Investing in gold mining stocks provides exposure to the precious metal and helps diversify your equity portfolio. While gold prices are hovering near all-time highs, several mining stocks continue to trade at reasonable valuations, providing investors with an opportunity to buy quality companies at a discount.
Valued at a market cap of $5.2 billion, New Gold (TSX:NGD) stock has returned close to 150% to shareholders in the last 12 months. Let’s see if this TSX mining stock is a good buy right now.
Should you buy, sell, or hold this TSX stock?
In Q1 2025, New Gold reported that it met its production targets and is well-positioned to generate significant free cash flow over the next three years.
In the March quarter, New Gold produced 52,200 ounces of gold and 13.6 million pounds of copper at an all-in sustaining cost of US$1,727 per ounce. These production figures represent approximately 15% of annual guidance and demonstrate its operational consistency.
New Afton emerged as the standout performer, generating an impressive US$52 million in quarterly free cash flow, with negative US$687 per ounce all-in sustaining costs after accounting for copper credits.
The B3 cave delivered better-than-expected grades, while C-Zone production continued ramping up following commercial production in Q4 of last year. New Gold expects B3 exhaustion by the end of Q2, with the C-Zone scaling toward its target of 16,000 tonnes per day by early 2026.
Buying up gold mines
A transformative development occurred in April with New Gold’s agreement to acquire the remaining 19.9% free cash flow interest in New Afton from Ontario Teachers’ Pension Plan for US$300 million, consolidating ownership to 100%. This strategic move – funded through cash, credit facilities, and a US$100 million gold prepayment – provides full exposure to New Afton’s substantial exploration upside without equity dilution.
Management strengthened the balance sheet during the quarter, refinancing senior notes to 2032 at lower rates and extending the revolving credit facility to 2029. These moves enhanced financial flexibility while maintaining a robust liquidity position of US$590 million.
Management plans on extending New Afton’s mine life beyond 2040, capitalizing on multiple exploration targets including the Key Zone, Hanging Wall Zone, and D-Zone.
At current consensus commodity prices, New Gold projects approximately US$1.9 billion in free cash flow over the next three years, rising to over US$2.5 billion at current spot prices, which represents roughly 90% of the market capitalization.
This substantial cash generation potential, combined with operational improvements, strategic consolidation at New Afton, and promising exploration prospects, positions New Gold to create significant value in a robust commodity cycle.
Is New Gold stock undervalued?
Analysts tracking the TSX stock expect adjusted earnings to expand from US$0.20 in 2024 to US$0.75 in 2027. While free cash flow is forecast to increase from US$122 million to US$1 billion during this period.
If New Gold stock is priced at 10 times free cash flow, it will have a market capitalization of US$10 billion, indicating an upside potential of over 150% in the next 18 months. Even if the gold stock is priced at eight times free cash flow, which is relatively cheap, it should more than double from current levels.
