CVY is in the fortunate position of having Rainy River Resources 8 million ounce project next door to it in an advanced planning stage.
These are RRR's latest numbers for their project. CVY's costs (capex and per ounce of production) will be very close to these, as most of the key variables (plant capex, production costs and geology) should be similar.
The headline figure from this part of the world is a cost per ounce under US$500.
On these kind of profit rates it is not difficult to see why RRR has a $500 million+ valuation, and CVY (at $30 million) is a possible t/o target.
Especially as $2000+ gold seems likely over the next few years thanks to the global trend in money printing.
'Rainy River Resources' Project Updated With Higher Grades and Lower Costs
Aug 29, 2012 RR.TSX
TORONTO, Aug. 29, 2012 /CNW/ - Rainy River Resources Ltd. ("Rainy River" or the "Company" (TSX: RR)) is pleased to announce receipt of an updated and revised positive Preliminary Economic Assessment ("PEA") for its 100% owned Rainy River Gold Project ("RRGP") in western Ontario, Canada.
The information presented below summarizes the results of a conceptual mine and processing scenario based on the February 24, 2012 National Instrument 43-101 ("NI 43101") mineral resource estimate, which includes assay data up to December 31, 2011. All currency amounts in this press release are expressed in Canadian dollars ($) unless otherwise noted.
HIGHLIGHTS OF THE UPDATED PRELIMINARY ECONOMIC ASSESSMENT
First 10 Years of Production:
Average annual production of 308,000 gold ounces and 478,000 silver ounces.
Average mill head grade of 1.45 g/t of gold, an increase of 50% over the first PEA.
Average open pit grade improves by 39% to 1.25 g/t of gold with stockpiling of low grade material compared to the November 2011 PEA open pit grade of 0.90 g/t of gold. Average underground grade improves by 19% to 4.20 g/t of gold compared to the November 2011 PEA underground grade of 3.52 g/t of gold.
Average cash costs of US$486 per ounce gold (including royalties and net of silver credits). Operating strip ratio of 2.5:1 (excluding overburden and capitalized waste) compared to the November 2011 PEA operating strip ratio of 3.3:1.
Processing throughput averaging 20,000 tonnes per day (tpd). Production is anticipated for early 1H/2016 for the open pit and 2H/2018 for the underground.
Economics
Key Metrics
Life-of-mine pre-tax net present value ("NPV", at a 5% discount rate) of $846 million, internal rate of return ("IRR") of 21.0% and a payback of 3.8 years based on US$1250 per ounce gold and US$25 per ounce silver.
In the current metal price environment, pre-tax net present value (NPV 5%) of $1.986 billion, IRR of 36.6% and a payback of 2.2 years1; Metal price sensitivities are summarized in Table 1.
Life-of-mine metal production of 3.8 million ounces of gold and 6.8 million ounces of silver at 91.0% gold recoveries and 67.4% silver recoveries.
Open Pit
Initial pre-production capital costs of $694 million (inclusive of $100 million in contingency). Open pit total sustaining capital costs of $340 million (tailings, overburden and waste removal, and equipment). Total capital costs in the open pit decline by $245 million from the November PEA.
Underground
Development capital costs of $67 million, commencing in 2016, drawn from operating cash flows. Underground sustaining capital costs of $148 million (development, infrastructure and equipment). Table 1 - Sensitivities to Metal Prices2
Gold, Silver, US$/oz Base Case $1250 / $25 $1600 / $30 $1800 / $35 $2000/$40 NPV $ millions 846 1,806 2.364 2,922 IRR % 21.0 34.3 41.1 47.5 1. Discounted cash flow calculated at a gold price of US$1,667 per ounce and silver price of US$30.37per ounce, with a CDN$/US$ exchange rate of $1.0109. 2. Sensitivities calculated at a CDN$/US$ exchange rate of 1.05. Raymond Threlkeld, Rainy River's President and CEO, stated: "Over the last five months, our team has investigated and quantified options ranging from a mill having a capacity of 20,000 tonnes per day to 40,000 tonnes per day, conceptual mine plans sized from 4.1 million ounces gold to 5.7 million ounces of gold, and life spans ranging from 13 to 27 years.
Today, we have chosen the option that represents the lowest risk to our shareholders and the strongest internal rate of return in a $1,250 per ounce gold environment. The resulting project plan represents one of the highest grade open pits, and highest grade mill throughput of any current Canadian open pit mine development story at 1.26 g/t and 1.45 g/t, respectively.
Our mine plan averages 308,000 ounces of gold annually for the first 10 years from open pit and underground, a high mill head grade at 1.45 g/t over 10 years, and a low open pit operating strip ratio at 2.50:1.
The higher grades mined in the open pit and underground enable the cash costs in the first five and ten years to be US$450 and US$486 per ounce gold, respectively, placing the Rainy River Gold Project's costs in the second lowest quartile of cash costs for gold producers worldwide.
The underground portion of the Project, due to be in full production in the fifth year of the open pit operations, adds over 800,000 ounces of gold at a diluted grade of 4.20 grams per tonne for gold and 5.30 grams per tonne for silver, which represents a gold grade increase of 19% from the last PEA.
The Company will continue to review the potential for future operations to be enhanced by increasing throughput or adding mine life, or both. This project design, with the exploration potential in our district, makes the Rainy River Gold Project stand out in Canada as a low risk, high return project, while retaining the option to mine more ounces in the future."
CVY Price at posting:
15.5¢ Sentiment: Buy Disclosure: Held
