Rainy River hits feasibility milestone

Rainy River Resources’ (RR-T) president and CEO Raymond Threlkeld is touting the company’s Rainy River gold deposit in northwestern Ontario as a “low risk and very high return project.”

A recent feasibility study completed on the project outlines an open-pit and underground operation potentially producing 326,000 oz. gold and 494,000 oz. silver a year in the first 10 years at average cash costs of US$468 per oz. gold, including royalties and net of silver credits, with all-in costs of US$771 per oz.

“In the first five years the figures are even more compelling. We expect to produce gold at a very low average cash cost of US$413 per oz., including royalties and net of silver credits which would put us in the lowest quartile of cash costs among producers worldwide,” Threlkeld said on an April 11 conference call.

“The financial metrics, based on US$1,400 per oz. gold and US$25 per oz. silver, are outstanding,” he added. Using a 5% discount rate, the project boasts an after-tax net present value of $931 million and an internal rate of return of 23.7%. Payback is estimated in a little over three years.

Capital costs to develop the open pit are estimated at $713 million, with construction slated to commence in the third quarter of 2014, followed by first production in late 2016. Once online, the Toronto-based junior intends to start building the estimated $68-million underground mine using operating cash flows.

Total open pit and underground sustaining costs are calculated at $322 million and $95 million, respectively.

Miners will initially recover 21,000 tonnes per day from the open pit, but will lower the production rate to 20,000 tonnes per day once the 1,000-tonne-per-day underground operation reaches full capacity, anticipated by the sixth year of operation.

Rainy River has a potential 16-year life based on open pit reserves of 113.2 million tonnes grading 0.97 gram gold per tonne and 2.65 grams silver and underground reserves of 3.1 million tonnes at 5.07 grams gold and 6.69 grams silver. This brings total reserves to 116.3 million tonnes at 1.08 grams gold and 2.76 grams silver for 4 million oz. gold and 10.3 million oz. silver.

Open pit and underground reserves were calculated using cut-off grades of 0.30 gram and 3.5 grams per tonne gold equivalent.

The junior plans to process higher grade material in the project’s first 10 years, while stockpiling the lower grade material for the last six years of the mine life. Rainy River anticipates stockpiling 43 million tonnes at 0.37 gram gold and 1.97 grams silver from the open pit. This will allow it to process higher grade early on in the mine life to boost the project’s cash flow and economics.

“The LOM open pit reserve is mined for the first 10 years at a higher cut-off grade, increasing the mill head grade to 1.46 grams gold per tonne, or roughly 50% above the open pit reserve grade,” John Hayes, an analyst with BMO Nesbitt Burns, writes in a note. He has a speculative outperform rating on the stock.

Over the life of mine (LOM), the project should generate 3.7 million oz. gold and 6.6 million oz. silver at all-in costs of US$861 per oz. gold. Gold and silver recovery rates should average 90.4% and 64.1%, respectively.  

Threlkeld notes Rainy River is contemplating adding higher-grade material from the project’s Intrepid zone, not included in the feasibility study, to the mill feed as early as late 2016 or early 2017. The zone is currently the focus of the company’s exploration program, with a maiden resource slated for the third quarter. A scoping study should follow by year-end.

The Rainy River project is in Richardson Township, near the picturesque 8,000-member town of Fort Frances. It’s about 162 km south of Kenora and 418 km west of Thunder Bay, Ont., Giving it easy access to roads, hydro and labour.   

The junior exited last year with $102 million in cash and equivalents, and predicts ending this year with roughly $60 million in hand. The well-funded company recently closed down 5% to $2.41. It has 99.9 million shares outstanding.