Encouraging signs for Rio Novo Gold

Exploration at Rio Novo Gold‘s (RN-T) Vira-Saia target on its Almas gold project in Brazil is yielding shallow, low-grade mineralization likely amenable to bulk mining methods, analysts say.

Intercepts from Vira-Saia include intercepts of 15 metres of 2.1 grams gold per tonne, 10 metres of 1.86 grams gold and 2 metres of 22.06 grams gold, commencing at depths between 62 metres and 100 metres, the company reports.

Other highlights include 9.5 metres of 1.62 grams gold from 61 metres, and 7 metres of 0.72 gram gold from 46 metres.

“This is an important turning point for the Almas project to get towards a full preliminary economic assessment and definitive feasibility study,” David Beatty, the company’s chief executive officer, wrote in an email. “The Northwest, East and South zones are wide open to the northwest and at depth.”

Two drill rigs are turning at Vira-Saia to test the system at depth and along strike, while soil sampling to the northwest and southeast will guide future scout drilling, the company says.

“Depending on the results, Vira-Saia could be the catalyst to get the Almas PEA and feasibility studies back on the table in short order,” write Ron Stewart and Joseph Fazzini of Dundee Capital Markets in an Aug. 11 note to clients. “We expect that additional assays from exploration at Vira-Saia in the coming weeks could further support the notion of a satellite deposit given its close proximity (3-5 km) to the future location of the Paiol mill. In the meantime, in-fill drilling has continued at Paiol which should serve to increase confidence in the existing 800,000 oz. (measured, indicated and inferred) resource.”

The analysts have a 12-month target price on the stock of $2.50 per share. At presstime Rio Novo Gold was trading at $1.18 per share within a 52-week range of $1.00- $2.82. The company has 113 million shares outstanding.

“After sliding 36% over the past three months, Rio Novo has entered a range where it’s becoming difficult to refute the value proposition offered at these levels,” the Dundee Securities analysts write. “We estimate the stock trades at a deeply discounted $42 per oz.”

While Dundee acknowledges the company is still at an early stage, its appeal “remains intact.”

“Rio Novo focuses on developing relatively simple projects with relatively simple plans,” it states. “Given the talented and experienced management working behind the scenes and the good potential demonstrated by its projects, we continue to believe that significant upside exists for the company and the share price.”

Nana Sangmuah, an analyst at Clarus Securities, has a $3.75-per-share target on the stock and highlights the “significant exploration potential of Almas, specifically at the North and South Paiol, North Cata Funda, Morra de Carneiro, and Vira-Saia targets where three rigs are currently completing 35,000 metres of extensional drilling.” Sangmuah says that with several prospective targets, there is “potential for the company to delineate more ounces on its largely unexplored Almas 30 km strike length.”

On Aug. 9, Rio Novo also released assays from its Morra do Carneiro target at Almas with notable intercepts of 2.64 grams gold over 11 metres and 1.45 grams over 11.8 metres. 

“We recognize that Morro do Carneiro requires further work,” Sangmuah noted, “but believe in the potential for an additional 400 metres to be added to the already existing 600 metre strike length with the company’s planned mapping, trenching, and channel sampling at this target.”

Rio Novo has cash of about US$52 million.

In June it acquired 100% of the Toldafria property in Colombia. It also holds the Guaranta project in Brazil. 

Almas is expected to be the first into production. Located in central-west Brazil near the town of Almas, the project includes one past-producing mine called Paiol, formerly operated by Vale (VALE-N).

Between 1996 and 2000, Vale churned out 86,000 oz. gold from the open-pit mine and heap-leach operation at Paiol before production was suspended due to low gold prices. Rio Novo believes that Vale left behind about 47,000 oz. gold on its leach pad alone.

Measured and indicated resources for both open pit and underground at Almas stand at 16.52 million tonnes grading 1.16 grams gold per tonne for contained gold of 614,311 oz. Inferred resources add 3.87 million tonnes grading 1.64 grams gold for contained gold of 204,316 oz.