Rye Patch Gold to restart 
Florida Canyon in early 2017

Four months after buying the fully permitted Florida Canyon gold mine in Nevada for US$15 million in cash and 20 million shares, Rye Patch Gold (TSXV: RPM; US-OTC: RPMGF) is on track to start gold production from a newly built heap-leach pad in December or early January, with commercial production slated to start before the end of the first quarter of 2017.

The mine — previously owned by Jipangu of Japan and bought out of receivership —was mined continuously for three decades, producing 2.29 million oz. gold since 1986.

Rye Patch expects the refurbished operation will produce 75,000 oz. gold a year over an eight-year mine life. In the meantime, the mine is producing 30 oz. gold a day from residual heap leaching from the old heap-leach facilities, earning the company US$1 million a month, which will likely continue until mid-2017.

A gold pour at Rye Patch Gold’s Florida Canyon mine. Credit: Rye Patch Gold.

“Without pouring an ounce of gold, Florida Canyon was worth US$35 million,” Rye Patch’s president, CEO and cofounder William Howald says, noting that the mine is situated 30 km north of the company’s Lincoln Hill, Gold Ridge and Wilco projects, which means there are opportunities for synergies. “The reason we bought it was that it has all the facilities for a mine and we were moving our Lincoln Hill project along, so having all of that already will make it much easier for us to get Lincoln Hill into production in the future.”

Oxide resources at Lincoln Hill and Wilco represent more volume that could contribute to increasing future gold output, for example.

Infrastructure at Florida Canyon could also trim capital and costs for Lincoln Hill and Wilco by using the existing assay lab, carbon stripping plant, refinery and management, which would lower the timeline to produce assets.

Rye Patch restarted mining at Florida Canyon on Nov. 1, with the first blast from the 5620 bench in the Jasperoid pit. Ore is being stockpiled while the final pieces of the crusher are put in place.

Under the previous owners, gold recoveries averaged 68.3% on a combination of crushed and run-of-mine material (50% recoveries for run-of-mine and 71% for crush), and Rye Patch is building a heap-leach pad for crushed material only.

Rye Patch Gold’s Florida Canyon project in Nevada. Credit: Rye Patch Gold.

At full production, the crusher will deliver 545,500 tonnes per month of crushed material to the new heap-leach pad, or 6.54 million tonnes a year.

Rye Patch has spent US$24 million on the refurbishment, or 70% of the costs to achieve the first gold pour and 55% of the costs to full project completion. Macquarie Bank is providing a US$27-million credit facility for preproduction capital. As part of the financing arrangement, Rye Patch has had to hedge 150,000 oz. gold over five years at US$1,276 per oz. gold.

Howald says the Florida Canyon plant and refinery could produce 180,000 oz. gold per year and that the company hopes to fill that capacity within the next 48 months. (It is on track to bring its Lincoln Hill project into production in 2019).

Florida Canyon offers exploration upside for more oxide resources and a sulphide resource beneath the oxide cap, Howald says.

Trucks at Rye Patch Gold’s Florida Canyon gold mine in Nevada. Credit: Rye Patch Gold.

The open-pit mine has a measured and indicated oxide resource of 76.5 million tonnes grading 0.44 gram gold per tonne at a cut-off grade of 0.2 gram gold per tonne, for 1.13 million contained oz. gold. The inferred resource for the sulphide zone underneath the oxide cap is 6.4 million tonnes averaging 1.56 grams gold for 391,000 contained oz. gold.

The sulphide has only seen a few drill holes so far, but could grow, Howald says. “The sulphide is wide open and we believe there will be as much sulphide as oxide material,” he says, adding that a feasibility study on those holes in 1996–1997 showed that over 90% of the gold reported to a pyrite concentrate.

“More work needs to be done, it’s early days,” he says of the sulphide potential. “There needs to be more metallurgical work completed, but we’re sitting right next to the Interstate and a rail siding, so there are lots of opportunities to ship that concentrate out.”

Rye Patch has a number of oxide targets in and around the mine itself, as well as several other targets situated along a 10 km trend stretching between the Florida Canyon mine, and a second gold mine on the property called the Standard mine. (The Standard mine was part of the property that Rye Patch acquired from the Japanese. That mine is finished for now, but there is upside there as well with an unpermitted deposit.)

Mining trucks at Rye Patch Gold’s Florida Canyon mine. Credit: Rye Patch Gold.

“All of that ground along that mine trend is prospective,” he says, “so we’re evaluating existing data and collecting new data, and there will be an exploration program along that trend.”

Rye Patch learned that the Florida Canyon mine was in receivership in September 2015, and had to compete with others to seal the deal.

“We duked it out with two other groups,” Howald says, noting that the reason Rye Patch eventually won out was because it had cash (royalty income from Coeur Mining’s [NYSE: CDE] Rochester mine) to put down “to get to the head of the line.”

Jipangu owned and operated the mine (its only remaining investment in mining) for a decade before giving it up. The company received permits to expand the heap-leach operation at the end of 2014, and apparently received a loan to do so. But instead of using the money for the mine, Jipangu used it for a different project in Japan, thereby breaching the covenant. As a result, Florida Canyon ended up in receivership with a Japanese bank.

When Rye Patch acquired the Florida Canyon and Standard mines, the project had 50 people on-site.  Forty were devoted to reclamation — looking after the leaching process and pouring gold — and the rest were technical staff. Joel Murphy, the mine manager, was able to keep his team together while Rye Patch worked through the due diligence process and acquired the mine in  July. “This helped us hit the ground running because the major disciplines and operators were already on-site,” Howald notes. “Our business plan calls for 186 individuals at full capacity, and we will reach this level at the end of January 2017. We are hiring at a rate of 20 to 25 people per month, and had 123 at the end of November.”

Mining analysts Michael Gray and David Medilek at Macquarie Bank in Vancouver recently elevated Rye Patch Gold to “top pick” status, after the company’s positive construction update on Nov. 23, stating in a research note that they see “near-term re-rating potential,” given the company’s expectation of pouring the first gold in the near-term.

“We highlight that Florida Canyon mine construction is a restart project, with relatively less construction and execution risk, as construction is only a new leach pad and the asset has a long operating history,” the analysts noted.

Florida Canyon is halfway between Lovelock and Winnemucca, next to Interstate 80, and 210 km northeast of Reno, Nevada.

Howald cofounded Rye Patch in 2006 and the company went public in July 2007. Before joining Rye Patch, Howald was general manager of exploration, U.S. and Latin America for Placer Dome. While at Placer Dome, Howald was an integral part of the teams that delivered over 80 million oz. gold resources to the Placer portfolio.

At press time, Rye Patch was trading at 26¢ per share within a 52-week range of 11¢ to 47¢. The company has 387 million shares outstanding.

Macquarie has a 12-month target price on the stock of 65¢.