Red Eagle Mining (RD.V) is working towards opening a new underground gold mine in Colombia’s Antioquia district. We met with the company’s representatives at the PDAC mining conference in Toronto last week and we are excited about the company’s progress on all fronts.
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About permitting, the feasibility study and exploration potential
As you might remember from our earlier report, Red Eagle Mining is only waiting to receive its final permit, and we now have the impression the final environmental permit will be delivered before the end of this month. This obviously isn’t a ‘guaranteed’ timeline and the final issuance of the permit has taken longer than we expected, but Red Eagle’s management team is now fairly confident the final permit is just weeks away.
This environmental license is the last missing piece of the puzzle as all other permits have already been received and the feasibility study has also been completed and was filed on SEDAR earlier this quarter. In Red Eagle’s base case scenario (using a gold price of $1300/oz), the after-tax NPV5% is in excess of $100M and the NPV remains positive when using $1100 gold.
However, this feasibility study should only be seen as a first stepping stone. There’s no doubt at all the Santa Rosa project contains more gold than the amount of ounces included in the mine plan of the feasibility study. That’s also the reason why Red Eagle is quite keen to get back in the field and complete some more drilling, aiming to follow up on earlier generated drill targets. We are really looking forward to see some exploration results on the San Ramon Extension zone as we wouldn’t be surprised to see the mineralization continuing towards the east.
The financing should be fast and straightforward
The environmental license is obviously a key factor to secure all necessary funding to build the processing plant, but in our conversations with the Red Eagle team we had the impression the funding stage shouldn’t take too long. Indeed, developing the San Ramon gold project will cost less than $75M and with an AISC of less than $775/oz, there is a huge margin of safety and this should attract several potential financiers.
No final decisions have been made, but the Red Eagle management team will very likely try to reduce any share dilution as much as possible as it owns approximately 12% of the total share count. No timeline has been given to us by the Red Eagle management, but we would expect the financing to be finalized in the second quarter which would put the company on track to pour its first gold before the summer of 2016 and reaching commercial production in the third quarter of 2016.
Why we think Red Eagle will outperform the expectations
The expectations for San Ramon have been set high as the internal rate of return and NPV are quite high for a relatively small project. However, we actually expect Red Eagle to meet and outperform the capex and opex expectations. The feasibility study was based on an USD/COP exchange rate of 1900, but the most recent Dollar/Peso exchange rate came in at 2580 which is an improvement of 36% compared to the level used in the feasibility study.
It’s not easy to translate the currency tailwinds into hard numbers but we wouldn’t be surprised to see the capital expenditures coming in at just $70M. This would already be good, but Red Eagle could be on track to realize a double win as we would expect the AISC to drop to less than $725 per ounce using the current exchange rate. Please note, these are our own expectations and this is definitely not an official guidance issued by Red Eagle Mining.
Conclusion
The combination of a low capex, low opex and huge blue sky exploration potential makes Red Eagle Mining an enticing near-term gold producer.
Currency tailwinds have the potential to improve the economics even further and Red Eagle could very well be the darling of the market in 2016.
We will be visiting the Santa Rosa project shortly and we will obviously release an in-depth site visit report afterwards.
Disclosure: Red Eagle Mining is a sponsoring company. Please see our disclaimer for current positions.
