TSX - NYSE: RIC
Positive First Step in a Multi-Phased
Transformation of the Island Gold Mine;
Low Industry Cash Costs and Robust Cash Flow Stream
TORONTO, May 29, 2017 /CNW Telbec/ - Richmont Mines Inc.
(TSX: RIC) (NYSE: RIC) ("Richmont" or the "Corporation"), is
pleased to announce positive results from an Expansion Case
Preliminary Economic Assessment ("PEA") completed on the Island
Gold Mine, located in northern Ontario,
Canada. The study confirms the increase in underground mine
and mill productivity to 1,100 tonnes per day will support strong
production growth of 22% at low industry cash costs and a robust
cash flow stream over the eight-year Phase 1 period, with low
incremental capital of $28.2
(US$20.9) million required. The
ramp-up to 1,100 tonnes per day is currently underway and the
operation is anticipated to achieve the target run rate in the
latter part of 2018. (All amounts are in Canadian dollars unless
otherwise indicated).
"The strong outcome of the Expansion Case PEA represents a key
milestone and the next step in our phased approach to unlock the
full potential of the Island Gold Mine. With minimal capital we are
positioning the mine as a low cost operation that is anticipated to
generate strong cash flow streams after funding all project and
sustaining capital." stated Renaud
Adams, CEO. He continued, "It is important to consider that
the PEA incorporates only 24% of the current inferred resources as
of December 2016. All resources
outside the main area of interest, below the 1,000 metre level and
east of the PEA area, were excluded but will eventually be
considered in a potential Phase 2 expansion as we continue to grow
the resource inventory through our strategic drilling
programs."
Island Gold Mine Expansion Case PEA Highlights
- The operation is expected to produce an average of 125,000 gold
ounces per year, excluding the 2017 and 2018 ramp-up period, or
115,000 ounces over the 8-year period considered in the PEA.
- Low industry cost profile over the PEA period, including cash
costs of approximately $650
(US$480) per ounce, All-in Sustaining
Costs ("AISC") of approximately $835
(US$620) per ounce and All-in Costs
("AIC"), which includes all project and sustaining capital, of
approximately $910 (US$675) per ounce.
- Minimal incremental capital investment of $28.2 (US$20.9)
million is estimated to support a productivity increase from
900 to 1,100 tonnes per day, which would contribute to a strong
pre-tax cumulative net cash flow stream after all capital
expenditures of $749 (US$555) million at a spot gold price of
$1,700 (US$1,260) per ounce, or $615 (US$456)
million at a downside case gold price of $1,550 (US$1,150)
per ounce over the eight years considered by the PEA.
- Additional opportunities remain for further expansion scenarios
and mine life extension as the PEA only incorporates approximately
24% of the current total inferred resources (as at Dec. 31, 2016), which excludes more than 750,000
inferred resource ounces and does not take into consideration the
most recent drilling success laterally to the east and at depth
below the 1,000 metre level.
Expansion Case PEA
Summary (1,100 tpd)
|
Tonnes Milled
(Mt)
|
3.1
|
Head Grade
(g/t)
|
9.68
|
Mine plan
(years)
|
8
|
Daily mine and mill
production (tpd) (excl. 2017-2018 ramp-up)
|
1,100
|
Gold recovery
(%)
|
96.5
|
Total Production
(Koz)
|
926
|
Avg. annual gold
production (Koz)
|
115
|
Avg. annual gold
production (excl. 2017-2018 ramp-up) (Koz)
|
125
|
Expansion Case PEA
Summary (1,100 tpd)
|
(CAD:US exchange rate
of 1.35:1)
|
CAD$ Gold
Price
|
US$ Gold
Price
|
Spot Gold
$1,700/oz
|
Downside
Case
$1,550/oz
|
Spot Gold
US$1,260/oz
|
Downside
Case
US$1,150/oz
|
Average operating
unit cost ($/t)(1,4)
|
191
|
189
|
141
|
140
|
Cash Costs
($/oz)(1,2,4)
|
652
|
646
|
483
|
479
|
AISC
($/oz)(1,2,4)
|
837
|
832
|
620
|
616
|
Sustaining capital
($M)
|
168
|
168
|
124
|
124
|
Project capital
($M)(3)
|
68
|
68
|
50
|
50
|
AIC
($/oz)(1,2,3,4)
|
910
|
906
|
674
|
671
|
Cumulative Net Cash
Flow ($M)(5,6)
|
749
|
615
|
555
|
456
|
Pre-tax
NPV5%(6)
|
580
|
473
|
430
|
350
|
After-tax
NPV5%(6)
|
452
|
379
|
335
|
281
|
(1) The Expansion Case PEA assumes a
gold price of $1,700 (US$1,260) and $1,550 (US$1,150) per ounce and
an CAD:US exchange rate of 1.35 (2) Non-IFRS performance measure.
