Block Booking: Rainy River and Bayfield Ventures as Possible Takeout Pair

The term "closeology" should be familiar with anyone that has made a resource-based investment decision. Typically, the idea is that the success begets success; If your neighbors get good news, then your property value goes up too. So in the case of Bayfield Ventures [BYV - TSX.V] and its neighbors, Rainy River Resources [RR - TSX], a synergistic news flow seems to be happening, and the "closeology" of the entire play is gaining momentum.

Last week, Bayfield announced very positive results on its Rainy River Burns Block. The block sits directly to the east of Rainy River Resources' main multi-million ounce gold-silver deposit, and to the west of the major's expanding Intrepid gold-silver zone. Among the latest news on the property Bayfield delivered an encouraging 16-meter interval of 10.47 g/t Au and 34.68 g/t Ag on the Burns Block,. With still another $1.5 million in the company treasury, and just over $1 million in flow through available to be spent on exploration, Bayfield plans to continue advancing its Rainy River projects in the third quarter this year.

Prior to this announcement, it was Rainy River that provided an update on the advancement of its project in the same trend through the current development stage. Rainy River released a feasibility study earlier this year that had some positive highlights to grasp onto. Highlights included:

• P+P mineral reserves of 4.0 million oz Au, and 10.3 million oz Ag
• Average mill head grade of nearly 1.5 g/t Au
• Average underground grade of over 5 g/t Au
• Projected 325,000 ounces per year production
• Average cash cost of between US$413-$460 per ounce
• Pre-production cost of $713 million to construct
• Life of mine NPV of $931 million, with payback of 3.2 years
• IRR of 24%, making it one of Canada's larger more robust projects

Overall the report established a workable route towards profit. The issue at stake though is how low the market is favoring development deals right now. It's not impossible, but a project costing over $500 million right now is a tall order to swing. This is especially since the stock is trading in the mid to low $2s, down from previous highs of around $12-$13 a couple years ago.

BAYFIELD'S BURNS BLOCK'S POSITIONING

For any larger company that would want to look at Rainy River, there's a good chance that Bayfield's property package would be in its crosshairs as well. Specifically, the Burns Block as it sits nestled in where the major project will be located..

Geologically, the deposit is a shear-hosted system. The main shear zone is host to the majority of gold and silver mineralization in the entire area, running west to east. Looking at Rainy River's deposit, there is approximately 8.5 million ounces of gold globally in the main deposit area including inferred, measured and indicate, and proven and probable. That same shear zone continues eastward onto Bayfield's Burns Block, tapers in the middle before expanding again on the east side all the way across over to Rainy River's property and the expanding Intrepid zone.

The Burns Block is almost a textbook example of the mutual benefit of closeology. Acquired years back, Bayfield's been drilling the property since the winter of 2010.

Since drilling started, Bayfield has been able to deliver some results that caught attention with ease. A 10-meter intercept of 36 g/t Au and 360 g/t Ag put Bayfield on the map, and gave impetus to conduct continued drilling with multiple rigs. The situation improved further when a later result yielded over 11 meters of 60 g/t Au and another 360 g/t Ag and each meter of mineralization was high-grade demonstrating the continuity of the bonanza grade. It was apparent that the property had multi-ounce gold mineralization over significant widths.

These high-grade zones are hosted within the main shear zone that contains shoots of high-grade mineralization which trend and plunge to the southwest. Overall the evidence that continues to return for Bayfield's geologists, is that the Burns Block has the right geological environment for the deposition of multi-ounce gold mineralization in specific zones, as witnessed in a number of drill holes.

To date, Bayfield has drilled approximately 100,000 meters on the Burns Block. In the process they've managed to prove up a high-grade shoot on the west side of the property that ties right in to Rainy River's current proposed mine plan. They've also made a high-grade discovery on the eastern side of the block, which is nestled up against Rainy River's Intrepid zone. Dubbed by Bayfield as the East Burns-Intrepid zone, for all intents and purposes it is the same continuous zone as the one that Rainy River is proving up. Bayfield has managed to prove up the down dip extension of Rainy River's Intrepid zone.

Rainy River has been drilling the Intrepid for the better part of the last year, as has Bayfield on the East Burns-Intrepid. Last week's results included significant intercepts for Bayfield on this particular zone, including 16 meters of 10.5 g/t gold. Overall Rainy River Resources average grade is around 1.3 g/t, but both teams continue to encounter these high-grade zones within that boost up the grade as a whole, and really help with the economics of the potential mine to come.

THE BOTTOM LINE

Back in 2010, results like those that Bayfield just announced from last week would've been lauded and rewarded by the market. But today, it's really hard to obtain and retain the market's attention, even with 16 meters of over 10 g/t gold, in the safe, mining environment of Canada.

That said, a non-43-101-compliant economic assessment on the property by Primary Capital outlined a rough NPV for the Burns Block that estimates the economic value of the property at many multiples of the market cap currently. There is a difficult hurdle that Rainy River would need to overcome and that is raising $713 million for mine construction. However, it is evident that the Bayfield's properties would value-add the proposed mine plan and offer synergistic benefits to the operation as a whole.

It's not hard to squint and believe that a possible opportunity lays in a benevolent takeover bid that wraps up both companies in a package and takes the baton over the finish line as a unified front.

When looking at the greater map for the region, it's apparent that Bayfield's Burns Block is the missing puzzle piece to bring significant value as a whole to a greater project. Should one of the two companies get acquired, look for what could be an inevitable takeout of the other, to unlock the additional value the remaining asset purchase would deliver.

G. Joel Chury
for the Bottom Line Report

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