New Gold Inc (NYSE:NGD) shares gained more than 10% on Friday after the company reported a third-quarter earnings beat, but at least one analyst remains skeptical of the gold producer’s long-term upside.

The Analyst: Bank of America analyst Michael Jalonen reiterated his Underperform rating and $1.25 price target for New Gold.

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The Thesis: On Friday, New Gold reported third-quarter adjusted EPS of 3 cents, beating consensus analyst estimates of 2 cents. However, third-quarter revenue of $180 million missed analyst expectations of $192.3 million. Revenue was up 3.5% from a year ago.

New Gold reported cash cost and all-in sustaining costs (AISC) of $966 and $1,408/GEO (gold equivalent ounce) in the quarter, roughly in line with Janonen’s estimates. The company generated a negative free cash flow of $1.1 million, down from a positive free cash flow of $4.7 million a year ago.

New Gold also maintained its full-year 2021 production guidance of between 405,000 and 450,000 GEO.

New Gold is also developing an underground mine plan study for its Rainy River property that will be released in the first quarter of 2022. Jalonen said any plan that would extend Rainy River’s production past 2028 would potentially have a positive impact on his net asset value estimate for the company.

On Friday, Jalonen said New Gold’s FCF continues to create risk for investors.

“We rate New Gold shares as Underperform on concerns around liquidity, permitting, execution and valuation, particularly in the short-term,” Jalonen said.

Bank of America is projecting a full-year FCF of $23 million in 2021 and $154 million in 2022.

Benzinga’s Take: New Gold’s numbers weren't particularly impressive, so much of Friday’s move may simply be a relief rally or a continuation of a technical uptrend that’s been in place since the beginning of October. Even after the big post-earnings move, New Gold shares are still down 19% overall in 2021.

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