Rainy River PEA outlines 329,000-oz.-per-year gold mine

Rainy River Resources (RR-T) has a positive preliminary economic assessment for its flagship Rainy River gold project (RRGP) in Northwestern Ontario. In a combined open-pit and underground operation, the Rainy River project could produce 329,000 oz. gold and 497,000 oz. silver per year on average starting in the second half of 2015 and lasting for 13.2 years.

Operating costs are expected to average US$417 per oz. gold (net of silver credits) over the first four years and US$553 per oz. over the life of the mine. This places the project within the second quartile of global gold projects on an operating cost basis, Rainy River says, though for the first four years it would be in the first quartile. Using base-case metals prices of US$1,200 per oz. gold and US$25 per oz. silver, the study estimates the project has a 19.4% internal rate of return and a pretax net present value of $786 million at a 5% discount rate. At current metals prices, the pretax NPV improves to $2.5 billion and the IRR to 42.5%.

Capital costs are significant, however, and stand at $1.45 billion over the life of the mine. This includes preproduction capital of $747 million and $708 million in sustaining capital.

Commenting on the study in a press release, Raymond Threlkeld, Rainy River’s president and chief executive officer, stated: “The project has the potential to become a significant gold producer with cash costs in line with our peer group. The first four years of mining contemplated in the study are stellar… generating over $800 million in free cash flow. At current prices, the free cash flow in the first four years would be over $1.6 billion. With the results of drilling we have seen in 2011 and the addition of this data to an updated mineral resource and PEA, we expect the project to get even better as we move toward the feasibility study stage.”

The mine plan, split into two phases, estimates average daily throughput of 31,340 tonnes per day from a combined open-pit and underground operation. The 35,000-tonne-per-day mill works under a conventional flow sheet including primary crushing and grinding, floatation, regrinding of the floatation concentrate and cyanidation to produce gold dore.

For the open pit, phase 1 focuses on a higher-grade starter pit during years 1 to 4, mined to a depth of 275 metres. Phase 2 comprises the final pit from years 5 to 14, mined to a depth of 500 metres. For the underground mine, development would start in year 1 and commence small scale production by year 3. Full underground production, at a rate of 2,000 tonnes per day of feed for the mill, would begin in year 5.

Rainy River says project economics could further improve with an updated resource estimate, expected in the first quarter of 2012; continued infill drilling to convert material currently designated as waste into mineralized material; improved metallurgical recoveries through process optimization; and underground mine design optimization. The updated resource estimate will include all of the 170,000 metres drilled on RRGP in the 2011 calendar year.

“Rainy River has made significant progress in a year,” Threlkeld notes, “defining the deposit and making several new discoveries in 2011 including the western area, 17-zone eastern extension and the Pinewood South nickel-copper-PGM massive sulphide horizon. Our aggressive exploration program has been a success to date, and continues with 12 drill rigs.”

Rainy River says its project benefits from world-class infrastructure, services and labour in the immediate area. The project site is located only 65 km from the town of Fort Frances and is accessible year-round by a network of sealed provincial highways.

In-pit mineral resources included in the PEA comprise: 125.7 million tonnes measured and indicated in the open pit grading 0.92 grams gold per tonne and 1.89 grams silver per tonne, containing 3.71 million oz. gold and 7.6 million oz. silver; 17.95 million tonnes inferred in the open pit grading 0.77 grams gold and 2.1 grams silver; 3.29 million tonnes measured and indicated in the underground mine plan grading 3.23 grams gold and 5.34 grams gold, containing 402,000 oz. gold and 639,000 oz. silver; and 3.07 million tonnes inferred in the underground plan at similar grades containing another 319,000 oz. gold and 527,000 oz. silver.

In all, total measured and indicated resources stand at 4.11 million oz. gold and 8.27 million oz. silver, while total inferred resources add another 765,000 oz. gold and 1.7 million oz. silver.

Shares of Rainy River traded lower for much of the day following the release of the PEA on Nov. 10, but closed slightly higher at $7.14 with 266,000 shares traded. The company has a 52-week trading range of $5.66-$13.50, 84 million shares outstanding and a market cap just under $600 million.