What happened
Shares of precious metal miner New Gold (NGD -1.19%) fell dramatically in early trading on July 12, losing 30% of their value in the first hour of trading. The big news was an operational update released on July 11, after the market closed. Clearly, investors didn't like what they read.
So what
Normally, production updates like the one New Gold provided are mundane affairs listing the production figures for key mines. Some variance is expected, but this time around New Gold provided extremely downbeat news. For example, flooding resulted in a material production shortfall at its Rainy River Mine, which was forced to process lower-quality ore just to keep the operation going. At its New Afton asset, meanwhile, the company closed a section of the mine earlier than expected, leading to lower production numbers. And costs were higher across the board thanks to inflationary pressures. So the upcoming quarter is highly likely to miss analyst expectations.
However, that wasn't the only piece of bad news. These issues aren't going away in the second half, leading New Gold to reduce its production projections for all of 2022. At this point, the company's new high-end production estimate is below its preview low-end estimate, which speaks to just how bad the situation is today and strongly suggests that 2022 is going to be a very tough year for this miner. Investors reacted as you would expect and sold the stock.
Now what
If there's any good news here, it is that precious metals prices are fairly high today, so they can offset the pain of lower production numbers. On the other hand, the company is potentially missing out on the opportunity to take advantage of those high prices. Either way you look at it, investors are clearly reevaluating New Gold's prospects, which seems like a good call. That said, more information will be available when the company reports earnings on Aug. 4, which should help investors sort out just how bad things really are.
