Rio Novo Gold moves Almas forward

Rio Novo Gold (RN-T) expects to complete a definitive feasibility study on its 100%-owned Almas gold project in Brazil’s Tocantins state during the third quarter of this year and if all goes according to plan initial production could start in the second half of 2013. 

The junior gold explorer released a preliminary economic assessment of the project on Apr. 3 detailing a carbon-in-leach mill facility at Paiol, the primary open pit, with production in subsequent years from nearby satellite deposits Vira-Saia and Cata Funda.

Initial capital costs are estimated at US$94.4 million with sustaining capital expenditures of US$33.7 million net of recoverable taxes. Production would range between 60,000 and 75,000 ounces of gold a year from 2014-2021 at a capacity of 2 million tonnes per year.  

Cash operating costs over the ten-year mine life will be US$729 per oz., before 2.2% royalties and refining costs. 

Rio Gold’s 100%-owned project would have an estimated after-tax net present value of US$106.5 million based on a 5% discount rate and a realized gold price of $1,350 per oz. and the after-tax internal rate of return would be about 24.5%.

Almas is permitted for construction and the company already owns a new 5,800-tonne per day ball mill.

Currently the definitive feasibility study is about 67% completed and detailed engineering drawings are 90% finished.

Almas has total measured and indicated resources of 23.4 million tonnes averaging 1.06 gram gold per tonne for about 796,000 ounces of contained gold and 3.45 million tonnes grading 1.19 grams gold per tonne for 131,501 ounces of contained gold.

The PEA assumed delivery of refined gold bars with a payable gold content of 99.8% at a market price of US$1,350 per oz., less a realization cost of US$7.00 per oz. for refining, freight on delivery and insurance. The average net revenue per year is estimated at US$77.2 million from 2014, the first full production year, through to year ten in 2022. The average annual free cash flow is estimated to be about US$30 million.

Drilling is currently testing higher grade shoots at depth in the underground resource at Paiol.  

Assuming positive results from the definitive feasibility study, preparation of the Paiol pit for production is planned to start in July 2012. A waste dump will be located near the Paiol pit accompanied by a 7-metre wide and 3-km-long access road.  

Production at the Vira-Saia pit will kick off in 2018 as production from the Paiol pit declines and continue to 2020. The Cata Funda pit will move into production in 2019 and continue to 2020.  

The ore from Vira-Saia, 5 km from Paiol, and Cata Funda, 15 km from Paiol, and the leach pad will be transported by road to a processing plant in the Paiol area. Each of the three pits will have a waste dump with capabilities for handling waste from each of the mines. The combination gravity and carbon-in-leach circuits are expected to deliver a life of mine average recovery rate of 94.1%.

Power supply is available from the regional electrical utility company, Centrais Elétricas do Tocantins, and it will supply power from a substation, about 20 km from Paiol.

At presstime in Toronto Rio Novo was trading at 46.5¢ per share within a 52-week range of 45.5¢-$2.19. The company has about 113 million shares outstanding.

In a research note to clients, Andrew Mikitchook, an analyst at GMP Securities, wrote that the company remains well financed with about $25 million in its treasury or roughly half its market capitalization. “Rio Novo is currently trading at an enterprise value of $30 per oz., versus its peer average of $65 per oz. and at 0.2 times net asset value versus a 0.3 times average for its peers.” Mikitchook has a twelve-month target price of $1.00 per share.

Mining analyst Rahul Paul of Canaccord Genuity has a twelve-month target on the stock of $1.25 per share and in a research note commented that the “project economics highlighted by the PEA were modestly better than our expectations largely explained by a larger mineable resource and lower upfront capital costs partly offset by higher sustaining capex.”

Paul also noted that “pending a recovery in market conditions and the company’s ability to finance the Almas project we see strong re-rating potential as the Almas project is advanced to production in addition to exploration upside from the Toldafria and Guaranta projects.”

Rio Novo’s Toldafria property is in Colombia and has an inferred resource of 952,000 oz. gold at a grade of 2.38 grams gold. Its Guaranta gold project is in the state of Mato Grosso in Brazil.