New Gold narrows Rainy River funding gap by selling El Morro stream to Goldcorp

VANCOUVER (miningweekly.com) – New Gold has sold a 4% gold stream on the El Morro project, in Chile, to Canadian gold major Goldcorp for $65-million.

The transaction is mutually beneficial to both companies as it bolsters New Gold’s balance sheet as the company pushes through the final stages of the Rainy River project's development, in Ontario, while Goldcorp’s biggest development project, El Morro – a significant part of its NuevaUnión 50:50 joint venture with Teck Resources that combines the Relincho and El Morro deposits – will now be unencumbered by the stream.

Desjardins Capital Markets analyst Michael Parkin estimates that, with this sale, which garnered a better-than-expected price, New Gold will need to raise less than $100-million to complete and ramp up the delayed $1-billion-plus Rainy River project.

Parkin noted in a comment to clients that he had previously viewed this option as not being ideal given a prefeasibility study on NuevaUnión that is expected to be released later this year, which he believes would have potentially increased the value of the stream.

“However, in our view, New Gold has done an excellent job securing a price that is 30% higher than our estimate and, thus, we are positive on this development and believe it should help support the stock price,” he stated.

The analyst expects New Gold to draw $278-million from the revolving credit facility and issue $150-million in equity to complete the project’s financial needs, helping to reduce the amount of equity it will need to issue.

"Our interest in El Morro has generated significant value for our company over the last several years. The sale of the stream allows us to realise $65-million from an asset that is not a core part of our portfolio to support our key, near-term growth project at Rainy River," stated New Gold president and CEO Hannes Portmann.

The company advised that the total expenditure on El Morro by New Gold and its predecessor companies since the asset was first acquired has been less than $7-million. Including the $65-million payment for the stream, the company has generated total proceeds of $205-million through a series of transactions related to El Morro over the last seven years.

New Gold recently reported a three-month start-up delay at Rainy River, which has been dogged by delays and several capital cost increases. Management late in January stated that it expected the remaining capital expenditure for Rainy River for 2017 to reach $515-million, including a $40-million contingency provision, to achieve commercial production on November 1.

New Gold’s TSX-listed stock closed up 6.74% at C$3.96 apiece on Wednesday.