Rio Novo Gold moves Almas forward

Rio Novo Gold (RN-T) expects to complete a definitive feasibility study on its fully owned Almas gold project in Brazil’s Tocantins state by September, and if all goes according to plan, initial production could start by July 2013. 

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

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 oz. and 75,000 oz. gold a year from 2014 to 2021 at a capacity of 2 million tonnes per year.  

Cash operating costs over the 10-year mine life would be US$729 per oz., before 2.2% royalties and refining costs. 

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

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

The definitive feasibility study is 67% completed and detailed engineering drawings are 90% finished.

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

The PEA assumes 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 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 2022. The average annual free cash flow is estimated at 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 would be located near the Paiol pit, accompanied by a 3-km access road.  

Production at the Vira-Saia pit is planned to kick off in 2018 as production from the Paiol pit declines, and continue to 2020. Production at the Cata Funda pit is expected to 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, as well as the ore from 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 Eletricas do Tocantins, and it will supply power from a substation 20 km from Paiol.

At presstime Rio Novo traded at 46.5¢ per share within a 52-week range of 45.5¢–$2.19. The company has 113 million shares outstanding.

In a research note to clients, Andrew Mikitchook, a mining analyst at GMP Securities, writes that the company remains well financed with $25 million in its treasury, or roughly half its market capitalization, and that “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 12-month target price of $1 per share.

Mining analyst Rahul Paul of Canaccord Genuity has a 12-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 capital expenditure.”

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.