New Gold plots big output jumpINTERVIEW-New Gold plots big output jump, seeks M&A3:11PM ET on Friday Feb 19, 2010 via Thomson Reuters
* Company aims to triple production over next 2 years
* Sees costs falling, cash flow rising
* Facing environmental challenge at Mexico mine
By Cameron French
TORONTO, Feb 19 (Reuters) - New Gold Inc <NGD.TO>, the Canadian junior miner that bought Metallica Resources and Peak Gold in 2008, is seeking further acquisitions to help meet a target of more than tripling gold production over the next two years, a senior executive said.
The company, whose shares had risen 18 percent so far this year, outpacing its peers, has faced a challenge to environmental approvals at its Cerro San Pedro mine in Mexico.
New Gold produced a little more than 300,000 ounces of gold last year, and aims to push that to 1 million ounces by 2012, a level that would solidify its status as a mid-tier gold miner.
The company's current assets will eventually account for output of about half a million ounces, meaning it will have to make acquisitions to reach its production goal, New Gold Executive Chairman Randall Oliphant -- a former CEO of top-tier gold miner Barrick Gold <ABX.TO> -- told Reuters.
"We're going to continue to look for other mines that fit well with our portfolio and we think that over the course of the next two to 2-1/2 years that we should continue to grow our gold production," he said.
The company emerged from the junior mining pack two years ago when it bought fellow minnows Metallica and Peak Gold for about C$1.4 billion ($1.35 billion).
The all-stock deal was announced just after gold pushed through $1,000 an ounce for the first time in March 2008, which initially drove the shares of the company higher. But they reversed in June 2008 as credit markets seized up and junior mining stocks began to plunge.
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Now, with credit markets thawing and gold having charged to new records well above its 2008 levels, analysts predict a resurgence of M&A.
"Today, not only can we take on mines that are currently producing, but because we've got so much more cash we can take on development projects as well," said Oliphant. New Gold has about $240 million in cash.
The company has already shown a willingness to be creative in its deal-making, as it agreed January to purchase Xstrata PLC's <XTA.TO> 70 percent stake in the El Morro copper and gold project in Chile and immediately sell it to Goldcorp.
New Gold owns 30 percent of the project and owned right of first refusal on Xstrata's stake. The deal -- under which Goldcorp will fund development -- has drawn a lawsuit from Barrick, which had already agreed to buy Xstrata's stake, pending an expiry of New Gold's purchase rights.
Oliphant said he expects New Gold's cash flow to rise to as much as $500 million with its current assets, while cash costs should shrink because of base metal production that will be used to offset gold mining costs.
The company currently operates mines in California and Australia, as well as Cerro San Pedro, where mining has been suspended due to the environmental challenge.
The operation is still processing stockpiled ore. Oliphant, who said the disagreement centers around issues of "form over substance", wasn't sure how long current stockpiles will last.
New Gold will begin hearings on the environment approval in March, and has been in hearings this week to obtain blasting permits, which Oliphant said have been approved by federal authorities, but were recently withheld by the local government. ($1=$1.04 Canadian) (Reporting by Cameron French; Editing by Frank McGurty)