Single owner at El Morro project 'would make sense' – New Gold's Oliphant
miningweekly.com
By: Liezel Hill
20th October 2009
Updated 2 hours 20 minutes ago
TORONTO (miningweekly.com) – Vancouver-based New Gold would ideally like to swap its 30% stake in the El Morro copper/gold project, in Chile, for an already-producing gold mine, executive chairperson Randall Oliphant said on Tuesday.
“We think it would make sense for whoever operates this mine to own 100% of it,” he said in an interview in Toronto.
“It would just make sense to me that they would want to control the whole thing.”
Last week, the world's biggest gold-miner, Barrick Gold, said it would buy Xstrata's 70% in the asset for $465-million.
Barrick has said it expects to realise synergies in building and operating the project because it already owns the nearby Veladero mine, in Argentina, and is developing the giant Pascua Lama gold/silver mine, on the border of Chile and Argentina.
The El Morro project has an estimated capital cost of $2,5-billion and Pascua Lama is expected to require between $2,8-billion and $3-billion.
Although New Gold owns 30% of El Morro, it would only need to put up 9% of the preproduction capital, or some $225-million, because of an earlier agreement that the operator will fund 70% of the smaller company's capital requirements for the project.
“It's a favourable arrangement. So we would also be quite happy to just continue to participate in it and be a partner there,” Oliphant added.
“And it is an outstanding project – it is one of the largest undeveloped copper and gold projects in the world, in a very mining friendly country.”
Having said that, though, New Gold's preference at the moment would be to exchange the stake for an operating gold mine.
“We have been in discussions with a collection of companies about doing that, and we will see how this plays out over the course of the next few months,” Oliphant said.
He confirmed that discussions had been held with Barrick, where he held the positions of president and CEO between 1999 and 2003.
Barrick spokesperson Vince Borg said on Tuesday afternoon that the group is “content” with its 70% controlling stake for now.
“Obviously, we will have discussions with them and will see if anything will come from it but, if not, we are content with the 70% stake.”
He declined to comment on the idea of an asset swap: “That's all just speculative at this point.”
AMAPARI SALE
Oliphant said the company is also in talks to sell its Amapari gold asset, in Brazil.
The mine was halted last year after the high costs of mining and processing the oxide ore rendered it uneconomic.
New Gold has since outlined a project that would cost about $150-million, for a 100 000-oz/y mine that would exploit the underlying sulphide resource at Amapari and remaining oxides and would include the construction of a new processing facility.
“We've been approached by some companies that are active in Brazil about buying that from us, and it probably fits better with a company that has all the infrastructure and some other operations in Brazil,” Oliphant said.
Confidentiality agreements have been signed and some companies have done due diligence on the asset.
“A lot of negotiations have taken place and we hope that in the fourth quarter of 2009 that we will be able to make an announcement that we've sold it,” he said.
FIRE POWER
New Gold was formed in 2008 from the three-way merger of juniors Metallica Resources, New Gold and Peak Gold, followed by the acquisition this year of Western Goldfields.
The company operates the Cerro San Pedro mine, in Mexico, the Peak mine, in Australia, and the Mesquite operation – acquired with Western Goldfields, in the US.
It is also building a new underground operation in Canada.
When it comes to potential merger and acquisition activity, the focus over the last six months has been on producing assets, Oliphant said.
The company wanted to develop more scale in the gold sector, and did not have much in the way of surplus cash for developing new projects.
Things are changing though: it raised C$115-million last month in a bought-deal financing, is enjoying the benefits of higher gold and copper prices, and could see additional cash coming in from the potential sale of the Amapari and/or El Morro assets.
The upshot of this new financial flexibility is that the company is in a position to take on another development project - an additional growth project in the pipeline would be “certainly appealing”, Oliphant said.
NEW AFTON
The company is also studying the potential to accelerate the schedule to production for its New Afton mine, in British Columbia, he said.
The development plan was revised in November 2008, partly in a move to ease New Gold's spending commitments, but also to shift from a phased ramp-up over several years, to a scenario in which the mine moves to steady state production from the outset.
Production is currently scheduled to begin in the second half of 2012, but the company is relooking at the timing and could potentially move things forward by around six months.
There should be an update on the project before the end of the year, Oliphant said.
Shares in New Gold slid 3% on Tuesday, to C$4,31 apiece by 16:15 in Toronto. |
