Rio Novo Gold Inc.
TSX : RN
TSX : RN.WT

Rio Novo Gold Inc.

April 03, 2012 16:37 ET

Rio Novo Gold Receives Positive Preliminary Economic Assessment for Its Almas Gold Project

TORONTO, ONTARIO--(Marketwire - April 3, 2012) - Rio Novo Gold Inc. (TSX:RN)(TSX:RN.WT) ("Rio Novo" or the "Company") is pleased to announce the results of a Preliminary Economic Assessment ("the PEA") for its 100%-owned Almas Gold Project ("Almas" or "the Project"), located in Tocantins State, Brazil. The PEA was completed by Pincock Allen & Holt (PAH), Rio Novo's independent engineering consultant, with offices located in Belo Horizonte, Minas Gerais, Brazil.

Highlights of the Almas PEA are as follows:

  • Measured & Indicated Resources of 545,789 oz and Inferred Resources of 32,983 oz produced by open pit mining (based on a US$1,100 per oz gold pit-shell);

  • Production which ranges between 60,000 to 75,000 oz Au per annum (from 2014 to 2021 at full 2.0Mtpa capacity);

  • Initial capital expenditures of US$94.4 million;

  • Sustaining capital expenditures of US$33.7 million (net of recoverable taxes), including US$9.6 million for fleet and equipment in 2014;

  • Average Life of Mine ("LOM") cash operating costs of US$729/oz, before 2.2% royalties and refining costs;

  • After-tax Net Present Value ("NPV") of US$106.5 million; based on a 5% discount rate and a realized gold price of $1,350 per oz;

  • After-tax Internal Rate of Return ("IRR") of 24.5%;

  • Life of Mine of 10 years;

  • Strip Ratio of 7.2 to 1;

  • Production start-up expected H2 2013;

  • Recommendation to proceed to Definitive Feasibility Study ("DFS").

The project consists of three deposits: Paiol, the project's primary deposit, and two satellite deposits, Vira-Saia and Cata Funda, located 5km and 15km away, respectively.

The project development concept, as currently envisioned, begins with the construction of a Carbon-In-Leach ("CIL") Mill facility at the Paiol pit. Simultaneously, the Paiol open pit will be dewatered and pre-stripped to prepare for production. Once this is complete, operations will begin with production at Paiol. With the decline in production at Paiol in Year 6, production will commence at the satellite deposits, first at Vira-Saia and then Cata Funda. Ore will be trucked from these satellite deposits to Paiol, the base processing facility, in order to supplement the production from the Paiol pit.

Commenting on the announcement, Rio Novo CEO, David Beatty, stated, "The publishing of the Almas PEA is a major milestone. Initial capital was in-line with our earlier estimates at less than US$95 million. The recoverable open pit resource is 15% larger than expected, with a longer mine life of 10 years. Fast-tracking production to 60,000 to 75,000 oz per annum at full capacity is the best way to ultimately self-fund Rio Novo's development and exploration. Given that Almas is already permitted for construction and that we own our new 5,800 tpd Metso ball mill, this further "de-risks" our development.

We plan to complete a Definitive Feasibility Study on the project in July of this year, and, pending a positive decision by the Board of Directors, will proceed to construction soon thereafter. The DFS, at this point, is about 67% complete, with about 90% of the detailed engineering drawings done. Meanwhile, we are actively in talks with several bank syndicates to secure debt financing for the project."

