New Gold hits third zone at New Afton

Vancouver – Drill results indicating a third zone of copper mineralization below the defined New Afton resources New Gold (NGD-T) up on Tuesday, only to fall back slightly on earnings results the next day showing a second quarter loss of $2 million.

New Gold is moving towards developing its 100%-owned New Afton project, just west of Kamloops. The deposit is a deep, high-grade copper-gold porphyry underneath the old Afton mine with a probable ore reserve estimate of 44.4 million tonnes grading 0.98% copper, 0.72 gram gold, and 2.27 grams silver per tonne.

The resources are contained in two zones, the Main and C zones. Both zones lie between hanging wall and footwall faults trending southwest and are separated by an extensively altered but only weakly mineralized interval.

In its summer drill program New Gold has been trying to find a third zone. Three diamond drill holes failed because of technical difficulties, but the fourth hole (AF-125) passed through the center of the Main, the corner of the C zone, and then hit the new Deep zone.

The Deep zone intersection returned 122 metres grading 1.23% copper, 1.01 grams gold per tonne, and 2.9 grams silver per tonne. The interval between the C and Deep zones was also a deeply altered, weakly mineralized band.

News of the new zone boosted New Golds price 29 to $7.21 on Tuesday, starting to climb out of the slump it has fallen into over the past eight months. In November, the company posted a closing high of $10.00.

The following day New Gold released financial results showing a second quarter loss of $2 million, or 8 per share, compared with a loss of $60,000 in the second quarter of 2006. That news brought the share price down just a penny.

During the second quarter the company spent $4.4 million on development activities, principally related to the expansion of the exploration decline, $1 million on the feasibility study, and $1.6 million on surface exploration programs in and around the current New Afton resource.

In June New Gold closed a $375.3 million financing (net proceeds $358.2 million), followed by a $17 million over allotment (net proceeds $16.3 million). The company currently holds some $400 million in cash and has 37 million shares outstanding.

New Afton sits on the site of the old open-pit Afton mine, which produced roughly 500 million lbs. copper, 500,000 oz. gold, and 3 million oz. silver between 1978 and 1987. Through its predecessor company DRC Resources, New Gold staked the mineral rights in 1999, and by 2003, had outlined a large copper-gold orebody. A 2004 scoping study indicated the project had potential as an underground mine, so in 2005, the company completed more than 2 km of tunnelling to provide access for infill drilling and geotechnical analysis.

A feasibility study, released in April, confirmed that the project is economically and technically feasible as an underground block-cave mine, accessed via a ramp from surface. Initial construction is expected to take two years, meaning the project could see commercial production by mid-2009. The mine life is currently projected at 12 years.

Upon startup, the mine is expected to produce 1.6 million tonnes of ore per year for two years. After the ramp-up period, ore production is set to increase to 4 million tonnes annually, making it one of Canada’s largest underground metals mines.