New Gold sells Blackwater gold stream to Wheaton for US$300 million

New Gold (TSX: NGD) is selling its gold stream on the Blackwater project in British Columbia to Wheaton Precious Metals (NYSE: WPM; TSX: WPM; LSE: WPM) for US$300 million.  

The gold stream entitles Wheaton to 8% of the gold produced from Blackwater, reducing to 4% once 280,000 ounces of gold have been delivered.  

The agreement comes more than a year after New Gold sold the Blackwater project to Artemis Gold (TSXV: ARTG; US-OTC: ARGTF) in August 2020. The company retained the gold stream as partial consideration for the divestiture.  

“This transaction highlights another milestone for New Gold as we continue to surface value from the divestment of the Blackwater project,” Renaud Adams, New Gold’s CEO, said in a press release. “The cash payment will provide additional liquidity and financial capacity to New Gold as we continue to execute on our strategy.”  

Located about 150 km southwest of Prince George, B.C., the Blackwater project has     proven and probable gold reserves of 19.8 million tonnes grading 0.74 gram gold per tonne for 470,000 oz. of contained gold. Its proven and probable silver reserves stand at 166.5 million tonnes grading 5.8 grams silver per tonne for 31 million oz. of silver. 

Based on a feasibility study released earlier this year, Blackwater will produce 321,000 oz. of gold annually at an all-in sustaining cost of US$576 per oz. in the first five years of operation. The study estimated the project would generate a post-tax net present value at a 5% discount rate of $2.15 billion, and an internal rate of return of 32%.  

“New Gold originally sold the Blackwater asset to Artemis Gold in August 2020 for cash of $190 million (payable in two instalments), the 8% stream on the Blackwater project and ~7.4 million Artemis shares valued at ~$34 million at the time of the transaction,” Farooq Hamed, an analyst covering New Gold for Raymond James, wrote in a research note. “With the sale of the stream to Wheaton, total cash proceeds to New Gold from the sale of Blackwater will be ~$450 million with the Artemis share position now worth ~$53 million.” 

 “We view this as a significant positive for NGD as the transaction value represents ~31% of NGD’s market capitalization (based on 12/13/21 closing),” Hamed stated in a Dec. 14 research note. “Based on the RJL long term gold price forecast of $1,600 per oz., we value the stream at ~$260 million on a pre-tax basis and ~$169 million on a post-tax basis.” 

In addition to the gold stream, Wheaton has signed a US$141 million agreement with Artemis Gold for 50% of Blackwater’s payable silver production until it has received 17.8 million ounces, after which the portion will drop to 33% of payable silver production for the life of the mine.  

“The acquisition of the gold and silver streams on the Blackwater project further enhances and diversifies Wheaton’s existing portfolio of low-cost, high-quality, long-life mines,” Randy Smallwood, Wheaton’s CEO, stated in a press release. 

At presstime in Toronto, New Gold was trading at $1.77 per share within a 52-week trading range of $3.05 and $1.29.