CA - New Found Gold: Is It A Buy Again?

2023-08-01 15:25:48 ET

Summary

• New Found Gold Corp.'s latest triumphs include two particularly notable gold hits.
• The company says it struck 4.43 g/t gold over 43.40 meters at Keats West.
• New Found Gold is also launching a new 10,000-meter drill program at Queensway South, where it previously hit gold mineralization in 27 of 33 drill holes.
• Another gold stock that owns New Found Gold shares may be a better buy here, however.

New Found Gold and Palisades Goldcorp Portfolio Developments

This is an update on New Found Gold Corp. ( NFGC ), a top tier gold explorer focused on advancing the Queensway project in Newfoundland, Canada.

In my most recent coverage, I highlighted New Found Gold's remarkable exploration result , which uncovered 105 g/t gold over 27.1 meters in the recently revealed Iceberg Zone. This equates to a staggering gram x meter score of 2,845.5, one of the company's best drill holes to date.

Following this announcement, the company's stock has outperformed the general VanEck Gold Miners ETF ( GDX ), registering a 4.9% return against the GDX's 3.5% gain. Year-to-date, New Found Gold has advanced by 26% versus the GDX's 13% gain.

This performance is pretty noteworthy in light of the lackluster performance in the gold exploration market this year, with many names down 50% or more.

Following that announcement, however, I stated that a pause on buying New Found Gold Corp. stock might be advisable due to the rapid increase in its share price, and likelihood of a better buying opportunity coming.

My latest update here relates to New Found Gold's latest finds from seven diamond drill holes, carried out as part of a drilling program aimed at probing the newly discovered Keats West zone. In addition, I discuss a related stock that I think may present investors with a better buying opportunity.

New Found Gold: What's new at Queensway?

The company's latest triumphs include two particularly notable hits:

• 5.05 g/t gold over 11.70 meters , with mineralization starting at the surface. This result extends the total strike length of the Keats West zone to 315m, with implications for the scale/size of the gold zone.

• An outstanding find of 4.43 g/t gold over 43.40 meters , positioned 120m east of NFGC-22-1027. The company says this finding offers a superb representation of the grade, thickness, and reliable continuity of gold mineralization that typifies the Keats West area.

Greg Matheson, Chief Operating Officer at New Found Gold, expressed enthusiasm regarding the ongoing progress at Keats West, stating:

"The consistent mineral grades and thicknesses at Keats West, conveniently found at the surface, continue to be a source of excitement for us. We are eagerly looking forward to more findings from not only Keats West, but also from our explorations at K2, Monte Carlo, and the west-side reconnaissance grid program."

Here's what I think about New Found Gold's latest drill results:

• The ongoing exploration has been successful in extending the strike length of Keats West, which speaks to the potential size and economic viability of the deposit. The consistent grade and thickness suggest a significant gold deposit.

• The shallow depths of these drills indicate that this gold may be suitable for open-pit mining, and at a low cost (although further exploration will need to be conducted to confirm this).

• I believe New Found Gold should be able to attract the investment of a mining company at some point, given its significant gold discoveries in a top-tier mining jurisdiction (located in Newfoundland).

Finally, New Found Gold confirmed a cash balance of $47 million as of July 2023, so it likely has enough funds to complete its drill activities.

But, as I've stated in past coverage, I believe the company may soon look to tap into the equity markets for capital for a new, larger drill program at Queensway, and such an equity offering may hurt the stock price in the short-term.

New 10,000 Meter Drill Program Announced

Meanwhile, New Found Gold Corp. will also test several early-stage drill targets at Queensway South ((QWS)). This new program follows a successful initial program in 2022 that revealed significant gold mineralization in 27 of 33 drill holes at various targets.

The 2022 program was moderately successful. It led to three noteworthy discoveries at Pauls Pond, which have been nicknamed "Astronaut," "Nova," and "Nebula." Astronaut and Nova are situated west of the Appleton Fault Zone, where eight of the nine drilled holes revealed visible gold, including a highlight interval of 19.0 g/t Au over 3.15 m. Nebula, found east of the fault zone, showed significant mineralization linked to a near-surface shear zone, the company says.

Results at "Devils Pond" and "Devils Pond South" were less promising, with highlighted intervals of 0.47 g/t Au over 8.00 m and 0.37 g/t Au over 28.00 m in Devils Pond, and 1.01 g/t Au over 8.80 m at Devils Pond South.

These results are pretty decent, but nowhere near the strong results we've seen at Queensway North, in particular, at the Keats, Keats West, and Iceberg Zones.

With $47 million in the bank, the company can easily afford to test these targets. But one could argue that the company would get a better investment by increasing the drill program at Queensway North rather than testing these earlier stage targets.

What about Palisades Goldcorp stock?

In my perspective, Palisades Goldcorp Ltd. (PLGDF) remains a superior investment option due to its outstanding value.

Reminder: Palisades has a 27% controlling stake in New Found Gold. Based on current market valuations, this equates to roughly ~ US$240 million . The company has other minor investments, but its New Found Gold stake is undoubtedly the most significant asset.

The investment potential in Palisades is evident when considering its market cap of $106 million and an enterprise value of approximately $98 million, which includes its net cash.

By simple deduction, Palisades appears to be trading at a considerable discount, approximately $146 million to its net asset value!

[Note: In US dollars, as of July 19].

Another significant advantage of investing in Palisades is its tight share structure, with only 49.1 million shares outstanding, and no immediate requirement to dilute shareholders by issuing new shares.

The company generally will not need to dilute shareholders as much as New Found Gold. Why: Since Palisades is an investor in New Found Gold and doesn't contribute any funds towards its exploration efforts. Therefore, I believe it will maintain this lean structure, possibly leading to outperformance of NFGC.

Over time, I anticipate the discrepancy in value to decrease, which should yield attractive returns for investors who enter now and exhibit patience.

Until this adjustment occurs, Palisades is set to continue repurchasing its undervalued shares in the open market (as indicated in the chart above), thereby reducing its share count and potentially increasing the value of its remaining shares. I expect repurchases to resume shortly.

New Found Gold: The Bottom Line

New Found Gold Corp. will likely continue to strike high-grade gold at its Queensway project, and it's developing into quite a substantial gold project.

I'm happy holding my New Found Gold stake here, and I think the stock will perform well, but Palisades Goldcorp is looking like a much better value play at the moment due to its extreme discount to net asset value.

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