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New Gold announces $300 million deal with teachers’ pension plan

Kitco News

(Kitco News) - New Gold Inc. (TSX, NYSE American: NGD) has found a novel way to basically move ahead free cash flow.

The intermediate Canadian gold producer Tuesday announced a $300 million partnership with the Ontario Teachers' Pension Plan for the New Afton gold mine in western British Columbia.

The teachers' pension plan will provide $300 million. In return, the teachers' pension would receive a 46% free-cash-flow interest in the New Afton mine with an option to convert this into a 46% joint-venture interest in four years. Alternatively, the teachers' pension plan could continue with free-cash-flow interest at a reduced rate of 42.5%.

New Gold said this would "materially" reduce its indebtedness and increase financial flexibility, with the company retaining full development over New Afton. A buyback option would also provide New Gold with the flexibility to potentially reacquire 100% of New Afton in the future. The transaction is expected to close around March 31.

"This transaction provides New Gold with an attractive cost of capital, further strengthens our financial position, allows us to benefit from the full exploration potential elsewhere on the New Afton land package and provides the opportunity to reacquire 100% of New Afton," said Renaud Adams, president and chief executive officer of the company.

Analysts with Credit Suisse noted that New Gold previously indicated it was exploring a number of alternatives to strengthen the balance sheet.

"Based on the projected FCF for New Afton, the mine is expected to generate more meaningful FCF beyond 2023, so the partnership with OTPP effectively allows NGD to bring that cash flow forward by receiving an upfront payment for future FCF," Credit Suisse said in its analysis of the deal. "New Afton is expected to generate ~US$1B FCF through 2030. This deal provides needed financial relief."

As of Dec. 31, New Afton had proven and probable mineral reserves totaling 1 million ounces of gold, 2.8 million ounces of silver and 802 million pounds of copper, according to New Gold's website. The mine produced 69,000 ounces of gold and 79 million pounds of copper last year, and the company expects New Afton output of 73,000 to 83,000 ounces of gold and 75 million to 85 million pounds of copper this year.

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