New Gold in $300 million deal with Ontario Teachers

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New Gold Inc. [NGD-TSX, NYSE American] on Tuesday February 25 announced a $300 million partnership with the Ontario Teachers’ Pension Plan that gives Ontario Teachers a stake in its New Afton Mine in British Columbia.

Under the terms of the strategic partnership, Ontario Teachers’ has agreed to acquire a 46% cash flow interest in New Afton and will retain an option to convert the 46% interest into a joint venture stake in four years, or have the cash flow interest reduced to 42.5%. In return, New Gold will receive $300 million, money that will be used to improve the mining company’s flexibility and to reduce debt, New Gold said in a press release.

However, New Gold retains the option to potentially re-acquire 100% of New Afton. The mining company will also retain 100% of the exploration claims outside the New Afton mining permit area. But under the deal, it has granted Ontario Teachers’ an option to acquire its proportionate share of these claims upon conversion into the joint venture interest.

New Gold shares rallied on the news, rising 12.2% or 14.5 cents to $1.33 on volume of 3.75 million shares traded. The shares are currently trading in a 52-week range of 82 cents and $2.03.

New Gold is a Canada-focused intermediate gold mining company which produced 486,141 gold equivalent ounces in 2019 (comprised of 322,557 ounces of gold, 596,452 ounces of silver, and 79.4 million pounds of copper).  Its key operating assets are the Rainy River Mine northwest of Fort Frances, Ontario and the New Afton Mine west of Kamloops, B.C.

Of the gold equivalent ounces produced in 2019, a total of 257,051 ounces came from Rainy River, while New Afton delivered 229,091 ounces.

New Gold’s portfolio also includes the Blackwater development project southwest of Prince George, B.C., which hosts 8.2 million ounces of gold and 60.8 million ounces of silver reserves.

The New Afton Mine occupies the site of the historic Afton Mine and includes an open pit, underground workings, historic support facilities, a new concentrator and recently constructed tailings facility. The New Afton deposit extends to the southwest from immediately beneath the Afton Mine open pit.

Since the start of the current underground block cave operation in July, 2012, exploration at New Afton has focused on extending the mineral resource below the current B-Zone block cave reserve. This work has resulted in the development of the C-Zone mineral resource which is currently the focus of a feasibility study.

The C-Zone resource remains open to further growth both laterally and down plunge to the west.

In early 2019, the company launched a self-funded development strategy for the C-Zone, which extends the mine life to 2030, including processing of stockpiled ore. From 2020 to 2024, the development of the higher-grade C-Zone will continue to be advanced, with production beginning in the third quarter of 2024, ramping up to full production from 2025 to 2029.

Meanwhile, drilling completed in 2019 has identified gold and copper mineralization within the newly defined East zone directly beneath the sublevel cave (SLC) and to the east of the planned C-Zone block cave. The company said results to date confirm the East Extension as 300 by 40 metres in plan and a 700 metres downdip target area.

Highlights from drilling include 108 metres of 1.82 g/t gold and 2.43% copper.

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