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Hedge funds and other large speculators boosted net-long positions by 11% to 197,362 as of Nov. 12, the lowest in 14 weeks.
The gold mining industry has a big week ahead of it—two of its most important conferences will be held in Colorado. From September 14 to 17, the main event is the Denver Gold Forum, which will host the world’s largest precious metals miners, developers, and investors. The Precious Metals Summit, to be held in Vail from September 10 to 12, will focus on earlier stage gold miners.
Red Eagle Mining (RD.v), a Vancouver based firm which owns the Santa Rosa gold project in Colombia, will be presenting at both conferences. They have much to discuss with investors in the audience. A small-ish company, worth about $21 million, Red Eagle has its sights set on cash flowing roughly $50 million in each of 2016 and 2017 (at $1,300/oz gold).
Assuming the gold price holds or rises, Red Eagle could be a big winner for investors over the short- and medium-term. But it has a number of upcoming milestones it must first power through.
A quick snapshot of Red Eagle’s upcoming catalysts:
It’s obvious CEO Ian Slater is working diligently to permit and finance Red Eagle’s first mine. While his goal is to build the next mid-tier gold producer, he first needs the Colombian permitting authorities and the gold gods to sign off on it.
Slater’s a Chartered Accountant with an unusually high appetite for risk. At 24, he moved from Vancouver to Moscow to establish Arthur Andersen’s Central Asian mining practice, just after the Soviet Union fell. He became Andersen’s youngest partner at age 27. Six years later Slater returned to Vancouver to help build Ernst & Young’s Canadian mining practice, then in 2007, he left the accounting world to join Lukas Lundin‘s Fortress Minerals back in Russia.
Following the Lundin Group’s exit from Russia a year later, Slater was introduced to future business partner Bob Bell, a mining engineer who had a long career of building and operating gold mines. Bell was a founding partner of Minproc Engineers’ Mining Division, and more recently, general manager of Dundee’s Chelopech Mine in Bulgaria.
Slater and Bell hit it off and formed a pact to work together during their first meeting. After evaluating hundreds of mineral projects, the duo zeroed in on Colombia and hired a local team there.
In 2011, Slater and Bell acquired the Santa Rosa property, a 2 hour drive from Medellin, named the venture Red Eagle Mining and listed it on the Toronto Venture Exchange.
Red Eagle has since invested a total of $55 million exploring Santa Rosa, a property littered with historical gold mines that previously hadn’t seen modern exploration work.
Due to poor financial conditions in the mining markets, management decided to focus on proving up one area of the property and priming it for production.
The San Ramon deposit on the Santa Rosa property contains 405,000 ounces of gold in the Proven & Probable categories at 5.2 g/t Au using a 2.0 g/t cutoff within 200m of surface, and an additional 152,000 ounces of inferred material. Mineralization is open at depth and along strike, which in layman’s terms means it could grow.
The Feasibility Study shows a pre-tax NPV(5%) of US $135 million, IRR of 62% and 1.3 year payback using a $1,300 gold price. Cash costs were estimated to be $600 per ounce. That puts Red Eagle at the top end of IRR, NPV and cash costs for gold development projects globally, competitive with the likes of True Gold and Roxgold, two West African gold developers with similar economics, yet substantially higher market values. Red Eagle doesn’t have quite the same size, but management is confident they will be able to grow their production profile.
Red Eagle’s off the charts. Click to enlarge. Source: Company
Red Eagle plans Q1 2016 production with a 1,000 tonnes per day (tpd) CIL Plant producing an average of 50,000 ounces per year over an 8 year mine life, and likely longer. It will be conventional shrinkage stoping mining with delayed backfill. The capex for this scenario is estimated at $74 million (including contingency) with an additional $33 million in sustaining capital required. And the plant’s design will allow it to expand to 2,000 tpd should the company find more ore elsewhere at Santa Rosa; a scenario the company will look to develop in further studies. Red Eagle would like to spend $10 million on exploration next year, but management are realistic, and will only do so if exploration finance markets improve. Red Eagle’s net cash position is $4.4 million as of June 30, 2014.
