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New Gold Inc.: 2007 Financial Results, Project Cost Update and Project Update

2008-03-31 04:08:00

New Gold Inc.: 2007 Financial Results, Project Cost Update and Project Update


(All amounts are in Canadian $)

New Gold Inc. (the “Company” or “New Gold”) (TSX:NGD)(AMEX:NGD) is pleased to provide 2007 financial year end results and an update on its New Afton Copper Gold Project situated 10 kilometres west of Kamloops, British Columbia.

2007 Year End Results

The Company incurred a loss of $61.4 million or $2.00 per share in 2007 compared with a loss of $3.5 million or $0.15 per share in 2006. The increased loss is primarily attributable to the $50.1 million impairment charge which the Company took in 2007 in respect of its investments in non-bank sponsored Asset Backed Commercial Paper (“ABCP”). In addition, the Company expensed $22.1 million related to interest and accretion charges in respect of the debt issuances which were completed in June and July 2007, which do not qualify for capitalizing to the New Afton Copper Gold Project (the “Project”) costs. Partially offsetting these two items is an increase in interest income of $3.8 million as well as the recognition of a future tax recovery of $9.9 million in 2007 relating to available loss carry forward amounts and share and debt issue costs.

In 2007, the Company expended $39.3 million, including capitalized financing costs, on the Project and Ajax property as compared to $20.2 million in 2006. In 2007, the Company’s primary expenditures were $25.7 million on the underground development related to the expansion of the existing 2 kilometre decline and commencement of new development faces, $5.0 million on interest capitalized and paid in 2007, $3.0 million in payments to complete the feasibility study on the Project, $4.5 million on surface exploration in and around the New Afton deposit and $0.8 million on exploration of the Company’s Ajax property and optioned properties. In 2006, the Company spent $6.3 million on the feasibility study on the Project, $6.1 million on underground exploration, including support services for the underground exploration, and $2.3 million for tunneling costs (expended in 2005 but paid in 2006).

In addition, the Company spent $30.0 million on property, plant and equipment in 2007 as compared to only $0.4 million in 2006. The significant increase relates to the receipt of the initial portion of the mine development fleet ($11.2 million) and installment payments made on long lead mill equipment orders ($1.6 million). Additionally, the Company completed the acquisition of the surface rights for the Project in the fourth quarter of 2007 for consideration of $16.3 million.

On June 28, 2007 and July 27, 2007, the Company completed an offering (the “Offering”) through a syndicate of underwriters, pursuant to which the following securities were issued:

– 237,000 Series D units at a price of $1,000 per unit, each unit consisting of a $1,000 principal amount unsecured note (the “Note”) and 100 share purchase warrants;

– 55,000 5% subordinated convertible debentures at a price of $1,000 per debenture;

– 2,055,000 flow-through shares at $9.75 per share; and

– 10,700,000 shares at $7.50 per share.

The total Offering generated gross cash proceeds of $392.3 million (net proceeds $374.5 million).

Cash Resources

As at December 31, 2007, the Company had cash and cash equivalents totalling $190.2 million and negative working capital of $29.6 million. The negative working capital position is due to the classification of the Company’s Notes as a current liability, because of a provision in the Note Indenture governing such Notes, which requires the Company to obtain permits related to the Project on or before June 27, 2008. The Mine Permit, which is the principal approval required for the development of the mine, was received on October 31, 2007. The additional material permits relate to the use of water and waste management respecting effluent, sewage and air emissions. The Company is in the process of applying for all of these permits; however if the permits are not obtained by June 28, 2008 the Company may be obligated under the Note Indenture to offer to redeem the Notes at par value ($237 million) from the holders. The Company is presently reviewing alternatives, including seeking an extension to the June 28, 2008 date. The negative working capital position is also due to the classification of the Company’s investments in ABCP as non-current assets and will continue to be classified as such until no sooner than the restructuring of the ABCP is completed. The Company has $120 million of estimated recoverable value ($170 million face value) in investments subject to the ABCP restructuring in Canada.

