Afton, again

Vancouver — A feasibility study commissioned by New Gold (NGD-T, NGD-X) for its New Afton project near Kamloops, B.C., shows positive economics for an underground block-cave operation at the copper-gold deposit.

The study, led by engineering firm Hatch, models a mine producing an average of 70 million lbs. (31,750 tonnes) copper, 74,000 oz. gold and 204,000 oz. silver annually over a projected 12-year mine life.

Capital costs of US$268 million are forecast to bring the mine to production with a further US$137 million of expansion capital and US$78 million in sustaining costs also estimated.

A pretax internal rate of return (IRR) of 13.6% was projected along with an after-tax IRR of 10.4%. The non-discounted net present value (NPV) is estimated at US$614 million, dropping to US$266 million when a 5% discount is applied.

At its projected full production rate of 4 million tonnes per year, New Afton is anticipated to generate average annual pretax cash flow of US$108 million.

Life-of-mine cash operating costs for copper production are estimated at US64 per lb. net of precious metal credits. Gold cash operating costs are expected at negative US$790 per oz. over the mine’s life, net of copper and silver credits.

The feasibility study used a 3-year trailing average of LME spot metal prices (from 2004-2007) for a copper price of US$2.01 per lb, gold at US$487 per oz. and silver at US$8.54 per oz.

As an underground block-cave operation, about two years of construction is expected before commercial production can begin. New Gold has given its contract miner the go-ahead to start underground work, with production forecast in late 2009. Workings will be accessed by a ramp from surface.

During the first two years of production, the mine is modelled at a reduced rate of about 1.6 million tonnes per year. After the ramp-up period, full production of 4 million tonnes annually would make New Afton one of the largest underground mines in Canada.

Block-cave mining involves underground development that undercuts the orebody, causing it to break and collapse into draw points from which the ore is extracted.

Ore would be trucked to surface initially for processing and concentrate production during the ramp-up phase, with the mine then transitioning to an underground crushing and conveyor system.

The company has committed to ordering and placing a deposit on its longest lead-time item, an 11,000-tonne-per-day semi-autogenous grinding mill.

Using a $15-per-tonne ore value cutoff and metal prices of US$1.45-per-lb. copper and US$475-per-oz. gold, the New Afton deposit hosts probable reserves of 44.4 million tonnes grading 0.98% copper, 0.72 gram gold per tonne and 2.27 grams silver. That’s equal to 960 million lbs. (435,000 tonnes) of contained copper, 1.03 million oz. gold and 3.24 million oz. silver.

Over the mine’s life, average metallurgical recoveries for copper, gold and silver are estimated at 87.4%, 85.9% and 75.8%, respectively, to produce a concentrate averaging 27.6% copper. With the feasibility study complete, New Gold is better positioned to negotiate with smelters on offtake agreements.

New Gold recently submitted its formal mine permit application to the B.C. government; it is now going through the review stage.

In early 2007, the company entered a letter of intent to secure surface rights over the project area from Teck Cominco (tck.b-t, tck-n) for $16 million plus a 2% net smelter return royalty on the deposit that can be repurchased for $12 million.

New Gold is now focused on arranging project financing to develop New Afton.

Shares of New Gold slipped 5% on the feasibility study release, closing down 49 at $9.06 apiece. With its 24 million shares outstanding, the company posts a $217-million market capitalization. The company has $60 million in its treasury.