Here's Why New Gold Inc. Shares Are Plunging Today

By Matthew DiLallo Markets Fool.com

Image source: Getty Images.

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What happened

Shares of New Gold (NYSEMKT: NGD) plunged on Monday morning and were down 16% by 10:45 a.m. EST. Driving the decline was the release of the company's 2016 production results and its preliminary guidance for 2017.

So what

New Gold produced 381,663 ounces of gold last year, which was right in the middle of its 360,000 to 400,000 ounce guidance range. Copper production, meanwhile, came in at 102 million pounds, which exceeded the high end of the company's 81 to 93 million ounce guidance range. The company also noted that it delivered record low all-in sustaining costs of $692 per ounce of gold last year, which were well below its guidance range of $750 to $790 per ounce.

Unfortunately, its outlook for 2017 isn't quite as bright. While the company sees gold output growing to a range of 380,000 to 430,000 ounces, that's not as high as it could have been. That's because the company does not expect to achieve first production at its Rainy River project until September, which is three month later than the previous estimate thanks to a slower than planned ramp-up of mining rates. That delay will result in higher operating expenses in 2017, with the company forecasting that all-in sustaining costs will increase to $825-$865 per ounce.

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One of the other issues facing the company is financing the remaining capex required to complete Rainy River. New Gold noted that after receiving the remaining $75 million streaming deposit from Royal Gold (NASDAQ: RGLD), it ended 2016 with $186 million in cash and had another $178 million remaining on its credit facility. However, after factoring in this liquidity along with projected cash flow at current commodity prices, the company expects to fall about $100 million short of the capital needed to complete Rainy River. NewGold is looking at a variety of alternatives to address the shortfall, including selling non-core assets, such as the stream on El Morro, as well as subordinated debt or equity financing transactions. However, given its current debt levels and today's plunging stock price, its best option appears to be another streaming agreement similar to the one it recently signed with Royal Gold.

Now what

New Gold continues to face delays at Rainy River, which is negatively impacting 2017 guidance for production and costs. Meanwhile, the company needs to find the cash to complete the project, which will be tougher to do after today's sell-off. This uncertainty clearly has investors spooked and will likely continue weighing on the stock until Rainy River starts delivering as promised.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.