Executive Summary / Key Takeaways

• New Gold Inc. (NYSE:NGD) stands at a significant inflection point, transitioning from a period of substantial capital investment to robust free cash flow generation, driven by operational ramp-ups and disciplined cost management at its Canadian mines.
• The company has strategically consolidated 100% ownership of its high-quality New Afton mine, eliminating prior free cash flow interests and enhancing its exposure to significant exploration upside and long-term value creation.
• NGD projects substantial growth in gold and copper production over the next three years, with gold increasing 30% to a midpoint of 410,000 ounces and copper surging 90% to 105 million pounds by 2027, alongside a projected 64% reduction in all-in sustaining costs to $400-$500 per ounce.
• Technological advancements, including New Afton's automation system and Rainy River's enhanced geological modeling, are critical differentiators, driving operational efficiency, cost reductions, and improved resource utilization.
• While NGD's smaller scale compared to industry giants presents certain vulnerabilities, its strong balance sheet, organic growth focus, and prudent capital allocation strategy position it for compelling shareholder returns in a favorable commodity price environment.

A New Era for New Gold: Operational Prowess Meets Strategic Vision

New Gold Inc. is an intermediate gold mining company with a focused portfolio of Canadian assets, primarily the Rainy River mine in Northwestern Ontario and the New Afton project in South-Central British Columbia. The company's core strategy revolves around maximizing value from these assets through operational excellence, organic growth, and a disciplined approach to capital allocation. This strategy is particularly pertinent in the current robust commodity cycle, where gold prices have seen a significant surge, with average gold prices rising 15% sequentially to $3,280/oz in Q2 2025. This upward trend is fueled by expectations of Federal Reserve rate cuts, a weak U.S. dollar, inflation, and geopolitical uncertainties, with analysts projecting gold could reach $4,000/oz by mid-2026.

The company's journey has been marked by strategic evolution, notably the multi-year process of consolidating its interest in the New Afton mine. Beginning in 2020 with a transaction aimed at improving its balance sheet, New Gold progressively increased its stake, culminating in the acquisition of the remaining 19.9% free cash flow interest from Ontario Teachers' Pension Plan in April 2025, achieving 100% ownership by May 1, 2025. This consolidation was a pivotal move, providing full exposure to New Afton's exploration upside and long-term cash flow potential without equity dilution.

Technological Edge: Driving Efficiency and Value

New Gold leverages differentiated technologies to enhance operational efficiency, reduce costs, and optimize resource recovery across its mines. At New Afton, the implementation of an advanced automation system is a key technological differentiator. This system is expected to be fully online in the first half of 2025, enabling continuous, 24-hour underground operations. The tangible benefit of this automation is a significant improvement in operational consistency and safety, as it allows for steady production between shifts and keeps personnel on the surface. This technological advancement contributes directly to a more predictable and efficient mining process, bolstering the mine's competitive moat by ensuring consistent output and potentially lower unit costs.

At the Rainy River mine, New Gold employs sophisticated geological modeling software, specifically referred to as PCBC, to manage and optimize its block cave operations. This technology is critical for simulating and managing the draw of ore, particularly in complex block caving environments. The company's disciplined draw management, informed by this software, has led to better-than-expected performance in the B3 cave at New Afton, with less dilution and higher grades than anticipated. Furthermore, Rainy River has addressed past grade reconciliation issues by implementing a new model with a 3 grams per tonne cap on high-grade material, which has reconciled effectively in Q2 2025. These technological applications are foundational to New Gold's strategy, contributing to improved resource utilization, enhanced operational control, and ultimately, better financial performance through optimized recovery and reduced waste. The company's commitment to a combined $30 million exploration investment in 2025 also underscores its focus on leveraging geological understanding and drilling technology to define new resources and extend mine life.

Financial Transformation and Robust Liquidity

New Gold has demonstrated a remarkable financial turnaround, marked by a significant inflection point in free cash flow generation. The company reported a record quarterly free cash flow of $57 million in Q3 2024, followed by an even stronger $63 million in Q2 2025. This robust performance is a direct result of increasing revenues, driven by higher metal prices and sales, and disciplined cost management. For the full year 2024, New Gold generated over $390 million in cash flow from operations and $85 million in free cash flow, exceeding the low end of its all-in sustaining cost guidance.

The first half of 2025 continued this positive trend, with cash flow from operations exceeding $107 million in Q1 2025 and $163 million in Q2 2025. New Afton, in particular, was a strong contributor, generating over $85 million in free cash flow in H1 2025. Rainy River also achieved a quarterly record of $45 million in free cash flow in Q2 2025.

This financial strength is further supported by a healthy liquidity position. At the end of Q2 2025, the company held $226 million in cash and had a liquidity position of $452 million. Post-quarter, New Gold redeemed the remaining $111 million of its 2027 senior notes using cash on hand. The company also refinanced and extended its senior notes to 2032 and its revolving credit facility to 2029 at lower rates, significantly enhancing its financial flexibility. A $150 million draw on the credit facility and a gold prepayment (delivering 2,771 ounces per month from July 2025 to June 2026 at $3,157/oz) were used to fund the New Afton buyback, with the expectation that the credit facility will be fully paid off by year-end 2025 from anticipated free cash flow.

