VANCOUVER — Richmont Mines (TSX: RIC; NYSE: RIC) has completed a preliminary economic assessment (PEA) at its flagship Island Gold operation in Ontario in late May that models 115,000 oz. in average annual gold production over the next eight years.
The property lies 83 km northeast of Wawa, Ont., within the Michipicoten greenstone belt, which is part of the Archean-aged Wawa geological subprovince and Superior province.
Over the past few years Richmont has doubled Island Gold’s production profile and tripled its gold reserves.
Richmont Mines’ Island Gold mine near Dubreuilville, Ont., 80 km northeast of Wawa. Credit: Richmont Mines.
The PEA incorporates a recent reserve-resource update and considers a base-case mill expansion to 1,100 tonnes per day, and extending mining over four horizons to 1,000 metres deep.
Proven and probable reserves stand at 2.6 million tonnes grading 9.17 grams gold per tonne for 752,000 oz., and while measured and indicated resources tip the scales at 479,000 at 5.94 grams gold for 91,500 oz., Richmont has included 24% of inferred resources that total 3 million tonnes of 10.18 grams gold for 995,700 ounces.
Renaud Adams, Richmont Mines’ president and CEO.
“We can start talking about a district versus an asset based on the results we’ve seen to date,” Richmont president and CEO Renaud Adams said during an investor presentation. “I don’t look at the PEA as an endgame, but instead as our next phase.
“The beauty of the scenario is that we’re capable of mining 1 million oz. at the mill without the need for new infrastructure … we minimize incremental capital and develop an interesting situation down the road in terms of another expansion.”
Richmont would spend $28 million on the plan as outlined in the PEA, including $16 million in mill upgrades, $7 million for new mobile equipment and $5 million for expanded underground ventilation.
The company would also spend $40 million in project capital to accelerate ramp development and infrastructure.
Richmont received required permit amendments for the expansion in relation to air and wastewater compliance approvals from the Ontario Ministry of Environment and Climate Change in late 2016.
The mill operates at 900 tonnes per day, but could ramp up to 1,100 tonnes per day by late 2018.
The upgrades would focus on the grinding circuit, and include another ball mill.
Underground at Richmont Mine’s Island Gold operation in Ontario. Credit: Richmont Mines.
The study assumes 3.1 million total tonnes milled at a head grade of 9.68 grams gold and 96.5% recovery for life-of-mine production of 926,000 oz. gold.
Assuming US$1,260 per oz. gold, the PEA features an after-tax net present value of $335 million at a 5% discount rate. The operation would have all-in costs, which include project and sustaining capital, of US$675 per oz. gold.
“Moving ahead over the next eight years we see many opportunities for that next phase. Our team doesn’t believe Island Gold has been fully optimized, and we see more measures that can lower costs and add ounces,” Adams said.
“Our short-term goal is to reach 2 million oz. gold in resources and look at the project at a completely different scale. It’s going to flow through the drill bit, and our focus is going to be on exploration.”
Richmont added 450,000 oz. gold of total resources through drill programs last year at a cost of $35 per oz. gold.
Examining drill core at Richmont Mines’ Island gold mine. Credit: Richmont Mines.
The company has budgeted up to $16 million for drilling at Island Gold in 2017, in a program that would include over 100,000 metres from surface and underground to infill current resources.
Richmont has budgeted for 37,000 metres of exploration drilling across the property’s eastern lateral area, where in March it cut high-grade mineralization 800 metres east of Island Gold’s core production area. The discovery hole 640-5 intersected 20.6 grams gold over 11.3 metres of true width.
“This year we plan to continue to drill at depth between the 1,000 and 1,500-metre levels,” senior exploration geologist Doug MacMillan said. “We’ll also follow up on the mine horizon to the high-grade eastern lateral area, where the mineralization appears to be similar to what we see at our main deep C zone to the west. We need to trace that mine horizon east, where we have 5 km of potential strike that is under-explored.”
Canaccord Genuity analyst Rahul Paul has a $13 price target on Richmont stock and a “buy” recommendation. He notes that the study uses “existing infrastructure to access a much larger [and deeper] mineable resource, and lower capital costs.” Paul adds that the “more attractive opportunities not considered in the PEA could provide for meaningful upside” to economics and forecasts.
Richmont expects to produce between 110,000 and 120,000 oz. gold this year at all-in sustaining costs ranging from US$905 to US$950 per ounce.
The company’s shares have traded in a 52-week range of $7.36 to $15.01, and closed at $9.54 per share at press time.
Richmont has 64 million shares outstanding for a $608-million market capitalization, and reported $75 million in cash at the end of the first quarter.
The first picture with the surveyors is not from Island Gold Mine.