New Gold Target Price Revision
Canaccord Genuity - Daily Letter - Friday, June 3, 201
New Gold Inc. (NGD : AMEX : US$9.83) - Buy - Target:US$14.50
Blackwater acquisition and revised peak gold price improve valuation
We reiterate our BUY rating on New Gold following the completion of the Richfield Ventures acquisition. Our rating is based on growth at a reasonable price, the resource and valuation upside associated with the Blackwater project and the optionality associated with the sulphide resources at CSP and Mesquite. Acquisition of Richfield Ventures closed on June 1, 2011 and resulted in an issuance of 49 million New Gold common shares. The acquisition of Richfield's Blackwater Project adds to New Gold's portfolio a multi-million ounce gold resource with exploration potential, located in British Columbia. Blackwater's initial resource increases New Gold's gold resources by 22%. We value the Blackwater project at approximately $800 million based on a resource target of approximately 4.6 Moz (expected 20% growth), valued at an in-situ multiple of $175/oz. Our 12-month target on New Gold has increased to US$14.50 from US$13.00 based on 1.3x (previously 1.35x) our 5% NAVPS estimate of US$11.12
(previously US$10.36). Our 5%/peak NAVPS estimate has also been updated due to our recently revised peak gold/silver price deck to $1,600/oz Au and $47.50/oz Ag.