Monday, Metallica Resources Inc. (MR.TO, MRB), New Gold Inc. (NGD.TO, NGD), and Peak Gold Ltd. said they have signed a letter agreement to complete a business combination, forming a new intermediate gold company having a market capitalization of approximately US$1.6 billion.
The combined company, to be known as New Gold Inc., will have three operating gold mines in Australia, Brazil and Mexico. The new company will also undertake development stage projects in Canada and Chile, including the New Afton mine, which will commence production in late 2009.
Once the transaction is complete, the joint venture will have proven and probable gold reserves of 3.2 million ounces, measured and indicated gold resources of 4.9 million ounces and inferred gold resources of 3 million ounces. Additionally, the company will have proven and probable silver reserves of 65.3 million ounces, measured and indicated silver resources of 15.8 million ounces and inferred silver resources of 2.6 million ounces.
New Gold Inc. will also contain proven and probable copper reserves of 986 million pounds, measured and indicated copper resources of 2.5 billion pounds and inferred copper resources of 918 million pounds.
The company's estimated gold production of approximately 297,000 ounces is expected to grow to 335,000 ounces in 2009. The development of the New Afton and El Morro mines and the exploration of the combined company's extensive land positions will also help production.
In 2008, the combined company will incur estimated cash costs of approximately US$340 per ounce of gold, net of by-product credits.
Upon completion of the transaction, Chief Executive Officer of Peak Gold, Robert Gallagher, will takeover that role for the joint venture. The Board of Directors will include Clifford Davis, Robert Gallagher, Pierre Lassonde, Craig Nelsen, Paul Sweeney and Ian Telfer.
Once the transaction is complete, New Gold Inc. will have approximately 235 million common shares issued and outstanding in addition to in-the-money options and warrants, of which former Metallica Resources shareholders will own 45.7% and former Peak Gold shareholders will own 37.8% of the combined company.
The transaction, which will close in July, is subject to the entering into of definitive agreements among the parties on or before May 9.
The transaction is subject to the completion of confirmatory due diligence, definitive documentation, regulatory approvals and obtaining a minimum two-thirds shareholder approval at special meetings of the shareholders of Metallica Resources and Peak Gold and majority approval at a special meeting of New Gold shareholders.
As per the terms of the transaction, Metallica Resources shareholders will receive 0.9 common share of New Gold for each common share of Metallica Resources held. Shareholders of Peak Gold will receive 0.1 common share of New Gold for each common share of Peak Gold held.
MRB is currently trading at $5.94 on the NYSE, up $0.46 or 8.41%, on a volume of 93,800 shares.
MR.TO is currently trading at C$6.13, up C$0.53 or 9.46%, on a volume of 11.49 million shares.
NGD is currently trading at $6.97, up $0.19 or 2.80%, on a volume of 2,300 shares.
NGD.TO is currently trading at C$7.23, up C$0.22 or 3.14%, on a volume of 227,700 shares.
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