Rio Novo’s dual-track to produce Brazilian gold

VANCOUVER — Since completing a $40-million initial public offering earlier this year, Rio Novo Gold (RN-T) has been busy exploring and developing two advanced gold projects in Brazil — Almas in Tocantins state and Guaranta in Mato Grosso state — as part of a dual-track strategy to become a gold producer by 2012.

Rio Novo has been busy on the corporate front as well, adding technical talent from former Rio Tinto Brazil and Canico Brazil operating teams to complement its management team headed by CEO David Beatty and president Julio Carvalho. This in-house talent pool will no doubt be helpful as the company strives to produce an estimated 200,000 oz. gold from two mines within the next few years.

“We have a serious group of mine-builders on board who have worked together in the past,” Beatty says. “They’ve been on teams that have found 60 million ounces of gold — you could probably say closer to 70 million ounces — over the years.”

Rio Novo’s board, which includes mine-builder Sean Roosen and ge- ologist David Reading, has financial expertise as well, with Beatty raising more than $20 billion of mining-related equity during his former 25-year career as a Bay Street investment banker. Beatty took the helm at the request of Rio Novo’s founders, also co-founders of Yamana Gold (YRI-T, AUY-N, YAU-L), after they acquired the projects as part of a gold-for-nickel property swap with Vale (VALE-N), then known as CVRD, in 2006.

“It was originally envisioned to be a private gold company, but the (global) financial crisis came along and they needed public money so they asked me to do it.”

Beatty says he was attracted by the exploration upside of both projects, and their potential to become near-term producers with low capex and cash costs.

“We’re spending a million dollars a month on drilling,” Beatty says, noting that Brazil’s gold belts have one-tenth the drill density of established mining camps in other parts of the world, such as Eastern Canada’s Abitibi region.

“CVRD used to have a monopoly on gold until Rio Tinto came into the country,” Beatty says. “That’s why there are only a few juniors and fewer new discoveries in Brazil. In contrast, the Abitibi has 500 juniors and is becoming a closed shop.”

The Almas project covers an 18-km-long greenstone belt that is largely unexplored, despite the presence of historical workings (dating back to the 1700s) and more recent excavations by garimpeiros.

Vale and a local state-owned company explored the area in 1985 and discovered the Paiol deposit and other targets a few years later. Vale produced 86,000 oz. gold at the Paiol open-pit heap-leach mine from 1996 until 2000, when operations were suspended because of low gold prices.

In recent years, drilling has focused on the Paiol deposit, which hosts indicated resources of 3.6 million tonnes grading 1.69 grams gold per tonne for the open-pit portion and 1.5 million tonnes at 2.39 grams gold for the underground (for a total of 305,900 contained ounces gold), as well as inferred resources of 70,000 tonnes at 2.02 grams gold for the open-pit and 2.37 million tonnes at 3.05 grams for the underground.

Rio Novo’s current drilling is focused on expanding and upgrading resources at the Paiol deposit, which is open for expansion along strike and downdip, and testing the Arroz target situated 15 km north of Paiol. Arroz was drilled in the past, but does not yet have a National Instrument 43-101 compliant resource. The Almas project hosts at least six other targets that have seen little drilling or other exploration work.

“Most of our drilling is extensional or infill drilling to prove up 300,000 to 600,000 ounces and get the mill started,” Beatty says. “Then we’ll look at the big targets, including those identified by our recent geophysical programs.”

As of late September, Rio Novo had completed 207 diamond drill holes totaling 27,269 metres at Almas, roughly divided between the Paiol and Arroz targets. Recent highlights include 1.27 grams gold over 31 metres from Paiol, and 2.73 grams gold over 10 metres and 3.42 grams gold over 9.3 metres at Arroz. About 35,000 metres of drilling is planned to be completed by November. A preliminary economic assessment would follow as part of a plan to advance the project to feasibility. Beatty says Almas is near good infrastructure and low-cost power and also has highly favourable metallurgy, with potential for 70% gold recovery by gravity circuit followed by cyanide leach to recover the remaining gold. The company is also investigating potential to recover the gold remaining in the Paiol leach pad.

As for Guaranta, Beatty says geologists will find the Proterozoic porphyry gold project interesting because of its island-arc back-arc setting in the middle of Brazil.

The project lies within a gold district worked by garimpeiros in the 1980s and ’90s. Vale discovered and drilled the Guaranta deposit and several other gold prospects. Unfortunately, the bulk of its reverse-circulation drill cuttings were left in the rain and are now gone.

More recent exploration has focused on the X1 deposit, which now has a NI 43-101 compliant measured and indicated resource of 8 million tonnes at 1.35 grams gold and 4.6 grams silver (or 364,000 gold-equivalent oz.), plus another 471,000 tonnes averaging 1.43 grams gold and 4.5 grams silver classified as inferred.

Beatty notes that Guaranta also has good access, terrain “similar to Saskatchewan or Iowa” and proximity to low-cost power, as well as favourable metallurgy with potential for high gold recoveries by an up-front gravity circuit, similar to Almas.

“We believe we have another 100,000-ounce producer here,” Beatty says. “The rock is harder — we’ll need a SAG (semi-autogenous grinding) mill at the front end — but it’s classic porphyry material. The metallurgy is wonderful at both projects.”

Beatty believes Guaranta has potential for additional resources at known deposits and targets, as well as long-term exploration upside within a 45-sq.-km porphyry district that remains largely unexplored. He cites two promising early-stage targets: Guaranta Ridge, where mineralization has been identified over about 6 km, and the Serrinha target, with about 1.2 km of strike. In the near-term however, the focus is on building a gold mine with multiple open pits feeding a central processing plant.

In the months ahead, Rio Novo intends to gather sufficient drilling and metallurgical data to complete preliminary economic assessments of its core projects. At this stage, the company believes cash costs will be low, between US$300 and US$400 per oz., allowing for fast payback of capital, including less than a year for the estimated US$120 million to return the permitted Almas project to production status.

In addition to exploration and development activities at its core projects, Rio Novo intends to keep an eye out for promising gold exploration projects in Brazil, as well as in other established mineral districts of South America. The company’s shares recently traded at $1.90 within a 52-week range of $1.10 to $2.01. — The author is a freelance writer based in Vancouver, and a former editor of The Northern Miner.