Tuesday 22nd September 2020

Resource Clips

A Bump in the Road

Romarco Still Intends to Pour Gold in Early 2014

By Ted Niles

Diane Garrett admits that Romarco Minerals has been “beaten up a bit over the last few months.” The company’s President and CEO says there are several reasons why, most important being the US Army Corps of Engineers’ July 1 request of an Environmental Impact Statement for the South Carolina Haile Gold Mine—instead of the less stringent Environmental Assessment Romarco had hoped for. This has resulted in a 12-month permitting delay which, explains Garrett, “always tends to make the market nervous. We’ve had a couple of shareholders that have relinquished their positions, and that came on at a time when the markets were not really capable of absorbing it.”

On the other hand, Garrett adds, “Seventy to 75% of our institutional shareholders are still in; they have not reduced their positions. And we’re still given a very high value per ounce of gold vis-à-vis our peers.” She believes two other factors might also explain why Romarco’s share price remains so low in spite of an asset that analysts have long raved about. “A lot of the gold stocks have come off 20% to 30% since just after the New Year, and we’ve been hit that way. Also, I think the market anticipates that we’re going to be doing a financing—they know we need to build the project—and it’s typical of the market to put a lid on your stock until you get the financing behind you.”

Romarco Still Intends to Pour Gold in Early 2014

Market forbearance and permitting delays are, of course, not to be dismissed lightly. But it is important to note that this is the first bad news Romarco has ever had.

The company acquired Haile—located in the Carolina Slate Belt—in 2007 and announced December 2009 an already robust NI 43-101 mineral resource estimate of 1.47 million ounces gold measured, 697,000 ounces indicated and 2 million ounces inferred. After a 108,000-metre drill program in 2010, the resource was updated—as part of Haile’s February 2011 feasibility study—showing 3.1 million ounces gold measured and indicated (including 2 million ounces of proven and probable reserves) and 1.1 million ounces inferred. The feasibility study itself projected capital costs for Haile of $275 million (considered very low by industry standards), operating costs of $379 per ounce (ditto), with a reserve grade of 2.06 g/t (considered very high).

On the heels of the feasibility’s release, the Financial Post‘s Peter Koven noted, furthermore, that the study wasn’t nearly as interesting to analysts as “how much bigger the project will become, given exploration upside that is not included in the study.” He explained, “After looking at drill data from the company’s ‘potential mineral deposits’ that were not included in the feasibility, [Paradigm Capital analyst] Don Blyth wrote that they imply an additional 1.99 million to 4.35 million ounces of gold.”

It’s therefore hard to disagree with Garrett’s September 2010 statement to Resource Clips that Haile is “one of the most significant discoveries in our industry in the last 10 years.”

Of course, since the news that the Environmental Protection Agency advised the Corps of Engineers in late March not to grant Romarco a wetlands permit without further study, there has been much speculation as to what the company can do to deliver value to its shareholders over the ensuing 12 months. Its share price has, as a consequence, fallen 40%. The Globe and Mail reported July 28 that CIBC World Markets analyst Brian Quast had downgraded Romarco to “sector underperformer.” Quast said, “We believe that the likelihood of positive news from the drill bit for the remainder of the year is relatively low.” Exactly what Romarco least wanted to hear. (Curiously, Quast’s assessment came a mere three days after Romarco announced an interval, from its current exploration program, of 45.8 grams per tonne gold over 23 metres—one of the best results ever from its Horseshoe zone.)

Seventy to 75% of our institutional shareholders are still in; they have not reduced their positions. And we’re still given a very high value per ounce of gold vis-à-vis our peers. —Diane Garrett

But Romarco understood that the permitting delay was a possibility and planned accordingly. Says Garrett, “We’re drilling 172,000 metres this year, and the intent of the drill program is to increase overall reserves and resources. Haile’s still open in all directions and at depth, so we’re just going to keep drilling to make it bigger.” In other words, the company will concentrate on precisely those “potential mineral deposits” that had observers buzzing after February’s feasibility study. Ninety-two thousand metres of the program has already been completed, and Romarco’s August 4 press release specified that 50% of the remaining program will focus on Haile step-out drilling, 30% on regional exploration and 20% on infill drilling. A 43-101 underground study is expected to be completed by the end of 2011.

Horseshoe is among the more promising of the deposits not currently included in Haile’s resource, with July 25 assays including, as mentioned, 45.8 g/t gold over 23 metres. May 2 Horseshoe assays included 4.1 g/t over 13.1 metres, 1.6 g/t over 20.6 metres, 5.7 g/t over 21.9 metres and 5.5 g/t over 36.3 metres. July 21 assays of the newly designated Mustang zone included Haile’s best hole yet at 5.5 g/t gold over 117.4 metres. Garrett says of the July results, “Both sets were absolutely spectacular. Incredibly high grades, very shallow, long intercepts. Returning these kinds of assays is an indication to the market that there’s a lot of high-grade potential that exists at Haile, and after three years of drilling it hard, these holes rank in the five of the best we’ve ever drilled on the property.”

Garrett expects to have permits in hand by late 2012. “Then we would start breaking ground and construction in early 2013. That would have us pouring gold in early 2014.”

Despite the setbacks, Garrett remains confident. “The project has gone much faster than any of us would have thought four years ago,” she declares. “Coming in four years ago, if you had told me we were going to be having over a million ounces a year—that’s almost unheard of!”

She concludes, “The Haile Gold Mine has been around for about 200 years, mined off and on over that time. Technology—specifically fine-grinding technology—is what has now made this area viable for gold production. This is a large system that’s very amenable to current technologies, particularly in a high gold-price environment. And we think the work we’ve done will demonstrate that Haile is basically what Nevada was in the 1980s. It’s going to bring a lot of companies to this area. The Slate Belt is chock full of minerals, and there’s a lot of potential waiting there.”

At press time, Romarco Minerals had 503.3 million shares trading at $1.59 for a market cap of $800.2 million.

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