Last week, Red Eagle announced that the Antioquia Secretary of Mines has formally approved its Mining Technical Work Plan, with only a final environmental permit looming. Since the company has decided to focus on an underground mining operation, which would be nearly invisible from the surface, the project should be more palatable to the permitting authorities. And if Red Eagle secures the permit, San Ramon will be the first permitted gold mine in Colombia in over 30 years.
The San Ramon mine hinges on the receipt of that final environmental permit.
To Red Eagle’s credit, there’s been a profound effort by the company on the social license front. Red Eagle employs former government officials and has hosted at least 80 meetings with local communities over the past two years.
And Slater is confident. “We’re going to be the first modern gold mine in Colombia. It’s not a question of if we will be permitted but when,” he said.
On top of permitting concerns, San Ramon’s contract miners—experienced in road building and tunneling, but not this scale of underground mining, could present an operational difficulty. Bell told us that close oversight and training will be required, and that he himself will be accountable. Additionally, Bell said the company must stay ahead of its mine plan: “From my experience, and that’s over 40 years, one of the biggest problems in all underground mines is keeping your development ahead of production,” he told us.
Tim Neall, Project Geologist and Alan Baker, Project Director at Red Eagle’s Santa Rosa property. Click for more images. CEO.ca photo
Size is another issue. The San Ramon deposit is not big, and will produce 75k ounces per year initially decreasing to 30k ounces by year 7.. The company plans to increase to 100,000 ounces per year if further exploration on the property finds more ore.
The price of gold is obviously an issue for potential investors as well. Any gold miner will have a tough climb in this low-price environment. Challenges will only be exacerbated if gold prices fall further.
Slater and Bell’s ultimate vision is to build Red Eagle Mining into a multi-asset mid tier gold producer with a share price and market value substantially higher than it is currently.
They pointed out that B2Gold started with a similar production profile just five years ago.
The road ahead will not be without its challenges, but we like how Slater and Bell are approaching things. And if Red Eagle has permits in hand by the end of the year, the mining investors who come to Colorado to see them this week will likely have a rare win on their hands.
Red Eagle Mining Ltd.
Price September 8, 2014: C$ 0.285
Shares Outstanding: 74 million
Shares Fully Diluted: 84 million
Market Cap: C$20.7 million
Contact: Ian Slater or James Beesley
604.638.2545
http://redeaglemining.com
Disclaimer: This letter/article is not intended to meet your specific individual investment needs and it is not tailored to your personal financial situation. Nothing contained herein constitutes, is intended, or deemed to be — either implied or otherwise — investment advice. I am biased with regards to Red Eagle Mining, having a business and personal relationship with management and insiders of the company. I own shares in the company and they are a sponsor of our web site. I may add to my position in the company and intend to sell the entire position at a profit and reserve the right to add to or reduce my position without notice. This letter/article reflects the personal views and opinions of Tommy Humphreys and that is all it purports to be. While the information herein is believed to be accurate and reliable it is not guaranteed or implied to be so. The information herein may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. Neither Tommy Humphreys, nor anyone else, accepts any responsibility, or assumes any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information in this letter/article. The information contained herein is subject to change without notice, may become outdated and may not be updated. The opinions are both time and market sensitive. Tommy Humphreys, entities that he controls, family, friends, employees, associates, and others may have positions in securities mentioned, or discussed, in this letter/article. While every attempt is made to avoid conflicts of interest, such conflicts do arise from time to time. Whenever a conflict of interest arises, every attempt is made to resolve such conflict in the best possible interest of all parties, but you should not assume that your interest would be placed ahead of anyone else’s interest in the event of a conflict of interest. No part of this letter/article may be reproduced, copied, emailed, faxed, or distributed (in any form) without the express written permission of Tommy Humphreys. Everything contained herein is subject to international copyright protection.
