New Gold ups Q1 production by 41% (June 21, 2010)

New Gold (NGD-T, NGD-X) showed huge improvements during the first quarter of 2010, significantly increasing gold production and decreasing cash costs compared to the same period in 2009.

The company increased gold production by 41% to 77,000 oz. gold during the first quarter, up from about 55,000 oz. last year. Gold sales were 44% higher at 80,000 oz. from 55,000 oz. in 2009.

Silver production was lower, though, at 207,000 oz. silver compared to 427,000 oz. last year.

Copper production increased slightly at 4 million lbs., up from 3.8 million lbs. during the first quarter in 2009.

Cash costs were US$472 per oz. gold, down from US$513 per oz. last year.

New Gold expects the trend to continue. The company anticipates it will produce 330,000 oz. to 360,000 oz. gold from all of its operations this year.

The company had to overcome some challenges. Mexico’s environmental enforcement agency ordered New Gold to shut down its Cerro San Pedro gold-silver heap-leach mine near the city of San Luis Potosi in November and nullified its 2006 environmental impact statement. After dealing with the Mexican courts, the company was able to restart operations in mid-March.

Production at Cerro San Pedro during the first quarter was significantly lower at 13,000 oz. gold compared to nearly 20,000 oz. last year. Silver sales from Cerro San Pedro totaled 194,000 oz. compared to 372,000 oz. in 2009. Cash costs were US$622 per oz. gold compared to US$551 per oz. in the same period of 2009.

New Gold expects Cerro San Pedro will produce 95,000 to 105,000 oz. gold and 1.4 million to 1.6 million oz. silver in 2010, with cash costs between US$390 to US$410 per oz. gold. When silver is factored in as a byproduct, the cash cost is US$15 per oz. gold.

The story was better for the Mesquite gold mine in California’s Imperial Cty., where production rose to 44,000 oz. gold from 34,000 oz. The increase was attributed to an improvement in gold recoveries and the mining of reserve-grade ore, not the lower-grade material the company exploited last year.

New Gold forecasts that Mesquite will produce 145,000 to 155,000 oz. gold this year with cash costs of US$540 to US$560 per oz. gold.

Gold production at Peak Mines near Cobar in New South Wales, Australia, stayed relatively the same but cash costs were lowered compared to the first quarter of 2009. New Gold produced about 20,000 oz. gold from Peak during the first quarter with cash costs of US$136 per oz. gold, down from US$337 per oz. in the first quarter of 2009. Copper sales were 4.1 million lbs., up 2.8 million lbs. from a year earlier.

The company expects to produce 90,000 to 100,000 oz. gold and 15-17 million lbs. copper at Peak Mines in 2010 with cash costs around US$360 to US$380 per oz. gold sold, net of byproduct sales.

New Gold says its main development project, New Afton, which is 10 km from Kamloops, B.C., is on track to reach production in the second half of 2012 at which time it expects to produce 85,000 oz. gold and 75 million lbs. copper per year.

Finally, New Gold reports that Goldcorp (G-T, GG-N), its 70% partner at the El Morro copper-gold project in northern Chile, is working through the permit review project and hopes to begin construction in early 2011. Goldcorp is also making plans to optimize the existing feasibility study, which put capital costs at US$2.5 billion. The project has a measured and indicated resource of 8.3 million oz. gold and 6.3 billion lbs. copper.

New Gold downplayed the lawsuit filed by Barrick Gold (ABX-T, ABX-N) earlier this year against Goldcorp and New Gold that seeks to prevent Goldcorp from buying the majority stake in the project. Barrick had made an offer to Xstrata (XTA-L, XSRAF-O) for the 70% stake, but New Gold held first right of refusal. New Gold was able to exercise that right with Goldcorp’s financial help. Goldcorp gave New Gold US$463 million so it could buy the 70% interest. New Gold then turned around and sold the 70% stake in El Morro to Goldcorp. Barrick is claiming that the deal is illegal.