Red Eagle calls on John to fix it

Durr, a mining engineer with more than 30 years of experience including mine operational management stints with Yamana Gold (CN:YRI), Coeur Mining (US:CDE) and Goldcorp (CN:G), has brought a level of management control and planning to San Ramon that was previously lacking. Red Eagle had to suspend gold production in June after declaring commercial production in April.Durr's direct, no-nonsense approach includes providing a refreshingly open analysis of what had happened at San Ramon and what was required to fix things. "Simple things were missing," he told delegates at the Colombia Gold Symposium in Medellin a couple of days prior to leading some 20 conference delegates on a field trip to the operation, "such as ore control, getting the headings straight and getting the drill holes straight".The mine development ran into trouble from the start as the decline development had to advance through 350m of saprolite to get into competent rock rather than a planned 30m, inching along at 1.5m a day and taking much longer than planned to be able to start the underground mine development to access the orebody. The plant was ready before the mine and hungry to be fed and so the company tried to mine without having sufficient geological information."During the first six months of the year they were mining blind due to the lack of infill drilling. There was dilution and self-inflicted problems with ground control and over-blasting," Durr said.All that has now changed, with information and control the order of the day, and a focus on development drilling. Red Eagle has three underground rigs working to provide precise information about the ore grade and location so that Durr's team can undertake meticulous mine planning. Following a resource model update in September, an updated mine plan is expected in December, and then the resource model will again be updated with the additional 5,000m of drilling completed since September. The company is currently drilling some 3,000m a month.Due to the difficult ground conditions in the saprolite and its transition zone, Red Eagle will now no longer mine the mineral resources contained in the saprolite - some 4% of the 405,000 ounces of reserves grading 5.2g/t Au. The 2g/t Au cut-off grade in the feasibility study has been increased to 3g/t Au as "the 2g/t cut-off was based on a mining method that didn't work", he said.But that reserve loss is expected to be more than compensated by the additional resources encountered by the drilling programme. "We are drilling a lot of areas that have no previous drilling, so we will add to the resource," Durr said, adding that he expected exploration to be able to add several years to the seven-year mine life from the drilling at depth.In terms of the mine development, Durr has changed the mining method to reduce dilution and has swapped out the jumbo drill rigs for jacklegs to reduce the tunnel diameter on the headings from 3.2-3.5m down to 2.5m."We were damaging the stopes by driving them as wide as we were with mechanised jumbos, over blasting and using split sets that weren't working. We have changed this within the last month; we have changed the ground support system and how we are blasting. Now these things are corrected it allows us to think of using more productive and better mining methods," he said.Durr has also added a mine manager and mine superintendent to take mining control back from the mining contractor and tightened control of mining activity. "The mining contractor was pretty much running things on its own and as they were paid cost-plus they were paid for doing things wrong," he said.Durr commissioned a geotechnical study that was recently completed, which could unlock additional wins. "The deeper we go in the mine the high-grade rock becomes more competent, so we could sustain a 10m stope height and make just eight cuts per attack ramp rather than 11, which would save three cuts, all the related support and cost, and we could mine more rapidly," he said.RedEagleDurr John Durr: 'Simple things were missing'Part of the mine fix was a switch from backfill to cemented paste backfill, but Durr thinks there may be an opportunity to use hydraulic backfill that would eliminate the cost of the cement and have other operational benefits.Durr expects production to resume at 750 tonnes per day in January and then ramp up to 1,000tpd in the second half of 2018 with production from 54 headings. Some 5,000t of ore grading 6g/t Au has been stockpiled ready for the mill restart in January.Money too tight to mentionWith Durr in control of mining aspects, the main stumbling block in the way of a successful mine restart could be cash.To fix the mine, add on a paste backfill plant and to provide working capital before gold production resumes, the company completed a rights' offering in August for gross proceeds of US$23.6 million, that was also used to repay a $6.5 million bridge loan added to an existing credit facility. The credit agreement was amended in August whereby interest was capitalized with monthly principal payments of $1.6 million to recommence in April 2018. Importantly, the amendment meant the company was no longer in default of its $60 million credit facility.As at its September 30th financials, Red Eagle reported a working capital deficiency of $13.4 million, while cash and cash equivalents stood at $3.6 million.While the company has not released an up-to-date number, additional drilling and development since then means its cash position is likely to be significantly lower. There is still a month and a half to go before the mine's planned re-start date. Indeed, in its September quarter financials, the company cautioned that "the working capital deficiency and current portion of long term debt outstanding, may cast significant doubt about the appropriateness of the going concern assumption".Red Eagle may face a cash crunch and require additional financing.

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