Refer to the Non-IFRS performance measures section contained in the
Q1 2017 MD&A. (3) Project capital includes incremental
expansion capital of $28.2 million and accelerated mine
development/infrastructure capital of $40
million. (4)
Including royalties. (5) Net cash flow is pre-tax cash
flow after all operating costs, project and sustaining
capital. (6) All
calculations assume the Dec. 31, 2016 cut-off grade and do not
incorporate any adjustments related to different gold price
assumptions.
|
Pre-Tax Net Cash Flow Sensitivity Table
The table below provides the estimated impact on pre-tax net
cash flow at various gold prices and currency exchange rates, which
demonstrate that the PEA mine plan generates positive pre-tax net
cash flow even at a gold price of US$1,000 per ounce and a Canadian to U.S.
currency exchange rate at parity.
Pre-tax Net Cash
Flow(1)(2) (CAD$M) Sensitivity
|
US$ Gold
Price
|
CAD:US
|
|
1,000
|
1,100
|
1,200
|
1,300
|
1,400
|
1.00
|
123
|
212
|
302
|
391
|
481
|
1.10
|
212
|
311
|
409
|
507
|
606
|
1.20
|
302
|
409
|
516
|
623
|
731
|
1.30
|
391
|
507
|
623
|
740
|
856
|
1.35
|
436
|
556
|
677
|
798
|
918
|
1.40
|
481
|
606
|
731
|
856
|
981
|
1.45
|
525
|
655
|
784
|
914
|
1,043
|
(1) Net cash flow is pre-tax cash
flow after all operating costs, project and sustaining
capital. (2) All calculations assume the Dec.
31, 2016 cut-off grade and do not incorporate any adjustments
related to different gold price assumptions.
|
"The PEA represents only the first step in a disciplined
multi-phased strategy that will continue to build on our successful
track record of growing production and reducing costs as we execute
on our vision to position the Island Gold Mine as a world class,
low-cost gold producer with additional production growth over a
minimum mine life in excess of 10 years." stated Renaud Adams. He continued, "In the near term,
there are additional opportunities to increase productivity and
improve our cost structure that were not considered in the PEA,
which could provide further upside beyond the strong PEA results.
The success of our strategic exploration programs will continue to
be a high priority as we continue to transform Island Gold into a
multi-million ounce district."
TECHNICAL HIGHLIGHTS (click here for the technical and
financial portion of the corresponding PEA presentation)
The PEA was developed through the combined efforts of the
Corporation's internal technical team and the independent
consultant, Soutex Inc. The independent consultant, InnovExplo
Inc., provided input to the internal technical team during the
preliminary stages of the study relating to the mine design. The
internal technical team developed the detailed mine plan, costs and
schedules, and completed the December
2016 Resource modeling and Reserve and Resource estimates.
Soutex Inc., with the collaboration of WSP Global Inc. provided
mill upgrade, expansion designs and estimated costs.
The objective of the PEA was to consider the most cost and
capital effective strategy to mine the portion of the mineral
resources that is located within the main area of interest over
four mining horizons, to a maximum depth of 1,000 metres below
surface, using the current mine infrastructure. Management remains
focused on transforming the high-grade Island Gold Mine into one of
the lowest cost underground gold producers located in low-risk
jurisdictions in the Americas.
Reserves and Resources (December 31,
2016)
Current Mineral Reserves and Resources as of
December 31, 20161 for the
Island Gold Mine include:
- Proven and Probable Reserves of 752k ounces (2.6MT at an
average grade of 9.17 g/t).
- Measured and Indicated Resources of 91k ounces (0.5MT at an
average grade of 5.94 g/t).
- Inferred Resources of 996k ounces (3.0MT at an average grade of
10.18 g/t).
Mineral Resources presented are exclusive of Mineral
Reserves.
Total Mineral Resources included in the PEA:
- All Dec. 31, 2016 Reserves (incl.
