New Gold (TSX and AMEX: NGD) [Shares: 37M issued, 49M fully diluted as at 28 June 2007]
Date / Location of update	Comments
8th August 2007, Interim Update (Stock price: US$6.85)	We want to reduce the total number of stocks we are following in order to provide better coverage of the remainder. And given that we perceive considerable risk within the base metals sector it makes sense to begin by reducing the number of base metals-related stocks in the TSI Stocks List. We are therefore going to immediately exit three copper stocks as noted below. Each of these stocks will probably be trading at a much higher price two years from now, but it is the risk/reward balance with respect to the coming 3-6 months that concerns us. a) We will exit New Gold (AMEX: NGD) at Wednesday's closing price of US$6.85, thus realising a loss of 9.3% based on our June-2006 entry at US$7.55. NGD has just completed the construction financing for its New Afton copper/gold project in British Columbia and announced some good exploration news earlier this week, so the NGD story is unfolding in a positive way. As a result, it may find its way back into the TSI Stocks List at some point over the next 12 months. However, we are exiting now because it is a leveraged play on copper and because junior mining stocks often languish whilst in the construction phase. b) We will exit Taseko Mines (TSX: TKO, AMEX: TGB) at Wednesday's closing price of C$5.59, thus realising a profit of 437% based on our November-2003 entry at C$1.04. We recently suggested taking partial profits in TKO, but due to the run-up in the stock price and our intermediate-term assessment of copper's risk/reward we think the time is right to bid farewell to this long-term holding. A large correction -- which, of course, is not guaranteed, but is the risk that concerns us -- would almost certainly prompt us to return to Taseko. c) We will exit Western Copper (TSX: WRN) at Wednesday's closing price of C$1.62, thus realising a profit of 22.7% based on our June-2006 entry at C$1.32. We suggested taking partial profits on WRN in April when the stock was trading at C$2.15, but have now decided to make a complete exit. Due to its massive low-grade in-ground copper resource WRN is, in effect, a long-term call option on copper, but a call option on copper is not what we want right now.
3rd April 2007, Interim Update (Stock price: US$7.24)	NGD announced the results of the updated Feasibility Study (FS) for its New Afton copper/gold project on Monday. The market didn't like the FS results, but we thought they were fine. The project is expected to produce an average of 78M pounds of copper and 82,000 ounces of gold per year over an initial 12-year mine life, with production potentially beginning in 2009. Using a copper price of US$2.01/pound and a gold price of US$487/oz the estimated pre-tax Internal Rate of Return (IRR) is 13.6% and the Net Present Value (NPV), at a discount rate of 5%, is US$266M. Now, $266M is only $8.86 per share (on a fully diluted basis), so anyone who believes that copper and gold will average US$2.01/pound and US$487/oz, resp., over the next several years shouldn't buy NGD near the current price. However, the FS showed that the New Afton project offers considerable leverage to the copper price. For example, at prices of US$2.50/pound and US$600/oz for copper and gold the NPV rises to US$551M (US$18.40 per NGD share); and boosting the assumed copper price to US$3.00/pound, while keeping the assumed gold price at $600/oz, raises the NPV to US$774M (US$25.80 per NGD share). What probably bothered the stock market was the revised capital cost estimate of US$268M. NGD currently has about US$50M of cash in the bank, so it will have to raise at least US$220M through some combination of equity and debt. The stock could struggle to make much headway until the financing is 'put to bed', so anyone interested in establishing a position should not have to pay-up. However, in the absence of a substantial downturn in metal prices we doubt that it will get much cheaper than it is right now (as noted on the following chart, US$6.80-$7.20 looks like a reasonable buy range). Also, with a solid FS now in place there is the potential for NGD to become the target of a cashed-up copper/gold miner such as Taseko or Northgate.
