New Gold gets mine permit for New Afton

Vancouver – Its been a busy week for New Gold (NGD-T), as the company picked up a signed mine permit for its New Afton copper-gold project as well as two letters of intent with nearby claim-holder Abacus Mining and Exploration (AME-V).

New Gold owns the New Afton project located just west of Kamloops, B.C., a deep, high-grade copper-gold porphyry with a probable ore reserve estimate of 44.4 million tonnes grading 0.98% copper, 0.72 gram gold per tonne, and 2.27 grams silver per tonne. New Gold also recently intersected a new, third zone of copper mineralization below the currently defined resources.

In January New Gold filed the mine permit application. Eleven months later the company has in hand a mine permit that approves the construction, operation, and reclamation of the New Afton Mine.

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; in 2005 the company completed more than 2 km of tunneling for infill drilling and geotechnical analysis.

In April the company received a positive feasibility study for New Afton, confirming the projects economical and technical potential as an underground block-cave mine accessed via a ram from surface.

Construction is expected to take two years; mine life is projected at 12 years. On start-up 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.

New Gold has roughly $393 million in cash and short term investments after closing a $375-million financing in late July. Capital costs for New Afton are projected at US$268 million, while expansion capital is expected to consume US$137 million and sustaining production expected to require US$78 million.

A few days before receiving the mine permit, New Gold announced two letters of intent (LOI) with Abacus designed to ensure both companies can develop their assets in a spirit of co-operation and accommodation, without compromising the individual plans of either company. In late 2005, New Gold acquired the surface rights to the land required to develop New Afton as well as the rights to the water pipeline that had supplied the old Afton open pit from owner Teck Cominco (TCK.A, TCK.B-T, TCK-N). A few months later, Abacus bought the old Afton mill building, the surface rights surrounding the building, and the tailings facility from Teck.

In the first letter, a three-way agreement between New Gold, Abacus, and Teck, New Gold guaranteed Abacus right of access to its properties through New Gold land as well as ensuring that Abacus can use the Afton water pipeline. In addition, the three-way LOI provides New Gold access from the Trans Canada Highway to its Afton operations over a small portion of Abacus land.

The second LOI is intended to ensure that any economic mineralization within and surrounding the past pits is explored, delineated, and developed in the most effective manner. The agreement requires Abacus to explore its claims as well as some land belonging to New Gold, to the tune of spending $2.5 million within two years and completing a preliminary economic assessment within the following six months. If economic mineralization is established the project will be developed as a joint venture between the two companies: an open pit mine would see Abacus holding a 60% interest whereas an underground operation would have New Gold holding 60% of the project.