Gold Production in Colombia
In November of 2014 I wrote about a company named Red Eagle (RD-V) that was nearing production in Colombia. The piece was titled They Really do Ring a Bell. They did ring a bell for the bottom of gold in early November and in the price of Red Eagle.
Red Eagle went public in mid-2011 when it was easy to raise money. The company has spent over $55 million since then preparing their San Ramon project for production. It seems almost absurd that after doing everything right, the market values them at less than $25 million while they anticipate starting production in the 2nd quarter of 2016.
The Spanish began mining in the Santa Rosa area north of Medellin over 400 years ago. RD has outlined reserves, not resources but reserves of 405,000 ounces of recoverable gold at 5.2 G/t. They see production of 68,000 ounces of gold the first year with first year cash flow of $55 million in free cash. The mine already has an eight-year mine life and they anticipate adding ounces in the future.
Their September of 2014 feasibility study showed all in sustaining costs of $758 an ounce. Assuming a gold price of $1300, the project returns an IRR of 52% post tax. That figure jumps to 74% at $1500 gold with an NPV of $168 million.
The area is rich in mining history with over 2000 historic adits mapped and over 100 alluvial mining areas located. The company aims to begin production with a mill of 1000 TPD with the intent to double capacity through internal financing. The capital costs are estimated at $74.2 million.
Red Eagle got their last required permit on March 9th from the Department of Antioquia Environmental Agency. The mining technical work plan was approved last August. RD has everything they need in the way of permits to begin construction and go into production next year.
On March 25th, 2015 Red Eagle announced they had arranged a $65 million construction financing. Red Eagle will need to complete an additional $15 million in equity financing but basically it means RD not only has all the permits they need to go into production but they have the funds necessary to complete the mine and mill. Expect an announcement about construction beginning in May with the mill completion sometime in last Q1 of next year.
Gold peaked at $1923 in September of 2011 and since that time, money has been harder and harder to get for resource juniors. The Red Eagle team was not only able to continue moving the project forward; they managed to find the money to get into production without blowing their share structure to the moon.
I’ve visited half a dozen juniors in Colombia and hundreds worldwide. The management group at Red Eagle has done more in less time under the worst of conditions than any other company I know of. I was smart enough to buy shares last November when they were being given away. Now that permitting and financing is behind the company, the share price will start moving higher as progress is made.
All buying of resource shares is based on safely removing risk. RD has reduced the risk and increased the potential a lot. If you like gold, you have to love Red Eagle.
Red Eagle is an advertiser, I own shares and I am biased. Do your own due diligence.
Red Eagle Mining