New Gold reports ‘significant progress’ at Rainy River

VANCOUVER — New Gold (TSX: NGD; NYSE-MKT: NGD) hopes developmental challenges are in the rearview mirror at its Rainy River gold project in northwestern Ontario. The company is advancing towards a production deadline this September.

New Gold had been plagued by cost overruns and delays during pit development, which was largely attributed to unexpected layers of peat and basal till. It seems back on track, however, after what president and CEO Hannes Portmann called “significant progress” in August.

The company reported in September that Rainy River’s mining rate averaged more than 125,000 tonnes per day in July, and jumped to over 135,000 tonnes per day in August. Processing facilities reportedly passed a “closed loop test with low-grade ore,” while the ball mill and semi-autogenous grinding mill ramped up to nameplate capacity.

New Gold estimates that the development capital cost from the beginning of this year to the targeted November commercial production date remains $515 million.

The plant at New Gold’s Rainy River gold mine in Ontario. Credit: New Gold.

The company spent $160 million during the second quarter, which means it has $230 million in outstanding capital expenses for the project.

The split on remaining capital includes 45% in mining and owner’s costs, and 45% in related earthworks, including completion of the starter tailings cell. The balance is reportedly related to the completion and commissioning of the process plant.

The company closed a US$173-million, bought-deal financing in March to bridge Rainy River’s funding gap. The deal consisted of 61.6 million shares at US$2.80 each.

Rainy River is scheduled to produce 325,000 oz. per year over a 14-year life at all-in sustaining costs (AISCs) of US$670 per ounce. The operation is expected to generate between 50,000 and 60,000 oz. gold this year, at AISCs from US$1,200 to US$1,240 per ounce.

A dump truck at New Gold’s Rainy River project in northwestern Ontario. Credit: New Gold.

“The pit is opening up and we’re getting through some of the more challenging layers of overburden and basal till. I’m not suggesting we’re entirely through, but we’ve moved a lot of the material,” Portmann said during a second-quarter conference call.

“We are in more competent rock and can move more, but … as the pit opens up, it gives us more flexibility in terms of working phases … our teams become more productive and layered … [they] are getting better and better.”

New Gold is also dealing with Rainy River’s tailings facility. The company reported it had completed a start-up tailings management cell in August, which provides six months of storage. It will need a Schedule 2 permit amendment to complete Rainy River’s broader tailings area.

New Gold expects to receive the permit amendment in the fourth quarter after meetings with the Ontario Ministry of Natural Resources and Forestry to review the design.

New Gold’s cash and equivalents at the end of June totalled US$199 million. The company also had US$174 million undrawn in a revolving credit facility. The company expects to produce between 380,000 and 430,000 oz. gold this year at AISCs of US$760 to US$800 per ounce.

BMO Capital Markets analyst Brian Quast has a “market perform” rating on New Gold, along with a $5 price target. He notes that the Schedule 2 permit should be a “positive catalyst” for the stock.

The company has traded within a 52-week range of $3.11 to $6.68, and closed at $4.93 per share at press time. It has 576 million shares outstanding for a $2.8-billion market capitalization.