Richmont Mines (TSX: RIC; NYSE-MKT: RIC) shares got a boost after exploration drilling confirmed the Island Gold mine near Wawa, Ont., continues to grow in size.
The 77.7 sq. km property sits 83 km northeast of Wawa in the Sault Ste. Marie mining division, and 10 km from the city of Dubreuilville.
Richmont became operator of the project in 2005, and put it into commercial production in October 2007. The miner processes ore from Island Gold at the on-site mill that has a capacity of 900 tonnes per day. Since starting commercial production, Richmont’s flagship asset has churned out more than 350,000 oz. gold.
Earlier this year, Richmont grew Island Gold’s year-end 2015 reserves 206% to 561,000 oz., from 183,750 oz. previously. Gold grades jumped 29% to 8.26 grams per tonne.
The improvements resulted from converting 80% of the resources in the deposit’s Lower C zone into reserves. The C zone is the deposit’s main mineralized structure, with the lower portion extending from 450 metres to 1,000 metres below surface. The reserves — included in the 2015 preliminary economic assessment (PEA) — show Island Gold has more than seven years of mine life.
Richmont plans to upgrade Island Gold’s remaining resources into a higher resource category, as well as reserves. The deposit has 348,500 measured and indicated tonnes at 6.4 grams gold for 71,700 oz., plus 815,000 inferred tonnes at 8.49 grams for 768,050 oz. (The PEA only included part of the global resource.)
Meanwhile, Richmont is seeking to add more resources along strike as well as at depth. Last September, it kicked off a lateral exploration program to test the continuity of the deposit above the 1,000-metre level. So far, it has completed 46,800 metres of the planned 56,000-metre program, which should wrap up in June.
Recent drilling has returned “significant grade and good thickness” as far as 1 km east of the known orebody, showing continuity along strike as well as vertical continuity on the eastern side of the deposit, Richmont’s CEO Renaud Adams says.
Given the favourable results from drilling to the east — where the best intercept returned 33 grams gold over a true width of 2.6 metres — Richmont has deferred drilling to test the possible extension to the west.
“The results so far show the orebody will increase in size from this program,” Haywood Securities analyst Kerry Smith says.
“For us, the lateral exploration along strike of the known orebody is priority number one. Not only will it leverage the capital expenditure we’ve spent to date, it will allow the mine to extend the life without need for future infrastructure in the mine,” Adams says.
“The second effort is really to test and prove the vertical extension of the deposit below the 1,000.”
Last October, Richmont outlined a 30-hole, 23,000-metre program to test the down-plunge extension of the deposit between the 860- and 1,500-metre levels, and follow-up on a high-grade hole that from surface intersected 19.87 grams gold over 3.9 metres at 1,200 metres below surface.
To date, it has drilled 16,000 metres in 15 holes, with all of them hitting the main mineralized structure. The weighted average of nine of those holes was 12 grams gold over a 5-metre true width. Richmont has added a fourth drill rig and another 5,000 metres to that program, which should conclude in the third quarter.
The mine’s main ramp extends to a vertical depth of 770 metres and should reach 860 metres by year-end, Adams says.
The regional drilling also looks promising. Richmont has completed three holes below the old Kremzar mine, located 2 km north of the Island Gold mine. Results confirmed a gold zone of 9.71 grams per tonne over 8 metres of core length at 600 metres below surface.
Along with returning encouraging drill results, Island Gold had had a stellar operational start in 2016. In the first quarter, it produced 26,589 oz. gold, in a 147% increase over the same period in 2015 and an 87% increase over the previous quarter.
The higher production, Adams notes, resulted from higher-than-expected grade of 11.31 grams gold, record mill throughput of 834 tonnes per day and improved underground productivity.
Company-wide output in the first quarter, which includes the Beaufor mine and the now depleted Monique mine, was 32,369 oz. gold, up 25% from the year earlier. Both of these mines are in Quebec.
Cash costs for the quarter at Island Gold fell 52% from a year ago to US$491 per oz., while company-wide cash costs decreased 18% to US$587 per oz.
Richmont is working on an updated PEA, due out in the second half of the year. The 2015 PEA included resources between the 450-metre and 860-metre levels, while the update will assess the economics of resources between 450 metres and 1,000 metres, Adams says. The study will also look at the possibility of expanding the mill’s throughput to 1,150 tonnes per day.
“The best scenario for us will be to minimize the capital involved in the expansion, and remain above 1,000 metres as long as possible to leverage the capital investment we have done to date.” That said, he notes the mine will have to continue to grow at depth to become a multi-million ounce producer.
Richmont is guiding full-year production of 87,000 to 97,000 oz. at cash costs of US$680 to US$730 per oz., with Island Gold delivering between 62,000 and 67,000 oz. at cash costs of US$660 to US$705 per oz.
Richmont exited March 2016 with a cash balance US$45 million.
Its shares finished May 7 at $10.06, gaining 11% over the last two trading sessions on the positive exploration results.
Great news for the company hopefully they will discover the mother load.