New Gold ups stake in B.C. mine via US$255 million Teachers deal

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New Gold Inc. (NGD-TSX, NYSE) has entered into an agreement relating to its strategic partnership with Ontario Teachers Pension Plan at the New Afton mine in British Columbia. The company said it will increase its effective cash flow interest in New Afton to 80.1%

On closing of the transaction, Ontario Teachers’ free cash flow interest in New Afton will be reduced from 46.0% to 19.9% in exchange for an upfront cash payment of US$255 million from New Gold. The mining company will fund the cash payment with cash on hand, borrowings from its existing revolving credit facility and net proceeds from a concurrent bought deal equity financing consisting of 87.3 million of New Gold common shares priced at $1.72 per share. The offering is expected to raise US$150 million.

However, the underwriters have been granted an option, to purchase up to an additional 15% of the number of common shares issued in connection with the offer to cover overallotmants if any. That option remains open for up to 30 days have the closing date of the offering, which is expected to occur by May 17, 2024.

On Tuesday, New Gold shares eased 5.5% or 14 cents to $2.41. The shares are trading in a 52-week range of $2.75 and $1.17.

New Gold is a Canada-focused intermediate gold mining company. Its two core producing assets are the Rainy River mine in Ontario and the New Afton copper-gold mine, which is located 350 kilometres northeast of Vancouver. The company also holds a 5.0% equity stake in Artemis Gold Inc. [ARTG-TSXV], a company that acquired the Blackwater Project in central B.C. from New Gold in August 2020.

The anticipated benefits of an increased exposure New Afton are as follows:

Increased free cash flow interest in an attractive copper/gold mine – with the C-Zone on track to achieve commercial production in the second half of 2024, New Afton is expected to enter into a period of significant free cash flow growth driven by increasing production and improved costs.

The company said the transaction provides growth without requiring any increase in general and administrative expenses, the company said in a press release.

New Afton is expected to produce up to 70,000 ounces of gold this year and up to 60 million pounds of copper.

C-Zone is the fourth block cave at New Afton, after completion of Lift 1 in 2022 and the currently producing B3 cave. New Gold said the operation will take advantage of the existing excess processing capacity at the mill to process up to 16,000 tonnes per day from the C-Zone.

The current C-Zone mineral reserves stand at 486 million pounds of copper and 653,000 ounces of gold, material that will support a production period from 2024 to 2030 and increase average annual production at New Afton to 90,000 ounces of gold and 70 million pounds of copper, marking a 60% increase relative to the mid-point of 2023 guidance.

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