CA - New Found Gold: Is A Price Drop Imminent?

2023-05-15 16:02:34 ET

Summary

• New Found Gold Corp. has had a successful year with multiple high-grade gold discoveries at its Queensway property in Newfoundland.
• The company has revealed several impressive drill results, including the recent discoveries of three new gold zones - "Monte Carlo", "K2", and "Everest."
• However, a pause on buying New Found Gold Corp. stock might be advisable here, as I argue below.

New Found Gold Update

This is an update on New Found Gold Corp. ( NFGC ), a leading gold exploration company, focused on advancing its high-grade Queensway property in Newfoundland, Canada, which was recently ranked as the No. 4 best mining jurisdiction in the world.

On Dec. 29, 2022 , and subsequently, on March 7 , I recommended buying New Found Gold stock for a few key reasons.

Even though the company's stock price dipped by 40% in 2022, I believed New Found Gold Corp. made significant strides during the year, uncovering multiple high-grade gold zones on its extensive property. I also predicted additional discoveries in 2023, which would likely lead to a surge in the stock price.

My advice has worked out well so far: shares have soared 30% since my buy recommendation in March, outperforming the S&P 500 Index (SP500), which has only risen by 3.11% .

However, despite recent exploration successes and the strong performance, I think it may be time to take a breather on buying New Found Gold stock, as a better buying opportunity may be coming soon, as I explain below.

New Found Gold: More High-Grade Hits In 2023

First, let's talk about New Found Gold's successes year-to-date. The company has been very active as it is currently undertaking a 500,000m drill program at Queensway. Here are the highlights.

March 13. New Found Gold Intercepts 49.7 G/T Over 29.9 Meters at Iceberg Zone.

New Found Gold recently announced some of the most outstanding drill results from its Queensway project, including a drill hole that returned a "gram x meter" reading (which is grams per ton, multiplied by meter width) of 1,486-considered excellent by industry standards, as any result over 100 is deemed good.

What's more: these impressive results are from a subsequent drilling program at the newly discovered Iceberg zone, a high-grade area located 300 meters northeast of the Keats Main zone, the site of the company's primary discoveries to date.

Previous results from the Iceberg zone included a result of 72.2 g/t over 9.65 meters. A new result of 14.60 g/t gold over 3.8 meters was drilled starting just 35 meters below the surface, which may indicate the potential for shallow open-pit mining.

New Found Gold emphasizes that the mineralization pattern observed in this area aligns with that at Keats Main. This is significant as it may substantiate the company's hypothesis that Iceberg is likely the eastern extension of Keats Main, suggesting the zones form part of a larger, interconnected zone.

April 4. New Found Hits 35.6 G/T Over 10.65 Meters at Iceberg.

New Found reported two diamond drill results that were completed at Iceberg on April 4. The results continue to impress the market, with highlights including 35.6 g/t gold over 10.65 meters, 3.1 g/t over 13.90 meters, and 12.6 g/t over 7.60 meters.

According to the company, at this point in time, mineralization at Iceberg has been drill-defined over 50 meters in strike length and traced to over 80 meters down-dip. But mineralization is also open along strike and to depth, indicating further discoveries are likely to come.

April 18. New Found Hits 4.27 G/T Over 31.55 Meters, Extends Keats West to 250 Meters Along Strike.

The company announced the results from 25 diamond drill holes that were completed as part of a drill program designed to expand the Keats West zone, as well as Keats North.

The company says step-out expansion drilling increased the strike length at Keats West to 250 meters. Highlights included 4.27 g/t over 31.55 meters at Keats West, and 16.0 g/t over 2.50 meters at Keats North.

According to New Found Gold, the area of Keats North is prime for making additional high-grade gold discoveries, as it is located between some of the company's best drill holes to date on the property.

May 10. New Discoveries at Three New Gold Zones Reported.

Perhaps the biggest news of the year came a few days ago when the company reported the discovery of three new gold zones - "Monte Carlo", "K2" and "Everest." These discoveries extended the mineralization over an impressive 4.1 km in strike length.

• At Monte Carlo, situated adjacent to Lotto but on the Appleton Fault's western side, the company reported hitting 12.3 g/t over 8.05 meters and 13.0 g/t over 4.75 meters.

• At K2, located 725 meters north of Lotto on the Appleton Fault's western side, the intervals included 28.6 g/t over 2 meters and 11.2 g/t over 4.25 meters.

• Everest, positioned 1.5 km northeast of Lotto, unveiled high-grade drill results of 36.7 g/t over 3.70 meters.

• Finally, the company also reported strong follow-up drill holes at Lotto North and Dome. In particular, one drill at Dome hit 21.1 g/t over 7.65 meters.

These discoveries are significant as they demonstrate the expansive scale of the Queensway project and hint at a potentially greater amount of gold resources than initially anticipated (Note: an initial resource has not yet been planned). The persistence of high-grade gold results is also a promising sign.

The Appleton Fault Zone now boasts several high-grade gold zones: Keats, Keats North, Cokes, Iceberg, Keats West, Road, Golden Joint, Dome, Lotto, Monte Carlo, Lotto North, Zone 36, K2, and Everest.

Why New Found Gold May Not Be A Buy Right Now

New Found Gold Corp.'s announcement of the discovery of three new gold zones is very bullish for its resource upside, but it also means that it will need to expand its drilling program even further to test these new zones. That likely means a more expensive exploration budget.

With approximately ~$60 million in the bank (as of May 2023), the company is well funded. But I think it's likely to tap into the markets soon to raise more money in an effort to expand the drill program throughout 2023 and into 2024.

Typically, when a gold exploration company raises funds, it involves issuing new equity, which dilutes existing shareholders and frequently results in a short-term stock price drop. As an example, on Dec. 14, 2022, the company concluded a $50 million financing round , led by investor Eric Sprott, issuing 6.25 million new shares at C$8.00 per share.

While I anticipate favorable financing terms through Canada's " flow through financing " benefit, and foresee Sprott participating again in the financing, there's a likelihood that the stock price may drop a bit following the announcement. Though the exact timing of new financing is uncertain, it might occur by the end of this quarter, or perhaps in Q3/Q4.

Of course, there are other factors that could negatively impact its stock price. The price of gold, for instance, could fall if the U.S. successfully negotiates to raise the debt ceiling and averts a default - which could subsequently lead to a drop in New Found Gold shares.

Finally, you can also argue that New Found Gold Corp. is looking a little expensive at the moment. The company has a market capitalization of US$811 million, despite not having any stated gold resources or reserves yet. I would argue that the drilling results to date suggest that, in due time, New Found Gold will possess a multi-million-ounce, high-grade resource, and, it's located in a top-tier mining jurisdiction. Future technical studies will likely reveal a highly profitable operation, which will support the high valuation.

However, it's fair to argue that paying up in price now for its future upside potential can be a challenging investment decision to make.

In conclusion, while I remain very bullish on New Found Gold Corp. shares and I love the company's success this year, I believe the short-term outlook is uncertain. Current risks may overshadow potential rewards for new buyers. I'm content with maintaining my current position and look forward to a potential dip in New Found Gold Corp. shares in the future (at which point I'll be an eager buyer).

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