The steep rise of New Gold Inc. (NYSE, TSX:NGD) has been tethered to securing community support, says company president and CEO Robert Gallagher.
As such, New Gold's management team has garnered praise for its social licence successes in ensuring continued production growth.
The miner, which commenced production at its Kamloops New Afton copper-gold mine in July, was awarded the Corporate Champion for Aboriginal Business Award by the Industry Council for Aboriginal Business.
New Gold was recognized for creating training and employment opportunities through its partnership with the BC Aboriginal Mine Training Association, as well as helping to develop a stronger contractor community.
"Our company's basic foundation is to have an open, meaningful dialogue with the constituents in the communities around us," said Gallagher. "We negotiated a participation agreement with the local Tk'emlups and Skeetchestn bands which is now held up as an example of leading edge practice in First Nations relationships."
"New Afton consistently challenged the status quo by making decisions on the question 'What is the right thing to do?' and recognizing the financial benefits that result for First Nations and the company," said Laurie Sterritt, BC AMTA executive director, in an awards press release.
According to the company, approximately 20% of New Afton's workforce is made up of First Nations people. Developing its own local talent pool allowed New Gold to avoid tight competition for skilled workers from the oil sands sector and international mine startups, said Gallagher.
The underground mine was completed on time and, with a final construction price tag of $765 million, "close to budget," said Gallagher. He estimates New Afton will double the company's cash flow, with payback on capital costs anticipated by the mine's third year in operation.
"In the intermediate space, they're one of few companies that have demonstrated a consistent record of delivering on production and operating guidance," said Andrew Kaip, BMO Capital Markets mining analyst. "It speaks to management's capabilities that within an environment of capital cost inflation and delay they've delivered the project largely on budget and on schedule."
New Afton becomes the company's fourth operating mine and the first project advanced to startup under the New Gold banner. The company's existing trifecta of mines was assembled through a melding of single-asset companies.
In 2008, a three-way merger saw New Gold bring in Peak Gold Ltd.'s Australian Peak gold mine and Metallica Resources Inc.'s Cerro San Pedro gold-silver mine along with a minority interest in the massive development-stage Chilean El Morro copper-gold deposit.
In 2009, New Gold merged with Western Goldfields, bringing the California Mesquite gold mine into the company fold.
In two short years, New Gold transformed from a developer of a single project – New Afton – into a globally diversified gold producer led by mine startup and company-building management bolted on from all transactions – Randall Oliphant, former president and CEO of Barrick Gold Corp. (TSX:ABX) and chair of Western Goldfields, serves as New Gold's executive chairman.
New Gold also drew community-support kudos for bringing certainty to Cerro San Pedro, a mine that has carried a history of legal challenges and environmental opposition.
In March 2011, after community and government consultation by New Gold, the region's municipality approved a new land-use plan that designated the area of Cerro San Pedro mine for mining. With land-use designation in hand, New Gold then sought and secured a new environmental permit for mining.
"This again speaks to management's competency," said Kaip. "When the last [challenge] happened, they really took a completely different approach. One of their strengths is to understand what they were up against and how to diffuse the problem."
Another company forte is optimizing mine production over the last few years.
"Since 2008, New Gold as a company has gone from being a high-cost producer to being a low-cost producer," said Gallagher.
In 2008, the company's mines produced 233,000 ounces of gold at an average cost per ounce of $566. For 2012, the company expects to produce up to 445,000 ounces at an average cash cost of $410-$430.
When New Afton is fully online in 2013, the mine is anticipated to bring total production up to 500,000 ounces of gold and add 75 million pounds of copper annually at an estimated cost of $525 per ounce for gold and $1.15 per pound for copper.
With recent spot prices for gold and copper hitting $1,730 per ounce and $3.58 per pound respectively, New Gold's operating margins are largely insured against any declines in commodity prices.
Aside from optimizing mine production, and barring further M&A activity, New Gold's next significant growth catalysts will be potentially in 2017, with the planned startup of its advanced stage Blackwater gold project, located 160 kilometres southwest of Prince George, and the El Morro copper-gold project, of which Goldcorp Inc. (TSX:G) is 70% owner and operator.
New Gold acquired Blackwater through its April 2011 acquisition of Richfield Ventures. It then consolidated interest and surrounding land in the project by Geo Minerals Ltd. and Silver Quest Resources Ltd. later in the year.
Blackwater has all the attributes of a world-class mine and could potentially add 400,000 to 500,000 ounces to the company's annual production ledger, said Gallagher.
And if current metal prices continue over the next five years, the company could fund construction through cash flow, he said. A preliminary economic assessment for the project is expected this month.
Construction of the open-pit mine at El Morro was initially anticipated for this month. However, the project stalled in the courts earlier this year after the suspension of the project's previously approved environmental permit. If El Morro comes online, New Gold's 30% interest translates into 90,000 ounces of gold and 85 million pounds of copper annually.
"Blackwater and El Morro are expected to double our current production," said Gallagher, "and have New Gold well placed as a million-ounce producer." •
