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New Gold to have shorter lifespan, more profit

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New Gold recently announced an updated life of mine for its Rainy River site north of Barwick that ceases operations in 2028 instead of 2031, but creates a stronger free cash flow for the mid-tier gold miner.

While the shorter lifespan creates some uncertainty going forward for regional employment, it is a more realistic plan, based on accurate assumptions, according to general manager and vice president of the Rainy River site at New Gold, Eric Vinet.

“I think this should be taken as being very positive because it's a path forward that makes sense," he lauded. "This [life of mine plan] is going to be eight years based on realistic costs—what we've been living.”

“Take the cost of today, put it in the old tech report and it's going to be a lot less interesting,” Vinet added.

“In the old one, the assumptions were too light and not complete.”

The new plan expects the open pit to be fully depleted in early 2025 instead of 2027 and will extract roughly half of the rock that was originally planned for underground mining.

New Gold is also preparing to restart the intrepid portal during this summer with approximately 600 meters of development.

The main objective is to intercept the intrepid zone and validate the ore zone in general.

Vinet said there is nothing like going through and seeing the mineralize zone

Meanwhile, operations at the underground mine are expected to start in 2022, with peak production from 2025-2027.

The new plan will mine less open pit waste and send more medium to high grade ore to the mill facility.

“We are mining 150 million tonnes less than with the old plan,” Vinet noted.

“When applying today's cost and indirect cost driven by this amount of waste such as wick drains, pit sloping and more, it becomes non-economical to do so,” he added.

When the open pit closes in 2025, New Gold will have a total of 21 million tonnes of lower grade ore stockpiled and ready to be processed at the mill. It will be blended with the higher grade ore coming from the underground mine.

Vinet said processing the underground ore by itself wouldn't cover the costs of the operation, so the stockpile is needed to keep the mill at maximum throughput after the open pit closes.

The mill can process 27,000 tonnes of ore per day, but the underground mine will only extract roughly 2,400 to 3,000 tonnes per day.

This year, New Gold is expected to have the mill produce 249,000 ounces of gold and 278,000 in 2021. Looking ahead to 2022 it will increase to 321,000 ounces and in 2023 they expect to extract 329,000, before hitting 350,000 in 2024.

The increasing amount of gold being recovered at the mill in the future will come as the bottom of the open pit is being mined which will provide higher grade ore, as underground operations go into full swing.

Meanwhile, the Rainy River site has faced geo-technical challenges and has substantially completed a $208 million capital investment to finish deferred construction that Vinet said should have been in place last year.

He noted that the construction will be ongoing through the first three quarters of 2020 but by Q4 it will be complete and New Gold will have free cash flow as capital costs will be reduced significantly.

One of the biggest challenges at the Rainy River mine since its inception is the management of water.

Last April operations had to cease for 10 days due to excess water and in October work was slowed down again

Although, the water treatment plant was only commissioned in September of 2019 and New Gold has been holding all of its water at the Tailings Management Facility since starting the mine.

“Now the big challenge in 2020 is to discharge [compliant] water like a normal activity and there's different conditions to do so,” Vinet explained.

A diffuser was installed in the Pinewood river last November, which allows New Gold to discharge compliant water while preventing erosion in the bottom of the river.

Vinet said New Gold is taking action to ensure they discharge water on a regular basis to reduce the level of water currently at the mine.

Looking ahead, the future of New Gold could extend past 2028, depending on the price per ounce of gold at the time and future exploration efforts.

Currently New Gold is profitable at a gold price of $1,275 per ounce, although it currently sits around $1,650 USD.

There will still be four to five million tonnes of ore to mine underground after it is posed to close, which could extend its life beyond 2028, depending on market conditions.

However, the mill is designed to process 27,000 tonnes a day, so the underground mine alone wouldn't fully cover operating costs at the facility.

Vinet said in the future New Gold could explore the possibility of scaling down the mill operation to accommodate smaller production at the time.

“Depending on gold prices and what the exploration might unveil in the next few years, several options could present themselves,” he remarked.

“Installing a smaller mill, [or] moving or selling the current one could be some options.”

“Processing the remaining underground [ore] with another source of material could become another scenario,” Vinet added.

Vinet stressed that, like other mining companies, New Gold needs the support of municipalities and communities towards exploration projects if they want to have a chance to increase mine life

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