Sunday 4th December 2016

Resource Clips


Onward To 2016

Rainy River is Four Years Away from Gold Production

By Ted Niles

Rainy River Resources TSX:RR lost roughly 40% of its value in September 2011. Crummy assay results? Funding problems? Corporate upheaval? None of the above. Just the vagaries of the market. “The Rainy River project is only getting better with time,” President and CEO Raymond Threlkeld emphasizes. “It’s getting bigger and the economics are becoming better.”

The company continues to advance its eponymous gold project, located on 16,530 hectares in what is fast being recognized as an emerging gold district in Ontario’s northwest. On February 24, Rainy River released an updated NI 43-101 resource estimate for the 16,530-hectare property of 5.72 million ounces gold and 12 million ounces silver in the measured and indicated categories, marking a 30% and 32% increase in gold and silver ounces respectively. The report also outlined inferred resources of 2.25 million ounces gold and 6.77 million ounces silver inferred.

Rainy River is Four Years Away from Gold Production

The new estimate followed a positive preliminary economic assessment released November 2011. The PEA projected a 13.2-year mine life with an annual production rate of 329,000 ounces gold and 497,000 ounces silver. Life-of-mine cash costs were estimated at $553 per ounce gold with an initial capex of $681 million. Rainy River’s net present value was calculated to be $786 million with a 19.4% internal rate of return and a payback period of 3.4 years. “To have a project that has a net present value of around $800 million today at a $1,200 gold price is very good,” Threlkeld remarks. “The next PEA that we do—which comes out in June and will be the guide for the feasibility study—is going to show a substantial increase in net present value.”

So what is the explanation for Rainy River‘s stock-price collapse? Threlkeld argues, “Last year, I think we were fairly well valued, but there were factors beyond our control in that there were some shareholders that needed to sell their shares to cure other problems. Shareholder sentiment is a very hard one to control. The generalist portfolio managers have chosen to get out of gold, and a lot of them have moved to US equities. Equities that are dividend paying.”

The company is currently in the midst of an infill and exploration drilling campaign. March 28 results from the Cap and ODM zones include

  • 5 grams per tonne gold over 10.5 metres
  • 27.5 g/t gold and 22.7 g/t silver over 1.5 metres
  • 12 g/t gold over 3.5 metres
  • 12.7 g/t gold and 3.3 g/t silver over 16.5 metres
    (including 81.7 g/t gold and 13.9 g/t silver over 1.5 metres)
  • 18.1 g/t gold over 3 metres
  • 34.4 g/t gold over 1.5 metres
  • 1.4 g/t gold over 57 metres
  • 1.6 g/t gold over 33 metres
  • 15 g/t gold and 24.4 g/t silver over 4.8 metres

Threlkeld comments, “This is outside of the open-pit mineralization that we focused on in the preliminary assessment. These are very good underground-mineable widths and very good grades, [and] it demonstrates that everything is open at depth. [The results] show that as we move in one direction, mainly to the south, the grades are getting a little bit better and that we will have at some point an underground mine that has a very long life.”

He continues, “Our drilling program this year is really focused on converting some inferred resources into indicated—to put in the feasibility study—to explore at depth, like we did with these new assays, and to explore east and west along the axis of what we consider the district, of which we control almost 10 kilometres of strike length. Our program this year will be about 175,000 metres of drilling that will complete new resources and identify new exploration targets for the feasibility study.” The feasibility study, already underway, is expected to be released in 1Q 2013.

It’s very rare to see a new project that’s wide open and that has great exploration potential for the future. We developed a new resource that added 800,000 ounces to the existing pit —Raymond Threlkeld

Threlkeld declares that management’s strength is in building mines. He and CFO Nicholas Nikolakakis are Barrick TSX:ABX alumni, and COO Michael Mutchler came from Kinross TSX:K. “We have the right experience for a junior company, probably more so than most,” Threlkeld says. “Our intent is to take this to production.”

Project permitting will begin next month. “As we complete feasibility, all the engineering studies go into active permitting, and the permitting timeline is about 24 months. We believe we can seek approvals to start some construction in 2014 concurrent with permitting. There is about a 20- or 21-month construction period, and we hope to achieve full production in 1Q of 2016.”

Rainy River is located about 65 kilometres west of Fort Frances, which gives it two advantages in addition to infrastructure proximity. First, the town’s ailing pulp and paper industry offers a “very trainable” human resource. Second, a Rainy River mine wouldn’t need a new camp for its personnel. Threlkeld explains, “Camps can cost upwards of $60 million to build, [with] an operating cost on top of that. Then you have a labour issue, because not a lot of people like camps—some do it for a while, and you traditionally have a higher turnover than normal. [While we have] a financial advantage in this, there is also a great social advantage—lots of people like to go home at night.”

“Our progress is outstanding,” Threlkeld concludes. “It’s very rare to see a new project that’s wide open and that has great exploration potential for the future. We developed a new resource that added 800,000 ounces to the existing pit; we’re doing optimization studies right now; and we’ve seen increases in our gold recovery in the metallurgical test work. And the recent federal [budget] announcements are very positive for mining as a whole in Canada. I think that the federal mandate to speed things up will push down to the provinces. The provinces need jobs and tax revenue, and we can certainly provide that.”

At press time, Rainy River Resources had 88 million shares trading at $5.12 for a market cap of $450.7 million.


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