Almas Gold Project Base Case Metrics
Gold Resources Unit Amount
Gold Production - Resources Mined oz 578,751
Gold Price - Pit Model US $/oz $1,100
Cut-off Grade Au g/t 0.35
Run of Mine (ROM) Material to Process K tonnes 18,287
Average ROM Grade to Process Plant Au (g/t) 0.98
Operating Metrics
Production Start-up Year 2013
Mining Method Open-Pit
Total Strip Ratio (including pre-strip) Waste:Ore 7.18/1
Throughput Mtpa 2.0
Gold Recovery % 94.1%
Total Gold Production (after refining) K oz 544
Mine Life Years 10
Financial Metrics
Realized Gold Price US$/oz $1,350
Initial Capital Expenditures US$M $94.4
Sustaining Capital Expenditures (Net of Tax) US$M $33.7
Mine Closure Costs US$M $4.8
Salvage Capital US$M ($7.3)
Cash Operating Costs US$/oz $729.4
Total Cash Costs US$/oz $765.0
Exchange Rate R$:US$ $1.85
Royalties (CFEM&MSE) % 2.2%
Effective Tax Rate % 15%

Financial Analysis

The cash flow model was based on the production schedule, associated gold grades, metallurgical recoveries and capital and operating costs outlined in this press release. The analysis assumed delivery of refined gold bars with a payable gold content of 99.8% at a market price of US$1,350/oz, less a realization cost of US$7.00/oz for refining, freight on delivery and insurance. The average net revenue per year is US$77.2 million from 2014, the first full production year, to Year 10 in 2022. The average annual free cash flow is estimated to be about US$30.0 million.

The table below summarizes the sensitivity of the Project's Net Present Value ("NPV") to variations in gold price, and capital and operating costs.

Change % Gold PRICE OPEX CAPEX
(%) USD/Oz NPV@5%
US$ M
USD/t ROM USD/Oz NPV@5%
US$ M
Total
USD M
NPV@5%
US$ M
20% 1,620.0 199.3 26.10 876.13 54.5 113.3 91.1
15% 1,552.5 176.1 25.01 839.46 67.5 108.6 94.9
10% 1,485.0 152.9 23.91 802.78 80.5 103.8 98.8
5% 1,417.5 129.7 22.82 766.11 93.5 99.1 102.6
Base Case 1,350.0 106.5 21.73 729.43 106.5 94.4 106.5
-5% 1,282.5 83.2 20.64 692.75 119.4 89.7 110.3
-10% 1,215.0 59.9 19.54 656.08 132.3 85.0 114.1
-15% 1,147.5 36.5 18.45 619.40 145.3 80.2 118.0
-20% 1,080.0 12.9 17.36 582.73 158.2 75.5 121.8

Almas Mineral Resource Update

Total Measured and Indicated resources on the project have increased to 23.4 million tonnes averaging 1.06 g/t Au for approximately 796,000 ounces Au. This represents an increase of nearly 30% in total M&I resources versus the previous estimate of June 2011. This increase comes primarily from the Vira-Saia discovery and from the conversion of Inferred resources to Measured and Indicated categories. Of note, a significant percentage of Vira-Saia, which was classified as Inferred at the time of this model estimate, has now been drilled to closer spacing for the DFS estimate.

Almas Gold Project - Mineral Resource Statement (NI 43-101 Compliant):

Paiol Resources Tonnes (000's) Grade g/t Au Contained oz Au
Measured 3,476 1.11 123,701
Indicated 14,769 1.04 494,290
Total Measured & Indicated 18,245 1.05 617,990
Inferred 2,367 1.21 92,377
Paiol Heap Leach Resources Tonnes (000's) Grade g/t Au Contained oz Au
Measured 1,655 0.88 46,824
Total Measured 1,655 0.88 46,824
Cata Funda Resources Tonnes (000's) Grade g/t Au Contained oz Au
Measured 321 1.75 18,112
Indicated 546 1.30 22,745
Total Measured & Indicated 867 1.47 40,857
Vira-Saia Tonnes (000's) Grade g/t Au Contained oz Au
Measured 1,265 1.10 44,919
Indicated 1,381 1.02 45,436
Total Measured & Indicated 2,646 1.06 90,356
Inferred 1,078 1.13 39,124
Total Resources Tonnes (000's) Grade g/t Au Contained oz Au
Measured 6,717 1.08 233,556
Indicated 16,696 1.05 562,471
Total Measured & Indicated 23,413 1.06 796,027
Inferred 3,445 1.19 131,501

