New Gold chair: Higher mine build cost will stand

COLORADO SPRINGS, COLORADO — New Gold, Inc., which has unnerved shareholders this month by revising upward to over $1 billion the estimated cost of a mine it is building, is confident that this will be the last projected increase, its Executive Chairman Randall Oliphant said on Tuesday.

New Gold, a mid-sized Canadian gold miner, said on Sept. 7 that its capital cost for the Rainy River project in northwestern Ontario had risen by another 11% to $1.045 billion due to a redesign of the mine’s facility to treat tailings, or mine waste, to make it safer.

New Gold’s stock has since dropped 17% as analysts questioned whether this would be the final increase. The estimated costs for the project had already crept higher, and in total, are 19% higher than in January.

“We wanted to be certain that when we revised our capital cost, that this would be the last time and we think we are there,” Oliphant said in an interview at the Denver Gold Forum.

“Things are pretty much scoped out. Our development team feel comfortable with that amount,” he said, adding that more than half of the development money has already been spent and nearly half of the construction done.

Oliphant was also confident that Rainy River’s start-up, set for mid-2017, will not slip despite the extra eight million tons of construction rock it needs for the new tailings facility design.

“Moving rock for a mining company is not that complicated. It’s what we do,” he said.

Rainy River is one of the few midto large-scale gold mines being built worldwide after the industry pulled back from developments after gold prices began falling in late 2011. It is expected to produce 325,000 ounces a year at low, all-in sustaining costs of $670 an ounce.

The gold industry is especially sensitive to cost overruns after a series of cost blowouts on big mine builds in recent years, notably Barrick Gold’s PascuaLama project in the Andes, which was put on hold in 2013 after development costs ballooned to $8.5 billion.

Oliphant said the tailings facility re-design, which includes flatter slopes on the dam holding the waste, came about as people have become “hypersensitive about tailings” in the wake of the bursting of a tailings dam at Brazil’s Samarco mine last November. It unleashed a mud flow that killed 19 people, left hundreds homeless and polluted a major river. —