New Gold Inc growing at the speed of light

New Gold Inc. is looking good these days (NGD.TSX,AMEX)…

The company has been around forever, but it’s present day structure stems from a more recent three-way merger with Peak Gold and Metallica Resources. Today it has a market capitalization of $2 billion with 389 million shares outstanding and a 52 wk hi/lo $1.85/$5.19. The company is focused on growth and aims to be a +1 million ounce gold producer by 2012.

Boy, that happened fast!

A few years earlier I recommended Peak Gold, thinking it was created merely to develop a pair of spin-off properties and get folded back into Goldcorp Inc. Obviously I was wrong.

Hey are these three-way company mergers auspicious or what? Kinross Gold was incorporated in a similar way over 15 years ago, and I’ve noted a few other deals with similar structures that have done extremely well. If you’re looking for the next fast mover with a stock price destined for double digits, that may offer a clue.

I’m going to sidestep for a minute and talk about Goldcorp Inc. (TSX:G. C$40.42/NYSE:GG. US$38.65). What’s great about these guys and their proxies is they grow at the speed of light. Some mining companies get stodgy and boring and cautious when they grow big, but Goldcorp has remained mercurial and aggressive. They think like juniors, only in Technicolor, and they make very few mistakes. Some companies that grow fast in the good times are destined to crash and burn but you just know that’s not going to happen to these guys.

I wouldn’t exactly call New Gold a proxy for Goldcorp. But they have some directors on the board (as well as Franco Nevada) and there are some unmistakeable similarities.

For one thing, New Gold follows the same methodology: Start with a bullish share structure, grab inventories, make astonishing leaps in gold production, grow big and fast through M&A.

For another, they have a super big copper-gold system in Latin America. It’s worth noting that Goldcorp’s growth path really accelerated after 2003, when it picked up a 37% interest in the Bajo de Alumbera copper-gold porphyry project in Argentina, owned in part by Xstrata and Yamana. Thereafter, it quickly grew from intermediate producer to a top senior gold producer.

For its part, New Gold – which is now an intermediate producer – has recently carved up the El Morro project, another porphyry system, this time in northern Chile. El Morro too is a company-maker, with mineable reserves of 6.7 million ounces gold and 5.7 billion pounds copper, plus substantial gold and copper inventories in the resource category.

Last month New Gold acquired 70% of the project from Xstrata plc for $463 million, which it passed to Goldcorp Inc. for development costs and a friendly loan to pay down the purchase. It retains a 30% indirect interest, which is all gravy once Goldcorp is paid off. Nice!

So the million dollar question now is whether the will actually exists – or will exist in the future – to shape New Gold into the next Goldcorp. I certainly hope it does.

The chart for NGD suggests a short-term price target of just over $6 Cdn per share, a 15% or so premium over the recent close of $5.11. Looking further out, I expect a much higher price based on its cash position, rapidly escalating gold production, and the simple fact that it is extremely well positioned to capitalize on any consolidation phase in the industry and particularly in Latin America.

Careful out there.