Unwinding hedges doesn't sound as sexy as rolling out a takeover.
But when it comes to gold mining companies, pure plays are all the rage. And ambitious intermediate New Gold has an opportunity to clean up hedged production it inherited, courtesy of a $100-million stock sale on Friday.
New Gold sold shares at $3.75 each in a bought deal financing led by BMP Nesbitt Burns and GMP Securities. The company said the cash is earmarked for 'general corporate purposes,' a handy catch-all.
This company, which enjoys the backing of Franco Nevada veteran Pierre Lassonde, Goldcorp's Ian Telfer and Barrick Gold's Randall Oliphant, clearly plans to consolidate junior plays, and recently snapped up Western Goldfields. So there is a chance another acquisition is in the works, and that's what the new capital will help fund.
But New Gold may also move to pay down $64-million of debt well before it matures, and unwind hedges on production related to that loan, according to analyst Steve Parsons at Wellington West Capital Markets. The debt and the hedges came with that Western Goldfields acquistion. Mr. Parsons said the hedges are on 360,000 ounces of gold, at $800 (U.S.) an ounce.
New Gold's equity sales is "modestly dilutive to our net asset value and 2010 cash flow per share estimates, but we view the resultant balance sheet flexibility to be favorable," said Mr. Parsons in a report.
On the M&A front, Mr. Parsons said there are relatively takeover targets for New Gold at this time. He did note that as the company pushed to join the ranks of senior producers, with 1 million ounces of gold a year flowing from its mines, New Gold could swap its 30 per cent stake in the El Morro copper and gold project in Chile - controlled by Xstrata - for properties that are moe weighted towards gold.
Andrew Willis