New Gold (NGD.TO, NYSE:NGD) has released the results of a feasibility study on the Rainy River project. The project is estimated to cost $885M (which includes a $70M contingency) and will produce 3.4 million ounces of gold and 6 million ounces of silver during a 14 year mine life. The majority of the gold will be produced in the first nine years of operation, when the Rainy River project is expected to produce 325,000 ounces per year at an all-in sustaining cash cost of $736/oz.
However, because of the relatively high capital expenditures (and a high sustaining capex of almost $350M), the economics of the projects don’t look extremely appealing, as the pre-tax NPV5% comes in at just $438M and the IRR is only 13.4%, using a gold price of $1300/oz. This means that the after-tax NPV using the current gold price of $1240 will be substantially lower meaning that even though Rainy River will be viable at the current gold price, its Net Present Value won’t be that impressive at all as we expect an after-tax NPV5% of less than $250M using the current price of gold.
> Click here to read the press release
Disclosure: The author holds no position in New Gold. Please see our disclaimer for current positions.
