Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Report on Business

Streetwise

News and analysis on Bay Street and the world of finance
available exclusively to subscribers of Globe Unlimited

Entry archive:

New Gold takeover re-emphasizes gold roots Add to ...

New Gold's friendly purchase of Richfield Ventures Corp. immediately signals two things: the company hasn't forgotten about its gold roots, and investors don't have to worry about the project pipeline.

Despite a history rooted in gold, at the moment New Gold has a 30-per-cent stake in Goldcorp's El Morro project, which has copper assets, and its New Afton mine in British Columbia that is slated to move into production next year is also sitting on a bunch of copper. If any investors worried that the company was moving away from its roots, the Richfield acquisition will quell those concerns because Richfield's Blackwater project is dominated by gold.

More related to this story

As for the project pipeline, New Afton is scheduled to move into production next year, which means New Gold will need something else to develop. That 'something' will now be Blackwater, which is also located in British Columbia, making it easy to transfer the development expertise.

There's an added bonus of buying development assets: tax savings. New Gold estimates that the New Afton project will be taxable in 2013, but now that Blackwater can be factored in, the company estimates that any taxes can be deferred by about 3 years, totalling about $150-million in savings.

The takeover is worth $513-million on a fully-diluted basis. Payment will be made in shares, which Richfield touts as a way to get upside exposure to New Gold's growth. But New Gold's development costs must have also been a factor, considering that all of its development projects are internally financed, which eats up cash. Plus, the all-share deal only dilutes New Gold's current shareholders by about 10 per cent.

Both boards of directors have approved the deal and 16 per cent of Richfield's shareholders said they will vote in favour.

The big question now is whether anyone will come in over top of New Gold. On a conference call Monday Richfield admitted they had signed some confidentiality agreements in the past year so that other companies could do their due diligence. Ultimately, though, the board like New Gold's interest the most.

As for New Gold's future prospects, the company said it's happy where it is right now. At the moment the firm has its hands full with three operating mines and three development projects, all of which are internally financed.

Canaccord Genuity and Cassels Brock & Blackwell LLP advised New Gold while National Bank Financial and McMillan LLP advised Richfield.

 
Security Price Change
NGD-T New Gold 5.38 -0.17
-3.063 %
Add to watchlist
  • NGD-T
  • RVC-X
Live Discussion of NGD on StockTwits
More Discussion on NGD-T
Live Discussion of RVC on StockTwits
More Discussion on RVC-X

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories