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By Rose Ragsdale
Mining News 

New Gold inks buyout of Blackwater owner

Ongoing drilling successes herald additional potential of Richfield Ventures Corp.'s central B.C. bulk tonnage gold property

 

Last updated 4/24/2011 at Noon



New Gold Inc. and Richfield Ventures Corp. jointly unveiled plans April 4 for New Gold to acquire the junior gold explorer and its promising Blackwater gold project in central British Columbia in a transaction valued at some C$550 million.

New Gold and Richfield said they entered definitive agreement in which New Gold will acquire, through a plan of arrangement, all of the outstanding common shares of Richfield.

Under terms of the buyout, each Richfield shareholder will receive 0.9217 of a New Gold share for each Richfield share held. The offer values Richfield at C$10.38 per share, which represents a 31 percent premium to Richfield's April 1, closing price and a 46 percent premium based on 20-day volume weighted average prices of both companies. The transaction value, net of cash and proceeds from all in-the-money dilutive instruments, is about C$513 million.

Calling the transaction "an ideal fit" with company's goal of enhancing value in jurisdictions where it already has a strong presence, New Gold Executive Chairman Randall Oliphant said acquisition of the Blackwater Project, located in about 160 kilometers, or 99 miles, southwest of Prince George, B.C., could significantly increase New Gold's gold production base at future competitive cash costs.

"With New Afton in British Columbia on track to begin production in mid-2012, we will be well-positioned to deploy both the team and cash flow from New Afton to move the Blackwater Project through continued exploration, development and ultimately into production," Oliphant added.

Richfield President and CEO Peter Bernier call the deal a "win-win" for shareholders of both companies.

"The Blackwater Project will be in excellent hands with New Gold, a proven mine builder and operator, that has the financial capacity and the exploration and development expertise to continue to expand and ultimately develop the gold resources at Blackwater," Bernier said.

4.14-million-ounce initial gold resource

Blackwater is a bulk-tonnage gold project with a property that covers 23,670 hectares, or 91.4 square miles, with Richfield owning 100 percent of the southern claims and 75 percent of the adjacent northern claims. Silver Quest Resources Ltd. owns the remaining 25 percent of the northern Davidson claims.

The Blackwater-Davidson prospect was discovered in 1973 through a stream sediment geochemical survey. Follow-up geophysical and geochemical surveys led to drilling and between 1985 and in 1992, 36 diamond and 34 reverse circulation holes were drilled on the property. This drilling led to discovery of the Gold and Silver zones, two areas with anomalous gold and silver.

Since 1992, a further 10 holes were drilled, and geochemical and geophysical surveys conducted. Silver Quest optioned a part of the prospect in 2005 and drilled five more holes. One intersected the New Zone, and in early 2006 Silver Quest drilled two more holes to test the discovery. The property then sat idle until Richfield optioned it from Silver Quest in March 2009.

In order to explore the entire prospect and not just the northern portion, Richfield subsequently optioned the Dave Claim south of the Silver Quest option from private individuals. The Blackwater-Davidson prospect straddles the boundary of the two properties.

After extensively reviewing available drill data from previous work on the property,Richfield began aggressively exploring the property. A string of drilling successes ensued throughout 2009 and 2010 as the junior explorer tapped into impressive intervals of gold mineralization, with several exceeding 200 meters and one extending 442 meters in length.

On March 2, Richfield reported an initial mineral resource estimate for the Blackwater project. At 0.4 grams-per-metric-ton gold cutoff, Blackwater has a total indicated resource of 53.46 million metrics averaging 1.06 g/t gold and 5.6 g/t silver for 1.83 million ounces in contained gold, and a total inferred resource of 75.45Mt averaging 0.96 g/t gold and 4.0 g/t silver for 2.34Mt oz contained gold.

Richfield estimated that its share of the Blackwater project's initial gold resources total 1.8 million indicated ounces and 2.0 million in inferred ounces. Silver Quest owns the remainder of the Blackwater resource.

On March 29, Richfield reported that it signed a formal joint venture agreement with Silver Quest in regard to the Davidson property, which forms the northern portion of the Blackwater Gold Project.

The two companies also approved an initial work program of C$8.6 million for the Davidson property that will include about 20,000 meters of diamond drilling and Silver Quest's share of various studies related to the overall development of the project.

