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New Gold: The Blackwater Sale Raises Several Questions


  • New Gold will sell its world-class Blackwater gold project to Artemis Gold.
  • New Gold will receive $142 million in cash, $15 million in Artemis Gold's shares, and an 8% gold stream on the Blackwater mine production.
  • The value of the total consideration can be estimated at $350-400 million (depending on the future gold price and Artemis Gold's ability to develop the mine).
  • The markets like the deal, shares of both companies grew significantly, moreover, Moody's increased New Gold's credit rating.
  • Several important questions have arisen: what will New Gold do with the stream? Isn't Artemis Gold too small to build the mine? Didn't New Gold sell too cheaply?

Yesterday, New Gold (NYSE:NGD) announced the sale of its Blackwater gold project to a small and relatively unknown company named Artemis Gold (OTCPK:ARGTF). New Gold will receive C$190 million ($142 million), consisting of a C$140 million ($105 million) payment upon closing of the transaction and C$50 million ($37 million) payment 12 months after. New Gold will also receive shares of Artemis Gold worth to the lesser of C$20 million ($14.94 million) or 9.9% of the issued and outstanding Artemis common shares as at closing of the deal. More importantly, New Gold will receive an 8% gold stream on the Blackwater mine (to be reduced to 4%, after 280,000 toz gold is delivered), with a transfer price equal to 35% of the spot gold price. And there are also some penalty payments. If Blackwater doesn't reach production targets by the 7th, 8th, and 9th anniversary of the transaction closing, New Gold will be entitled to receive additional C$28 million ($21 million) on each of these three anniversaries.

Just a reminder, Blackwater is a world-class gold project located in British Columbia. It has reserves of 8.2 million toz gold and 60.8 million toz silver. At a gold price of $1,300/toz, silver price of $22/toz, and USD/CAD exchange rate of 0.95, the after-tax NPV(5%) was estimated at C$616 million ($585 million). Obviously, at the current metals' prices, it is much higher, as can be seen in the chart below. And what is important, the mine is in advanced stages of the permitting process. The problem is that the initial CAPEX was estimated at C$1.963 billion ($1.865 billion - at the current exchange rate, it would be closer to $1.5 billion, on the other hand, the feasibility study is 6 years old which means that some growth in costs should also be taken

This article was written by

Peter Arendas profile picture

I am an associate professor at the University of Economics in Bratislava, Department of Banking and International Finance. My dissertation was focused on commodity markets and my habilitation was focused on the calendar anomalies. I have more than 15 years of investing experience. My investments mostly focus on small- and mid-cap companies in the resource sector. Since May 2019, I have been preparing regular monthly reports focused on the precious metals royalty & streaming industry. Based on positive feedbacks and numerous inquiries, I decided to launch a Marketplace Service named "Royalty & Streaming Corner", which provides an in-depth analysis of this exciting market segment, as well as investment ideas from the mining industry.

Analyst’s Disclosure: I am/we are long NGD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (20)

sliman21 profile picture
Please update your view of Artemis now that it has a permit.
BeaBaggage profile picture
@sliman21 I am surprised no one has written on $ARGTF given its low cost production and long life proven reserves etc.. big capex tho which is funded but cost overruns?? Bea
Peter Arendas profile picture
@BeaBaggage The problem is that Artemis is not included in Seeking Alpha's list of underfollowed tickers. It means that there is no guaranteed minimum compensation for the article. The compensation is based only on the number of PVs, but this number will be very low, as the company has only 599 followers. In other words, the author would devote several hours to writing this article almost for free.
BeaBaggage profile picture
@Peter Arendas yes I figured that was it, thank you for updating, Peter. Like we need more articles on the same names! take care. Bea
fazsha profile picture
I keep looking at Artemis, and while I don't know how or why Artemis can fund a mine this size, I do admire them for HAVING such a large Tier 1 asset. I guess worst case scenario you sell out to a major without having done anything.

The latest PFS suggests a 23-year open pit operation, with a staged development. The first, five-year phase would be at a throughput of 5 million tonnes per year, increasing to 12 million tonnes per year for the next five years, before ramping up to 20 million tonnes annually for the remainder of the life of mine.

As a result, in the first stage, Blackwater would generate an average of 248,000 oz. gold per year, at all-in sustaining costs (AISCs) of $668 per oz., increasing to 420,000 oz. annually at AISCs of $696 per oz. for the following five years, and then generate 316,000 oz. annually at AISCs of $911 per oz. over its remaining life.

The initial capital cost estimate stands at $592 million, with expansion capital outlays estimated at $426 million and $398 million for the second and third phases, respectively.

With total life-of-mine gold production of 7.5 million oz. at AISCs of US$616 per oz., the after-tax net present value estimate for the project would be $2.25 billion, at a 5% discount rate, based on US$1,541 per oz. gold and US$19.60 per oz. silver.
I sold 1/2 my NGD Thurs morning@ 1.50 after watching it plummet to .40 in March.
hulubalang profile picture
Isn't Artemis Gold too small to build the mine?

Wasting no time in grabbing the gold ring.

Artemis Announces Up to C$155 Million Private Placement of Subscription Receipts

In my humble opinion , Blackwater would have killed New Gold. Selling this dragon was the best thing they could have done. MAYBE I will consider looking at their future. Good on the management for finally making a very good decision!
severedfingers profile picture
Blackwater was an artifact from times when New Gold had a winning reputation from the New Afton mine. I thought it would be worth more than US$ 105 million. A sale of Blackwater was a good idea because the company had way too much debt. After seeing New Gold choke on all the banknotes, plus crazy unexpected extra expenses from building Rainy River. I think to buy an existing mine for a modest price is the way to go. Having a shiny new mine built with bank debt now looks more a liability than an asset.
EM2C2 profile picture
NGD paid 480M for Blackwater. And 110 M for Silverquest. Just sayin.
GoldenSamurai profile picture
NGD made several bad decisions in the past. This is why NGD is where it is. To get rid of Blackwater and gain some money back is probably their best option right now.
NGD paid approximately $550 when it acquired Richfield Ventures (Blackwater) in 2011. Add to this the cost of drilling, permitting, inflation, maintenance, etc. Over $600 M value, now sold for $400 M.
The NGD debt bubble has finally burst.
My apologies, it was $550 M CAD (on Apr. 4, 2011 the exchange rate was 100 USD = 96.68 CAD); therefore, Oliphant actually paid $568 M USD
While the answer to those questions should prove interesting over time my takeaway from the transaction as an NGD shareholder is this marks a shift from dealing with a lot of "bad" options and scenarios to dealing with a some "good" options and scenarios.
Dave Kranzler profile picture
Not sure it can be said that Blackwater is "world class." The mineralization grade is on the low side and BC rock is notoriously hard, making extraction more burdensome and expensive. In my opinion this is a great deal for both sides. There's no telling how long B/W would have remained dormant if NGD continued to hold it. Now it gets monetized and NGD retains substantial optionality upside to the project.
GoldenSamurai profile picture
Almost half a million gold ounces per year sounds world class to me.
Lallemand profile picture
The issue is why a larger, better funded Gold miner did not buy this apparently good mining development in a good juridiction.
I suspect that Renaud Adams has cut a good deal for NGD.
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