New Gold locks up the Blackwater district
A Canadian gold mining company goes on an aggressive shopping spree buying up promising gold-silver property in central B.C.
1 of 3Workers inspect drill core at New Gold Inc.'s Blackwater project. — Photo courtesy New Gold Inc.
2 of 3New Gold Inc. hopes construction will start on a new gold-silver mine at its Blackwater property, 160 kilometres southwest of Prince George, British Columbia, in 2015. — Photo courtesy New Gold Inc.
3 of 3Recent core samples at New Gold Inc.'s Blackwater project continue to generate excitement within the company as it plans for a future gold-silver mine on the site. — Photo courtesy New Gold Inc.
Robert Gallagher has reason to smile when asked about his company’s recent purchase of British Columbia’s Blackwater project, located 160 kilometres southwest of Prince George.
The president and chief executive officer of New Gold Inc., an intermediate Canadian gold producer, believes his company’s purchase of the vast majority of the Blackwater project from Richfield Ventures Corp. this past June 1 may be one of the firm’s better decisions.
When New Gold bought the approximately 240-square-kilometre property after having monitored Richfield’s progress on the project for more than a year, the potential gold-silver mine had indicated gold resources totalling 1.8 million ounces (New Gold’s share).
After dramatically increasing the property’s drilling campaign during the second half of 2011, New Gold announced in mid-September that that figure had jumped to 5.3 million ounces (New Gold’s share).
The property today also has indicated silver resources totalling 27.1 million ounces.
“We paid about $480 million to buy Blackwater,” Gallagher said. “Today (January 13, 2012) on average, analysts give it a net asset value of over $1 billion. So that’s really creating value for our shareholders.”
But New Gold’s involvement with the Blackwater area doesn’t end there.
On December 21, 2011, the company officially gained an additional 15 square kilometres of land northwest of the property by acquiring Geo Minerals Ltd. for approximately $18 million. Two days later, it acquired the 12.5 per cent of the Blackwater project it didn’t own, plus another massive area called the Capoose property 25 kilometres to the west, by acquiring Silver Quest Resources Ltd. for approximately $110 million.
Increasing the potential
By acquiring Capoose, the area New Gold owns around Blackwater jumped from 240 square kilometres to 670 square kilometres. It also gained additional indicated gold resources totalling 0.4 million ounces and indicated silver resources totalling 26.6 million ounces.
But perhaps most importantly of all, by acquiring the additional property around Blackwater, New Gold has significantly improved its exploration potential in an area already rich in proven gold and silver deposits.
“We haven’t found the limits of this thing yet,” Gallagher said about the Blackwater ore body. “It’s going to grow more. We don’t know how much, but we haven’t found the limits. That’s really what our plans and accelerated growth programs are for, so that we can know the limits of the ore resource by the middle of this year.”
The timing is right
Of course one major reason New Gold bought the Blackwater project and much of the area surrounding it now is because of the current historically high prices for gold and silver. High prices can help offset the huge costs associated with developing and operating a mine.
New Gold is also fortunate in that it now has other producing gold mines in the United States and Mexico as well as an operating gold-copper mine in Australia. And with another gold-copper mine scheduled to come into production in late 2012 at British Columbia’s New Afton project located just west of Kamloops, the company should have all kinds of cash to help it develop Blackwater if gold, silver and copper prices remain high.
And Gallagher believes they will.
He believes the price of copper will stay high for years, as China and India urbanize and the demand for electricity and copper wire soars.
The company president also believes sovereign debt crisis worries currently afflicting so many countries and continued worldwide stock market volatility show few signs of ending soon. As a result, more and more people who are looking for something safe to invest in will turn to the traditional safety of gold.
Finally, as the United States’ economy sputters and U.S. politicians fail to agree on a solution, Gallagher believes the value of the U.S. dollar will continue to fall. Countries nervously watching the value of their capital decreasing as the value of their U.S. dollars falls will convert more and more of their capital into gold.
The anticipated timeline
Despite the above facts, Gallagher said there is still much work to be done at Blackwater. The company hopes to complete a preliminary economic assessment in mid-2012 and begin a permitting process in the third quarter of 2013. A feasibility study is scheduled for completion in 2014 and if things appear positive, construction should start in 2015 with production commencing in 2017.
“The project is probably going to be in the $1-billion-plus range to build,” Gallagher said. “And with our existing assets at today’s prices, in the projected development time it takes us to build Blackwater, we will generate that cash.
“As a result of our base of operating mines, we can fund the mine without going to the market or to the banks, while other smaller companies are dependent on the capital markets. So it’s really a nice match.”
