Multinational mining company New Gold has signed a definitive agreement to divest its Mesquite mine located in California, US, to Canadian firm Equinox Gold.

Pursuant to the terms of the deal, Equinox will make an aggregate payment of $158m to New Gold once the transaction is closed, which is expected during the fourth quarter of this year.

New Gold will use the proceeds from the sale to bolster its balance sheet and enhance overall financial flexibility.

The transaction is expected to be funded through a combination of committed debt and equity.

New Gold president and CEO Renaud Adams said: “Mesquite has generated significant value for New Gold, averaging more than 135,000oz of gold per year over the last ten years since Western Goldfields, a predecessor to New Gold, brought the mine back into production.

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“Today’s announcement allows New Gold to immediately crystallise several years’ worth of future free cash flow as part of our strategy to prudently manage our balance sheet, providing the company with the financial flexibility to focus on our core assets.”

The Mesquite’s gold deposit is estimated to have proven and probable reserves of 1.13 million ounces and measured and indicated resources of 1.18 million ounces.

Equinox expects the transaction to offer operational synergies as the project is located 200 miles south of its development-stage Castle Mountain gold mine in California.

Following the completion of the transaction, the Mesquite team will join Equinox.

The transaction also requires Equinox to assume bonding obligations with the applicable environmental regulatory authorities related to Mesquite’s long-term reclamation obligations.

“Today’s announcement allows New Gold to immediately crystallise several years’ worth of future free cash flow.”

Closure of the deal is conditional on satisfaction of customary closing conditions, including completion of the debt and equity financings by Equinox, receipt of certain regulatory and other approvals.

BMO Capital Markets offered financial advisory services to New Gold on the transaction, while Cassels Brock served as the company’s external legal advisor.

Other assets in New Gold’s portfolio include the New Afton and Rainy River mines in Canada, as well as the Cerro San Pedro mine in Mexico.