New Gold eyes first production at Rainy River in September

New Gold (TSX: NGD; NYSE-MKT: NGD) is set to bring its large Rainy River gold mine online in northwestern Ontario this September, with first commercial production expected in November.

“After spending US$126 million during the first quarter, the project schedule and capital estimate are in line with the updated plan, and start-up is targeted for September 2017,” Hannes Portmann, New Gold’s president and CEO, said on a late April conference call.

While the project’s latest budget and commercial production schedule remain on track, the company now expects Rainy River’s Schedule 2 amendment (or permit) in January 2018, instead of late 2017, based on recent discussions with regulators. The permit is required to close “two very small creeks within the tailings facility,” Portmann said.

New Gold is building a starter tailings cell, within the broader tailings management area, that does not require the Schedule 2 amendment, Julie Taylor, the company’s director of investor relations, writes in an email. This will allow the company to begin operations as planned in September before receiving the key permit in January 2018.

New Gold anticipates completing the starter tailings cell in August, which should provide six months of tailings storage at full production. The starter cell will allow New Gold to produce at Rainy River until April 2018.

Once New Gold receives the permit, it should take two months to finish the other tailings-containment areas based on an alternative construction approach, Taylor says.

The alternative approach, which requires regulatory approval, “incorporates sheet pile at the centre of the portion of the dam which will cover the creeks.” This approach would lower the construction time and allow New Gold to complete work, regardless of weather conditions.

During the first quarter, Rainy River’s mining rate averaged over 110,000 tonnes per day, and should reach 120,000 tonnes by the September start-up.

On the call, Portmann said earthworks are 70% complete and the primary crusher and conveyor system are 95% complete.

New Gold began commissioning the crusher in March 2017 and finished the first crush in May. It expects to commission the ball and semi-autogenous grinding mills by the end of June. “Dry and wet commissioning of the full process facility is scheduled for August, leaving one month before targeted first production,” Portmann said.

New Gold ended the first quarter with US$350 million in cash and had US$177 million undrawn on its credit facility, bringing its liquidity to over US$500 million. That’s more than enough to cover the remaining capital required to take Rainy River into commercial production, which is estimated at US$389 million.

At full production, the estimated 14-year mine should crank out an average of 325,000 oz. gold a year. For the first nine years, Rainy River would be mined as an open pit, after which operations would move underground.

Commenting on the permit delay, Desjardins analyst Michael Parkin wrote in April that the market saw “a key risk to the project, as the starter tailings dam has capacity for only six months. We have moved to a more conservative ramp-up and see no risk of a financing shortfall,” he adds. 

Parkin has a “speculative buy” and a $5.25 target price on the stock. New Gold shares closed May 26 relatively flat at $3.89. The stock is down 17% year-to-date.