Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

New Gold Inc. (USA) (NGD), Rainy River Resources Limited (RRFFF): Premiums and Potential Profit From This Gold Acquisition

Page 1 of 2

Vancouver-based New Gold Inc. (USA) (NYSEMKT:NGD) recently announced that it would acquire upstart Canadian gold miner Rainy River Resources Limited (NASDAQOTH:RRFFF) for about C$370 million. At current exchange rates, this translates to a purchase price of about $355 million. Due to the corporate structure and asset portfolio of Rainy River Resources Limited (NASDAQOTH:RRFFF), this deal is quite straightforward. Since the smaller company owns just one production-ready asset, New Gold Inc. (USA) (NYSEMKT:NGD) is effectively buying a ready-to-go gold mine that has been managed well during the course of its relatively short lifespan.

New Gold Inc. (USA) (NYSEAMEX:NGD)However, all mergers carry some risk. Before investors rush into this situation, they should analyze it from every angle and look carefully at the underlying financial health of the two firms. Moreover, investors may wish to evaluate the health of the gold market to determine whether this merger’s value can be maximized over the long term.

New Gold Inc. (USA) (NYSEMKT:NGD) competes directly with a number of Canadian mining companies that exploit copper, gold, silver, molybdenum and other minerals. Since the bulk of the company’s leases lie on Canadian soil, it would make sense to compare it to a firm that deals with a similar basket of assets. Although plenty of candidates fit this bill, Taseko Mines Limited (USA) (NYSEMKT:TGB) offers a solid comparison.

In 2012, Rainy River Resources Limited (NASDAQOTH:RRFFF) reported a loss of about $65 million and little in the way of revenues. This is largely due to the fact that exploration work continues at Rainy River Resources Limited (NASDAQOTH:RRFFF)’s eponymous gold-mining project in northwestern Ontario. For comparison, New Gold Inc. (USA) (NYSEMKT:NGD) reported 2012 income of about $202 million on revenues of around $824 million. Taseko Mines Limited (USA) (NYSEMKT:TGB) notched a narrow loss of about $20 million on revenues of just under $230 million. Meanwhile, Taseko Mines Limited (USA) (NYSEMKT:TGB) reported a cash hoard of about $87 million and total balance sheet liabilities of around $268 million. New Gold Inc. (USA) (NYSEMKT:NGD) had debts of just over $850 million and cash equivalents of $672 million, and Rainy River Resources Limited (NASDAQOTH:RRFFF)reported a debt load of just $7 million against a cash hoard of nearly $100 million.

Page 1 of 2
Loading Comments...