidance.

Full-year copper output totalled 102-million pounds, exceeding guidance, while total cash costs came in at $349/oz, also topping 2016 guidance.

2016 delivered record low AISC of $692/oz, well below the mid-2016 updated guidance range of $750/oz to $790/oz, which had been lowered by $75/oz relative to the original 2016 guidance.

New Gold’s 2017 guidance calls for 380 000 oz to 430 000 oz of gold and 100-million to 110-million pounds of copper, at total cash costs of $395/oz to $435/oz.

MANAGEMENT CHANGES
Because of the development challenges encountered at Rainy River last year, New Gold has made several personnel changes to further strengthen the team as the project advances through the final stages of development and transitions into operation later this year.

Executive chairperson Randall Oliphant will step down but continue as a board member, while Ian Pearce will move up from being a board member to nonexecutive chairperson. Current president Hannes Portmann has added the role of CEO.

By late Monday afternoon, the TSX-listed stock was down 25.38% at C$3.88, having all but given back gains it made last year as the spot gold price rallied.