Romarco Has a Big Resource and Low Costs But Lacks a Federal Permit

By Kevin Michael Grace

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When Resource Clips first featured Romarco in September 2010, President/CEO Diane Garrett told us the first gold pour from its Haile Gold Mine would be in “late 2012.” By August 2011, that date had been pushed back to “early 2014.” Now she aims for “4Q 2014 or 1Q 2015.” These delays are the result of the most powerful force in mining. More powerful than resource, grade, infrastructure, financing or the verdict of the market: government regulation.

The Haile Mine comprises 2,335 hectares located outside Kershaw, South Carolina, 40 miles southeast of Charlotte. According to a February 2012 43-101 estimate, it boasts measured and indicated resources of 71.2 million tonnes grading 1.77 grams per tonne for 4,040,000 ounces and an inferred resource of 20.1 million tonnes grading 1.24 g/t for 801,000 ounces.

Haile: A series of outstanding assays

A February 2011 feasibility study estimates (based on $1,500 an ounce gold) an average cash cost of $347 per ounce for the first five years, a reserve grade of 2.06 g/t, a $930 million pretax net present value (NPV) at a 5% discount rate, a 47% internal rate of return (IRR), a mine life of 13 years at a mill throughput of 7,000 tonnes per day with 83.7% average gold recovery and a two-year payback period.

By any standards, these are good numbers. And so, back in 1Q 2011, Romarco looked forward to commencing a highly profitable operation before the end of that year. But on July 1, 2001, the US government got involved. The US Army Corps of Engineers demanded an Environmental Impact Statement on how Haile would affect onsite wetlands and streams. At the time, this was expected to add another year to the project.

Curiously, Haile is not exactly what anyone would call a greenfields project. Mining began there in 1837, and Haile became the most productive goldmine east of the Mississippi. It was closed in 1912, but gold production continued in the area until 1999, 12 miles away at Kennecott’s Ridgeway Mine. Romarco bought the Haile site in 2007.

On May 23, 2012, the Corps of Engineers announced that Haile must wait until August 13, 2003, for final federal approval. Since Washington stuck its oar in, Romarco shares have fallen 60%.

Diane Garrett is obviously not pleased with what has transpired but will not repine. “There are 540 active mines in the state, but they’re big quarry operations and gravel and things like that,” she explains. “Gold is different because you have the whole processing plant onsite. So what [the government has] has recognized is that because we’ve had such a significant discovery of gold, there are a lot of junior companies coming to the area to explore, and how they process this application will set the precedent for future mines. We really can’t argue with that. We are the pioneers in this area.”

Since the federal announcement last year, equity financing for juniors has collapsed. Garrett doesn’t believe this will concern Haile unduly. “The capital cost of the project is only $320 million,” she points out. “There is a significant amount of interest from the banks for lending against the project. It’s high-grade and low cost, so it really is a unique asset in this area. We’re looking at bringing in the debt side of it over the next six months: roughly between $150 million and $200 million. The balance would be done in equity, but we wouldn’t need to do that until we get closer to the final permits coming in, which would be late 2Q 2013. We’re actually going to be one of the lowest capital-cost projects in the industry.”

Haile’s CAPEX is modest because most of the infrastructure is already in place. “We’re not building hundreds of kilometres of roads,” Garrett says. “We’re not building powerplants or dams for water supply. We don’t have to build housing. All that is readily available, and our power costs are very cheap. Really, all we’re building is the plant itself and the tailings dam. And because we’re in an area of high unemployment, there are a lot of great workers close by for construction. In addition, we’ve locked in both of our equipment costs, and so we don’t have to run the risk of inflation on equipment purchases. We are exposed on the diesel side, and we’ll deal with those prices when we get a little closer to construction. Also, we don’t know the cost of construction until we get closer to signing the agreement, and that’s really just a function of market conditions.”

Drilling at Haile, which proceeded at a furious pace for several years, has been cut back. Garrett reports, “We’ve recently idled two of our company-owned rigs because of the permitting phase and also because it’s such a difficult market out there on the equities side. We want to make sure we conserve our cash. We are running three rigs right now, and we’re doing some exploration on the deeper zones.”

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