Rainy River bets on new Ontario gold play

Thu Apr 19, 2012 12:24pm EDT
 

By Euan Rocha

TORONTO (Reuters) - Canadian gold exploration company Rainy River Resources RR.TO believes it has stumbled on a whole new gold district in northern Ontario, where it is developing its flagship Rainy River project, Chief Executive Raymond Threlkeld said.

The project, located about 400 kilometers (250 miles) south of Goldcorp Inc's (G.TO: Quote) (GG.N: Quote) legendary Red Lake gold mine and roughly 200 kilometers west of Osisko Mining Corp's OSK.TO Hammond Reef gold project, has a very promising future ahead of it, Threlkeld said on Thursday.

Toronto-based Rainy River expects a soon to be released study on its namesake project to outline stronger production and processing numbers, along with some increases in capital costs.

"The ore is a little bit softer than we originally designed for, so it will allow a little bit more throughput. We were looking at 32,000 metric tonnes (35,273 tons) per day, but it could be as high as 35,000 tonnes per day," Threlkeld said.

"We think we might average (annually) closer to between 350,000 ounces and 375,000 ounces, versus the 329,000 ounces we are currently estimating, on average, over the life of mine."

The updated output and processing numbers will be part of a revised preliminary economic assessment that is set to be completed around the end of the second quarter.

COST OVERHANG

Threlkeld, who said he coveted the Rainy River project long before he joined the company, cautioned that the revised assessment will show higher capital costs, reflecting increases in labor and materials costs.

He expects capital costs to be closer to the C$800 million mark, up from a previous estimate of about C$680 million.

"There might be some capital increases and that is just to be expected," he said. "We'd be foolish if we said otherwise."

Cost concerns have weighed heavily on the minds of equity investors in the mining sector with dramatic cost increases seen on some large projects in recent months. These worries have also led to a pullback in Rainy River's share price, Threlkeld said, as some shareholders fret about the amount of equity that might have to be issued to fund the project.

But in an industry in which a CEO's reputation often overshadows the merits or demerits of projects, Threlkeld has enjoyed some big successes not only in identifying and building mines, but also in returning value to shareholders.

Threlkeld, an American, has developed mines for the likes of Barrick Gold (ABX.TO: Quote) and Coeur D'Alene Mines CDE.N during his 30-plus years in the sector. In his stint at Western Goldfields from 2006 to 2009, he led a team that developed and put into operation the Mesquite Gold mine in California three months ahead of schedule.

Moreover, on his watch the market capitalization of Western Goldfields rose to about $300 million from $12 million in less than 24 months. Threlkeld left Western Goldfields after it was bought by New Gold NGD.TO in 2009. He now sits on the board of New Gold along with such industry titans as Randall Oliphant, the former head of Barrick Gold, and Pierre Lassonde, the former president of Newmont Mining Corp (NEM.N: Quote).

ATTRACTIVE ASSET

The company has already outlined measured and indicated gold resources of 5.7 million ounces and inferred resources of 2.3 million ounces at Rainy River, and Threlkeld said he is confident it will find more.

"Certainly there is a minimum of 10 million ounces here and it could get substantially larger," he said. "There could be strings on a pearl so to speak, as we move outward. Also the deposit is not closed off at depth, so there is tremendous scope to expand as we go deeper."

Threlkeld said his interest in Rainy River was sparked well before he joined the company as its president and CEO in June 2009.

When he was CEO of Western Goldfields, Threlkeld had attempted to buy Rainy River. Weeks after Western Goldfields was bought by New Gold, Threlkeld jumped in to replace Rainy River's CEO Nelson Baker, who was retiring.

"I'm a geologist and I loved the geologic potential of this project," he said. "And it's lived up to it."

Threlkeld is adamant that his plan is to develop the asset and take it into production, not sell out anytime soon.

"We are good business people too, if the right offers come around, so be it, but our plan really is to move forward and de-risk the project," he said. "That's the best thing we can do for our shareholders."

(Reporting By Euan Rocha; Editing by Peter Galloway)