In-Pit Resources

Given the current status of relevant statutory licenses including operational and environmental, the Paiol, Leach Pad, Vira-Saia and Cata Funda resources are classified as Measured, Indicated and Inferred Resources as per CIM standards. In-pit resources are constrained based on using a Whittle Lerchs-Grossmann shell analysis utilizing appropriate mining and processing costs, US$1,100/oz gold and cut-off grade of 0.35 Au g/t.

The table below details the final estimates of in-pit Measured, Indicated and Inferred Resources considered in the PEA:

Paiol Resources Tonnes (000's) Grade g/t Au Contained oz Au
Measured 3,003 1.10 106,502
Indicated 9,618 0.93 288,335
Total Measured & Indicated 12,621 0.97 394,873
Inferred 614 0.69 13,720
Paiol Heap Leach Resources Tonnes (000's) Grade g/t Au Contained oz Au
Measured 1,655 0.88 46,824
Total Measured 1,655 0.88 46,824
Cata Funda Resources Tonnes (000's) Grade g/t Au Contained oz Au
Measured 312 1.69 16,898
Indicated 550 1.19 21,005
Total Measured & Indicated 862 1.37 37,903
Vira-Saia Tonnes (000's) Grade g/t Au Contained oz Au
Measured 1,054 1.12 37,848
Indicated 899 0.98 28,357
Total Measured & Indicated 1,953 1.05 66,265
Inferred 582 1.03 19,263
Total Resources Tonnes (000's) Grade g/t Au Contained oz Au
Measured 6,024 1.07 208,072
Indicated 11,067 0.95 337,697
Total Measured & Indicated 17,091 0.99 545,769
Inferred 1,196 0.86 32,983

Notes:

Pincock, Allen & Holt believes that the resource estimates shown in the table above meets the CIM standards for a resource estimate based on CIM Standards of Mineral Resources and Reserves Definitions and Guidelines adopted by the CIM council December 13, 2005.

Pincock notes that this technical report is a preliminary economic assessment partially based on inferred mineral resources. Inferred mineral resources are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves and there is no certainty that the preliminary economic assessment will be realized.

Rounding of tonnes as required by reporting guidelines may result in apparent differences between tonnes, grade and contained metal content.

Opportunities

Several opportunities have been identified and are under review in the Definitive Feasibility Study:

  • Review of top cuts and block size in the current resource model;

  • Optimization of overall mine schedule;

  • Early production from existing leach pad stockpiles;

  • Assessment of Contract Mining options;

  • Mine planning options to lower strip ratio, especially in the early production years;

  • Potential addition of M&I ounces in the DFS from recent drilling.

The company sees additional upside from exploration success in nearby targets. Drilling is currently testing higher grade shoots at depth in the underground M&I resource at Paiol. As well, as previously announced, first pass drilling has discovered significant gold in a number of drill holes to the NW of Vira-Saia. Rio Novo SVP Exploration, Brian Arkell, commented, "The positive results in the Almas PEA open numerous opportunities throughout the district to add resources to the long-term plan. We currently have about 30 exploration targets in the Almas region, and we are well-positioned to continue to build the resource base into the future."

Mine Schedule and Production

The Almas project will employ owner-operated conventional open-pit mining for the three identified deposits (Paiol, Vira-Saia and Cata Funda), as well as the Leach Pad in the Paiol area. The mining operations include overburden stripping, waste transportation and disposal, ore blasting, loading, hauling, and dumping at the processing plant. Mining will utilize a combination of hydraulic excavators, large front end loaders and 35 tonnes haul trucks as the primary mining equipment. A combination of owner-operated and contractor-operated equipment will be further investigated at the Definitive Feasibility Study stage.