Upper Mine) were used in the PEA. For the purpose of this PEA all
Mineral Reserves included in the mine plan were considered at the
Measured and Indicated Resource level.
- All Dec. 31, 2016 Measured &
Indicated Resources were included in the PEA.
- Only the Dec. 31, 2016 Inferred
Resources within the main continuous structure at depth between the
450 metre and 1,000 metre levels were incorporated in the PEA,
primarily located in the fourth mining horizon. Only approximately
24% of the total Dec. 31, 2016
Inferred Resources were incorporated in the PEA.
- Total undiluted resources used in the PEA:
-
- Measured and Indicated Resources of 879k ounces (2.6MT at an
average grade of 10.65 g/t).
- Inferred Resources of 238k ounces (0.5MT at an average grade of
14.95 g/t).
- The Dec. 31, 2016 mining
dilution, mining recovery and cut-off grade criteria were used to
estimate a total 3.1MT at 9.68 g/t gold diluted material used in
the PEA mine plan for a total of 964k gold ounces.
Underground Mining
The PEA primarily considers long-hole mining over four mining
horizons, down to a maximum depth of 1,000 metres using the current
dual ramp system. Alimak mining is also considered in the study for
the small isolated western reserve block. The Corporation is
currently advancing the development of the dual ramp system, which
will support multi-stope mining beginning in 2018. As of the end of
the first quarter of 2017, the main ramp has reached a level of 860
vertical metres. Mineral Resources have been developed and exposed
down to the 800 metre level and long-hole mining is currently
ongoing in the first and second horizons down to the 740 metre
level and in the upper part of the third horizon. The PEA considers
the use of the dual ramp system over the 8-year period with no
additional infrastructure required.
In late 2014, the Corporation launched an accelerated
underground development strategy with the objective of supporting
increased mining rates at the lower levels of the mine (down to a
maximum depth of 1,000 metres) without need of additional
infrastructure. During 2015 and 2016, the ratio of waste to ore
mined was maintained at approximately 1:1 in order to advance the
dual ramp system prior to the launch of stope mining activities,
thereby minimizing the total tonnes (ore and waste) needed to be
mined in the future. The PEA indicates that all waste development
will be completed in early 2021, resulting in a very low average
waste to ore ratio of 0.33 going forward over the eight-year period
considered by the PEA, which will largely de-risk the 1,100 tonnes
per day mining rate in the lower horizons of the mine. Higher
capacity trucks will be phased in as mining activities transition
to the lower areas of the mine, which will also add to productivity
enhancement while optimizing the unit cost structure at
depth.
|
1 For more
information about the current Reserve and Resource estimate, please
refer to the press release dated January 31, 2017 available at
www.richmont-mines.com.
|
Mill Upgrade
A conceptual study prepared by Soutex Inc. in collaboration with
WSP Global Inc. was considered for the PEA, which supports an
increased mill capacity to a minimum 1,200 tonnes per day. The
additional capacity requires an incremental investment of only
$15.7 million. The mill is currently
operating above the base case 900 tonnes per day (926 in Q1, 2017)
and is expected to ramp-up to an average 1,100 tonnes per day in
the latter part of 2018. The mill expansion relates primarily to
upgrading the grinding circuit with an additional ball mill, which
is currently being sourced. Basic engineering is ongoing with
detailed engineering expected to begin in June.
PEA COST HIGHLIGHTS
Operating
Costs
|
$
|
US$
|
Mining costs
($/t)
|
129
|
95
|
Milling Costs
($/t)
|
28
|
21
|
General &
Administrative ($/t)
|
16
|
12
|
Total operating
unit costs per tonne milled ($/t)
|
173
|
128
|
The Corporation has been operating the Island Gold Mine since
2007 and the PEA has utilized currently realized cost data
including mining, milling, site G&A and royalties, as well as
underground development and infrastructure capital costs.
Mining unit costs are expected to decline over the life of mine
as the higher cost development in ore is completed in early 2022,
partially offset as mining transitions at depth to the fourth
mining horizon as well as higher costs associated with Alimak
mining. Mining unit costs will average $129 (US$95) per
tonne over the 8 years considered in the PEA.
Milling unit costs are expected to decline by up to 8% to
$28 (US$21) per tonne once the mill achieves the
1,100 tonne per day run-rate in the latter part of 2018.
G&A costs are expected to benefit from the economies of
scale beginning in 2019 and will average $16 per tonne.
