Paradigm Capital Inc, IIROC/TSX member 1 June 28, 2011
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REPEAT OFTEN
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New Gold Investment Thesis. New Gold is a high‐growth intermediate gold producer focused on the Americas.
The company is expected to produce 380–400K oz of gold this year with a cash cost of $390–$410/oz. This
places New Gold as one of the lowest‐cost producers in its peer group. It also has one of the strongest growth
profiles in comparison to its peers with gold production to grow to 920K oz/yr and copper production of 191M
lb by 2017.
Silver Quest Investment Thesis. Silver Quest has a strategic joint‐venture 25% interest in the Davidson property
located on the northern half of the Blackwater Project. It is our opinion that a majority of the resource growth
will come from Davidson adding significant value to Silver Quest. The company also has other properties
including two promising and potentially strategic projects in the same region as Blackwater and a large land
position in the Yukon.
Event
New Gold and Silver Quest announced results from 22 holes at the Davidson property
located on the Blackwater Project in B.C. (4.2M oz at 1.0 gpT).
Details
 All 22 holes were located on the northern portion of the Blackwater Project known
as the Davidson property (75% New Gold, 25% Silver Quest).
 Of the 22 holes, 8 were infill while 14 were step‐out holes testing the mineralization
both to the northwest and to the northeast (Figure 1). Highlight intercepts include:
o BW‐149 230 m at 1.41 gpT Au (Infill NW)
o BW‐158 159 m at 1.29 gpT Au (Step‐out NW)
o BW‐153 172 m at 0.91 gpT (Infill NE)
o BW‐157 140 m at 1.27 gpT Au (Step‐out NE)
 New Gold has increased the planned drill program for the year at the Blackwater
Project, from 30,000 m to 60,000–70,000 m. The aggressively expanded program is
more than twice the amount that was completed to outline the current 4.2M oz
resource.
Summary of Results
In our opinion, the results are quite encouraging as they continue to show the continuity
of the mineralization at Blackwater, as well as the potential to expand the resource
beyond the current resource pit shell. They support our view that the Blackwater Project
has the potential to grow beyond the already attractive maiden resource of 4.2M oz
released in March 2011. We currently estimate that the 2011 drilling season will outline a
5.4M oz resource with upside from there.
The 22 holes released were all focused on the joint‐venture Davidson property, where we
believe a majority of the future Blackwater resource growth will occur. Currently,
Davidson only makes up one‐third of the Blackwater resource (1.37M oz). The jointventure
agreement was not signed until March 28 of this year, which had limited
exploration. Once the signing occurred the drills quickly began turning on Davidson. Since
then, we have seen a total of 34 holes released from Davidson averaging 78 m at 0.98
gpT, in line with the Blackwater resource grade of 1.0 gpT. Our NAV assumes that the
current Davidson resource of 1.37M oz will expand by 50% at the same 1.0 gpT grade as
the maiden resource for Blackwater.
Company Profiles
Sector Gold
Ticker NGD‐T
Stock Rating BUY
Closing Price (C$) $9.31
12‐Mth Target (C$) $13.75
Rate of Return 48%
Shares O/S Bsc (M) 450
Shares O/S FD (M) 475
Mkt Cap, Bsc (C$M) 4,190
Mkt Cap, FD (C$M) 4,424
NAV/sh * $10.31
Working Capital/sh $0.97
Debt/sh $0.46
Ticker SQI‐V
Stock Rating Spec. Buy
Closing Price $1.07
12‐Mth Target $1.30
Potential ROR 21%
Shares O/S Bsc (M) 93.6
Shares O/S FD (M) * 173.7
Mkt Cap, Bsc (M) C$100
Mkt Cap, FD (M) C$186
NAV/sh ** $1.61
Working Capital/sh $0.04
Debt/sh $0.00
** Per sh figures are per diluted sh NAV@ 5% DCF rate
$1,497/oz gold
*Per sh figures are per diluted sh NAV@ 5% DCF rate,
spot gold ($1,497/oz)
* financed scenario (includes assumed future financing
for construction capex
Research Team
Don MacLean, Sr. Analyst 416.360. 3459
dmaclean@paradigmcap.com
Don Blyth, Analyst 416.360.3461
dblyth@paradigmcap.com
Jon Case, CFA, Analyst 416.363.9567
jcase@paradigmcap.com
Lauren McConnell, Associate 416.366.7776
lmcconnell@paradigmcap.com
NGD
04/05/11 Target raised($13.75)
11/11/10 Target raised ($10.75)
01/08/10 Recommendation and target raised ($5.80)
03/05/09 Target lowered ($4.00)
04/28/08 Initiating target price ($10.00)
SQI
05/24/11 Initiating target ($1.30)
New Gold Inc. (NGD‐T) & Silver Quest Resources (SQI‐V)
Further Drilling at Blackwater
Paradigm Capital Inc, IIROC/TSX member 2 June 28, 2011
Research Note
Step‐out Results
A majority of the holes that were released were step‐out holes beyond the 0.3 gpT
resource contour. The step‐out results averaged 96 m at 0.99 gpT Au when using the
better intersections (Figure 2). A high‐grade area is shaping up to the northeast, with
holes BW‐159, BW‐163 and BW‐156 hitting narrow high grades. The most northeast of the
holes, BW‐156, hit the best intersection, 4.0 m grading 165 gpT. This was not the only
high‐grade sweet spot that was encountered, BW‐159 had an intersection of 1 m at 25.7
gpT and BW‐163 intersected 1 m of 33.5 gpT. Drilling to the northwest on the Davidson
joint‐venture ground continues to expand the resource with broad 1 gram intersections in
holes BW‐149, BW‐162 and BW‐158. There were three (BW‐161, BW‐165, BW‐169) large
(200–400 m) step‐out holes to the northwest that hit modest mineralization, suggesting
that either the western edge has been defined or a lower‐grade area has been found.