The preparation of the Paiol pit for production is currently planned to begin in July 2012, assuming positive results of the ongoing Definitive Feasibility Study, construction approval from the Board, and licensing and financing proceed as planned. A waste dump will be located near the Paiol pit accompanied by a 7m wide and 3km long access road. Production is expected to start in July 2013, with the extraction of primary ore from the Paiol pit.

Based on the mine optimization analysis, the mine schedule anticipates delivering 0.81 Mt of run-of-mine ("ROM") ore during 2013 as part of the ramp-up schedule. Life of mine production is planned to deliver 2.0 of ROM at 0.98 Au g/t ex-pit ore material throughout the 10-year mine life. Average LOM strip-ratio is estimated at 7.18 to 1.

Production at the Vira-Saia pit will commence in 2018, as production from Paiol declines, and continue to 2020. The Cata Funda pit will commence production in 2019, and continue to 2020. The Leach Pad reserve will be incorporated from 2021 to 2022 in order to assist with maintaining the annual plant feed requirements.

The ore from Paiol, Vira-Saia (5km), Cata Funda (15km), and the Leach Pad will be transported by road to a processing plant in the Paiol area. Each of the three pits will have a waste dump with capabilities for handling waste from each of the mines.

At the current level of resources, and considering LOM average metallurgical recovery of 94.1%, operations result in a production of 544.8 thousand ounces of bullion. The total gold payable after refining is 99.8%, or 543.7 koz of gold.

The table below sets out the total ROM LOM annual mine schedule.

Year Waste Ore Au (g/t) Au (Koz) Strip
PP 6,000 121 0.73 2.8 49.7
2013 15,000 812 0.78 20.3 18.5
2014 16,000 2,000 0.77 49.6 8.0
2015 16,000 2,000 1.18 76.0 8.0
2016 17,000 2,000 1.04 67.1 8.5
2017 16,351 2,000 0.91 58.2 8.2
2018 16,372 2,000 0.99 63.5 8.2
2019 16,209 2,000 0.95 61.0 8.1
2020 10,406 2,000 1.15 74.3 5.2
2021 1,968 2,000 1.05 67.6 1.0
2022 - 1,354 0.88 38.3 -
Total 131,305 18,287 0.98 578.8 7.18

Metallurgy and Processing

In September 2010, SGS Geosol Análises Minerais, Geoquimicas e Meio Ambiente in Belo Horizonte, Brazil and Dr. Homero Delboni Jr. at the Laboratórios de Simulação e Controle at Escola Politécnica da Universidade de São Paulo in the Departmento de Engenharia de Minas e de Petróleo (LSC/EPUSP) were selected to conduct a new metallurgical testwork program.

In April 2011, Rio Novo acquired a ball mill that is capable of processing 2.0 million tonnes per year from the Almas deposits. With the purchase of the ball mill, the original SAG Ball Mill comminution concept was changed to conventional three-stage crushing with a primary jaw crusher and secondary and tertiary cone crushers in closed circuits with vibrating screens. Crushed material reclaimed from the stockpile will feed a single stage ball mill, which will discharge to a cyclone feed hopper from where it will be pumped to a cluster of cyclones in order to obtain a final grinding product of nominally 80% passing 74μm. A gravity concentration circuit will be incorporated on the ball mill circulating load to recover coarse gold. Gold not recovered by the gravity concentrator will be extracted in a carbon-in-leach circuit which will be designed to provide a nominal residence time of 24hrs at 45% solids by weight and 2.0 million tonnes per year processing.

The combination gravity and CIL circuits are expected to deliver a LOM average recovery rate of 94.1%.

Infrastructure

Power Supply - Power supply to the project is available from the regional electrical utility company, CELTINS (Centrais Elétricas do Tocantins). The area is served by several hydroelectric power plants. A demand in the order of 12MW is estimated at full milling capacity. Power will be supplied by CELTINS from the Porto Alegre do Tocantins substation, located approximately 20km from Paiol via a 138kV overhead power line to local substation at the plant site, and will be distributed to the mill and mine facilities by a local network.