Richfield also said it intends to complete an additional 10,000 meters of diamond drilling on its 100-percent-owned southern portion of the property this year.

Richfield said drilling with three drills began in March on the Davidson property and a fourth drill is scheduled for startup by early summer.

The JV partners are also working to advance the Blackwater project with a preliminary economic assessment, planned for completion in the fourth-quarter of 2011.

Another win for New Gold

The transaction has been approved unanimously by the boards of directors of New Gold and Richfield and will be subject to, among other things, the favorable vote of two-thirds of the votes cast by holders of Richfield's common shares and options voting as a single class at a special meeting of Richfield security holders that should be called to approve the transaction in late May or early June.

New Gold and Richfield's respective financial advisors also have provided verbal opinions as to the fairness of the transaction, from a financial point of view, and the Richfield board unanimously recommends that its shareholders vote in favor of the arrangement.

For Richfield, the deal brings an immediate and attractive premium that recognizes both the current value and potential of the Blackwater project, an all-share deal that offers continued exposure to Blackwater along with new exposure to New Gold's gold production and its growth projects and significantly enhanced trading liquidity upon receiving New Gold shares. New Gold also offers the junior explorer technical expertise and financial capability to move the Blackwater project through development and into production.

In addition to gaining the Blackwater resource at a favorable time for its mine-building team, New Gold said other advantages of the transaction include its ability to fund the deal with internal cash flow, tax synergies with its New Afton mine project located 450 kilometers, or xx miles, to the southeast, and minimal (10 percent) dilution of its shares.

Analyst/investor Christopher Barker said New Gold is becoming known for crafting amazing gold deals. Writing in the April 8 edition of The Motley Fool, Barker said New Gold has established itself in recent years among mid-tier gold miners after an initial C$1.6 billion combination of two companies that controlled three mine projects.

In 2009, New Gold merged with Western Goldfields and acquired prolific Mesquite mine in California. Goldcorp then leveraged New Gold's 30 percent stake in the El Morro project in Chile, the smaller company a partner to cover all mine development and construction capital (to be repaid from New Gold's share of proceeds after the mine begins production.

The deal to acquire Richfield, New Gold has gained a compelling Canadian development project in Blackwater with an implied price tag of C$310 for each gold ounce in the indicated category, and C$148 per ounce for the total attributable gold resource, according to Barker.

"Underscoring the potential for dramatic expansion of the known resource at Blackwater, Richfield reported drill results subsequent to the release of the initial estimate that included a thick 145-meter interval grading 2.7 grams per ton. A 30,000-meter drill program is already under way for 2011," he wrote.

"Across its expanding portfolio of producing and pending gold mines, New Gold has amassed a glistening treasure of 8.4 million ounces of gold reserves. The Richfield acquisition brings the miner's measured and indicated resource (exclusive of reserves) to 6.3 million ounces. When you toss in the company's 2.9 billion pounds of attributable copper reserves, and 46.4 million ounces of silver, New Gold's C$4.6 billion market capitalization appears to significantly understate the miner's sustainable access to profitable buried treasure," Barker added.

Deal to close in June

The acquisition of Richfield by New Gold is expected to be completed in June by way of a court- approved plan of arrangement.

New Gold will issue about 49 million shares based on Richfield's fully diluted in-the-money common shares outstanding.

Richfield's stock options outstanding on the effective date of the arrangement will be exchanged for New Gold shares on a cashless exercise.

Richfield's warrants outstanding on the effective date will become exercisable into the arrangement consideration following the completion of the arrangement.

Prior to the effective date, Richfield will accelerate the expiry of those outstanding warrants subject to an expiry abridgement clause.

Upon closing, Richfield shareholders will own about 10.4 percent of New Gold on a fully diluted in-the-money basis.

Directors and officers of Richfield have entered into voting agreements with New Gold under which they have agreed to vote in favor of the arrangement, their Richfield shares and options, which represent about 15.8 percent of Richfield's outstanding common shares and options as of April 1.

If the deal falls through, Richfield has agreed, under certain circumstances, to pay New Gold a termination fee equal to C$18 million. Richfield also provided New Gold with certain other customary rights, including a right to match competing offers. In addition, if Richfield security holders do not approve the transaction, Richfield has agreed to pay an expense fee of C$1 million to New Gold.

 

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