A company where copper is as good as gold – by David Milstead (Globe and Mail – February 14, 2015)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

New Gold Inc. is, as its name suggests, a gold miner. But it’s another metal, copper, that plays a large role at the company – perhaps larger than a casual investor might suspect.

How so? New Gold’s New Afton mine, west of Kamloops, B.C., produces twice as much copper than gold, in dollar terms. That allows New Gold, quite legitimately, to report extraordinarily low company-wide mining costs, much lower than at its properties where gold dominates.

The role of copper at New Gold offers a window into how “byproduct accounting,” as it’s called, can impact miners’ financial statements. And it raises an important point for New Gold’s shareholders: To evaluate the company’s prospects going forward, it’s essential to keep an eye not only on the bullion that gives the company its name, but on the lesser metal that provides New Gold much of its cost advantage.

To be clear: The copper factor is not hidden. Investors can plainly see the effects by carefully reviewing the miner’s reports. New Gold released its preliminary 2014 numbers earlier this month, with full results to come Feb. 20. New Gold reported all-in sustaining costs (AISC), a number designed to capture the true long-term cost of mining, of $845 (U.S.) per gold ounce in the fourth quarter.

When broken out per property, there was a wide variance: Its Mesquite property in Arizona reported AISC of $1,090, while its Australian Peak Mines and its Mexican property Cerro San Pedro reported AISC of $1,231 and $1,447, respectively, both above the price of gold in the quarter. (See table for more detail.)

New Afton, however, reported AISC of negative $560 in the quarter, sharply decreasing the company’s average number. That overall cost figure is something the company emphasizes: Its Feb. 4 news release said the 2014 results meant it was “solidifying its low-cost position” in the mining industry.

For the rest of this article, click here: http://www.theglobeandmail.com/globe-investor/investment-ideas/byproduct-accounting-makes-mining-companys-copper-as-good-as-gold/article22998055/

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