Ontario teachers pension fund strikes innovative cash-for-gold deal


By Aoyon Ashraf and Paula Sambo
Bloomberg News
Tuesday, February 24, 2020

New Gold Inc. surged after forming an unusual partnership with Ontario Teachers Pension Plan that gives the miner $300 million in exchange for selling a portion of the free cash flow from its flagship operation.

Miners often sell rights to future production called streams, as well as royalties, to help finance development of big projects.

... Dispatch continues below ...


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But in the agreement announced today with the Canadian pension fund, New Gold will sell a 46% free cash flow interest from its New Afton mine over four years. After the term ends, Teachers has the option to convert it into a 46% joint venture interest in the British Columbia mine, while New gold retains an "overriding" right to buy back the stake under certain conditions.

Investors showed their approval by pushing shares of the Vancouver-based miner up as much as 16% in Toronto, the most since July, while gold was down. Before today, New Gold gained 2.6% in the past 12 months, underperforming both bullion futures and its peers.

The deal is positive because it allows New Gold to help reduce its debt, while it makes the company a potential takeover target, according to Canaccord Genuity Capital Markets analyst Dalton Baretto. ...

For its part, Ontario Teachers’ move appears to be part of a larger strategy to diversify its portfolio. Lower-for-longer interest rates have pushed pension funds to cast their nets far and wide in search for returns amid a slew of geopolitical risks and trade tensions. Investors looking to diversify are seeking shelter in low-volatility assets that tend to be illiquid.

The fund is diversifying so it doesn't "regret being overexposed to one asset class in particular,” Ziad Hindo, the chief investment officer of the C$201.4 billion (US$152 billion) fund, said in August. ...

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