The Company will be required to raise additional capital either from the issuance of flow-through shares which qualify for the vast majority of the underground development costs, additional debt, although this market is currently limited due to the restrictive credit markets world-wide, or equity financings. The timing and amount of these will be impacted by the timing and ultimate resolution of the Company’s ABCP investments.

Project Update

Construction started in 2007 with underground mine development which is the critical path component of the Project. Cementation Canada Inc. (“Cementation”), which was engaged as the Company’s underground contractor in late 2006, has completed the expansion of the existing 2 kilometre exploration decline suitable for the larger development equipment. It is now proceeding on progressing three underground faces plus the surface portal from which mining commenced in January 2008. In support of the mining activities there are presently 3 mining crews working 7 days a week, 20 hours a day. The Cementation crew totals 71 contractors and their efforts are being supported by 4 mining jumbos, 6 haulage trucks, 4 rock bolters, 7 mining scoops and a fleet of equipment to deliver and apply shotcrete.

The Company has ordered the long lead mill components and ordered and received the initial mine development fleet. Additional major components for the surface facilities that have been awarded since December 31, 2007 include the electrical transformers, power line upgrading and the mill building and site office facilities.

At the end of February 2008, the mine site employee and contractor levels totaled 146. The development crews will increase from three to 6 crews once the underground development reaches the bottom of the ore body and the ore access development commences in the second half of 2008.

The Company has retained AMEC Americas Ltd. (“AMEC”) as its EPCM Contractor and Ledcor Projects Inc (“Ledcor”) is being engaged to construct the surface facilities including the plant and tailings facilities. Ledcor is scheduled to commence excavation of the surface facilities in April of 2008 and building erection is planned to commence in September/October of 2008.

Project Cost Update

Costs of building mining projects world-wide have been increasing as a result of higher labour and material costs. As a result of a comprehensive review overseen by AMEC and including input from Cementation, Ledcor and AMC Consultants (Pty) Ltd., the Company’s mining consultant, the construction costs for the Project are now projected to total $592 million (which includes a contingency of $48.6 million), 19.6% over the projected costs contained in the Feasibility Study and are as follows:

Major Area ($M) % of Total Costs
Mining $197.5 33
Site Development $16.3 3
Process $90.5 15
Utilities $12.5 2
Ancillary Buildings $12.3 2
Water/Waste Management $14.4 2
Total Direct Costs $343.5 58
EP Cost $22.1 4
Construction Management $12.3 2
Construction Indirects $77.1 13
Other Indirect costs $11.3 2
Total Indirect Costs $122.8 21
Owner's costs $74.0 12
Contingency $48.6 8
Capitalized Operating Costs $3.3 1
Total Other Costs $125.9 21
Total Costs $592.2 100


These capital costs will see the mine reach the 4 million tonne per year throughput rate and a portion of these costs can be funded by operations during the initial 1.6 million tonne per year ramp up period. The Company is presently completing its review of the financial and operational consequences of reducing the ramp up period of less than 12 months from the presently disclosed 27 months and any corresponding effect on funding requirements. The Project cost increase is primarily related to labour cost increases which are now based on actual contractor labour rates for the surface and underground contractors, particularly in the underground development area plus escalation on material costs. The Project scope has not been amended from that contained in the Feasibility Study.

To December 31, 2007, the Company has expended approximately $39 million of the Project capital costs.

Participation Agreement with First Nations

As announced on March 24, 2008, the Company has entered into a Participation Agreement with the Kamloops Division of the Secwepemc Nation, comprising the Kamloops Indian Band and the Skeetchestn Indian Band. The purpose of the Participation Agreement is to establish a co-operative and mutually beneficial relationship between the First Nations and the Company with respect to the Project and provide a long-term framework for communication, collaboration and cooperation. The Agreement will provide the Kamloops Division with economic opportunities and social and financial benefits, including employment, education, training and business opportunities. The Agreement secures the consent of the Kamloops Division to the Project and its support through all project phases.

