OTPP Sells its Remaining Stake in Future FCF from New Gold’s New Afton Mine

Stock Titan reports New Gold consolidates 100% interest in its New Afton mine:

New Gold Inc. (NGD) has announced an agreement to acquire the remaining 19.9% free cash flow interest in its New Afton Mine from Ontario Teachers' Pension Plan for $300 million, consolidating its ownership to 100%. The transaction will be funded through cash on hand, existing credit facility, and a $100 million gold prepayment financing.

The gold prepayment arrangement will require delivery of gold ounces over 12 months, representing approximately 8% of the company's expected consolidated gold production during that period. The transaction is expected to close in early May 2025 and doesn't require shareholder approval.

The deal comes as New Afton enters a period of anticipated significant free cash flow growth, driven by increasing production and improved costs. The company has committed $17 million towards exploration in 2025, with a strong focus on K-Zone, following exceptional drill results from September 2024.

New Gold's $300 million acquisition of Ontario Teachers' 19.9% free cash flow interest in New Afton represents a strategically sound consolidation with compelling financial characteristics.

The transaction structure is particularly noteworthy as it avoids equity dilution while still maintaining balance sheet flexibility. By funding through a combination of cash on hand, existing credit facility, and a $100 million gold prepayment arrangement, management demonstrates disciplined capital allocation. The gold prepayment effectively functions as a form of secured debt with physical delivery rather than cash repayment, creating a clean financing structure.

While committing approximately 8% of expected consolidated gold production for the delivery period, this represents a measured sacrifice of near-term output for complete ownership of future cash flows. The transaction essentially transforms a perpetual royalty-like obligation into a time-bounded delivery commitment.

Timing appears opportunistic, with New Afton entering its strongest production cycle as the C-Zone ramps up. The elimination of the $20 million change-of-control payment provision also removes a potential impediment to future corporate flexibility.

From a valuation perspective, acquiring the final ownership piece of an asset you already operate and understand intimately reduces execution risk substantially. The transaction price likely reflects a discount to what would be required for a new acquisition with similar cash flow characteristics, given the absence of integration risk or operational uncertainty.

This consolidation of the New Afton mine's economic interest comes at a pivotal operational inflection point. The C-Zone ramp-up marks a significant expansion phase that typically drives step-change improvements in production volume and unit cost profiles in underground block cave operations.

Block cave mining represents one of the most technically complex yet economically attractive underground mining methods, with high initial capital requirements but substantially lower operating costs once established. New Gold's mention of their "extensive block caving expertise" is particularly relevant, as this specialized mining method requires significant technical capabilities that many competitors lack.

The $17 million exploration commitment for 2025 focuses on the K-Zone, suggesting high confidence in near-mine resource expansion potential. In mature mining districts, near-mine exploration typically yields the highest return on investment compared to greenfield programs.

Full ownership consolidation provides New Gold complete operational flexibility to optimize mining sequences, capital allocation, and processing decisions without considering split economic interests. This streamlined decision-making is especially valuable during expansion phases and when evaluating mine life extension opportunities.

From an operational perspective, New Afton's location in British Columbia offers significant advantages: established infrastructure, skilled labor availability, and a stable mining jurisdiction. The company's reference to "social partnerships" indicates strong community relationships, increasingly critical for operational continuity in modern mining.

Earlier today, Ontario Teachers’ issued a press release stating it has reached agreement to sell its remaining stake in future free cash flow from New Gold’s New Afton Mine:

Toronto, ON, April 7, 2025 – Ontario Teachers’ Pension Plan Board (“Ontario Teachers’”) has reached an agreement to sell its remaining 19.9% free cash flow interest in the New Afton Mine (“New Afton”) to New Gold Inc. (“New Gold” or the “Company”) (TSX and NYSE American: NGD) for US$300 million. New Afton is a high-quality gold and copper mine located near Kamloops, British Columbia.

Ontario Teachers’ announced a strategic partnership with New Gold in 2020, focused on the company’s New Afton mine. At that time, Ontario Teachers’ agreed to acquire a 46.0% free cash flow interest in New Afton for upfront cash proceeds of US$300 million. In 2024, Ontario Teachers’ free cash flow interest in New Afton was reduced from 46.0% to 19.9% in exchange for a cash payment of US$255 million from New Gold. Upon closing of this latest transaction, Ontario Teachers’ will have no further financial interest in New Afton.

Christopher Metrakos, Senior Managing Director, Infrastructure & Natural Resources, Ontario Teachers’ Pension Plan said:

“We are pleased with the favourable outcome of our strategic partnership with New Gold, a leading Canadian mining company. This partnership has yielded positive returns for Ontario Teachers' while providing significant support and financial flexibility to the Company throughout the investment period, enabling them to achieve commercial production at New Afton’s C-Zone ahead of schedule. We look forward to seeing continued success for New Gold and wish them well.”

Ontario Teachers' Natural Resources group operates under a global mandate to seek investments in energy, metals, timberland, agriculture and aquaculture, and natural climate solutions. These investments provide the fund with commodity-linked cash flows, inflation protection, and diversification.

