Red Eagle poised to build Colombia’s next gold mine

VANCOUVER — It’s been a rapid race to production for junior Red Eagle Mining (TSXV: RD; US-OTC: RDEMF) at its Santa Rosa gold project, 70 km north of Medellin, Colombia. On March 10 the company received an environmental licence for its San Roman deposit at Santa Rosa, which puts it on track to hit a gold production target in the first half of 2016. The achievement is even more impressive considering Red Eagle punched its first drill hole at the site just three years ago.

It’s worth noting that San Ramon features social and geologic variables that make it ideal for development. The deposit is an intrusive-hosted,  structurally controlled quartz stockwork system located within the prolific Antioquia Batholith near the town of Santa Rosa de Osos.

Relatively simple mineralogy means that Red Eagle can achieve gold recoveries in excess of 96% via single-stage crushing, semi-autogenous grinding milling and flotation. Concentrate regrinding would be followed by conventional carbon-in-leach (CIL) processing of the combined float tails and reground concentrate to produce gold doré on-site.

Operating in the department of Antioquia provides Red Eagle with advantages. Under Colombia’s mineral law most projects are permitted at a federal level, but the Antioquia government has been granted sole duty to review and approve underground gold mines that move less than two million tonnes of total material per year. That means the company has been dealing entirely with regional authorities and the Antioquia Environmental Agency (Corantioquia) in Medellin.

“We submitted our environmental impact assessment early last year, and received our final approvals almost exactly twelve months later,” chairman and CEO Ian Slater says during an interview. 

“We’re in such a unique position due to where we are in the country and the nature of the project. It’s literally the heart of underground gold mining in Colombia. There are dozens of smaller-scale operations in the region, so the Department of Antioquia really has a lot of experienced people.

“I’d point out that on a global scale we might not be building the biggest mine, but locally it’s going to be the largest mine of its type in Colombia by quite a significant margin,” he continues, noting that most regional operators are privately owned and produce in between 10,000 and 20,000 oz. gold annually.

Slater adds that a lot of the governmental review was conducted by local representatives from an office in Santa Rosa de Osos a half hour drive from San Ramon, which has a population of 45,000 people.

Red Eagle has worked with nearby communities to establish its social licence, and the effort paid off during 80 stakeholder meetings, where Slater says the project received a good deal of support.

“We’ve really been in contact with all our stakeholders through all the stages of the process. We started before we began drilling, and we’ve focused on social licence every step of the way,” Slater noted. “I think it’s really the most important thing for us. We even had the local university conduct the environmental baseline work, so we had professors from 30 minutes away present the findings during our review.”

The next step for Red Eagle will involve locking down financing based on a feasibility study filed on San Ramon in October 2014. The company is looking to raise US$80 million, with $60 million from a potential debt facility and the balance earmarked for an equity raise. 

Red Eagle spent last year negotiating term sheets for debt, and expects to have an agreement wrapped up before May.

“From a debt perspective I was really pleasantly surprised with the level of interest. On the equity side we’re just working on it now, but I believe it’ll get done, and the only question is the pricing,” Slater comments.

Initial capital costs are pegged at US$63 million, plus US$7 million in contingency. Production in the first two years would average 71,000 oz. gold annually at an average grade of 6.48 grams gold per tonne.

The mine would last eight years based on proven and probable reserves of 2.4 million tonnes grading 5.2 grams gold for 405,000 contained oz. Estimates are constrained by a 2-gram gold cut-off grade and a minimum 2.5-metre mining width.

Assuming a US$1,100 per oz. gold price, the project carries a US$77-million post-tax net present value at a 5% discount rate, along with a 32% internal rate of return and 1.9-year payback. San Ramon would produce net cash flow of US$98 million based on all-in sustaining costs of US$758 per oz. and 96% gold recoveries.

“A lot of the cost savings we saw in the feasibility stage were a result of better plant design. It’s a fairly straightforward CIL plant, and we were pretty conservative in our cost estimates,” Slater says.

“Once we started phoning on quotes and getting real numbers, we quickly found out things have gotten a lot cheaper. It’s a great time to build a mine because lead times on equipment are down as well. We’ve also reduced the earthworks and general size of the project,” he adds, noting that the San Ramon’s operational footprint will be less than 1 sq. km.

With Red Eagle on track at San Ramon, it will also aim to fund more exploration on the greater Santa Rosa property package. The company expects to drill 12,000 metres this year, and Slater says drill pads have been installed and the rigs are on-site.

The company will target a 1 km extension directly on strike to the east of the 2 km long deposit at San Ramon. In June 2014, Red Eagle picked up 16 sq. km of concessions from AngloGold Ashanti (NYSE: AU; ASX: AGG) for US$375,000 and a 2% net smelter return royalty, which includes the San Ramon extension.

Red Eagle will also field a maiden drill program at its Guacamayas and Canada Rica targets, which host over 100 historic sluice mines and 2,000 mapped adits. The goal is to unearth another San Roman-style shear zone to fuel a potential mill expansion.

Red Eagle’s plant is slated to run at 1,000 tonnes per day, but the company has modelled a US$15-million expansion that could boost rates to 2,000 tonnes per day.

“Once we wrap up our financing we’ll break ground on the portal and start the drill campaign. We’ll be hitting the extension, and exploring at depth since it’s important to remember our reserves only extend to around 200 metres. As soon as we get the decline deep enough we’ll drill from underground as well,” Slater says.

“At Canada Rica we have anomalous gold from soil sampling and an absolute ton of historic adits. The artisanal work over on that side is even more prolific than at San Ramon. Basically we think there’s another shear zone over there and it’s the same kind of thing where historic mining has extensively focused on the oxides, so we’ll go underneath it where no one has drilled before,” he adds.

The company reported cash and equivalents of US$2.5 million at the end of September, and topped up its coffers with a US$1-million private placement in early February, wherein it issued 3.8 million shares at 33¢ per share. Red Eagle has traded within a 52-week window of 17¢ to 40¢, and closed at 30.5¢ at press time.

Red Eagle has 77.8 million shares outstanding for a $24-million market capitalization, with U.S.-based financier Liberty Metals & Mining holding a 19.9% equity stake.