Finalization of Arrangements with Abacus Mining & Exploration Corp

As announced on March 25, 2008, the arrangements with Abacus Mining & Exploration Corp. (“Abacus”) and with Teck Cominco Ltd. (“Teck”), which were first reported on in the October 30, 2007 release, have been finalized. The agreement between Abacus, Teck and the Company is intended to ensure that New Gold and Abacus are able to freely develop their assets in the area of the New Afton Project. This agreement will ensure that Abacus maintains the rights of access previously granted to it by Teck and provides Abacus with shared use of New Gold’s water pipeline in the event that it develops a new milling operation. New Gold will be provided access from the Trans-Canada Highway to its New Afton operations over a small portion of the land which Abacus is purchasing from Teck around the old Afton mill building.

The agreement between Abacus and the Company is intended to ensure that any economic mineralization within and surrounding the past producing Ajax pits, is explored, delineated and developed in the most effective manner. As a result the agreement is intended to grant Abacus an option to explore for, and potentially develop, mineralization in the area surrounding Abacus’ Ajax Mineral Claims, which overly the past-producing Ajax pits. Under this agreement Abacus must spend $2.5 million over 2 years over a portion of New Gold’s mineral claims surrounding the Ajax pits, and complete a preliminary economic study within 6 months following the 2 year period. If economic mineralization is established, it will be developed as a joint venture between the two companies. In the event of an open pit operation the interests will be 60:40 in favour of Abacus who will be the operator. In the event of an underground operation the interests will be 60:40 in favour of New Gold who will be the operator.

Move to Kamloops

With the financial, personnel, administration and Project functions all having been moved to Kamloops, we have decided to close our Vancouver office effective March 31, 2008. All enquiries regarding investor and shareholder matters should now be directed to our Toronto office.

Certain of the statements made and information contained herein is “forward- looking information” within the meaning of the Securities Act (Ontario) and the Securities Act (Alberta) or “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 of the United States. Forward-looking statements are subject to a variety of risks and uncertainties which could cause actual events or results to differ from those reflected in the forward-looking statements, including, without limitation, risks and uncertainties relating to the interpretation of drill results and the estimation of mineral resources and reserves, the geology, grade and continuity of mineral deposits, the possibility that future exploration, development or mining results will not be consistent with the Company’s expectations, metal recoveries, accidents, equipment breakdowns, title matters and surface access, labour disputes or other unanticipated difficulties with or interruptions in production, the potential for delays in exploration or development activities or the completion of feasibility studies, the inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses, commodity price fluctuations, currency fluctuations, failure to obtain adequate financing on a timely basis and other risks and uncertainties, including those described under Risk Factors in the Company’s Annual Information Form and in each management discussion and analysis. Forward-looking information is in addition based on various assumptions including, without limitation, the expectations and beliefs of management, the assumed long term price of copper and gold, that the feasibility study will confirm that a technically viable and economic operation exists, that the Company will receive required permits and access to surface rights, that the Company can access financing, appropriate equipment and sufficient labour and that the political environment within British Columbia and Canada will continue to support the development of environmentally safe mining projects so that the Company will be able to commence the development of the New Afton project within the timetable to be established by the feasibility study. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking statements. Accordingly, readers are advised not to place undue reliance on forward-looking statements.

Cautionary note to U.S. investors concerning estimates of Measured and Indicated Resources, and the use the terms “measured” and “indicated resources.” We advise U.S. investors that, while those terms are recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them. U.S. investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves.

WARNING: The Company relies upon litigation protection for “forward-looking” statements.

For more information, please contact

New Gold Inc.
Mr Cliff Davis
President and Chief Executive Officer
(416) 977-1067 or Toll Free: 1-877-977-1067


New Gold Inc.
Ms. Laura Sandilands
Manager of Investor Relations
(416) 977-1067 or Toll Free: 1-877-977-1067

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