TORONTO (miningweekly.com) – Vancouver-based New Gold has agreed to acquire Western Goldfields, which owns the Mesquite mine, in California, the firms announced on Wednesday.
The additional cash flow from Mesquite will provide funds for New Gold to develop a gold/copper project in British Columbia, the firm said.
New Gold, which was formed last year from the three-way merger of juniors Metallica Resources, New Gold and Peak Gold, has operating assets in Mexico and Australia and two development projects in Canada and Chile.
Earlier this year, the firm said it would put its Amapari mine in Brazil on temporary care-and-maintenance, after high costs associated with mining and processing the oxide ore rendered the operation uneconomic.
New Gold will pay one of its own shares plus C$0,0001 in cash for each Western Goldfields share.
After closing, existing New Gold shareholders will own about 58% of the merged entity and Western Goldfields shareholders will have 42%.
The new firm will have three operating gold mines, in “mining-friendly” jurisdictions, and will produce 335 000 oz of the yellow metal this year, New Gold said.
By 2012, output is forecast at 400 000 oz/y, and the transaction will help bring New Gold closer to its production target of one-million ounces of gold by 2012, president and CEO Robert Gallagher said on Wednesday.
“This represents significant value for New Gold and Western Goldfields shareholders with greater leverage to gold in a larger intermediate gold-mining company, diversified production in mining-friendly jurisdictions, and a strengthened financial position."
Earlier this week, Gryphon Partners managing partner Gordon Bogden told an audience at the Prospectors and Developers Association of Canada conference that many junior and smaller mid-tier companies will need to consider mergers if they are to survive the difficult economic climate.
Tie-ups between junior mining and exploration firms enable companies to achieve much needed growth, pooling management talent and stronger balance sheet.
Mergers also help single asset firms to reduce risk, “and creates the critical mass necessary to attract new investors and increased analyst attention and capital”, Bogden said.
The New Gold/Western Goldfields transaction is subject to regulatory approvals, court approval and obtaining a minimum two-thirds approval of those shares voted at a special meeting of the shareholders of Western Goldfields and majority approval at a special meeting of the shareholders of New Gold.
The deal is expected to close at the end of May.
Shares in New Gold dropped 10,9% on Wednesday, to C$2,05 apiece by 16:20 in Toronto.
Western Goldfields rose 4%, to C$2,01 a share.