Rainy River Resources’ (RR-T) president and CEO Raymond Threlkeld is touting the company’s Rainy River gold deposit in northwestern Ontario as “low risk and very high return.”
A recent feasibility study on the project outlines an open-pit and underground operation potentially producing 326,000 oz. gold and 494,000 oz. silver per year in the first 10 years at average cash costs of US$468 per oz. gold, including royalties and net of silver credits. All-in costs should total US$771 per oz.
“In the first five years the figures are even more compelling. We expect to produce gold at a 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 a $931-million after-tax net present value and a 23.7% internal rate of return. Payback is estimated in a little over three years.
Capital costs to develop the open pit are estimated at $713 million, with construction slated for the third quarter of 2014, followed by first production in late 2016. Once in production, 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.
Miners will initially recover 21,000 tonnes per day from the open pit, but will lower that 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 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 gold equivalent per tonne.
The junior plans to churn through higher-grade material in the project’s first 10 years by deferring lower-grade processing to the mine’s last six years. It anticipates stockpiling 43 million tonnes at 0.37 gram gold and 1.97 grams silver from the open pit, allowing it to boost the project’s initial mill head grade as well as cash flow.
“The life-of-mine, open-pit reserve is mined for the first ten 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,” says John Hayes, an analyst with BMO Nesbitt Burns. He has a “speculative outperform” rating on the stock.
Over its 16-year life, 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 would average 90.4% and 64.1%.
Threlkeld says Rainy River is contemplating adding higher-grade material from the project’s new Intrepid gold zone — which isn’t included in the feasibility study — to the mill feed by late 2016, or early 2017.
The zone was discovered last October when an exploratory drill hole returned 2.2 grams gold per tonne and 38.5 grams silver over 18.5 metres. The hole was drilled to test a soil geochemical anomaly that overlaid a magnetic low along trend from the other deposits at Rainy River, which also correspond to mag lows.
A follow-up hole returned 4.3 grams gold and 33.3 grams silver over 18 metres, from 40 metres updip of the discovery hole.
Now Rainy River has four drills turning at Intrepid to find out as much as possible about the zone.
Intrepid lies 1 km east of the main ODM deposit at Rainy River and the plunging ore shoot starts at surface, which means Intrepid might offer potential as a well-mineralized starter pit.
The four rigs at Intrepid are churning out results, and with the latest set Rainy River has tracked the zone 410 metres along strike and 450 metres downdip. The company says the zone exhibits “excellent continuity,” and contains strong grades to boot.
The best intercept from the latest results came from hole 1523, which returned 15.5 grams gold and 86.6 grams silver over 9 metres. The intercept came at a vertical depth of 245 metres and included 6 metres averaging 21.9 grams gold and 119.2 grams silver.
The results will keep pouring in for the rest of the year, as Rainy River has plans to complete 75,000 metres of drilling at its flagship project in 2013. The four-drill program will cost $18 million.
Rainy River has enough money to fund the drill program and advance the permitting. The explorer raised $57.5 million in a November 2012 financing, selling 10.5 million shares at $5.50 apiece. This brought the company’s cash balance to $102 million at the end of 2012, giving Rainy River a comfortable foundation from which to advance the asset towards production.
The next steps include calculating a maiden resource for the Intrepid zone in the third quarter, followed by a scoping study to include the zone in the mine plan by year-end.
Rainy River is 160 km south of Kenora, in Richardson Township. The project has excellent infrastructure, including road access, nearby power lines and a rail line within 21 km.
The junior predicts ending 2013 with $60 million in hand. Shares recently closed at $2.05, its 52-week low. There are 99.9 million shares outstanding.
A great project with a fantastic team from top to bottom. All the best in these suddenly challenging times.
Cheers