New Gold likes Afton feasibility

Vancouver – A feasibility study commissioned by New Gold (NGD-T, NGD-X) for its New Afton project near Kamloops, British Columbia tables positive economics for an underground block cave operation at the copper-gold deposit.

The study led by engineering firm Hatch models a mine producing an average of 70 million lbs. (31,750 tonnes) of copper, 74,000 oz. of gold and 204,000 oz. silver annually over a projected 12-year mine life.

Capital costs of US$268 million are forecast to bring the mine to production with a further US$137 million of expansion capital and US$78 million in sustaining costs also tabled.

A pretax internal rate of return (IRR) of 13.6% was projected along with an after-tax IRR of 10.4%. The non-discounted net present value (NPV) is estimated at US$614 million, dropping to US$266 million when a 5% discount is applied.

At its projected full production rate of 4-million tonnes per year, New Afton is anticipated to generate average annual pre-tax cash flow of US$108 million.

Life-of-mine (LOM) cash operating cost for copper production is estimated at US64 per lb. net of precious metal credits. Gold cash operating costs are expected at negative US$790 per oz. over LOM and net of copper and silver credits.

The feasibility study used a 3-year trailing average of LME spot metal prices (from 2004-to-2007) to give a copper price of US$2.01 per lb, gold at US$487 per oz. and silver at US$8.54 per oz.

As an underground block cave operation, about two years of construction is expected prior to any commercial production. New Gold has given its contract miner the go ahead to commence underground work, allowing for production forecast in late-2009. Workings will be accessed by a ramp from surface.

During the first two years of production, the mine is modeled at a reduced rate of about 1.6-million tonnes per annum. After the ramp-up period, full production of 4-million tonnes annually will make New Afton one of the largest underground mines in Canada.

Block cave mining involves underground development that undercuts the orebody, causing it to break and collapse into draw points from where it is extracted.

Ore will be initially be trucked to surface for processing and concentrate production during the ramp-up phase with the mine then transitioning to an underground crushing and conveyor system.

The company has committed to ordering and placing a deposit on its longest lead-time item, an 11,000-tonne-per-day SAG mill.

Using a $15 per tonne ore value cut-off along with metal prices of US$1.45 per lb. copper and US$475 per oz. gold, the New Afton deposit hosts probable reserves of 44.4 million tonnes grading 0.98% copper, 0.72 gram gold per tonne and 2.27 grams silver per tonne. The calculation equates to a contained metal tally of 960 million lb. (435,000 tonnes) of copper, 1.03 million oz. gold and 3.24 million oz. silver.

Average LOM metallurgical recoveries for copper, gold and silver are 87.4%, 85.9% and 75.8% respectively to produce a concentrate averaging 27.6% copper. With the feasibility study complete, New Gold is better positioned to now negotiate with smelters on off-take agreements.

New Gold recently submitted its formal mine permit application to the BC Government with it now processing through the review stage.

In early-2007 the company also entered a letter of intent to secure surface rights over the project area from Teck Cominco (TCK.B-T, TCK-N) for payment of $16 million plus a 2% net smelter return royalty on the deposit that can be repurchased for $12 million.

The company is now focused on arranging project financing for development of New Afton.

Shares of New Gold slipped 5% on the feasibility study release, closing down 49 at $9.06 apiece. With its 24-million shares outstanding, the company posts a $217-million market capitalization. The company reports a cash position of $60 million in its treasury.