Rye Patch Gold Corp.

Rye Patch - Macquarie Start Research with 12 month price target 0.65 CAD

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Rye Patch Gold Corp.

New Nevada Gold Producer

 We are initiating coverage of Rye Patch Gold (RPM CN) with an Outperform recommendation and a C$0.65 target. Rye Patch is transforming from an explorer/royaltyco to a junior 70kozpaAu producer on the back of its July 2016 acquisition of the Florida Canyon mine (“FCM”) heap leach oxide gold asset, Nevada, USA. De-risked yet trading at an attractive Explorer Valuation

 Rapid path for a significant re-rating & strong gold price leverage. We think the FCM restart offers investors a key opportunity for high returns given the stock is trading at ~70% discount to junior producer peers. RPM trades at a 0.31x NAV (spot: 0.35x) & 1.7x 2017E CF (spot: 1.9x) despite Au production <3 months away (late 2016) & being located in the safe jurisdiction of Nevada. RPM has strong leverage to gold prices with ~C$0.10 NAVPS for every $100/ozAu.

 Low execution risk – Florida Canyon has a 26-year production history. FCM is a simple heap leach, open pit oxide gold mine that has steadily & quietly produced +2moz during 1986-2010 at a run-rate of ~80-180kozAupa. We see the mining restart, involving construction of a new leach pad, as relatively low technical risk. We model a low capex of $27m with commercial production in 1Q17 and a nine-year operating life producing ~70kozAupa at $889/oz AISC for an NPV of ~$140m & ~95% after tax IRR. Management will leverage the district upside  Consolidation of the Oreana gold-silver Trend = opportunity. RPM has consolidated a large 180sq km land position in the emerging Oreana Trend (+3mozAu & 110mozAg past production). We believe management’s extensive operating experience at Florida Canyon and senior mining company experience discovering and putting gold mines into production in Nevada will be key in assessing opportunities in the Oreana Trend including:

i) Lincoln Hill development could push RPM to +100kozpa – potential for an additional ~23kozAuEqpa for 6 years, we estimate a ~$31m NPV and ~45% after tax IRR;

ii) potential production from the Wilco deposit (0.8mozAuEq attributable), and;

iii) potential to document large sulphide deposits in the belt.

 Development assets are essentially ‘free upside’. Even with a Florida Canyononly valuation, RPM trades at 0.45x NAV, a ~60% discount to junior producer peers. This implies to us that the C$0.27 of other mineral assets’ NAV is ‘free upside’. We highlight there are also other opportunities we ascribe zero value to in our model such as the Florida Canyon sulphide potential. Catalyst-rich over the next 12 months  Key catalysts that could drive the RPM share price include:

 Florida Canyon – initial pre-commercial production (late 2016)

 Florida Canyon – full production & re-rating (1Q17)

 Near mine exploration/expansion oxide results (2017)  Sulphide exploration results (2H17)



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