New Gold (TSX: NGD; NYSE-AM: NGD) is selling its Blackwater project in central B.C. to Artemis Gold (TSXV: ARTG) for $190 million in cash.
Under the deal, New Gold will be paid $140 million upon closing and $50 million in 12 months. It will also receive a stream on 8% of the gold produced at Blackwater and $20 million in Artemis shares for a 9.9% stake in the company. The gold stream falls to 4% once New Gold receives the first 280,000 oz. gold.
“We believe that surfacing value for Blackwater today, while retaining exposure to the project through a retained gold stream and an equity position in Artemis, allows the company to transition to the next phase of our growth plan as we continue to reposition the company for shareholder value creation,” Renaud Adams, New Gold’s president and CEO, stated in prepared remarks.
The project is 160 km southwest of Prince George and 446 km northeast of Vancouver and has 8.2 million oz. gold in proven and probable reserves and 60.8 million oz. silver. The project’s measured and indicated resource, exclusive of reserves, stands at 1.4 million oz. gold and 8.9 million oz. silver.
Artemis plans to update a 2014 feasibility study on Blackwater that forecast a 17-year mine life with direct processing for the first 14 years, and the processing of stockpiled ore thereafter.
The study outlined production of 485,000 oz. gold per year over the first nine years at total cash costs of US$555 per oz. and all-in sustaining costs (AISCs) of US$685 per ounce.
Life-of-mine gold and silver production was estimated to run to 7 million oz. gold and 30 million oz. silver, respectively.
The study envisioned a conventional truck and shovel open pit mine, with a 60,000 tonne per day whole ore leach processing plant at full capacity.
The project received a federal decision statement and a provincial Environmental Assessment certificate in June 2019, but still requires additional permits and authorizations from both levels of government prior to construction and operation.
Artemis chairman and CEO said the acquisition “is the first meaningful step in our strategy to develop a first tier gold deposit in one of the world’s premier low-risk mining jurisdictions,” and said the company’s focus will be “the methodical de-risking of the project development to enhance NPV, optimize IRR and minimize equity distribution to shareholders.”
Prior to Artemis, Dean was chairman, CEO and founder of Atlantic Gold, which was sold to St. Barbara (ASX: SBM) in 2019 for $802 million, after the company built its Moose River Consolidated Mine on time and on budget.
Ryan Hanley of Laurentian Bank Securities described the transaction as a “great deal” for New Gold.
“We calculate that New Gold is selling Blackwater for approximately C$264 million versus the C$72 million that we had previously valued it at,” the mining analyst wrote in a research note to clients.
He pointed out that the 2014 feasibility study had estimated upfront capital costs of US$1.9 million. “Given the significant upfront capex hurdle, we had valued Blackwater at a conservative US$5 per oz., equating to approximately US$53 million, or C$72 million.”
Farooq Hamed of Raymond James pointed out in a research note that New Gold acquired Blackwater in 2011 through its acquisition of Richfield Ventures in an all-share deal that was originally valued at about $513 million.
The mining analyst estimates that the total consideration for Blackwater in the current transaction is “in-line with our carrying value for Blackwater of $200 million in our New Gold NAV.”
“Despite the sale valuation being in-line, we view the transaction as a positive for New Gold, as we do not believe the value for Blackwater was being completed reflected in New Gold’s share price,” he wrote. “Further, with there still being something of a debt overhang on New Gold, we expect the injection of C$190 million over the next 15-18 months should reduce some of that discount.”
Hamed raised his target price on New Gold following the news from $1.25 per share to $1.50 per share after increasing his multiples to “reflect less balance sheet risk.”