Development activity at New Gold’s Rainy River project, located in northwestern Ontario, has continued to advance on schedule, with first production remaining on target for mid-2017. Over its first nine years of full production, the 21,000 metric-ton-per-day (mt/d), combined open-pit underground operation is expected to produce an average of 325,000 oz/y of gold at all-in sustaining costs of approximately $670/oz, including total cash costs of $570/oz.
Rainy River received permits and began major earthwork in May. The detailed engineering is on schedule and approximately 95% complete. Construction-related activities are also progressing on schedule. The first concrete pour for the primary crusher foundation was completed on July 20. The mine’s temporary accommodation facility is 80% complete. The initial truck fleet and shovels are scheduled for delivery during the third quarter of 2015. Delivery of mills is scheduled for the fourth quarter of 2015.
“Construction activity at Rainy River is advancing quickly and on schedule,” said Robert Gallagher, president and CEO, New Gold. “During the second quarter, we had our official ground breaking. Last week, we had our first concrete pour for the processing facility, and over the next two months, the initial equipment fleet will arrive, which will position us to start the pre-stripping of the open pit later this year and construction of the tailings facility in early 2016.”
Project capital expenditures at Rainy River during the second quarter totaled $33 million, bringing the total project development capital spending through June 30 to $120 million. Through mid-2015, New Gold has spent 14% of the total development capital estimate of $877 million. Beyond the $119 million that has been spent, the company has committed an additional $258 million of the project development capital. Through mid-2016, with approximately 43% of the total capital either spent or committed, the project’s capital estimate remains on budget.
Subsequent to the end of the quarter, New Gold entered into a streaming transaction with Royal Gold. Under the terms of the agreement, Royal Gold will provide New Gold with a deposit of $175 million in exchange for the delivery by New Gold of a percentage of the future gold and silver production from the Rainy River project. Royal Gold paid $100 million of the deposit concurrent with entering into the transaction and the remaining $75 million will be paid when 60% of the estimated project development capital has been spent and other customary conditions are met. Based on the currently planned timing of development capital expenditures at Rainy River, it is estimated that 60% of the project development costs will have been spent by mid-2016.
Upon the start of production at Rainy River, New Gold will deliver 6.5% of the project’s monthly gold production and 60% of the monthly silver production to Royal Gold until a total of 230,000 oz of gold and 3.1 million oz of silver have been delivered (the Ounce Thresholds). Once each of the Ounce Thresholds has been satisfied, the stream percentage for that metal will decrease by 50% such that New Gold will be required to deliver 3.25% of the project’s gold production and 30% of the silver production. In addition to the $175 million deposit, Royal Gold will be required to pay New Gold in cash 25% of the average spot gold price and silver price at the time the stream ounces are delivered.
The streaming transaction enabled New Gold to secure more than 20% of the remaining development capital costs for less than 6% of the project’s estimated future revenues at today’s metal prices.