Water Supply - Water will be drawn from the largest local river, the Rio Manoel Alves at a point south of the tailings storage facility ("TSF"). Water will be pumped via the TSF where it will be combined with reclaimed water and pumped to the reclaimed water pond located adjacent to the plant.

Capex and Opex

The initial capital expenditure ("CAPEX") amounts to US$94.4 million. This includes about US$2.8 million of recoverable taxes, contingencies of US$8.0 million pre-production costs and civil construction, and about 79% of total mining and processing equipment. The initial capital expenditure required for the project, and the disbursement schedule, is shown in the table below.

Initial Capex Sustaining Capex Total
Pre-Production 2013 2014 2015-2022
Deferred Assets 5,430 10,084 - - 15,513
Mine Trucks, Mobile Equip 5,586 10,375 5,417 18,936 40,314
Mine Equip, Light Vehicles 8,525 15,833 - - 24,358
Installations, Process Equip 6,144 11,411 3,712 5,575 26,842
Civil Construction 5,875 10,910 - - 16,785
First Fills 513 953 - - 1,467
Recoverable Taxes 969 1,799 510 1,267 4,544
Subtotal 33,042 61,364 9,639 25,778 129,823
Subtotal Net of Recoverable Taxes 32,074 59,565 9,129 24,511 125,279
Mine Closure - - - 4,755 4,755
Salvage - - - (7,348 ) (7,348 )
Total 32,074 59,565 9,129 21,918 122,686

Sustaining capital expenditure during the operation is US$35.4 million, including US$9.6 million for fleet and equipment in 2014 and US$1.76 million in recoverable tax credits. Taxes are recovered within the same period that funds for additional capex are deployed, which effectively brings the net sustaining capital estimate to $33.7 million. This capital is slated to increase or replace plant and fleet equipment, and infrastructure.

The table below details the annual sustaining capital expenditure requirements.


Year
Sustaining
Capex
Recoverable
Taxes
Total Sustaining
Capex Net of Taxes
2014 9,639 496 9,143
2015 1,359 110 1,249
2016 2,537 28 2,510
2017 5,503 369 5,134
2018 4,407 147 4,259
2019 8,869 507 8,362
2020 1,035 15 1,020
2021 2,067 83 1,984
2022 - - -
Total 35,417 1,755 33,662

The LOM average operating cash costs is US$729.4/oz of gold, or US$21.73 per tonne of ROM. This amount does not include refining costs or government royalties (CFEM), which are considered as deductions to gross revenue. The average reclamation costs amount is US$768,200 per year, from year 2 to 9. In years 1 and 2, a credit of US$2.3 million is applied as compensation by CELTINS for Rio Novo's capital investment in the transmission line. The breakdown of mining, processing and general and administration costs are presented in the table below.

US$ / oz US$ / Tonne
Mining Waste and Ore - 1.29
Mining Ore 353.9 10.5
Process Plant 280.1 8.4
G&A 84.1 2.5
Reclamation 11.3 0.3
Op. Cash Costs 729.4 21.7
Refining Costs 7.0
Royalties (CFEM) 13.4
Total Cash Costs 749.8 21.7

Taxation

Taxation in the project has been defined in accordance with the current legislation of the three levels of government. A contract was signed between Rio Novo and the State of Tocantins granting Rio Novo ICMS (VAT) exemptions for a period of 15 years comprising the following exemptions: i) an ICMS exemption on machinery and equipment, principal consumables and supplies purchased in the State of Tocantins, as well as on electric power consumption; ii) an exemption from the additional ICMS (10%) due on plant machinery & equipment, and the principal consumables and supplies purchased in other Brazilian states (effective rate thus reduced from 17% to 7%); iii) an ICMS exemption on imported machinery & equipment, and consumables and supplies.