Total Capital
Investment
|
$
|
US$
|
Sustaining Capital
($M)
|
168
|
124
|
Project Capital
($M)
|
68
|
50
|
|
Incremental Expansion
Capital ($M)
|
28
|
20
|
|
Accelerated
Development/Infrastructure ($M)
|
40
|
30
|
Total Capital
($M)
|
236
|
174
|
The PEA considers sustaining capital requirements of
$168 (US$124)
million over the eight-year PEA period, which remains
elevated in the first four years as the operation advances
underground ramp development, lateral development for Alimak
mining, surface infrastructure, upgrades to higher capacity mobile
equipment and an increase in tailings capacity. Sustaining capital
will decrease to normalized levels beginning in 2021. Annual
sustaining capital is expected to average $21 (US$16) million
over the PEA period.
The project capital requirements of $68 (US$51) million
are comprised of accelerated underground ramp development
($29 million) to support multi-stope
mining as well as infrastructure ($11
million), both of which would have been advanced on a
sustaining basis under a 900 tonne per day scenario. Project
capital also includes incremental expansion capital ($28 million) to support the increase in
productivity to 1,100 tonnes per day. Project capital will be
completed in 2018 at which point the operation will return to
sustaining capital levels.
Incremental
Expansion Capital
|
$
|
US$
|
Total Incremental
Capital ($M)
|
28.2
|
20.9
|
|
Mill Expansion
($M)
|
15.7
|
11.6
|
|
Mobile Equipment
($M)
|
7.3
|
5.4
|
|
Infrastructure
($M)
|
5.2
|
3.9
|
Permitting
In December 2016 the Corporation
received all required Amendments of both Air and Wastewater
Environmental Compliance Approvals ("ECAs") from the Ontario
Ministry of Environment and Climate Change for the Island Gold Mine
located in northern Ontario. These
Amendments support a potential ore mining and processing rate
increase to an average of 1,100 tonnes per day as contemplated in
the Expansion Case PEA. The Amended ECAs allow processing of up to
401,500 tonnes of ore per year (1,100 tonnes per day), with
flexibility for up to a maximum of 38,480 tonnes per month.
Royalty and Taxes
Royalty payments will incrementally increase as mining
activities transition to lower levels of the mine and average
approximately 3.5% over the life of mine.
The PEA indicates taxes payable will gradually increase over the
life of mine and Island Gold will become fully taxable beginning in
2021. The effective tax rate over the mine life covered in
the PEA is expected to average 22%.
Future Upside Opportunities:
There are additional opportunities that could positively impact
operational and cost performance that were not incorporated in the
PEA, including the implementation of ongoing operational efficiency
strategies and cost reduction initiatives, as well as the
optimization of supply chain management systems, all of which could
drive additional cost reductions. The PEA also does not consider
any exploration success that could positively impact the mine plan,
including the delineation of additional resource ounces, primarily
from the lateral eastern corridor. The PEA does not consider the
potential conversion of the 750,000 inferred resources that were
not included in the study.
The Corporation will continue to evaluate a potential Phase 2
growth scenario with the objective of positioning the Island Gold
Mine as a low cost producer with an annual production profile of
between 150,000 and 200,000 ounces, over a mine life of more than
10 years. The Phase 2 strategy is contingent upon the success of
our drilling programs to grow our resource inventory beyond two
million gold ounces, net of depletion. With more than 450,000
ounces of new resources discovered in 2016 at a low cost of
$35 per ounce, the Corporation is
confident that the exploration potential of Island Gold will
continue to be unlocked over the years to come.
Technical Disclosure & Qualified Persons
The production and cost estimates contained in this report are
partly based on Inferred Resources and are therefore preliminary in
nature. Inferred Resources are considered too geologically
speculative to have mining and economic parameters applied to them,
or to be categorized as Mineral Reserves. There is no certainty
that the conversion of Mineral Resources to Mineral Reserves or the
production and cost forecasts on which this PEA is based, will be
realized. Mineral Resources that are not Mineral Reserves do not
have demonstrated economic viability.
Qualified Persons
The PEA was developed through the combined efforts of the
Corporation's Internal Technical Team and an independent
consultant, Soutex Inc.
The Corporation will file a NI43-101 Technical Report within 45
days.
