San Gold secures Rice Lake’s long-term prospects

San Gold (TSX: SGR; US-OTC: SGRCF) has bolstered the long-term outlook for its Rice Lake gold mine in Manitoba by securing a key — and hard-won — permit for its tailings pond.

After a long wait, the company has secured a revised Environment Act licence from the Manitoba conservation and water stewardship. With the licence, it can ensure its tailings facility can handle at least 10 more years of production. 

The two-year process involved reaching out to stakeholders such as the Hollow Water First Nation and the community of Bissett.

But some believe that it will take more than a permit to regain some of the momentum the company had when its stock price nearly hit $4 in 2010. 

“While the expansion of tailings capacity is a positive development for the mine in the long-term, BMO Research expects the stock to trade primarily on short-term operating results and movement in the gold price, given the company’s strained balance sheet,” says Brian Quast, an analyst with BMO Capital Markets. 

San Gold has 335.2 million shares outstanding, with its share price trading around 16¢ for a $53.6-million market capitalization at press time. Its treasury contains $34 million, and it has $50 million in outstanding long-term debt. 

Last year the mine, 250 km northeast of Winnipeg, produced 86,500 oz. gold at cash costs of US$855 per oz. This year it says it will produce between 75,000 and 90,000 oz. gold, at a mill that can process up to 2,500 tonnes of material per day. 

Rice Lake has increased production each year since July 2010, when San Gold’s $80-million financing  funded development from the surface down to the 007 and Hinge deposits, which supply the mill.

In February, another $50-million financing integrated its A-shaft with infrastructure at the underground mine, which could lower its material handling costs. 

The company is trying to rein in costs without affecting production, and this year’s second quarter showed it was having some success. Compared with the second quarter 2012, San Gold reduced its cash-operating costs by $2.7 million, administrative expenses by $2.6 million and capex by $3.9 million. 

The cuts to capex largely owed to delayed plans for building a 16-level loading pocket at its A-shaft. 

The good news for investors is that infrastructure investments and current cost savings are bearing fruit, as the company has averaged $10 million in cash flow from operations per quarter this year. 

Rice Lake has measured and indicated resources of 3.4 million tonnes grading 6.55 grams per tonne for 655,000 oz. gold, and another 16.5 million tonnes of inferred resources grading 5.92 grams gold for 2.9 million oz.

BMO’s Quast has San Gold rated as “underperform,” and does not have a target price on the stock.


1 Comment on "San Gold secures Rice Lake’s long-term prospects"

  1. I guess BMO wants to load up first and then rate it as a buy!

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