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January 7, 2010 / Jeb

New Gold (NGD) Partners With Goldcorp (GG) To Build El Morro Mine

 In October, Barrick proposed to purchase 70% of the El Morro Project from Xstrata at a premium.  Today New Gold exercised its right of first refusal by partnering with Goldcorp to change the terms of the agreement to significantly benefit New Gold’s financial situation.  New Gold gets a 50 Million Dollar payment, better financing terms and maintains 30% control of one of the leading advanced stage gold copper projects in the world.

Management has continued to produce results for shareholders.  The Cerro San Pedro Mine suspension was handled quickly and professionally.  This latest transaction with Goldcorp shows to shareholders management’s ability and experience to build a major mining company.

I have stated before that New Gold has the top management to build this into a major gold mining company.  Having the right people who understand the economics of a growing mining company is the key for success.

Goldcorp has expressed their interest in El Morro believing that this specific project is the next step for Goldcorp after building Penasquito.  It provides the company a low cash cost asset in a friendly mining jurisdiction.  Exactly the same reasons which interested me in New Gold.

New Gold’s El Morro Project coupled with the New Afton Project provides investors exposure to a company that is increasing potential earnings at lower cash costs.

New Gold is still undervalued compared to their peers and I believe a major move to the upside is expected as many weak holders were shaken out after the Cerro San Pedro suspension.

Reaction to news is key and as an investor one has to be careful getting caught up in the emotion of the market.  I expect New Gold to move to new 52 week highs.

A break above the resistance line should push NGD higher. 

Disclosure: I own shares of NGD.

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