If you’re looking for a fundamentally strong TSX stock that has the potential to deliver outstanding returns, you might want to take a look at New Gold (TSX: NGD). This company has been on a tear lately, soaring 138% in the last six months, thanks to its consistently improving operational performance and financial growth trends. The best part is that most Street analysts covering the company are still optimistic about NGD stock and give it a “buy” rating.
In this article, I’ll give you some key reasons why the recent rally in this top metal and mining stock could just be the beginning of a long-term uptrend, which could drive its share price even higher in the near future.
Robust operational performance
One of the primary drivers behind New Gold’s impressive stock performance has been its solid operational performance. In the second quarter of 2024, the company produced 68,598 ounces of gold and 13.6 million pounds of copper, meeting its production targets and demonstrating strong cost control. The miner’s focus on maintaining operating expenses also helped it reduce all-in-sustaining costs to $1,381 per ounce last quarter from $1,582 per ounce a year ago, boosting its profitability.
Notably, both of its core operations, New Afton and Rainy River mines, delivered strong production in the first half of the year as New Gold now expects to achieve higher production levels in the second half of 2024, which could accelerate its financial growth trends.
Strong financial growth momentum
Any stock cannot sustain its gains in the long run if it doesn’t have the financial backbone to support ongoing operations. In the last couple of years, New Gold has shown strong financial growth momentum. To give you an idea about that, the company’s total revenue rose 15.8% YoY (year over year) in the 12 months ended in June 2024 to US$810.8 million.
Besides higher production and stronger commodity prices, New Gold’s consistent focus on cost control has driven its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) up by around 37.3% YoY during the same period to US$316.8 million. Similarly, its adjusted EBITDA margin in the last four quarters combined has expanded to 39% from 32.5% in the previous four quarters.
Improving future growth prospects
Another important factor that could enhance New Gold’s future growth potential is its proactive development strategies and focus on consistently generating free cash flow. Last quarter, the company generated US$100 million in cash from operations, with around US$20 million In free cash flow. With this, NGD declared that it has entered a sustained period of free cash flow generation.
This ability to sustainably generate free cash flow each quarter is not only likely to strengthen its balance sheet and reduce its debt burden but also allow it to invest in long-term growth opportunities. Supported by these strong fundamentals, as New Gold continues to focus on its exploration efforts, with an aim to build a sustainable production platform of 600,000 gold equivalent ounces per year until 2030, its long-term growth looks impressive, which could drive its share prices even higher.
