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Shares in New Found Gold (TSXV: NFG, NYSE: NFGC) plunged nearly a third on Tuesday after the explorer posted a long-awaited initial resource for its Queensway project in Newfoundland that missed expectations.

The project has 18 million indicated tonnes grading 2.4 grams gold per tonne for 1.39 million oz. gold, plus 10.7 million inferred tonnes at 1.77 grams for 610,000 oz. contained metal, the company said on Monday.

“Queensway’s initial resource of 2 million oz. in all categories resets the market expectation of grade and scale,” BMO Capital Markets said on Tuesday. “We were previously assuming about 2 million oz. of high grade at Keats and Iceberg augmented by at least 1 million oz. from other zones.”

The Queensway project near Gander was heralded as the centre of a Newfoundland exploration resurgence that included Labrador Gold (TSXV: LAB) and Exploits Discovery (TSXV: NFLD) among others. But an investigation by short-seller Iceberg Research last year accused New Found Gold of massive drilling and irresponsible reporting of assays to hide a nuggety but inconsistent deposit.

The Vancouver-based junior’s stock dropped 29% in Toronto to close at C$1.59 apiece on Tuesday, valuing the company at C$318.7 million. It’s traded in a 52-week range of C$1.55 to C$5.71. 

Keats target

New Found Gold created waves in 2019 when a drill hole at the Keats target cut 19 metres grading 92.9 grams from 96 metres downhole. But since then, the company has drilled more than 560,000 metres for a total of 723,387 metres when including past owners over the property’s four-decade history.

While the company made discoveries and posted the best assays globally several times in The Northern Miner’s Weekly Drill Down, it was a huge amount of drilling before a resource and it raised eyebrows in the industry.

In 2022, the British Columbia regulator ruled the explorer had engaged in smearing – averaging high-grade narrow intercepts over broader intervals with low or no grade. Iceberg said New Found repeatedly tried to make gold distribution look more consistent than it actually is. Management changed at New Found Gold in January and former CEO and founder Collin Kettell is now a director.

“While the economic evaluation is advancing, exploration of our highly prospective landholdings will continue, with the ultimate objective of building a major new gold mine in central Newfoundland,” new CEO Keith Boyle said in a release this week.

June study

BMO mining analyst Andrew Mikitchook knocked his stock price forecast to C$4 from C$10 on Tuesday and said the resource estimate served to mark time until a preliminary economic assessment is due late in this year’s second quarter. It should include studies on combining a primarily open pit development with underground mining, he said.

“There are some advantages to this new baseline,” he said. “Mining Queensway at larger scale simplifies dealing with the nuggety mineralization and could extend mine life at higher production levels. This remains an exploration leveraged name with potential to identify further Keats/Iceberg style zones of mineralization over the 110 km of the Appleton Fault zone, the main mineralizing corridor.”

Mikitchook said the resource’s high grade recalls similar open-pit discoveries such as Kinross Gold’s (TSX: K; NYSE: KGC) Great Bear project in Ontario and Snowline Gold’s (TSXV: SGD) Valley project in the Yukon. A pit with 890,000 oz. at 7.16 grams could serve as the core for development and accelerate cash flows, he said.