Operational Milestones and Growth Trajectory

New Gold's operational performance is characterized by key project milestones and a clear growth trajectory. At New Afton, the C-Zone cave construction was approximately 65% complete by the end of June 2025, with undercutting completed in May 2025. This progress supports a ramp-up to a target processing rate of 16,000 tonnes per day by early 2026. The B3 cave, which over-delivered in early 2025 with higher grades due to less dilution, is expected to be exhausted by mid-Q3 2025, with C-Zone gradually increasing its contribution. The commercial production at C-Zone and the commissioning of the crusher and conveyor system in Q4 2024, ahead of schedule, have eliminated truck haulage, removing production constraints and significantly reducing costs.

At Rainy River, the pit portal breakthrough in early April 2025 and the commissioning of the ODM East ventilation loop and fresh air raises in Q2 2025 are critical for increasing underground development and production rates. The mine successfully transitioned from processing low-grade stockpile material to higher-grade open pit ore in Q2 2025, leading to a record production month in June 2025 with over 37,300 ounces at an average grade of 1.44 grams per tonne. The mill demonstrated its capacity by processing over 30,000 tonnes per day for more than 40% of the days in June. The underground mine is set to deliver 846,000 ounces in 2025, building on the first development ore from the Underground Main zone achieved in Q3 2024.

Competitive Landscape and Strategic Positioning

New Gold operates in a competitive gold mining industry, contending with larger global players like Barrick Gold Corporation (GOLD) and Newmont Corporation (NEM), as well as intermediate peers such as Agnico Eagle Mines Limited (AEM) and Kinross Gold Corporation (KGC). While NGD's operational scale is smaller than that of industry giants, its focused approach in stable Canadian jurisdictions provides a qualitative edge in regulatory reliability and local stakeholder relations. This regional expertise translates into enhanced project execution and potentially stronger customer loyalty through reliable supply in familiar markets.

Compared to Barrick Gold, NGD lags in overall scale and operational reach, which can limit diversification and bargaining power. However, NGD's agility in its niche markets and localized operational knowledge offer a competitive advantage in navigating regional complexities. Against Newmont, NGD may trail in technological adoption and sustainability investments, where Newmont's scale allows for greater efficiency in mine development and resource recovery. NGD's value proposition, however, emphasizes reliable production in stable regions, potentially offering lower regulatory risk. With Agnico Eagle, NGD's development-stage projects could offer faster entry into production, contrasting with Agnico's more conservative approach. While NGD's financial health and growth rates may appear less robust than those of some larger competitors, its improving free cash flow profile and disciplined capital management are narrowing this gap. The company's focus on organic growth, rather than growth for size, is a deliberate strategy to create value per share.

Outlook and Risk Assessment

New Gold projects significant growth over the next three years. Gold production is expected to increase by 30% from 300,000 ounces in 2024 to a midpoint of 410,000 ounces in 2027. Copper production is forecast to surge by 90% from 54 million pounds in 2024 to 105 million pounds in 2027. This production growth is anticipated to drive a substantial reduction in consolidated all-in sustaining costs, projected to decrease by 64% to $400-$500 per gold ounce by 2027. The company expects to generate approximately $1.86 billion in free cash flow over the next three years at current consensus commodity prices, potentially exceeding $2.5 billion at current spot prices, representing over 70% of its market capitalization.

For 2025, New Afton's production is guided at 60,000-70,000 ounces of gold and 50-60 million pounds of copper, with C-Zone mining rates ramping up towards 16,000 tonnes per day. Rainy River is expected to produce 265,000-285,000 ounces of gold, a 20% increase over 2024, driven by a 25% increase in gold grade from underground mining. Exploration remains a key focus, with a combined $30 million investment in 2025 targeting reserve replacement and mine life extension, particularly at New Afton's K-Zone and Rainy River's Northwest trend.

Despite this positive outlook, investors should consider several risks. Operational disruptions, as seen with the fatality-related suspension at Rainy River in Q3 2024 and mechanical downtime, can impact production schedules and costs. While management has implemented measures to mitigate grade reconciliation risks, inherent geological uncertainties remain. Commodity price volatility is a significant external risk, although the current high gold price environment is a strong tailwind. NGD's reliance on two primary assets also presents a concentration risk, making it more susceptible to site-specific challenges compared to more diversified global miners.

Conclusion

New Gold Inc. is charting a compelling course, leveraging strategic consolidation, operational advancements, and technological innovation to unlock significant shareholder value. The full ownership of New Afton, coupled with the successful ramp-up of both the C-Zone and Rainy River's underground operations, positions the company for substantial production growth and a dramatic reduction in unit costs over the next three years. This trajectory is expected to translate into a robust free cash flow profile, providing financial flexibility for debt reduction and potential shareholder returns in the medium term.

While the company operates within a competitive landscape dominated by larger players, its focused expertise in stable Canadian jurisdictions and commitment to operational efficiency, bolstered by technologies like automation and advanced geological modeling, provide a distinct competitive edge. Investors should recognize New Gold's disciplined approach to organic growth and capital allocation, which aims to create sustainable value rather than merely expanding size. With a clear roadmap for increased production, declining costs, and ongoing exploration upside in a favorable commodity market, New Gold presents a compelling investment opportunity for those seeking exposure to a transforming gold and copper producer.