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New Gold takeover re-emphasizes gold roots

New Gold's friendly purchase of Richfield Ventures Corp. immediately signals two things: the company hasn't forgotten about its gold roots, and investors don't have to worry about the project pipeline.

Despite a history rooted in gold, at the moment New Gold has a 30-per-cent stake in Goldcorp's El Morro project, which has copper assets, and its New Afton mine in British Columbia that is slated to move into production next year is also sitting on a bunch of copper. If any investors worried that the company was moving away from its roots, the Richfield acquisition will quell those concerns because Richfield's Blackwater project is dominated by gold.

As for the project pipeline, New Afton is scheduled to move into production next year, which means New Gold will need something else to develop. That 'something' will now be Blackwater, which is also located in British Columbia, making it easy to transfer the development expertise.

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There's an added bonus of buying development assets: tax savings. New Gold estimates that the New Afton project will be taxable in 2013, but now that Blackwater can be factored in, the company estimates that any taxes can be deferred by about 3 years, totalling about $150-million in savings.

The takeover is worth $513-million on a fully-diluted basis. Payment will be made in shares, which Richfield touts as a way to get upside exposure to New Gold's growth. But New Gold's development costs must have also been a factor, considering that all of its development projects are internally financed, which eats up cash. Plus, the all-share deal only dilutes New Gold's current shareholders by about 10 per cent.

Both boards of directors have approved the deal and 16 per cent of Richfield's shareholders said they will vote in favour.

The big question now is whether anyone will come in over top of New Gold. On a conference call Monday Richfield admitted they had signed some confidentiality agreements in the past year so that other companies could do their due diligence. Ultimately, though, the board like New Gold's interest the most.

As for New Gold's future prospects, the company said it's happy where it is right now. At the moment the firm has its hands full with three operating mines and three development projects, all of which are internally financed.

Canaccord Genuity and Cassels Brock & Blackwell LLP advised New Gold while National Bank Financial and McMillan LLP advised Richfield.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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