On Tuesday October 15th New Gold's (NGD) acquisition of Rainy River Resources (RRFFF.OB) was finalized. On the surface it appears that New Gold bit off more than it could chew: after the acquisition New Gold has two very large development projects--Blackwater and Rainy River-- that it cannot fund internally given:
- Its current financial position
- Its anticipated cash-flow from its producing projects at the current gold price
What, then, is the logic behind the acquisition?
From my figures it follows that not only will New Gold not be able to fund Rainy River and Blackwater, but it would have difficulty funding Blackwater's development alone even in a high gold price environment. Blackwater's development has a price tag of...