New Gold (NYSEMKT:NGD) has recently reported its third-quarter operational results, providing investors and traders with an opportunity to look at how the company’s two mines performed during the last three months.

The company’s second-quarter results were hurt by unfortunate hedges and high costs due to ongoing investments into the Rainy River mine. However, the market was able to shrug off New Gold’s near-term problems and focus on the company’s earnings potential after 2020.

As per the operational report, New Gold produced 115,536 gold equivalent ounces (GEO) in the third quarter and remained on track to achieve the revised annual production guidance of 415,000 – 455,000 GEO.

Rainy River mine was able to produce 63,004 GEO compared to second-quarter production of 48,800 GEO. There were several factors that led to this major increase in production levels. Tons mined per day increased by 15% compared to the second quarter. Strip ratio declined from 4.48 to 2.99, so the company got more ore with each ton it mined. Gold grade improved from 0.78 g/t to 0.88 g/t, while gold recovery and mill availability remained flat compared to second-quarter levels. In short, the company’s turnaround plan at Rainy River appears to be working.

Meanwhile, New Afton continued to suffer from lower grades. The company managed to increase its production from 48,446 GEO in Q2 2020 to 51,315 GEO in Q3 2020 as it boosted the amount of tons mined per day, but gold grade dropped from 0.46 g/t to 0.44 g/t, while copper grade declined from 0.72 g/t to 0.71 g/t. At first glance, this situation does not look good from the cost point of view.

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In addition to good performance of Rainy River and stable work at New Afton, New Gold amended its credit facility which now matures in October 9, 2023, and has the borrowing capacity of $350 million. New Gold stated that it finished the quarter with $415 million of cash on the balance sheet, so its liquidity position was strong as it entered the fourth quarter.

Source: Seeking Alpha Premium

Earnings estimates have improved since I last wrote about the company as analysts realized that higher gold prices will boost the company’s earnings. I must admit that I’m somewhat surprised that the market was able to focus on New Gold’s longer-term perspectives and move beyond its unfortunate hedging program and problems with grades at New Afton.

The third-quarter operational report painted a picture of a healthy company, and the progress in Rainy River will be surely reflected in the company’s financial results.

New Gold will provide its third-quarter earnings report on November 5, and it will be interesting to learn about the company’s plans for its cash on the balance sheet. In the last few years, New Gold’s management focused on raising cash in order to ensure the company’s survival. Now that the company’s own actions and high gold prices have eliminated worries about its survival, investors will start to think about New Gold’s next steps.

In short, the third-quarter report will definitely look better than the second-quarter report. The company is moving in the right direction, and its recent share price upside appears to be justified. That said, it remains to be seen whether New Gold will be able to deliver additional catalysts to push its share price even higher after the stock gained about 140% since the beginning of the year.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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