New Gold dropped 8% on the announcement but long term this looks like a deal which can see them take a substantial step past their declared 1m oz pa target.
RR's PEA of August 2012, below, shows an expected 300m oz pa production target and at $1250 gold price an NPV (5% - PRETAX) of $846m rising to $2.9bn at $2000 /oz. Rainy River presentations showed potential production by 2016 (and they have been well funded to maintain progress) which will fill a gap in New Gold's growth plan before the huge (500k oz + pa) Blackwater project comes online in 2017. (See PEA Sept-12)
New Gold raised $500m cash last November discussing M&A potential, and were sat on almost $700m cash DEC-12, I presume they will now have to fund and manage development of two large projects, unless there is to be a re-ordering of project timelines and they sit on reserves awaiting improved gold prices.
New Gold recently eliminated $800 hedges on some Mexican gold production.
With this deal New Gold join a line of "Growth Mid-Tier Consolidators" who have made significant acquisitions for growth during the weak period of the past couple of years, Argonaut for Prodigy, B2 for CGA, Endeavour for Avion. New Gold probably have one of the biggest "name" boards in the industry and with a turn in gold prices must be very well positioned.
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