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Analysis

Mexican Production Drop Does Not Faze New Gold

Wed, 10/21/2015 - 08:05

Starting out from Canada, New Gold is an intermediate gold mining company that has amassed a portfolio of four producing assets and three development projects around the world. This international profile is comprised of the New Afton gold-copper mine in Canada, the Mesquite gold mine in the US, the gold-copper Peak Mines in Australia, and the Cerro San Pedro gold-silver mine in San Luis Potosi, Mexico. The company also owns 100% of the Rainy River and Blackwater projects, both located in Canada, as well as 30% of El Morro in Chile.

Cerro San Pedro is the company’s flagship property in Mexico, and the area has a landmark status all of its own. The Spanish first discovered gold and silver there in 1583 after a priest asked the Guachichil locals about how they achieved gold hue in their decorations. Centuries later, the mines were administered by Metalúrgica Mexicana. However, a strike in 1948 convinced the company to leave; it only did so after collapsing the mine shafts in a fit of annoyance. Today, the mine has returned to more reasonable hands, as it is operated by New Gold through its Mexican subsidiary, Minera San Xavier (MSX). The full potential of Cerro San Pedro emerged in the early 1950s, when approximately 2.5 million ounces of gold and 40 million ounces of silver were produced from within the district. During the 1970s, a renewed interest in the region saw various companies evaluating the district’s potential for large tonnage, low-grade, and bulk mineable deposits. The Cerro San Pedro gold-silver deposit is located along the western margin of the Sierra Madre Oriental fold belt. It is characterized by an upper zone of gold-silver mineralization associated with secondary limonitic iron oxides and a lower zone of gold-silver-zinc-lead sulfide mineralization hosted by a late Cretaceous to early Tertiary monzodiorite porphyry

Beyond its geological structure, its geographical location is also a distinct advantage as the town of San Pedro is situated 20km outside the city of San Luis Potosi in central Mexico. Nevertheless, the operation of Cerro San Pedro hit a major road block in 2009 when PROFEPA shut the mine down after a major land dispute. The operation had faced heated opposition from local residents as they claimed the mine had been functioning illegally since its environmental license to operate had been removed in 2005. This dispute lasted until 2012 when SEMARNAT reinstated Cerro San Pedro’s environmental impact statement, based on it following the municipal land use plan of the town of San Pedro. Given the semi-arid nature of the San Pedro region, the company ensures the treatment of domestic wastewater and the collection of rainwater for processing. The wastewater cycles through a closed circuit to avoid any discharges and the company states the only losses of water are due to leach pile retention and evaporation. Alongside this, to directly benefit the local ecosystem, New Gold has created a botanical nursery, from which 135,000 indigenous species of flora have been used for reclamation efforts. The company also aims to reforest 44 hectares a year around the site.

n 2013, Cerro San Pedro produced a total of 103,000oz of gold and 1.3 million ounces of silver. After the first nine months of 2014, Cerro San Pedro had produced a total of 47,300oz of gold and 783,000oz of silver, significantly lower than the 80,600oz of gold and 1 million ounces of silver produced in the first three quarters of 2013. The mine is thought to contain reserves of 1.4 million ounces of gold and 52 million ounces of silver. New Gold’s continued faith was illustrated by the US$28 million it invested at Cerro San Pedro over the course of 2014, with US$20 million spent on capitalized stripping and US$8 million on expanding the operation’s leach pad. “The third quarter saw our company achieve multiple important successes,” stated Randall Oliphant, Executive Chairman of New Gold in the company’s third quarter report. “We increased quarterover-quarter gold production as planned, advanced our growth projects, progressed our exploration initiatives and strengthened our team.” This success is helped by the fact that New Gold’s resources are so well split across different projects. Its newest mine, New Afton in British Columbia, began producing gold and copper in 2012, and contains tens of millions of ounces and pounds, respectively. Acquired by New Gold in June 2009, Mesquite is an open-pit gold mining operation located in Imperial County, California. Mesquite’s ores have been proven to be readily amenable to heap leach processing, as demonstrated by the mine’s past twenty years of successful mining operations. Peak Gold Mines in Australia produces gold doré bars and copper concentrate, the former of which is on sale at the Perth mint, while the latter is sold to markets in Asia.

Looking ahead, New Gold’s board and management team intends to pursue an aggressive organic growth strategy, encompassing the development of projects and a continuous improvement of its existing operations. External opportunities for the company to execute value enhancing mergers and acquisitions should also lead to growth.