Insiders Plus

03/02/2017 7:00 am EST

Focus: STRATEGIES

Jack Adamo

Editor, Jack Adamo's Insiders Plus

New Gold (NGD) announced that it has signed a binding agreement to sell its El Morro gold stream contract to Goldcorp (GG) for $65 million in cash. 

This apparently allayed market fears about New Gold having to float a dilutive stock offering. I've thought the odds of the company needing to use common stock to raise the whole $100 million it needs for capital projects this year, was slim. 

It was more likely to raise some money selling non-core assets and borrowing the rest. That scenario is well underway now. New Gold has already filled two-thirds of its capital needs.

Another factor is how the sale of El Morro shows up in Q1 2017 earnings, which will probably come out in early May. In the big picture it is not objectively that important, but New Gold is a play on future earnings, not current ones. 

Sooner or later, I think this investment is going to work out well, but for now the shares are still to be considered speculative, so stay within your personal comfort zone. 

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