Redcorp, New Gold rattled by credit market disruptions (August 27, 2007)

Vancouver — News from Redcorp Ventures (RDV-T, RDFVF-O) that a portion of its $240 million in cash investments was in trusts affected by the global credit market crunch sent the company’s stock plummeting as much as 64% in recent trading.

Recently closing a $252-million debt and equity offering for development of its planned Tulsequah polymetallic mine in northwestern British Columbia, the company placed $102.2 million into five separate trusts managed by Coventree (cof-t).

On Aug. 13 and 14, Coventree announced it was experiencing market disruptions and was unable to meet its repayment obligations until its liquidity providers fund the repayments.

Redcorp points out that the balance of its investments, about $137.5 million, are in Royal Bank of Canada (RY-T, RY-N) bearer discount notes and various term deposits with major Canadian banks and that they provide sufficient returns to ensure there will be no disruption to its activities while Coventree sorts out the matter.

On Aug. 16, Redcorp announced it received a portion ($10.8 million) of the funds outstanding from its matured short-term investments.

Redcorp shares managed a substantial recovery by the end of the trading day but still closed down 24%, or 9, at 28 apiece on volume of 50.4 million shares.

Earlier this year, the company completed its feasibility study for Tulsequah. The base case mining scenario uses a probable reserve of 5.4 million tonnes grading 1.4% copper, 1.2% lead, 6.3% zinc, 2.6 grams gold per tonne and 93.7 grams silver and models a 2,000-tonne-per-day underground operation over an 8-year mine life.

Average annual production is forecast at 88.6 million lbs. (40,200 tonnes) zinc, 19.8 million lbs. (9,000 tonnes) copper, 8.6 million lbs. (3,900 tonnes) lead, 1.7 million oz. silver and 50,000 oz. gold.

Net present value for the planned polymetallic mine is $160.6 million, using an 8% discount, along with a 23.4% after-tax internal rate of return and a 29-month payback period.

Another prospective B.C. mine developer, New Gold (NGD-T, NGD-X), also rattled its shareholders with news that a portion of its $420 million in cash holdings was invested in Coventree-sponsored funds.

The company did not receive a $6.5-million note due to it on Aug. 13; the note remained outstanding at presstime. New Gold has an additional $152 million in Coventree-sponsored funds with varying maturity dates out to Sept. 7. The company believes it has enough cash available to maintain its development schedule and financial obligations for its New Afton underground copper-gold project, near Kamloops, B.C.

Shares of New Gold dropped as much as 36% to touch $4.01 apiece before taking back some ground to close at $5.10, down $1.16, in trading on Aug. 16.

Other companies acknowledging exposure to the global credit crunch via Canadian asset-backed commercial paper include: Baffinland Iron Mines (BIM-T, BIMGF-O) (with cash holdings of C$43.8 million in the short-term investment vehicles); Barrick Gold (ABX-T, ABX-N) (US$65 million); Ivanhoe Mines (IVN-T, IVN-N) (US$66.5 million); Cameco (cco-t, ccj-n) (C$13 million); Shore Gold (SGF-T) (C$19 million); First Quantum Minerals (FM-T) (US$11 million); Northern Orion Resources (NNO-T, NTO-X) (US$14 million); Maximus Ventures (MXV-V) (C$4.8 million); Miramar Mining (MAE-T, MNG-X) (C$37 million); and Goldcorp (G-T, GG-N) (US$14 million).