April 5, 2009
Western Goldfields (TSX:WGI) and New Gold (TSX:NGD) to Merge
by Malcolm Bucholtz
Back on March 4, 2009 - New Gold Inc. ("New Gold") (TSX and NYSE Alternext - NGD) and Western Goldfields Inc. ("Western Goldfields") (TSX - WGI and NYSE Alternext - WGW) announced that they had entered into a definitive agreement under which New Gold would acquire by way of a plan of arrangement all of the outstanding common shares of Western Goldfields in exchange for one New Gold common share and CDN$0.0001 in cash.
Once approved by shareholders and regulators ( ~end of May 2009), the new company will boast the folllowing features:
The assets of the newly formed entity will consist of:
- Diversified gold production base from three gold mines in mining-friendly jurisdictions with forecasted gold production of approximately 335,000 ounces in 2009, expected to grow to over 400,000 ounces in 2012
- Strong cash flow to fully fund the development at the New Afton gold-copper project in British Columbia
- Experienced management teams and boards of directors. The new executive management will consist of Randall Oliphant, Executive Chairman; Robert Gallagher, President and Chief Executive Officer; Brian Penny, Executive Vice President and Chief Financial Officer; and James Currie, Executive Vice President and Chief Operating Officer. The board of directors will be a combination of six current directors of New Gold and four current directors of Western Goldfields.
- Mineable reserves totaling 7.6 million gold ounces within a measured and indicated resource of 12.2 million gold ounces
- The combined company will have a pro forma balance sheet at December 31, 2008 with cash of $171 million, long term investments in Asset Backed Commercial Paper of $77 million and debt of $275 million, consisting of $7 million of short term borrowings, $154 million face value of Senior Secured Notes, $45 million face value of Convertible Debentures and $69 million of project financing. All pro forma figures are based on the unaudited December 31, 2008 balance sheets of Western Goldfields and New Gold, adjusted for New Gold's repurchase of CDN$50.0 million face value of Senior Secured Notes for CDN$30.0 million on January 9, 2009.
Mesquite Mine - California
Mesquite is a gold mining operation in Imperial County, California, which commenced production in 2008. In 2009, the operation is forecasting production of between 140,000 and 150,000 ounces of gold at an estimated total cash cost between $530 and $540 per ounce. Capital expenditures in 2009 are expected to be approximately $1.5 million.
Cerro San Pedro Mine - Mexico
Cerro San Pedro is a gold-silver, heap leach project located near San Luis Potosi in central Mexico. In 2009, the operation is forecasting production of between 90,000 and 100,000 ounces of gold and between 1.1 million and 1.3 million ounces of silver at an estimated total cash cost of between $550 and $570 per ounce of gold net of by-product sales. Capital expenditures in 2009 are expected to be approximately $2.8 million.
Peak Mines - Australia
Peak Mines is a gold mining operation located in the Cobar Gold Field of Central West New South Wales, Australia. In 2009, the operation is forecasting production of between 90,000 and 100,000 ounces of gold and between 13 million and 15 million pounds of copper. Total cash cost is expected to be in the range of $370 to $390 per ounce of gold net of by-product sales from production associated with the Chesney and Perseverance ore bodies. Capital expenditures in 2009 are expected to be approximately $24.5 million.
New Afton Development Project - Canada
New Afton is a gold-copper development project located in Kamloops, British Columbia, Canada. Full production is currently expected to commence in the second half of 2012. New Afton will be an underground mine, which will produce an annual estimated average of 75 million pounds of copper, 80,000 ounces of gold and 214,000 ounces of silver. In 2009, expenditures at New Afton are expected to be approximately $59.2 million.
El Morro Development Project - Chile
El Morro is a copper-gold development stage project located in northern Chile. New Gold owns a 30% interest in the project with our joint venture partner and project operator, Xstrata Copper which owns the remaining 70%. El Morro entered the permitting stage with the submission of the Environmental Impact Study in the fourth quarter of 2008. It is anticipated that the permit will be obtained within 12 to 18 months of its submittal.
Assumptions used in the 2009 forecasted cash cost for the Peak and Cerro San Pedro mines include copper and silver prices of $2.00 per pound and $10.00 per ounce, respectively, and Australian dollar and Mexican peso exchange rates of $0.70 and $12.00 to the U.S. dollar, respectively.
So, in short - the new entity will pack quite a punch and investors should take note....
But, it turns out there is one more feature to this combination - call it an invisible guiding hand if you will. We have turned over a few stones as it were and talked with several folks in our network of contacts about this merger.
We have learned that Randall Oliphant, planned Executive Chairman of the newly formed merged entity also sits on the board of Franco Nevada (FNV-TSX, $27). And Franco Nevada is the baby of Pierre Lassonde. Recall that Mr. Lassonde and business partner Seymour Schulich started the old Franco Nevada in 1985 when they bought a royalty stream from Barricks's new Nevada operations, the Goldstrike mine. Few people gave Barrick much credit for mining ld back in those days, but the assets performed remarkably well and turned Barrick into a major mining company. And it showed Lassonde and Schulich that buying royalties was very profitable - they got all the cash credit and did not have to deal with any of the costs.
For more information please contact:
Vanguard Shareholder Solutions
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