Why New Gold Stock Dropped Nearly 19% on Tuesday

By Rich SmithMarketsFool.com

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What happened

It's Tuesday and New Gold (NYSEMKT: NGD) stock is down again, with shares off 10.2% as of 11:30 a.m. EST -- but not for the same reason as yesterday.

So what

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Yesterday, as you may recall, New Gold shares failed to glitter after warning investors that it's unlikely to mine as much gold as it originally thought, due to delays in beginning production from its Rainy River project. The three-month projected delay is likely to push operating costs higher in the new year, and investors didn't like that news one bit, bidding down New Gold stock by 26% before the day was through.

Today, the other shoe dropped when Wall Street reacted to yesterday's news. Citing the delay at Rainy River for helping to push 2017 capital spending $250 million above earlier estimates, analysts at GMP Securities cut their rating on New Gold stock from buy to hold. As reported on StreetInsider.com this morning, GMP also cut its target price on New Gold stock to the Canadian-dollar equivalent of US$3.58.

Now what

Between Monday's and Tuesday's twin sell-offs, New Gold has now shed some 32% of its market capitalization, and is worth less than $1.4 billion. The company carries more than $640 million in net debt on its books, has never generated a copper penny's worth of positive free cash flow, and spent $250 million more on capital expenditures than it brought in as operating cash flow over the past 12 months. And now it's going to need to come up with more cash as it spends longer than it had planned to bring Rainy River into operation.

Luckily for New Gold, gold investors are usually the forgiving sort and don't mind investing in cash-burning, money-losing, debt-laden companies -- but it's starting to look like New Gold has found a way to try their patience.

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Rich Smith 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.