Rainy River adds more shine in updated PEA

Rainy River Resources’ (RR-T) updated preliminary economic assessment (PEA) proposes a smaller, higher-grade and  lower-cost gold mine at its namesake project in northwestern Ontario.

Given the current market conditions, the Toronto-based junior studied a handful of scenarios with varying throughput and stockpiles to outline a more “robust and defensible” project, the company’s president and CEO Raymond Threlkeld said on a conference call.

Over the last five months, it investigated options ranging from a mill processing 20,000 tonnes per day up to 40,000 tonnes, with resource pits sized from 4.1 million oz. gold to 5.7 million oz. gold, and a mine life ranging from 13 to 27 years.

It opted to go for a smaller-scale project feeding a 20,000-tonne-per-day plant over a 16-year life, compared to a 32,000-tonne-per-day operation with a 13-year mine life originally envisioned in last November’s PEA.

“The option we have ultimately selected in the updated PEA of the Rainy River gold project highlights the strength of this project, also showcasing its potential,” says Threlkeld.  

The mine’s ten-year production profile paints a more favourable outcome than seen in the original study, with average cash costs and total capital costs both dropping by 14%  and mill head grade improving by 50%.  

During the first ten years, the proposed mine is anticipated to produce 308,000 oz. gold and 478,000 oz. silver a year, at an average mill head grade of 1.45 grams gold per tonne. Average cash costs are estimated at US$486 per oz. gold including royalties and silver credits. The cost to build the mine is slated at $1.25 billion, including $694 million for open-pit preproduction capital.

In comparison, the previous study estimated a similar annual output but at a lower head grade of 0.97 gram gold and higher cash costs of US$569 per oz., with total capital costs amounting to $1.46 billion, including $681 million to build the pit.

While the preproduction capital for the open pit is slightly up because of higher power needs, the company saw sustaining capital for the open pit drop by $258 million.

The pit contains 68.6 million tonnes grading 1.26 grams gold and 2.83 grams silver and a stockpile of 40.6 million tonnes averaging 0.35 gram gold and 2 grams silver, whereas the previous PEA envisioned a larger pit of 144 million tonnes grading 0.9 gram gold and 1.9 gram silver.  

“The key features of this operating scenario are its lower overall capital costs despite an environment of cost inflation, smaller footprint, higher processed grades and improved gold recoveries,” writes BMO Capital Markets’ analyst John Hayes in a note.

“The principal trade-offs are a more complex mining strategy involving stockpiling and lower life of mine gold production,” he adds.

Rainy River improved open-pit gold grade by 39% with the stockpiling of low-grade material and better gold recoveries.  

Surface mining is expected to start in the first half of 2016 and for the underground in late 2018.  

Underground mining should swing into full production in the fifth year of open-pit mining. In total the underground portion should add 840,000 oz. gold and 780,000 oz. silver from 6.8 million tonnes at 4.2 grams gold and 5.3 grams silver.

Underground gold grades also improved by 19% over the previous PEA.

Over the life of mine, metal production should total 3.8 million oz. gold and 6.8 million oz. silver at recoveries of 91% gold and 67.4% silver.

The project lies in the Richardson Township, about 162 km south of Kenora and 418 km west of Thunder Bay.

Rainy River lost less than a percent on the updated PEA news to close at $4.40 a share.