Jack A. Bass Picks New Gold for AMP Hedge Fund by jackbassteam

New Gold

(NGD : NYSE MKT, NGD : TSX | BUY, Target US$15.75)

Blackwater resource update; gold ounces and grades increased
New Gold announced a mineral resource update in which Measured gold resources increased by 46% to 3.9 Moz at 1.04 g/t (from 2.67 Moz at 0.94 g/t). The updated resource will be used for the company’s feasibility study which is expected to be completed in late 2013.
Investment Highlights
The current resource estimate includes an additional 89 holes (22,220 m) when compared to the year-end 2012 resource estimate. The majority of the additional holes were infill in the southeast portion of the deposit, increasing confidence in the resource modeling and driving the increase in the Measured resource category.
Excluding stockpile material, Measured and Indicated gold resources now stand at 8.62 Moz grading 0.88 g/t from 8.07 Moz grading 0.85 g/t, previously. Inferred gold resources grew slightly to 340,000 oz grading 0.76 g/t from 310,000 oz, previously.
Recovery rates applied to the updated resource have been disclosed as 88% gold and 64% silver for oxide ore, 85% gold and 58% silver for ransitional ore, and 85% gold and 44% silver for sulfide ore; while the year-end 2012 resource estimate applies metallurgical recoveries of 85% gold and 44.9% silver as outlined in the 2012 PEA.
As a part of the resource recalculation, the company has revised the model’s block size to 12x12x12 meters from 10x10x10 to reflect the likely size of mining equipment required to maintain the envisioned throughput rate of 60,000 tpd.
We view this update as positive as the company has not only increased the gold resource at Blackwater, but has improved overall gold grades. While we have not updated our valuation profile to reflect the updated mineral resource estimate, our initial view is that assuming the same overall recoveries as outlined in the 2012 PEA, the increased gold ounces and grades could imply an increase in our 5%/peak DCF of Blackwater to $2.94 billion from $2.67 billion currently (worth approximately $0.50/share).

Our valuation is subject to change upon further review of the revised resource estimate and implications of the revised recovery rates.

Valuation

Our US$15.75 target price remains unchanged based on 1.1x our 5%/peak NAVPS
estimate of US$14.33. Given its size, Blackwater remains the largest contributor to our
consolidated NAV estimate (worth $5.50 or 38%).