New Gold produces 90,000 oz. in Q2 (August 02, 2010)

New Gold (NGD-T, NGD-X) shares were up nearly 5% to $5.25 apiece on July 20 on news the company was able to increase gold production by 62% in the second quarter, due mostly to its Mesquite gold mine in California.

New Gold produced about 90,000 oz. gold from its mines in California, Mexico and Australia, up from 56,000 oz. during the same period last year.

“With further increases in gold production and decreases in cash cost, we expect the second half of 2010 to be an exciting one for New Gold,” said Robert Gallagher, New Gold’s president and CEO, in a statement.

A decrease in cash costs would be welcomed after a rise to an average of US$490 per oz. in the second quarter from US$468 per oz. in the same period last year.

The company expects to produce 330,000 oz. to 360,000 oz. gold in total over the course of 2010 with cash costs between US$445 and US$465 per oz. sold, net of byproduct sales.

Gold sales from the Mesquite mine rose 42% in the second quarter to 39,000 oz. gold from 27,000 oz. while actual production was 39,000 oz. compared to 26,000 oz. New Gold said it was able to increase production because it used a lower waste mining requirement and was therefore able to increase tonnage compared to last year. There was also an improvement in gold recoveries, though some of the benefits were offset by mining ore below reserve grade.

For the first half of 2010, gold sales at Mesquite increased by 47% to 88,000 oz. gold with production at 83,000 oz., up from 60,000 oz.

While New Gold was busy fighting with Mexico’s environmental authority to keep its Cerro San Pedro gold-silver mine in San Luis Potosi state open, the mining team was able to increase production at the mine by 22% to 29,000 oz. Gold sales increased just 6% to about 25,000 oz. while cash costs dropped substantially to US$288 per oz. compared to US$429 per oz.

New Gold said higher byproduct revenues helped lower cash costs and an increase in tonnes of ore mined boosted production.

The lower production in the first quarter of 2010 was due to the company’s explosive permit being delayed. In the first two quarters, New Gold produced a total of 42,000 oz. at Cerro San Pedro, compared to about 45,000 oz. during the first half of 2009.

New Gold has been in court trying to undo the Mexican environmental regulatory agency’s move to cancel the company’s environmental impact statement. The company has appealed against the court’s recent decision in favour of the agency. An evaluation by the judge is expected to take four to six months. The mine remains in operation for the time being as a result of an injunction granted in New Gold’s favour in late 2009.

Finally, New Gold’s Peak gold-copper mine in New South Wales, Australia, was basically unchanged hovering around the 22,000-oz. mark. Cash costs rose significantly to US$459 per oz. from US$364 per oz. The company said the increase was due to the timing of concentrate shipments and related inventory charges, an increase in salary costs and the appreciation of the Australian dollar. The company noted that its average realized copper price had risen significantly from US$2.07 per lb. to US$3.09 per lb.

During the first half of the year, production at the Peak mine was about 42,000 oz. gold, down from 43,000 oz., while copper production was about 4 million lbs., down from 4.3 million lbs.