Rio2 (RIO) - Gold 'Mine Builder' to Announce CAPEX Funding in Q1/21

Experienced mine builder, Rio2, has made quite a bit of progress this year on their Fenix gold project in Chile. This project is the largest undeveloped gold heap leach project in the Americas. 

The Fenix project is located in the Maricunga Mineral Belt in the Atacama region of Chile. The Maricunga is a well-known mining district that contains over 70Moz of gold. The Fenix project contains 5Moz of Measured & Indicated gold reserves, with an additional 1.4Moz of Inferred Gold. Resource estimates are NI 43-101 compliant and are based on data collected from 91 diamond drill holes (30,533 m of core) and 291 reverse circulation holes (84,101 m of RC cuttings). S&P Global has rated the project as one of the top 10 gold discoveries in the last 10 years. So this is already big.

Gold oxide mineralization at the Fenix project is classified as low sulphide and is contained in breccia-hosted black banded quartz veins. The gold composition is high-purity, on average >99% Au. Compared to other gold deposits, the Fenix gold mineralization is clean, with trace occurrences of copper, sulphur and mercury. The Fenix project is a pure oxide deposit with no transitional or sulphide mineralization–a unique quality in the Maricunga district. Rio2 plans to produce 100,000 oz/year of gold for the next 16 years. Analysis of the peer group operating at this level would suggest that the market cap with rise to USD$500M-$650M. But this will come down to how the finance the growth. Black says they are looking at a number of innovative proposals and will make a call on the financing route in Q1/21.

2020 Recap

Despite the challenges from the COVID pandemic, Rio2 had a successful year. They made significant progress towards mine construction, permitting, water sourcing, financing, and networking. This year was also an important year for company alignment. Rio2 has spent the past 6 months on coaching and strengthening the management team. They’ve reinforced the company’s purpose, mission, vision, and values. This work is crucial for preparing the team to build a mine within the next 18 months. 

In May 2020, Rio2 appointed 2 key personnel: Flavia Fuentes, manager of legal and permitting in Chile, and Edgardo Briana, the Chile-based construction manager. This year’s work was largely administrative, positioning Rio2 to start pre-construction work in April or May 2021. Construction will be complete by September or October of 2022, with first gold expected by the end of 2022.

Regulatory

Rio2 met several regulatory milestones in 2020. They filed the EIA with the Chilean authorities in April and were able to have the required public consultation meetings after a short hiatus due to the COVID pandemic. A few weeks ago, Rio2 held the consultation meeting in the town of Copiapo, 160 km from the planned mine site. There is no significant population in the vicinity of the mine. To help educate the public, Rio2 held an outdoor open house after the consultation meeting. Attendees could read the posted mine information over a period of several days and ask questions of Rio2’s Chilean personnel and the Chilean authorities. In October, Rio2 achieved another success with the Chilean government–obtaining the surface rights to the 845 hectares they need for the project.

Construction 

Rio2 completed a significant infrastructure purchase for CAD $1.5M. The infrastructure is 20km away from the mine site, at an elevation of 3,200m compared to the mine site’s elevation of 4,500m. Over a 16 year life of mine, the infrastructure will contribute millions of dollars in cost savings related to a camp, power and water. 

Rio2 had success with the mining contractor alliance they used with the La Arena mine in Peru in 2009/2010. This strategy has been repeated by other mining companies in South America and Rio2 is using it again with the Fenix project. The alliance is characterized by a collective agreement between owner and contractor. Responsibilities, risks and opportunities are shared between the 2 for a “no blame, no fault” relationship. This agreement minimizes disputes between owner and contractor and encourages both parties to work together to achieve the best project decisions and solutions. Rio2 established an integrated contractor-owner team, to avoid duplication of roles and costs. 

Contractors will get reimbursed for their costs, plus paid an additional fee. KPIs are in place to reward positive performance and penalize poor performance. The contractor alliance also keeps Rio2 in the know about their mining costs. The project is collaborative and all costs are transparent, so Rio2 can trust the accuracy of the costs their contractor gives them. 

In September, Rio2 announced the appointment of 3 lead construction contractors under an alliance agreement. HLC Ingeniería y Construcción will build the process plant and site infrastructure, Anddes Asociados S.A.C. will do the civil design, and Stratcon will be the civil earthmoving and construction contractor. These contractors have already begun to work in the field in Chile. Construction at the mine includes an absorption-desorption plant, a single-stage crusher, and a metallurgical laboratory

Technology

Right now, they plan to start production at about 20,000tpd using conventional heap leach. After production exceeds that threshold, there may also be opportunity for exploring new extraction methods like IXOS. 

