Roth Capital: New Gold Still Worth $3.25 Following Financing Agreement With Royal Gold

On Monday, July 20, New Gold Inc. (USA) NGD announced it has entered a $175 million gold and silver stream agreement with Royal Gold, Inc USA) RGLD. According to the contract, the latter will help the former fund the development of its Rainy River project. In return, Royal Gold will receive a percentage of all gold and silver production, while paying, upon delivery, 25 percent of the prevailing spot prices for gold and silver.

The Implications

In a report issued Monday, Roth Capital analyst Joe Reagor looks into the agreement and concludes that the announcement “demonstrates the strength of the project” (and confidence in its economic viability), even amidst a depressed gold price environment.

Furthermore, the gold stream demonstrates New Gold is “committed to moving forward with Rainy River despite a six month delay announced in early 2015,” the analyst adds.

Including the $175 million from the aforementioned agreement, New Gold now counts with $738 million for the development of Rainy River (the total estimated capital cost ascends to $760 million), in available cash and credit. Based on Roth Capital’s estimates, the analysts believe “the remaining capital will be funded by cash flow from existing operations.”

Consequently, Reagor reiterates a Buy rating and $3.25 12-month price target on shares of New Gold.