At the federal level, the RECAP has been adopted. The RECAP is a special tax regime for the acquisition of goods by export companies and applies to the exemption of PIS and COFINS (Brazilian social contribution taxes) on purchases of machinery and equipment.

Given its location and characteristics, the project is also eligible for the tax incentive conceded by SUDAM (Amazon Development Superintendence). This incentive consists of a reduction of 75% off the regular corporate income tax (25%) due on a project for a ten-year period for new investments in the area of Legal Amazonia. This incentive must be approved by SUDAM, prior to 31 December 2013.

Permitting

As reported on December 2, 2010, the Construction License (Licença de Instalacão) to proceed with the overall construction of the Almas Gold Project has been granted to Rio Novo by the Tocantins State Natural Resources and Environment Authority. The license is subject to the fulfillment of typical technical and environmental preconditions, which will be derived from the Definitive Feasibility Study currently underway.

Almas Definitive Feasibility Study

Rio Novo plans to complete and release the results of a DFS for the Almas Project in the third quarter of 2012. In the interest of accelerating the project timeline, the Company has contracted Conestoga-Rovers & Associates as its lead engineering consultant for the DFS. Work on the DFS is now estimated to be approximately 66% completed, with over 85% of the detailed engineering documents having already been drafted.

Technical Report

Rio Novo expects to file a National Instrument 43-101 compliant technical report in support of the PEA in the near future. The filing of the technical report will remedy an alleged breach by Rio Novo of its obligation to file a technical report within 45 days in support of disclosure the Company made earlier this year on its website regarding certain potential economic parameters of the Almas Gold Project.

Qualified Person

Mr. Brian Arkell, Senior Vice President of Exploration at Rio Novo Gold Inc., is a Qualified Person, as defined by Canadian National Instrument 43-101, and has reviewed and approved the scientific and technical information contained in this release.

About Rio Novo

Rio Novo is focused on the acquisition, exploration and development of gold properties in Brazil and Colombia. The Company has Measured & Indicated resources of 961,711 oz and 1,178,016 Inferred oz of gold at two projects in Brazil and one in Colombia.

The Company's goal is to become a producer of gold in the short term by bringing into production the Almas Gold Project, located in the State of Tocantins. The Almas Project enjoys both established infrastructure and main grid hydropower in a proven and mining friendly jurisdiction.

In June 2011, the Company completed the 100% acquisition of the Toldafria property in Caldas State in the central Cordillera. The Toldafria property has an Inferred resource of 952,000 oz gold at a grade of 2.38 g/t as set out in a NI 43-101 compliant resource estimate. At Toldafria, the Company has executed a systematic program of trenching, mapping, surface sampling, and additional underground channel sampling, and plans to commence drilling in March to determine the extent of vertical and horizontal continuity of the deposit.

This press release contains forward-looking statements. All statements, other than of historical fact, that address activities, events or developments that the Company believes, expects or anticipates will or may occur in the future (including, without limitation, statements regarding the estimation of mineral resources, exploration results, potential mineralization, potential mineral resources and mineral reserves) are forward-looking statements. Forward-looking statements are often identifiable by the use of words such as "anticipate", "believe", "plan", may", "could", "would", "might" or "will", "estimates", "expect", "intend", "budget", "scheduled", "forecasts" and similar expressions or variations (including negative variations) of such words and phrases. Forward-looking statements are subject to a number of risks and uncertainties, many of differ materially from those discussed in the forward-looking statements. Factors that could cause actual results or events to differ materially from current expectations include, among other things, without limitation, failure to establish estimated mineral resources, the possibility that future exploration results will not be consistent with the Company's expectations, the price of gold and other risks identified in the Company's most recent annual information form filed with the Canadian securities regulatory authorities on SEDAR.com. Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable securities laws, the Company disclaims any intent or obligation to update any forward-looking statement.

Contact Information