Positive economics for Romarco’s Haile

Just three years after acquiring the Haile deposit in South Carolina, Romarco Minerals (R-T) has completed a positive feasibility study that demonstrates the project would have one of the lowest operating costs and highest grades of any open-pit gold mine in the country.

For the first five years of production, after byproduct credits, the mine would see average cash costs of US$347 per oz., and capital costs of just US$275 million.

“We have capex of less than one-third our market capitalization so it’s very manageable on the capital side,” Diane Garrett, Romarco’s president and chief executive, explained on a conference call.  

Moreover the feasibility study didn’t even include Romarco’s Horseshoe, Snake Deep, West Ledbetter and some portions of the Mill zone, or the Small and Champion deposits, Garrett said. 

“There’s an awful lot that’s not in the feasibility study that we continue to drill and expand,” Garrett continued. “There’s over 5 million tonnes of material of just over 1 gram that sits inside the US$950 per oz. pit and are categorized as inferred resources. They are in the mine plan but as waste and that is another high priority drill target for us.”

Garrett added that the company “has yet to find the mine limits of Haile,” and that it continues to find new deposits and higher-grade zones. “Last year with Horseshoe, we found the underground possibility exists,” she said.

Haile is also a “unique asset” because it sits on private land and is therefore not subject to royalty payments, she added.

The feasibility study outlined a pretax net present value (NPV), at a 5% discount, of US$279 million, and an internal rate of return (IRR) of 19.6%, with a payback of 4.2 years. The base case will likely generate US$508 million in pretax operating cash flow. 

At US$1,300 per oz. gold, the NPV jumps to US$693 million and the IRR to 37.6% and the payback period drops to 2.4 years. 

The mine life is anticipated to be about 13 years with a mill throughput of 7,000 tons per day.

Romarco estimates that in its first full year the mine will produce 172,000 oz. gold and over its first five years of production would average 150,000 oz. per year.

The study outlines average gold recovery of 83.7% and a life-of-mine strip ratio of 7.2-to-1.

Once the necessary permits have been received and financing is in place, Romarco will start building and commissioning the project. Detailed design work is already underway.

About 500 people will be employed during the construction phase of the project and about 300 once in production.

The deposit’s reserves were developed from the block model and the mine plan using a gold price of US$950 per oz.  Reserves add up to 30.51 million tonnes grading 2.06 grams gold for contained gold of about 2.02 million oz.

Romarco believes there is “significant upside potential” within and surrounding the Haile mineralized system, which it says continues to remain open in all directions and at depth. This year there will be 11 rigs turning in a US$30-million exploration program. 

The 2011 program is 172,000 metres. Of that, 110,000 metres is exploration and 62,000 is condemnation (testing areas on the property with no previous drilling to see if they are suitable for future waste dumps and facilities because the company believes the project will likely undergo expansion early in its mine life.) 

Dan Symons, manager of investor relations, notes that the company made gold discoveries on the property four times last year through condemnation drilling, including Horseshoe, so it is “very likely that some of the 62,000 metres scheduled for condemnation will become exploration before the program is finished.”

Romarco will begin exploring further along trend, stepping easterly of the Horseshoe zone, and westerly of the Champion and 601 areas that are about 1 km west of the South pit.  

In terms of mining the deposit, the company plans to use conventional open-pit mining methods with an initial mining fleet of 14 (100-ton) haul trucks, two front-end loaders, and one hydraulic front shovel. It has already put the orders out on the equipment and expects to take delivery in August.

The plant design incorporates conventional precious metals recovery processes including jaw crushing, semi-autogenous and ball milling, flotation, fine grinding of the flotation concentrate, and carbon-in-leach cyanidation. 

Garrett noted that everything has been designed so that it can be scaled up, and hopes to have all of its permits in hand and break ground at year end.

In addition, she said Romarco will be backfilling its pit, lining its waste dumps and treating the cyanide before it goes to the tailing pond.

The Haile property is situated 4.8 km northeast of Kershaw, a town in Lancaster County, about one hour south of Charlotte in North Carolina and about one and a half hours northeast of Columbia.  

At presstime in Toronto, Romarco was trading at about $2.35 per share. Over the last year it has traded between a low of $1.47 (Feb. 11, 2010) and a high of $2.88 (Nov. 9). It has 481.03 million shares outstanding.