Palantir a high-risk investment with ’a one-of-a-kind growth and margin model’
Tuesday, Scotiabank (TSX:BNS) analyst Eric Winmill increased the price target on New Gold (NYSE:NGD) shares to $4.25, up from the previous $4.00, while maintaining a Sector Outperform rating for the company. The stock has demonstrated remarkable performance, with a 70.86% return over the past year according to InvestingPro data, despite recent short-term volatility. The adjustment follows New Gold's announcement of an agreement to purchase the remaining 19.9% free cash flow (FCF) interest in the New Afton mine from the Ontario Teachers' Pension Plan (OTPP) for $300 million. This acquisition will bring New Gold's FCF interest in the mine to 100%, an increase from 80.1%.
The funding for this transaction will come from New Gold's existing cash reserves, borrowings from its revolving credit facility, and a gold prepayment financing of $100 million. As of the end of 2024, New Gold reported having $105 million in cash and an undrawn revolving credit of $400 million, which Scotiabank believes provides ample liquidity to finance the transaction as well as the gold prepayment. InvestingPro data shows the company maintains a healthy current ratio of 1.39 and strong cash flows that can sufficiently cover interest payments.
Scotiabank views the deal positively for New Gold's stock, as it consolidates ownership of a significant copper-gold asset in Canada, which is expected to have a favorable free cash flow outlook and potential for further exploration. Scotiabank's GBM price deck values the 19.9% interest in New Afton at approximately $340 million, suggesting that the transaction is accretive for New Gold.
Following updates to their financial model, Scotiabank has increased their net asset value per share (NAVPS) estimate for New Gold by about 4%. This revision has prompted the increase in the price target for New Gold's stock to the new level of $4.25, while the Sector Outperform rating remains unchanged. With an EBITDA of $428.5M and revenue growth forecast of 27% for FY2025, InvestingPro analysis reveals strong fundamentals supporting the company's growth trajectory. For deeper insights into New Gold's valuation and growth potential, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, New Gold Inc. has announced the pricing of a $400 million offering of 6.875% Senior Notes due 2032, with the proceeds intended to repurchase its 7.50% senior notes due 2027. Concurrently, the company has launched a tender offer for its existing notes, aiming for redemption by July 2025. S&P Global Ratings has upgraded New Gold's issuer credit rating from 'B' to 'B+', citing stronger-than-expected cash flows and leverage measures. The firm's unsecured notes due 2027 also received an upgrade to 'BB-', reflecting improved financial metrics.
Moody's Ratings assigned a B3 rating to the new notes and revised the company's outlook to positive, supported by anticipated increases in free cash flow and production. BMO Capital Markets maintained an Outperform rating on New Gold, with a target price of C$5.50, following the company's adjusted earnings per share of US$0.07, which aligned with forecasts. Despite missing the lower end of production guidance, New Gold's financial performance met analyst expectations. The company reported cash costs of $769 per ounce for the year, adhering closely to its cost guidance.
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