Loss-Making New Gold Inc. (TSE:NGD) Expected To Breakeven In The Medium-Term

By
Simply Wall St
Published
December 21, 2020
TSX:NGD

We feel now is a pretty good time to analyse New Gold Inc.'s (TSE:NGD) business as it appears the company may be on the cusp of a considerable accomplishment. New Gold Inc., an intermediate gold mining company, engages in the development and operation of mineral properties. The CA$2.0b market-cap company’s loss lessened since it announced a US$74m loss in the full financial year, compared to the latest trailing-twelve-month loss of US$58m, as it approaches breakeven. The most pressing concern for investors is New Gold's path to profitability – when will it breakeven? Below we will provide a high-level summary of the industry analysts’ expectations for the company.

See our latest analysis for New Gold

New Gold is bordering on breakeven, according to the 10 Canadian Metals and Mining analysts. They expect the company to post a final loss in 2020, before turning a profit of US$119m in 2021. Therefore, the company is expected to breakeven just over a year from now. How fast will the company have to grow each year in order to reach the breakeven point by 2021? Working backwards from analyst estimates, it turns out that they expect the company to grow 81% year-on-year, on average, which signals high confidence from analysts. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

earnings-per-share-growth
TSX:NGD Earnings Per Share Growth December 21st 2020

We're not going to go through company-specific developments for New Gold given that this is a high-level summary, though, bear in mind that by and large a metal and mining business has lumpy cash flows which are contingent on the natural resource mined and stage at which the company is operating. So, a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

One thing we would like to bring into light with New Gold is its relatively high level of debt. Typically, debt shouldn’t exceed 40% of your equity, which in New Gold's case is 80%. A higher level of debt requires more stringent capital management which increases the risk in investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on New Gold, so if you are interested in understanding the company at a deeper level, take a look at New Gold's company page on Simply Wall St. We've also put together a list of essential aspects you should further research:

  1. Valuation: What is New Gold worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether New Gold is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on New Gold’s board and the CEO’s background.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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