2nd April 2007, Weekly Update (Stock price: US$8.28)	Some of the most speculative junior copper stocks have recently been very strong. For example, two of our small exploration-stage copper juniors -- Copper Fox Metals (TSXV: CUU) and Western Copper (TSX: WRN) -- have doubled in price over the past 6 weeks. However, over the same period the juniors that are a little further up the food chain have typically demonstrated only modest signs of strength. By "juniors that are a little further up the food chain" we are referring to the small companies that already have, or are close to having, significant copper production. Examples of such companies include New Gold Inc. (AMEX: NGD), Northern Orion Resources (AMEX: NTO), Northgate Minerals (AMEX: NXG) and Taseko Mines (AMEX: TGB). Charts of the above-mentioned stocks are shown below. Interestingly, each of the charts appears to have an important characteristic in common: a 7-10 month basing-pattern nearing completion. It won't be confirmed that these are, in fact, basing patterns until the stocks break above the overhead resistance levels shown on the charts, but in our opinion the charts have a bullish bias. In each case, a break above the identified lateral resistance would project a move up to near last May's peak. Each of the stocks charted above offers good value. With the technical picture now becoming more bullish (incipient signs of strength, but not yet close to being 'overbought') and with copper having probably bottomed, we think it would be reasonable for traders and investors to do some buying near current prices. Of the junior copper stocks mentioned above, NGD is the riskiest and least liquid. It is the riskiest of the group because, unlike the others, it is still in the development stage and is thus a large consumer of cash rather than a generator of cash. NGD is due to release the updated Feasibility Study (FS) for its New Afton copper/gold project in the near future, an event that could turn out to be a positive or a negative for the stock depending on how the project's economics and capital costs have changed since the original study. In a previous commentary we suggested waiting for the FS results to be released prior to doing any new buying, but a reasonable alternative would be to take an initial position now with the aim of buying more once the project's economics have been confirmed. In addition to NGD (the stock), the TSI Stocks List contains the NGD warrants (TSX: NGD.WT) -- warrants with an exercise price of C$12.00 and an expiry date of February-2008. In the 17th January Interim Update we said: "We will look for a good opportunity to remove these warrants from the List during the first half of this year, but TSI readers who hold them hopefully took the bulk of their money off the table during last year's April-May surge." A good, or at least a better, opportunity to exit the warrants could occur within the coming 6 weeks if sector-wide strength is maintained and the FS doesn't contain any negative surprises. However, with the warrants being a long way out of the money and with only about 10 months to expiry we've decided to remove them from the List at Friday's closing price of C$1.04. This is just marginally above our original entry price of C$0.96, but, as noted above, readers who bought based on our original suggestion hopefully took most of their money off the table during last year's huge run-up. Gamblers who are holding NGD warrants and are prepared to risk a loss of at least 50% in exchange for a large POTENTIAL reward could consider waiting to see how the NGD story unfolds over the next 2 months before taking any action. The reason is that the warrants would become very valuable if the stock were to break above resistance at US$9.20 and rise to test its May-2006 peak in the near future.
17th January 2007, Interim Update (Stock price: US$7.62)	NGD is developing the New Afton copper/gold project in British Columbia into an underground mining operation that will likely produce around 75M pounds of copper and 80K ounces of gold per year. At copper and gold grades of 1.1% and 0.83g/t, resp., the project contains 1.42B pounds of copper and 1.55M ounces of gold in the measured-and-indicated (M&I) category. Copper and gold prices of only US$1.20/pound and $450/oz were used in the resource estimation, so in this respect it is a very conservative estimation. The results of the New Afton Feasibility Study (FS) are likely to be published in the near future, but we don't know whether this will prove to be a short-term positive or a short-term negative for the stock. A lot will depend on how much the projected capital costs have risen since the initial financial estimates were done in 2004. In 2004 the estimated cost of constructing a mine was US$150M, but due to the large increases in the costs of equipment and labour over the past 2 years, as well as a change in the mine plan, the new estimate will be much higher. What we don't know is how much higher and what the stock market is currently expecting (substantial increases in capital and production costs will have already been factored into the current stock price, so the stock's performance following the announcement of the FS results will be determined by the difference between actual and expected). NGD's stock price is underpinned by around US$2.30/share of cash, so its correction low is probably in place unless the FS contains a major negative surprise. In the current market environment we wouldn't, however, be buying NGD ahead of the FS. In addition to NGD (the stock), the TSI Stocks List contains the NGD warrants (TSX: NGD.WT). We will look for a good opportunity to remove these warrants from the List during the first half of this year, but TSI readers who hold them hopefully took the bulk of their money off the table during last year's April-May surge.
20th September 2006, Interim Update (Stock price: US$8.11)	Despite its name, New Gold is primarily a play on copper. As far as exploration-stage resource stocks go, NGD is low-risk. It owns a large high-quality copper/gold project in a politically-secure location (British Columbia); it has a LOT of cash (around US$80M); and within the next 18 months there is a good chance that it will evolve from being an explorer to being a profitable producer. Buy below US$8.00.
