VANCOUVER — A year ago explorer Rye Patch Gold (TSXV: RPM; US-OTC: RPMGF) scored a chunk of cash and a net smelter return royalty (NSR) thanks to some savvy staking around Coeur Mining’s (TSX: CDM; NYSE: CDE) Rochester silver–gold operation in Pershing County, Nev.
Rye Patch swooped in on 400 unpatented mining claims after Coeur missed a payment deadline on its annual maintenance fees in August 2011. After two years of haggling, the junior ended up with US$10 million in cash and a capped 3.4% NSR that entitles it to 39.4 million equivalent oz. silver.
With US$8 million to begin 2014 — and 750,000 oz. silver and 8,200 oz. gold delivered from Rochester during the first quarter — Rye Patch is turning its attention to a 110 sq. km property portfolio along Nevada’s Oreana Trend and a 65 sq. km asset package along the Cortez Trend.
The company has budgeted US$3.8 million this year for exploration, which will include 10,000 metres of drilling over four projects. Rye Patch’s initial step along Oreana is a newly released preliminary economic assessment (PEA) on its Lincoln Hill deposit , which lies 160 km northeast of Reno.
Lincoln Hill sits in the Rochester mining district along the southwest flank of the Humboldt Range, with the Spring Valley mining district to the east and north, and the Sacramento district to the west.
Lincoln Hill is a high-grade, gold–silver–quartz–pyrite–tourmaline–sericite stockwork vein system overprinting a large disseminated replacement precious-metal mineralizing system.
Rye Patch’s PEA models an open-pit, heap-leach mine focused on 6.8 million measured and indicated tonnes grading 0.67 gram gold per tonne and 13.5 grams silver per tonne for 148,000 contained oz. gold and 3 million contained oz. silver. Inferred resources tack on 1.1 million tonnes of 0.53 gram gold and 23.3 gram silver for 19,000 contained oz. gold and 819,000 contained oz. silver. The ultimate pit shell was determined using a US$1,350 per oz. gold price.
The company opted for run-of-mine heap leaching based on bottle-roll tests and capital considerations that would result in a processing rate of 4,400 tonnes per day, with recoveries pegged at 64% for gold and 59% for silver. Lincoln Hill would produce an average 33,000 oz. gold and 753,000 oz. silver annually at sustaining cash costs of US$759 per equivalent oz. gold.
Assuming US$1,350 per oz. gold and US$22 per oz. silver the mine would generate a US$40.9-million after-tax net present value (NPV) at a 5% discount rate and a 53% internal rate of return. Payback on pre-production capital costs of US$26.2 million is expected to be 1.3 years.
President and CEO William Howald pointed out in the release that Lincoln Hill’s current mine plan is based on drilling confined to an 800-metre zone, and that the company’s adjacent Independence and Roosevelt targets host 1,300 metres of similar alteration and surface gold and silver geochemistry. Surface mapping and rock-chip sampling at Independence Hill confirm four high-grade corridors crossing outcrop exposures at the Alexander Hamilton, Buck & Charlie, Looney, Hill Top and Octopus historic mines.
“This PEA is an important milestone in showing the positive economic viability of projects along the Oreana Trend,” Howald said. “As mandated in the marketplace, stakeholders are looking for projects with low estimated start-up capital and unit operating costs, and robust economic returns. This makes Lincoln Hill an attractive investment opportunity in the current gold and silver price environment.”
The company has budgeted US$1.3 million for drilling at Independence Hill and Roosevelt, with the program beginning in July. Rye Patch will spend another US$850,000 drilling its Wilco project along the Oceana Trend, plus US$1.8 million to drill along the Cortez Trend at its Garden Gate Pass and Patty assets.
Rye Patch shares have traded within a 52-week window of 12¢ and 38¢, and closed up 3% after the Lincoln Hill PEA at 18.5¢ per share on 57,200 traded.
The company had 146.5 million shares outstanding and a $27.1-million market capitalization at press time.
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