Rubicon Minerals (TSE:RMX)(NYSE MKT:RBY) has unveiled its new preliminary economic assessment report for the F2 gold system on its Phoenix Gold project in Ontario's Red Lake district, taking a crucial step forward in developing the property and increasing the projected gold output from the prior report in 2011.
The project, under a base case scenario using a US$1,385 per ounce gold price, is estimated to have an internal rate of return of 27 per cent and a net present value of $531.0 million at a 5 per cent discounted rate, both on an after-tax basis.
The newest study was based on an updated mineral resource, which reflects 116,000 metres of additional drilling since the last resource estimate two years ago.
Shares of Rubicon picked up more than 5 per cent in early deals, trading as high as $1.45 on Tuesday.
"My primary objective when I took the leadership role at Rubicon was, and remains, building our flagship Phoenix Gold Project to be the best that it can be," said president and chief executive Michael A. Lalonde, who came into the lead role in January, in a statement.
Projected gold production for the life of the mine is now 2.19 million ounces, 18 per cent higher than the previous conceptual production plan, according to Rubicon's statement released Tuesday. Annual projected gold output is 165,300 ounces, which is expected to peak at 242,000 ounces in 2022.
The underground project, which will be mined primarily through longhole stoping -- a different method than the one considered previously -- at a daily throughput rate of 1,900 tonnes per day, is seen to have an average life-of-mine cash operating cost of just $629 per recovered ounce, or $151 per tonne. Including a 1.5 per cent royalty payable to Franco-Nevada Corp, the total cash operating cost is estimated at $651 per ounce, or $156 per tonne.
Average all-in sustaining costs are seen at $845 per ounce, quite a feat in this market that has seen gold prices on the decline. Cash flow from operations, after-tax, is projected at $69 million annually.
Pre-production expenses for the project are expected to cost $224 million, including a 20 per cent contingency, slightly higher than the prior $214 million estimate in 2011 on account of the new longhole stoping method considered in the latest study.
The new report was based on an updated mineral resource, which more than doubled indicated ounces to 1.129 million ounces of gold, in 4.12 million tonnes grading 8.52 grams per tonne (g/t), using a 4.0 g/t cut off grade. Inferred resources are estimated at 2.219 million ounces, within 7.45 million tonnes grading 9.26 g/t gold. Mineralization remains open along strike and at depth, the company said, with Rubicon identifying areas into which it can expand the resource.
"We are very pleased with the results of the updated mineral resource and the New PEA, which demonstrates that the project has the ability to generate strong cash flow," said Lalonde.
"The updated mineral resource estimate exhibits significant improvement in continuity and greater horizontal thickness over the previous mineral resource estimate, making it easier to plan and schedule future potential mining," he said, referring to the average horizontal thickness of 7.8 metres in the newest resource.
"We improved the confidence of the block model and increased the indicated mineral resources by 111% through our successful infill drilling program."
The CEO added that while the new results are positive, the company still believes there is room for improvement, with the current figures dubbed as conservative.
"An estimated inherent internal dilution of 26% was included within the stope design envelopes used to develop the conceptual mine design. An additional 15% external dilution was applied to the conceptual mining model, compared to 18% in the 2011 PEA, to best ensure that the estimated grades are achievable once we commence potential production," Lalonde explained, saying the company chose to take a cautious approach and set targets it can "confidently achieve".
Rubicon also highlights that the economic model is "very sensitive" to grade, saying that a small increase in grade would be significant, with a 10 per cent boost leading to an almost 30 per cent increase in after-tax net present value. The company sees potential upside opportunities with respect to grade, as it said initial bulk samples returned higher grades than those seen in the latest mineral resource report completed by SRK Consulting.
The project is on track to start gold production in the second half of next year, subject to financing. The company still needs to make a production decision, however, based on additional technical studies, and requires amended permits for the increased production rate. It is also still in discussions with local communities.
Rubicon currently has working capital of $118 million, saying it is now in negotiations with third parties to secure non-equity funding of another $106 million. Two investment banks have been signed on as advisors to help with this process.