All work for the PEA was performed under the direct supervision
of Daniel Adam, P.Geo., Ph.D, Vice
President, Exploration and Leon
LeBlanc, P. Eng., Chief Engineer of the Island Gold Mine;
both are employees of Richmont. Both are members of a professional
association and are qualified persons as defined by NI 43-101
requirements and have reviewed the technical information included
in this press release.
Information relating to the mill upgrade, expansion designs and
estimated costs was prepared under the supervision of Mathieu
Bélisle, P. Eng. Mr. Bélisle, a senior metallurgist with Soutex
Inc., and a qualified and independent person as defined in NI
43-101. He has reviewed and approved the technical contents of this
press release pertaining to the mill facility.
The Expansion Case PEA will be filed on Richmont's SEDAR profile
at www.sedar.com within 45 days.
Conference Call and Webcast
The Corporation will host a webcast technical session on
Monday, May 29 starting at
1:00 p.m. Eastern Time, also
accessible via conference call. Senior management will be on the
call to discuss the study results.
Webcast access:
To access the webcast and technical presentation slides
directly, please follow this link:
https://event.on24.com/wcc/r/1431128/2F7F8C08FDECB050D4E6128D4A9F3F4E
Telephone access:
- Toll free (Canada & U.S.):
1-888-390-0546
- Toronto local &
International: 1-416-764-8688
A telephone replay will be available for 90 days by dialing
1-416-764-8677 (Toronto local and
international) or 1-888-390-0541 (toll free in Canada and U.S.), using pass code 821941#. The
webcast and presentation slides will also be archived for 90 days
on the Corporation's website at www.richmont-mines.com.
About Richmont Mines Inc.
Richmont Mines currently
produces gold from the Island Gold Mine in Ontario, and the Beaufor Mine in Quebec. The Corporation is also advancing
development of the significant high-grade resource extension at
depth of the Island Gold Mine in Ontario. With 35 years of experience in gold
production, exploration and development, and prudent financial
management, the Corporation is well-positioned to cost-effectively
build its Canadian reserve base and to successfully enter its next
phase of growth.
Forward-Looking Statements
This news release contains
forward-looking statements that include risks and uncertainties.
When used in this news release, the words "estimate", "project",
"anticipate", "expect", "intend", "believe", "hope", "may",
"objective" and similar expressions, as well as "will", "shall" and
other indications of future tense, are intended to identify
forward-looking statements. The forward-looking statements are
based on current expectations and apply only as of the date on
which they were made. Except as may be required by law or
regulation, the Corporation undertakes no obligation and disclaims
any responsibility to publicly update or revise any forward-looking
statements or information, whether as a result of new information,
future events or otherwise.
The factors that could cause actual results to differ materially
from those indicated in such forward-looking statements include the
ability to ramp up productivity to 1,100 tonnes per day in a timely
manner, the ability to achieve the enhanced production levels
expected, the ability to realize further expansion scenarios, any
increases in capital and development/infrastructure costs changes
in the prevailing price of gold, the Canadian-United States
exchange rate, grade of ore mined and unforeseen difficulties in
mining operations that could affect revenue and production costs.
Other factors such as uncertainties regarding government
regulations could also affect the results. Other risks may be set
out in Richmont Mines' Annual Information Form, Annual Reports and
periodic reports. The forward-looking information contained herein
is made as of the date of this news release.
Cautionary note to US investors concerning resource
estimates
Information in this press release is intended to
comply with the requirements of the Toronto Stock Exchange and
applicable Canadian securities legislation, which differ in certain
respects with the rules and regulations promulgated under the
United States Securities Exchange Act of 1934, as amended
("Exchange Act"), as promulgated by the SEC. The requirements of
National Instrument 43-101 – Standards of Disclosure for
Mineral Projects ("NI 43-101") adopted by the Canadian
Securities Administrators differ significantly from the
requirements of the United States Securities and Exchange
Commission (the "SEC").
U.S. Investors are urged to consider the disclosure in our
annual report on Form 40-F, File No. 001-14598, as filed with the
SEC under the Exchange Act, which may be obtained from us (without
cost) or from the SEC's web site: http://sec.gov/edgar.shtml.
National Instrument 43-101
The scientific or technical
information in this news release has been reviewed by Mr.
Daniel Adam, Geo., Ph.D.,
Vice-President, Exploration, and Leon
LeBlanc, P. Eng., Chief Engineer, both employees of Richmont
Mines Inc., who are qualified persons as defined by
NI 43-101.
SOURCE Richmont Mines