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05/31/2013
New Gold and Rainy River Agree to Friendly Takeover

I just have to laugh when they issue a new release like this and think everyone is fooled. The bottom line is that it is another robbery and (Rainy River) shareholder drubbing. I have to wonder if financing was an issue. They were planning to begin construction in 2014. Here is another example of a great project given away to a larger company with deep pockets.


May 31, 2013

New Gold Inc.
(“New Gold”) (TSX and NYSE MKT:NGD) and Rainy River Resources Ltd. (“Rainy River”) (TSX: RR) today jointly announce that they have entered into a definitive acquisition agreement (the “Agreement”), whereby New Gold will offer to acquire all of the outstanding common shares of Rainy River through a friendly take-over bid. Under the terms of the Agreement, New Gold will offer, at the election of each holder of Rainy River common shares, 0.5 of a common share of New Gold or $3.83 in cash, in each case subject to proration (the “Offer”). The Offer represents a premium of 42% over the closing price of the Rainy River shares on the Toronto Stock Exchange on May 30, 2013, the last day of trading prior to announcement of the Offer, and a 67% premium to Rainy River’s 20 day volume weighted average trading price. The maximum number of New Gold shares to be issued will be approximately 25.8 million and the maximum cash consideration will be approximately $198 million. The Offer values the fully-diluted in-the-money share capital of Rainy River, net of Rainy River’s current cash balance, at approximately $310 million.



When you look at their chart, Rainy River was trading at $5 in January. So, are they really paying a premium? Hint, hint, the answer is no. Are shareholders who bought shares higher than the offer the price (which has to be a large percentage of their investors) getting a good deal? No. This is why takeovers are so painful to shareholders of the acquired company. A fair price would be at least a $100 per oz in the ground.

It's really frustrating when these deals are based on the premium over the current share price, and the gold in the ground is ignored. This is a stock that was trading at $10 before the current gold downturn began. Once gold prices rise, this stock would have marched right back to $10. So a fair price would be at least $15 a share. So, as usual, the buyer basically gets to steal the company, and pay $23 per oz (8.5 million oz / $200 million) for the gold in the ground. I contend that their gold is worth at least 10x that amount. Of course no one is going to pay $230 per oz for gold in the ground today when shareholders continue to be willing to sell for peanuts.

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