14th June 2006, Interim Update (Stock price: US$7.85)	In Wednesday's e-mail alert we said we'd add New Gold (AMEX: NGD) to the TSI Stocks List if it traded at US$7.55. The stock traded at this price on Wednesday and has therefore been added. Refer to the write-up on NGD included in the 6th March Weekly Update and archived at http://www.speculative-investor.com/new/NGD.html for the reasons we like this stock.
3rd April 2006, Weekly Update (Stock Price: US$9.30, Warrant Price: C$2.15)	We suggested buying the New Gold warrants (TSX: NGD.WT) on 6th March at C$0.96 and again on 20th March at C$1.15 because we like the company and because we thought the warrants were significantly under-valued relative to the stock. The warrants closed at C$2.15 on Friday, so anyone who took-up our suggestion to buy will be ahead by around 100% in less than 4 weeks. For those with plenty of gold/copper exposure in their portfolio we think it would make sense to exit HALF the NGD warrant position now.
20th March 2006, Weekly Update (Warrant price: C$1.15, Stock price: US$7.98)	New Gold (TSX and AMEX: NGD), despite its name, is more of a copper play than a gold play. We think the New Gold warrants (TSX: NGD.WT) are a good longer-term speculation near their current price of C$1.10-C$1.15, but as noted above it's generally not a good idea to use warrants for short-term speculations.
6th March 2006, Weekly Update (Stock Price: US$8.14, Warrant Price: C$0.96)	New Gold (TSX and AMEX: NGD) owns 100% of the New Afton copper/gold project in British Columbia, Canada. The project currently has a measured-and-indicated resource of 1.6B pounds of copper plus 1.9M ounces of gold at 1.08% copper and 0.85g/t gold (1.68% copper-equivalent). A Feasibility Study is underway and a new (increased) resource estimate is expected during the first half of this year. At Friday's closing price of C$9.20 (US$8.14), New Gold's market capitalisation is US$210M. However, the company has no debt and US$80M of cash, so the enterprise value is a much lower US$130M. NGD's valuation looks reasonable given the current size of the New Afton project and the potential for a significant resource expansion, but valuation alone doesn't differentiate this stock from many of the other prospective investments in the exploration-stage resource-stock universe. In addition to valuation, the main reasons we are interested in NGD as an investment are: 1. The company's New Afton project is located close to all necessary infra-structure (roads, power, water, township). 2. The project is located within an existing mining district so there shouldn't be major environmental concerns or a problem getting the required mining permits 3. A scoping study completed during 2004 showed that the project would have favourable economics at low metal prices (the study assumed a copper price of US$0.85/pound and a gold price of US$375/ounce). 4. Assuming positive results from the current Feasibility Study the New Afton project could be in production at the rate of 75M pounds/year copper plus 80K ounces/year gold by next year. 5. The capital cost to build the mine has been estimated at US$150M, so about half the money needed by the company to get into production is already in the bank. 6. This might seem absurd, but even though the company's resource is 75% copper and 25% gold the fact that the company's name is "New Gold" and not, say, "New Copper" could help the shares attract a gold premium (for some reason the stock market generally assigns a much higher value to a dollar of in-ground gold than to a dollar of in-ground copper). It would be reasonable to take an initial position in NGD now, but we aren't going to add the stock to the TSI Stocks List at this time. Instead, we will add it to the List if it pulls back to near the support shown on the following chart (C$7.50-C$8.00 or US$6.50-US$7.00). We are, however, going to immediately add the New Gold warrants (TSX: NGD.WT) to the TSI List. The warrants have an exercise price of C$12 and an expiry date of February-2008. They closed at C$0.94 bid / C$0.98 offer on Friday, so we will add them at C$0.96. The warrants were issued as part of a recent financing and only commenced trading last Tuesday. When warrants issued in a financing first begin to trade the price will sometimes represent a significant discount to fair value due to there being more supply -- the supply provided by participants in the financing unloading their warrants in order to offset the cost of taking-up the newly issued shares -- than demand. This, we think, has happened with the NGD warrants and is why we are going to add them to the List immediately. A word of caution: the warrants offer a lot more leverage than the stock, but they are much less liquid and much more risky. The lack of liquidity means that buyers might have to be patient in order to get positioned within 10% of Friday's closing price. Don't pay-up for these warrants (or anything else, for that matter).