New Gold redesigns tailings facility, raises capex

With tailings dam disasters at Imperial Metals’ Mount Polley mine in B.C., and the Samarco mine jointly owned by BHP Billiton and Vale in Brazil, the integrity of tailings management facilities are top-of-mind among industry stakeholders.

New Gold (TSX: NGD) has announced that it will redesign 100% of the tailings structures at its Rainy River project in northwestern Ontario, instead of the 30% it had envisioned earlier this year, which will bump up total capex by US$105 million.

The final redesign — which flattens slopes and adds rock-toe buttresses — is expected by the end of October, and should not delay first production, which is scheduled for mid-2017, the company says.

Processing facilities under construction at New Gold’s Rainy River gold mine project in northwestern Ontario. Credit: New Gold.

“At the beginning we thought the redesign would be for 30% of the structures, but that was before we completed our supplementary geotechnical field program, assessed the results and worked with our independent tailings review board (ITRB), and incorporated the input from our regulators and engineer of record,” Rainy River general project manager Grant Goddard says in an interview. “If you can imagine a horseshoe-shaped tailings dam facility that spans a couple of kilometres long — rather than just redesign sections of the structure, New Gold chose to do the right thing and redesigned the whole thing. That way we are assuring both a sound design and a plan that can be executed efficiently, and built with long-term reliability.”

Goddard says that the company had first built part of its water management facility and identified areas underlying the facility where the foundation wasn’t as strong as estimated.

“When we saw how the water management facility performed as it was being built, we realized that the geology at depth was more complex in specific areas,” he says. “It wasn’t across the whole zone that we were building. We had to do a lot more close-spaced testing to see what was there. It was an opportunity to observe how it performed.

“We were talking with our regulators, engineer of record and our ITRB, all at the same time, and we were looking at what was happening in the industry and at some of the tailings issues other people were having, so putting it all together allowed us to do the redesign.”

New Gold estimates that it would need 8 million more tonnes of construction rock to build the water and tailings management facility, or twice the original estimate.

To move the additional material, the company will accelerate the purchase of equipment (eight haul trucks, one shovel and two dozers). Under the previous design, most of the equipment wouldn’t be bought until the first year of operations, with the balance a few years into the mine life.

An overview of the plant under construction at New Gold’s Rainy River gold mine in northwestern Ontario. Credit: New Gold.

The company will also need to buy equipment, specifically an excavator, a dozer and a small maintenance fleet. The new design incorporates a smaller starter dam within the broader facility, which would provide capacity for six months of mine waste, and doesn’t require any amendments to permitting.

The US$105 million redesign (which includes a US$20-million contingency) brings the project’s total development capital to US$1.1 billion. (At the end of August it had spent US$565 million.)

The Rainy River mine would be New Gold’s largest operation, producing an average 325,000 oz. gold per year over a 14-year mine life, at cash costs of US$570 per oz. and all-in sustaining costs (AISCs) of US$670 per ounce.

Production this year from New Gold’s other mines — New Afton in B.C., Mesquite in California, Peak in Australia and Cerro San Pedro in Mexico — could reach between 360,000 and 400,000 oz. gold at cash costs of US$360 to US$400 per oz., and AISCs of US$750 to US$790 per ounce.

“Rainy River’s production will be almost 80% of New Gold’s total production today, so doing the right thing in terms of design and execution just makes sense,” Goddard says.

The project’s proven and probable reserves for both the open pit and underground measure 103.3 million tonnes grading 1.15 grams gold per tonne and 2.8 grams silver per tonne for 3.81 million contained oz. gold and 9.43 contained oz. silver.

Rainy River is 65 km northwest of Fort Frances in northwestern Ontario. It has year-round road access and rail just 25 km south.

After the second year of open-pit mining, the company will start mining from underground, with both operations running concurrently for the rest of the mine life.

New Gold has finished 45% of Rainy River’s construction.

“The progress we’ve made so far is pretty phenomenal,” Goddard says. “As I’m looking out of my window I’m watching conveyor sections being put in place. As I see what’s happening, I’m confident we’ll be in production by mid-2017 and into commissioning as we head into the summer. We’re targeting mid-2017 start-up.”

Goddard adds that a lot of the major equipment is already in place, and the company has started reclamation work around the site, “so it’s looking great.”

He says that “we’ve got an awesome team — over 70% of which is local and 34% from indigenous groups. We’re not fly-in, fly-out. We’re residential, so we all live here. It’s neat that our neighbours are part of the team we’re building and part of our operation long-term.”

New Gold describes the project as representing “one of Canada’s newest emerging gold districts.”

The district was first explored for nickel sulphide mineralization in the mid-1960s. Recognition of the district’s gold potential in 1988 led to finding gold mineralization in what is now known as a large system of stratiform, gold-rich, volcanogenic-style sulphide deposits.

Exploration at the Rainy River gold project started in 1967, with Noranda, International Nickel Corp. of Canada, Hudson Bay Exploration and Development, and Mingold Resources operating in the area until 1989. The Ontario Geological Survey conducted geological mapping and an overburden drilling program in 1971, and again from 1987 to 1988. Nuinsco started exploring the area between 1990 and 2004. In 2013, New Gold acquired the project from Rainy River Resources.

At the end of August, New Gold had cash and equivalents of US$145 million. It also has a US$300-million revolving credit facility, of which US$125 million has been used to issue letters of credit, leaving a US$175-million undrawn balance.

New Gold could draw another US$50 million under the revolving credit facility and also expects the remaining US$75 million of a stream deposit from Royal Gold (TSX: RGL; NASDAQ: RGLD), once it spends 60% of Rainy River’s project development capital, which New Gold says should be in this quarter.

News of the additional capital expenditure sent New Gold’s shares down 7.2%, or 52¢ apiece, to $6.73 per share on Sept. 7.

At press time, New Gold was trading at $6.14 per share within a 52-week range of $2.56 to $7.87 per share.

GMP has a price target on New Gold of $7.75 per share, while BMO Capital Markets and Raymond James have price targets of $6.75 and $4.75 per share.