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Summary

  • Coeur d'Alene just reported its production figures for its Rochester Project, on which Rye Patch Gold owns a 3.4% NSR royalty.
  • This update confirms my thesis that Rye Patch Gold will have ample royalty income with which to explore and develop its Oreana Trend and Cortez Trend properties.
  • Coeur d'Alene's announcement shows worse than expected production figures, reflecting the difficulty of operating a new mine.
  • Since Rye Patch's royalty is limited by total production this means that the royalty will last longer, and the company will make up for lost Q2 income in the future.

Coeur d'Alene (NYSE:CDE) just reported its Q2 production figures, although of interest here is Rye Patch Gold (OTCQX:RPMGF), which owns a 3.4% net smelter return royalty on Coeur d'Alene's Rochester Mine in Nevada. Readers of my article from earlier this week will recall that I argued that given the company's cash/equivalents, its Rochester Royalty, and its Lincoln Hill Project--the value of which is now quantifiable--Rye Patch Gold offers compelling value as well as significant upside should the company's exploration efforts succeed.

Coeur d'Alene reported the following production figures for its Rochester Mine:

  • Silver production of 1,112,000 ounces (37,800 ounces attributable to Rye Patch Gold).
  • Gold production of 9,230 ounces (314 ounces attributable to Rye Patch Gold).

Assuming a $1,300/oz. average gold price and a $20/oz. average silver price, and a 26% net tax rate (15% for Canada, 11% for British Columbia), net after-tax cash-flow for the quarter should be about $862,000.

This falls short of the company's estimated annualized income of $6 million after taxes. However, these numbers reflect a substantial increase from Q1, when royalty income was $533,000, and this shows that while the Rochester Project is a little behind schedule it is ramping up nicely, and I would expect Rye Patch Gold to receive its full estimated income by Q4. I also expect that rather than 4 years, the royalty's duration will span 4.5 - 5 years.

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Source: Update: Rye Patch Gold's Q2 Royalty Income Estimate