Rainy River outlines new gold zone in advance of feasibility study

VANCOUVER – A new zone keeps generating gold-silver hits at Rainy River Resources‘ (RR-T) namesake project in northwestern Ontario, creating a slew of strong numbers to inform a new resource estimate planned for the middle of the year. Once it has the new resource numbers in hand, Rainy River says a feasibility study for the project will not be far behind.

Intrepid is a new zone, discovered in October of last year when an exploratory drill hole returned 2.2 grams gold per tonne and 38.5 grams silver per tonne over 18.5 metres. The hole was drilled to test a soil geochemical anomaly that overlaid a magnetic low along trend from the other deposits at Rainy River, which also correspond to mag lows.

A follow-up hole soon returned 4.3 grams gold and 33.3 grams silver over 18 metres from roughly 40 metres updip of the discovery hole. Now Rainy River has four drills turning at Intrepid in a race to find out as much as possible about the new zone before the pending resource update.

Intrepid lies just 1 km east of the main ODM deposit at Rainy River and the plunging ore shoot starts essentially at surface, which means Intrepid might offer potential as a well-mineralized starter pit. That is precisely the kind of information Rainy River needs to discern now, before finalizing the project’s feasibility study.

The four rigs turning at Intrepid are certainly churning out results and with the latest set Rainy River has tracked the zone 410 metres along strike and 450 metres downdip. The zone exhibits “excellent continuity” according to the company, and contains some strong grades to boot.

The best intercept from the latest set of results came in hole NR1523, which returned 15.5 grams gold and 86.6 grams silver over 9 metres. The intercept came at a vertical depth of 245 metres and included 6 metres averaging 21.9 grams gold and 119.2 grams silver. Other noteworthy intercepts include 3.14 grams gold and 19.8 grams silver over 24 metres in hole NR1495, 3 grams gold and 25.2 grams silver over 22.5 metres in hole NR1511, and 2.25 grams gold and 12.28 grams silver over 36 metres in hole NR1494.

The previous set of 31 holes also returned some laudable numbers. Hole NR1474 cut 46.1 metres grading 2.58 grams gold and 27.3 grams silver; hole NR1436 returned 23.5 metres averaging 2.06 grams gold and 12.79 grams silver; and hole NR1481 hit 46.5 metres of 1.59 grams gold and 18.97 grams silver.

The results will keep pouring in for the rest of the year, as Rainy River has plans to complete 75,000 metres of drilling at Rainy River in 2013. The four-drill program will cost $18 million.

Rainy River has enough money in its bank account to fund the drill program as well as its work on the feasibility study and permitting. The company raised $57.5 million in a November financing, selling 10.5 million shares at $5.50 apiece. Those monies brought the company’s cash balance to $102 million, which gives Rainy River a comfortable foundation from which to advance its flagship asset towards production.

The next step in that progression will be the updated resource estimate, which is due out in the middle of the year. The feasibility study will follow, building upon the preliminary economic assessment that Rainy River released in August.

The PEA envisioned a mine that started as an open pit operation and added an underground component in year three. Throughout its 16-year mine life the operation would process 20,000 tonnes of ore a day, to produce 308,000 oz. gold and 478,000 oz. silver annually. Each ounce of gold would cost US$486 to produce, including royalties and net of silver credits, which would make Rainy River one of the world’s lower-cost gold producers.

The study pegged the costs to build the processing plant and start the open pit mine at $694 million. Adding the underground component would cost an additional $67 million.

Using a gold price of US$1,250 per oz., a silver price of US$25 per oz., and a 5% discount rate, the Rainy River project bears a pretax net present value of $846 million. The mine as planned would be expected to generate a 21% internal rate of return, which would enable capital payback in less than four years.

Rainy River is already home to a sizeable resource. Total measured and indicated resources currently stand at 150.6 million tonnes grading 1.17 grams gold and 2.46 grams silver; inferred resources add 88.3 million tonnes averaging 0.78 gram gold and 2.35 grams silver. The PEA only considered those tonnes that fit within the constraints of an economic pit, which reduced the pertinent resource count to 107.4 million measured and indicated tonnes grading 1.13 grams gold and 2.69 grams silver plus 8.7 million inferred tonnes averaging 0.88 gram gold and 2.61 grams silver.

Rainy River is located 160 km south of Kenora, in Richardson Township. The project is bestowed with excellent infrastructure, including road access, nearby powerlines, and a rail line within 21 km.

River happened to report its latest drill results in the midst of a three-day Toronto Stock Exchange slide, which saw the index fall 2.57%. Rainy River lost 8% or 21¢ in those first three trading days of April to close at $2.40. The company did well to raise money in November, as its share price has fallen by more than 50% since. Rainy River has 99.9 million shares outstanding.