UPDATE 1-New Gold to acquire exploration company Rainy River

Fri May 31, 2013 12:38pm EDT
 
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By Euan Rocha

TORONTO May 31 (Reuters) - New Gold Inc agreed on Friday to acquire gold exploration company Rainy River Resources Ltd for about C$310 million ($301 million) in a sign of a life for the dormant Canadian small-cap mining sector.

The deal, which will give Vancouver-based New Gold control of Rainy River's namesake gold project in northwestern Ontario, sent New Gold's shares up 36 percent in midday trading.

Juniors in the sector have been hurt badly by the sharp pullback in the price of gold along with budget blowouts and other concerns at their larger peers.

This has prompted a huge exodus of investment from both the overall mining sector and early-stage exploration players in particular. It has led to a 53 percent drop in the last year of the Thomson Reuters Canada Gold Index, which includes a cross-section of large- and small-cap gold miners.

New Gold is offering 0.5 of its common share for each Rainy River share tendered, or C$3.83 in cash. This represents a 42 percent premium over Rainy River's closing price on Thursday on the Toronto Stock Exchange.

But the offer is substantially below Rainy River's all-time high of C$13.50 a share in February 2011.

Stifel Nicolaus analyst Craig Stanley believes the offer is a fair price and does not expect a rival bid to emerge.   Continued...