About Ontario Teachers’ 

Ontario Teachers' Pension Plan Board (Ontario Teachers') is a global investor with net assets of $266.3 billion as at December 31, 2024. Ontario Teachers’ is a fully funded defined benefit pension plan, and it invests in a broad array of asset classes to deliver retirement security for 343,000 working members and pensioners. For more information, visit otpp.com and follow us on LinkedIn. 

It was a long day for everyone, including me, so let me get right to it.

New Afton is a high-quality gold and copper mine located near Kamloops, British Columbia owned by New Gold.

Back in February 2020, New Gold announced a $300M partnership with Ontario Teachers’ Pension Plan and the New Afton Mine to add significant financial flexibility (all dollar figures are in USD):

Toronto, Ontario – New Gold Inc. (“New Gold” or the “Company”) (TSX and NYSE American: NGD) is pleased to announce that it has entered into a strategic partnership with Ontario Teachers’ Pension Plan (“Ontario Teachers’”). Under the terms of the strategic partnership, Ontario Teachers’ has agreed to acquire a 46.0% free cash flow interest in the New Afton mine (“New Afton”) with an option to convert the interest into a 46.0% joint venture interest in four years, or have their interest remain as a free cash flow interest at a reduced rate of 42.5%, for upfront cash proceeds of $300 million payable upon closing of the transaction (the “Transaction”). The proceeds from the Transaction will be used to improve New Gold’s financial flexibility and to reduce net indebtedness.

Key Transaction Highlights

• Provides New Gold with immediate cash proceeds of $300 million at an attractive cost of capital, materially reducing New Gold’s net indebtedness and increasing financial flexibility.
• New Gold retains full operating control over New Afton during development of the C-Zone as the mine transitions to expand its operating mine life.
• Ontario Teachers’ is a world-class financial sponsor whose support of New Afton serves to increase New Gold’s visibility and its vision of creating value for all stakeholders.
• Overriding buyback option provides New Gold with the flexibility to potentially re-acquire 100% of New Afton in the future.
• New Gold will retain 100% of the exploration claims outside of the New Afton mining permit area and has granted Ontario Teachers’ an option to acquire its proportionate share of these claims upon conversion into the joint venture interest.

Summary Transaction Terms

• Ontario Teachers’ will initially acquire a 46.0% free cash flow interest in the New Afton mining claim area with a four-year term (“Interim Interest”) for $300 million in upfront proceeds and New Gold will retain 100% ownership of New Afton.
• After four years, Ontario Teachers’ has an option (“JV Interest Option”) to convert the Interim Interest into a 46.0% partnership interest in New Afton (“JV Interest”) with New Gold holding the remaining 54.0% partnership interest in a limited partnership New Gold and Ontario Teachers’ will form at the time of conversion.
• If Ontario Teachers’ does not exercise the JV Interest Option, Ontario Teachers’ will continue to hold a free cash flow interest in New Afton, but at a reduced rate of 42.5% (“Reduced Interest”).
• New Gold will hold (i) an overriding buyback option to re-purchase and cancel the Interim Interest (the “Buyback Option”) during the JV Interest Option exercise period and (ii) a right of first offer for the life of the agreements.

“We are pleased to be partnering with Ontario Teachers’, one of the world’s preeminent and most well-respected investors, in this transformational transaction that provides us with up front cash allowing us to restructure our balance sheet and lower our level of net indebtedness via a true shared risk and upside partnership focused on free cash flow. This transaction provides New Gold with an attractive cost of capital, further strengthens our financial position, allows us to benefit from the full exploration potential elsewhere on the New Afton land package and provides the opportunity to re-acquire 100% of New Afton,” said Renaud Adams, President and Chief Executive Officer of New Gold. “Ontario Teachers’ is known to conduct in-depth due diligence and partner with high quality management teams that share its values of integrity and operational excellence. We look forward to our partnership with Ontario Teachers’ as we continue our mission to turn New Gold into Canada’s leading intermediate diversified gold producer.”

“We are delighted to partner with New Gold, a leading Canadian mining company, in this distinctive transaction. We gain access to a free cash flow interest from a top quality asset in a stable and well-established mining area, with the ability to convert to a JV interest in four years. Ontario Teachers' Natural Resources group has a global mandate to pursue investments that provide attractive returns and inflation protection through exposure to a basket of key commodities,” said Dale Burgess, Senior Managing Director, Infrastructure & Natural Resources of Ontario Teachers’.

After five years, OTPP has decided it's time to part ways with New Gold and this was an excellent investment and partnership for both parties.

Why now? A lot of reasons, it was part of their agreement and to be truthful, gold has done exceptionally well over the past year due to heightened policy uncertainty and higher inflation expectations.

I think now is as good a time as ever for Teachers' to sell its remaining 19.9% free cash flow interest in its New Afton Mine back to New Gold for $300 million and use that money to invest elsewhere.

It's as simple as that and as Chris Metrakos, Senior Managing Director, Infrastructure & Natural Resources, Ontario Teachers’ Pension Plan said in the press release:

“We are pleased with the favourable outcome of our strategic partnership with New Gold, a leading Canadian mining company. This partnership has yielded positive returns for Ontario Teachers' while providing significant support and financial flexibility to the Company throughout the investment period, enabling them to achieve commercial production at New Afton’s C-Zone ahead of schedule. We look forward to seeing continued success for New Gold and wish them well.”

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