Mineralization does remain open to the west, as indicated by BW‐149. There is still a lot
to be learned about the Blackwater mineralization, so we are not able to say which is
occurring.
Infill Results
Eight of the 22 holes released were infill holes, confirming the continuity of the
mineralization. When looking at the infill holes on an average intercept basis, they
averaged 130 m at 0.77 gpT when one takes the better intersections (Figure 3). Despite
the grade being lower than the resource grade, we continue to believe that significant
ounces will be added at Blackwater. The combination of the higher grades and the
broader lower‐grade material is very encouraging, as the lower grades provide the tonnes
and the high grades provide the sweetener.
Silver Quest
The results are positive for Silver Quest as they show that New Gold is serious about
moving Blackwater ahead. These 22 holes are the first released since New Gold’s
acquisition of Blackwater closed and confirm New Gold’s commitment that it will provide
periodic news updates. The Davidson joint‐venture property is, in our opinion, where the
upside lies both in the potential of adding ounces and increasing grade; this makes Silver
Quest’s 25% share of Davidson even more valuable, especially as more drilling is
conducted. In our opinion, it would be uncharacteristic of a major mining company to
want a junior as a joint‐venture partner in the operating stage, particularly given that
Blackwater will probably need to be operated with two sets of books.
Yesterday, Silver Quest announced that it had introduced a shareholders right plan to
guarantee that all shareholders are treated equally in connection with any takeover
attempts of the company. In our opinion, the logical timing would be before the next
resource calculation, which is expected in early 2012.
Conclusion
The results in yesterday's press release and the May 10 press release support our view
that at least 50% will be added to the Davidson property, and probably more. This should
be easily accomplished, as New Gold is targeting 40,000–50,000 m in H2/11, bringing the
total metres to be drilled at the project in 2011 to 60,000–70,000 m, more than double
the original 30,000‐m program that had been planned. New Gold remains a Top Pick with
a $13.75 target price and a Buy rating. Silver Quest is one our top takeover candidates
with an Investor Total Cost of $779/oz, well below the average of $832/oz. Silver Quest
remains a Speculative Buy with a $1.30 target price.
Paradigm Capital Inc, IIROC/TSX member 3 June 28, 2011
Research Note
Figure 1: Drill Hole Location Map
Source: Company filings
Paradigm Capital Inc, IIROC/TSX member 4 June 28, 2011
Research Note
Figure 2: Step-out Results
Drill Hole From To Interval Au g/t Type Location
BW-155 147 201 54 0.46 Step out (Small) NC
BW-156 101 113 12 0.57 Step out (Large) NE
135 149 14 6.41 *Intersection 165gpT Au Capped at 20gpT Au
BW-157 77 217 140 1.27 Step out (Small) NE
BW-158 104 263 159 1.29 Step out (Small) NC
BW-159 161 341 180 0.85 Step out (Large) NE
BW-160 114 144 30 0.33 Step out (Large) NE
BW-161 269 338 69 0.64 Step out (Large) NW
BW-162 44 362 318 1.39 Step out (Large) NW
BW-163 265 330 65 1.45 Step out (Small) NE
BW-164 69 178 109 0.20 Step out (Large) NW
BW-166 167 197 30 0.76 Step out (Large) NW
BW-168 180 260 80 0.25 Step out (Large) NW
BW-169 162 247 85 0.27 Step out (Large) NW
AVERAGE 143 245 96 0.99
Source: Company filings, Paradigm Capital Inc
Figure 3: Infill Results
Drill Hole From To Interval Au g/t Type Location
BW-149 56 66 10 0.92 Infill NW
143 151 8 0.82
205 435 230 1.41
BW-150 3 340 337 0.15 Infill NC
BW-151 172 208 36 0.75 Infill NC
BW-152 86 152 66 0.71 Infill NC
BW-153 132 304 172 0.91 Infill NE
BW-154 9 226 217 0.61 Infill NE
BW-167 196 246 50 1.11 Infill NC
BW-170 93 270 177 1.10 Infill NC
Average 93 227 130 0.77
Source: Company filings, Paradigm Capital Inc
Paradigm Capital Inc, IIROC/TSX member 5 June 28, 2011
Research Note
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