New Gold buying surface rights to Afton mine

New Gold (NGD-T, NGD-A). is taking a critical step toward the development of its New Afton copper gold project in British Columbia, after signing a tentative deal to acquire the surface rights from Teck Cominco (TCK.B-T, TCK-N).

The Vancouver company will pay Teck Cominco $10 upon closing of a deal that provides New Gold with access to 4,000 acres of land west of Kamloops, as well as water rights that will be required for development of a new underground mine.

Shares of New Gold rose 44 cents to $8.94 in Toronto January 9, following news that it has signed a letter of intent to acquire the surface rights.

Under the deal, Teck Cominco will also receive another $6 million within a 2-year period after the deal closes, plus a 2% net smelter return royalty on future production. New Gold is retaining the option to repurchase the royalty asset for $12 million.

New Gold chief executive officer Chris Bradbrook described the transaction as “an important step,” as it not only provides the firm with surface rights, and access to water, but also assets with real long term value.

New Gold already owns 100% of the mineral rights to the New Afton project, which is located in south central B.C., on the site of a former open pit mine that was in operation between 1978 and 1987.

The surface rights include a large area of land north of the Trans-Canada Highway to Kamloops Lake, as well as a water pipeline that runs from Kamloops Lake, which supplied all of the required water for the former Afton mine.

A deal for the surface rights has been struck as the company works to complete a feasibility study that will determine the economic parameters of developing an underground mine below the former open pit.

Mr. Bradbrook said the mine will likely cost in excess of $200 million to develop as it will rank as one of Canada’s largest underground metal mines.

Assuming New Gold can secure the funding and necessary mining permits, concentrates from a four million tonne per-year operation will either be shipped to smelters in Asia or other parts of Canada, he said.

Mining operations will be based on a measured and indicated mineral resource of 65.7 million tonnes, grading 1.02% copper, 0.77 grams per tonne gold and 2.59 grams silver. That resource is thought to hold 1.5 billion pounds of copper and 1.6 million oz gold.

The feasibility study was scheduled to completed by the end of 2006, and should be available by the end of the first quarter of 2007, Mr. Bradbrook said.

Completion of the agreement with Teck Cominco is subject to the signing of definitive documentation, and the receipt of necessary regulatory approvals.