Rainy River Resources
Betting on further upside in 2012
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By Mirelle Vitale
Rainy River Resources' President and Chief Executive Raymond Threlkeld
The year ahead is shaping up to be an important one for Rainy River Resources (TSX:RR). The first half of 2012 will see the release of the mining company’s second resource estimate and updated preliminary economic assessment (PEA) for its key gold project in northwestern Ontario. Work on a feasibility study for the Rainy River Gold Project is also expected to commence later in the year, with completion likely in the first quarter of 2013.
Its first PEA for the project, released in November 2011, envisages a combined pit and underground operation with a mine life of just over 13 years. The assessment also sees processing throughput averaging 31,340 tonnes a day, and an average annual production of 329,000 gold ounces and 497,000 silver ounces.
President and Chief Executive Ray Threlkeld is optimistic about the upcoming resource estimate, particularly given that it will incorporate an additional 180,000 metres of extra drilling.
“We believe we will have a substantial increase in resources,” Threlkeld tells TSX/CP Equities News following the company’s recent market open at the Toronto Stock Exchange.
“I think what it also means is that we’re going to have a larger underground component. We’re going to convert a lot of waste material [to mineralized material, ie. ore] with continued infill and interior drilling.”
Threlkeld, who originally hails from California but has lived around the world as a 30-year mining veteran, visits the Rainy River site about once a quarter. “I love going out there. I’m a geologist by training so it’s great to go out and see the geologists’ excitement, look at rocks and talk to everybody. I did that for years and you never forget your roots.”
The Toronto-based CEO is positive about the year ahead for the Rainy River Gold Project, which is based in the new mining district of Richardson Township, some 65 kilometres northwest of Fort Frances, Ontario.
Threlkeld points out that there hasn’t been a greenfields project permitted in Ontario since the Musselwhite Mine, which came on stream in 1997. “That’s a potential challenge but we have good relations with the Department of Mines & Natural Resources.”
At the helm of Rainy River Resources since mid-2009, Threlkeld has also served in a management capacity at Western Goldfields Inc., Silver Bear Resources Inc. and Barrick Gold Corp.
The CEO offered additional context and insight into Rainy River Resource’s latest developments and plans moving forward.
TSX/CP: What does the latest preliminary economic assessment mean for the Rainy River Gold Project going forward?
RT: It is the first PEA done by the company. Since the company formed in 2005, we’ve been mainly an explorer and have been developing a large resource. We finally came to a point where we have enough resources in the ground to put some metrics to the project, so that our investors and shareholders can actually calculate a net asset value for the company.
The results of the PEA have been very good. In total we have 650,000 ounces in the measured category, 3.76 million ounces in the indicated category and 2.33 million ounces in the inferred category. About 4.9 million ounces of measured, indicated and inferred went into the study, suggesting that they are potentially mineable, which is a large percentage of our total resources. With that, the project became a little larger than I anticipated. It’s a very strong project, especially considering where we are located: in a very friendly jurisdiction in Western Ontario. We’re close to infrastructure and [as opposed to a camp], people can work and live locally.
The Rainy River Gold Project is a 329,000 ounce gold producer. That’s the average annual production for 13 years. The cash costs are $553 per ounce Life of Mine [LOM], which is on the low side of average production in the world. So we are very happy with this. And this is just a base case. I point out to people that we still have 180,000 metres of drilling to input into the study.
TSX/CP: What does the additional drilling mean for the next PEA?
RT: We believe we will have a substantial increase in resources. I don’t know what those will be. Year-on-year we’ve added about one million and a half ounces of gold to our resources.
I don’t know if that’s going to occur but I suspect it will and may be even better because we’ve had two new discoveries on site. We could have a larger underground mine component. We’re going to convert a lot of waste with infill and interior drilling. I think we’ll have better metallurgical recovery because of the tests we’re completing right now. We’re going to enhance the geotechnical aspects, which are the slopes and steepening of the slopes.
All of these add up to what is very positive for the net asset value. If we were to capture 100% of the upside, it could be very substantial. If it’s [just] 50% of the upside, there is $4-$5 in net asset value on our shares yet to be realized. So we’re trading at the base case at the moment and I think there is upside.
TSX/CP: What are your expectations for the upcoming pre-feasibility study?
RT: We currently have a project of 329,000 ounces annually for 13 years. I believe we’re going to have higher numbers than that. It could be 15 to 18 years in length because of the new discoveries we have at Rainy River.
The project may look a little bit different. We’re going through lots of optimization studies right now. There’s potential that the underground [portion] will grow because I think that’s the future; that’s the next 20 years at Rainy River.
TSX/CP: Rainy River has a significant institutional shareholder base with 60% of the company owned by institutions (the top 5 own 35%). Can you elaborate on why this class of investors has been so receptive to your recent marketing efforts?
RT: They’re receptive to the fact that there’s a net asset value created by this [latest PEA] study. And they’re receptive to the fact that they know we have this amount of drilling to come out, so the market does see a lot of upside to us. The markets have also said that we’re not a speculative stock anymore. We’re not drilling holes and we’re not speculative in terms of an explorer. We’re going to be real and they will know how much capital we’ll need for the future. They’ll know how many ounces we’ll be able to produce.
TSX/CP: In a wider context, what does the ongoing debt crisis mean for Rainy River as a mine developer? Although gold prices remain high, particularly as the commodity continues to be viewed as a safe haven, will it be difficult for mine developers to raise money?
RT: We’re in the gold business because we believe the price of gold is going up. Our PEA was based on a $1,200 gold price with $25 for silver. I don’t believe gold prices will be that low when we actually finance and build this project.
TSX/CP: Rainy River appears to have a strong balance sheet with sufficient cash for now. But for how long?
RT: The balance sheet is currently $115 million as of September 30, 2011. We have some warrants out there with a strike price of $7.10, due in February 2012. So potentially [we have] another $27 million.
Our burn rate is about $5 million a month. We expect to budget in the $60-70 million range next year so we have enough cash to go through the year. The initial capital cost on the project right now sits at $681 million so we’re going to have to raise a significant amount.
We’re working with banks right now and looking at innovative debt financing. We have quite a bit of silver and that could be used as some kind of instrument for financing.
TSX/CP: What is your timeframe for fund-raising?
RT: Between now and mid 2014. We’re not out looking for money now. We’re going to see how the markets treat us over the next six to eight months and then start looking at some form of equity. Ideally we would like to look at maybe two-thirds equity, one-third debt for the project as we go forward. That’s an ideal look at things. You never know how things turn out until you get there.
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