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Sunday, July 31, 2016 Derek Macpherson

As Predicted NMI Increases Guidance after Strong Q2


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Newmarket Gold Inc. (TSX:NMI) increased production and reduced cost guidance for 2016 along with reporting Q2 financial results. After exceptional operating results, we suggested that Newmarket was likely to increase guidance, which could see Newmarket partially close the valuation gap to peers, which it did. Not only did Newmarket have strong production, it saw improving operating and all-in sustaining costs (AISC), along with strong financial performance. The strong quarter was driven by higher grades and recoveries from the company’s flagship asset, Fosterville. In our view continued operating execution along with continued exploration success at Fosterville, should see Newmarket close the current valuation gap to peers.


As suggested, guidance increased. Due to the record Q2 production the full year consolidated production guidance has increased to 225-235k ounces (was 205-220k ounces) based on H1 production of 119,248 ounces. Not only did Newmarket increase production guidance, it also lowered AISC guidance to US$900-975/oz (was US$950-1,025/oz) due to improving costs and increasing production at Fosterville. As well, the company has reduced planned capital spending at Cosmo, contributing to the lower guided AISC.

Improved guidance driven by record results from Fosterville. Fosterville recorded 37,245 ounces produced with a record average head grade of 7.5 g/t Au and a record recovery of 90.8%. This represents 61% of consolidated production and record values for production, grade and recovery were due to the successful commissioning of the new gravity gold circuit. Following these records Fosterville achieved record low quarter operating costs of US$440/oz and AISC of US$741/oz.

Guidance increase and strong economics could close gap with peers. Newmarket is currently trading at 4.3x 2017E EBITDA and 1.6x NAV, versus peers at 6.8x and 1.7x, respectively. Since announcing strong Q2 operating results, Newmarket is up 9.9% versus the GDXJ which is only up 0.7% which has started the process of closing the valuation gap to peers. In our view continued operating execution along with continued exploration success at Fosterville, should see Newmarket close the current valuation gap to peers

Company Description: Newmarket Gold Inc. (TSX:NMI) is a Canadian-listed gold mining and exploration company with three 100% owned operating mines across Australia. The Company is focused on maintaining a strong foundation of quality gold production, over 200,000 ounces annually, generating free cash flow and maintaining a large resource base as it executes a clearly defined gold asset consolidation strategy.



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