What is IXOS? Rio2 has teamed up with Sixth Wave Innovations to trial their IXOS purification polymer. Rio2 will provide Sixth Wave with ore samples to be tested in their Salt Lake City facility. The technology is intended to enhance the extraction of gold by using polymers instead of carbon in the adsorption process. This technology should reduce water costs and make the adsorption process easier, reducing CapEx and OpEx costs. If IXOS technology proves to be successful, Rio2 will consider implementing it as gold production increases.

Water

It’s essential to consider water cost in a dry, remote region like Chile’s Atacama desert. Chile is a significant mining country, producing 28% of the world’s copper supply and 23% of the world’s lithium supply in 2019. The majority of mines in Chile are in the arid northern region, where water is scarce. Water source and consumption can have massive impacts on project cost. However, Rio2 has been clear that water is not an issue for the Fenix project. Their current plan is to truck in water, which is feasible for 16 years at 20,000tpd production. The plan is economic, with a water cost of CAD$100/oz. Trucking in water will not greatly effect AISC therefore. It will remain at the CAD$1,000 mark, which is inline with peers. 

Pipelines and desalinization are additional options for getting water to the mine if the Fenix project expands. Independent desalinization plants are being built near Copiapo specifically for the mining industry. Rio2 is a candidate for using desalinated water at the Fenix mine once production ramps up. Building a pipeline from Copiapo is another possibility for the future. It would cost about CAD$150M, with the possibility that the pipeline company would build the pipeline for Rio2 and build the construction costs into the water costs. Rio2 is currently evaluating all water source options and will put them in a PEA for project expansion. 

Stock Market and Financing

In April, Rio2 publicly stated that they identified shorting activity on their stock–a common occurrence for junior companies in mining and other industries. They are listed on both the TSX.V (RIO) and the OTCQX (RIOFF). One-third of their stock is traded on the TSX.V and the remaining two-thirds are traded on the alternative trading system. Rio2 identified an imbalance of about 6 million shares, predominantly in the US. It’s an interesting phenomenon that’s raised a few questions about the TSX.V exchange–what’s causing the imbalance, what does the TSX.V provide, why is competition cropping up, and what will the TSX.V do about it? The SEC has recently fined Cormark for mislabelling short trades and long trades. Is this the start of the regulators shining a spotlight on shorting and naked shorting? We hope so. Rio2 will continue to pay attention to this situation as they progress with the Fenix project. 

Rio2 needs to secure financing by April or May of 2021 in order to complete the phase 2 construction for the Fenix mine. They engaged Scotiabank as an advisor to help secure funding from resource lenders, such as Orion, Franklin Nevada, and Sprott Resource Lending. Scotiabank sent out CAs to potential lenders and at least 10 lenders have responded with signed CAs. These lenders are currently evaluating the Fenix project data, and Rio2 hopes to have indicative offers in place by January 2021. 

Specialist resource lenders are preferable to banks, as banks will not lend any money until all of the permits are in place. Rio2 is building the Fenix project in phases so they can begin producing gold as soon as possible. Working with a specialist resource lender is ideal for this project, as they fully understand the mining business. 

Rio2 is also considering a self-financing option–a listed security from the Fenix project stream. Either way, Rio2 is confident they will secure funding by April or May of 2021, allowing them to move forward with mine construction and production. 

Networking

Rio2 didn’t let the COVID pandemic stop them from networking. They attended several virtual conferences: 121 Mining Investments in New York and London, Denver Gold, Beaver Creek, World Gold Forum, and the Scotia Mining Conference. As a junior company, Rio2 has made it a priority to tell their story to the mining community.

Looking ahead: plans for 2021

Rio2 is on track for a successful 2021. As a company, they are laser-focused on execution and delivery. The Fenix project is simple: plentiful resources, no water challenges, no community challenges, and fantastic infrastructure. They are well on the way to securing financing and have everything in place to begin construction. 

Looking beyond 2021, Rio2 has their sights set on something more: M&A activity. In addition to developing the Fenix project, they plan to dedicate a few hundred thousand dollars to further exploration in Chile. Their goal is to expand their footprint in Chile and establish a foothold in mineral exploration. As a junior company, they’re looking towards consolidation, aiming to become a multi-asset, multi-jurisdictional company, expanding beyond the Atacama desert in Chile. 

Between securing financing, starting production at the Fenix mine, exploration, and potential mergers & acquisitions, the next 18 months will certainly be an exciting time for Rio2.

To find out more, go to the Rio2 website