Rio2 (RIO) - Newly Financed to Prepare Construction Phase

Rio2 Limited is a mining company with a focus on development and mining operations with a strong technical team and a successful track record in the capital markets. The company's flagship project is the Fenix Gold Project in Chile.  

We met with Alex Black, President, and CEO, Rio2. Alex has invested $2.5M of his personal wealth and owns 5% of the company. He has over 4 decades of experience in the mining industry. His educational credentials include a B.Sc. in Mining Engineering from the University of South Australia. He also serves as a member of the Australasian Institute of Mining and Metallurgy. 

Company Overview

Rio2 is a mining development and operations company. The company was founded in 1990 and is headquartered in Vancouver, Canada. Fenix Gold Limitada, Rio2 Exploraciones S.A.C and Lince S.A are the company's subsidiaries. The company is listed on the Toronto Stock Exchange (TSX-V: RIO), the OTC Markets (OTCQX: RIOFF), and the Lima Stock Exchange (BVL: RIO). 

Rio2 has the largest undeveloped gold oxide heap leach project in the Americas, located in Chile. It features a 5Moz gold supply at a price of $1500 in the M&I (Measured and Indicated) category and 1.4Moz gold in the inferred category. This deposit was originally discovered in 2010 by Atacama Pacific and was acquired by Rio2 in 2018. The company is currently working towards turning the Fenix Gold Project into an operational mine in the next 18 months. 

Financing Deal

Rio2 recently raised capital through an equity stream and senior secured debt. The company entered a foreign asset income trust, similar to a REIT (Real Estate Investment Trust) listed in Canada with assets outside the country. The company carried out intensive work on the specifications of the project and mapped out a structure. Since the company has a single asset in its portfolio, opting for an IPO was a risky move. They assessed the situation with Scotia Bank, which also serves as a company's advisors, and had a meeting with various streamers. The company chose Wheaton Precious Metals for a streaming deal since they have the best in-house technical team of any streaming company. The company received validation from BNP Paribas as well, a huge international bank with various projects in Latin America. Overall the partnership with Wheaton Precious Metals and BNP Paribas has helped strengthen the company's exploration plans. 

As per the non-binding term sheet, Rio2 has entered a $50M Gold Purchase Agreement with Wheaton Precious Metals International Ltd. (WPMI). As per the agreement, BNP Paribas was appointed as a mandated lead arranger for a senior project debt facility of $50M-$60M. This deal has enabled Rio2 to be fully funded for their Fenix Gold Project in Chile. 

The company marketed its public offering of common shares for gross proceeds of $19.6M at a price per share to be determined by the context of the market and a syndicate of underwriters led by Scotia bank, CIBC Capital Markets, and Raymond James. The company also entered a non-brokered private placement deal of common shares to WPMI or an affiliate for proceeds amounting to $5M. 

Rio2 opted for streaming as a way to prevent the over-dilution of the company. This was done to preserve the company structure. As the senior secured facility is received, the company will gain a construction permit. Meanwhile, they are focusing on building an infrastructure site located 22km from the mine site. 

The company is currently working on fabrication, building a camp, and getting the plant ready. All the resources are currently being staged at the infrastructure site, ready for assembly once the construction permit has been acquired. The company is also simultaneously working on the civil and foundation work at the mine site. 

Rio2 has already determined the teams to be deployed for the project and is waiting for the legal formalities to conclude. This process could take several weeks. 

BNP Paribas put out an indicative proposal for Rio2 to conclude a DFS (Detailed Feasibility Study)over the course of the next 12 months. The company currently has an indicative term sheet in place and they are looking towards putting out a final term sheet in the near future.

The company is currently running 6 weeks behind schedule and is in the midst of an EIA (Environmental Impact Assessment) report. The EIA approval is expected by February 2022.  They have also faced movement restrictions due to the ongoing covid-related closures. They already have a technical team on the ground in Peru, however, once the company enters the construction phase, they will require the flexibility of movement in-and-out of the country. 

Rio2 chose an over-marketed deal instead of a bought deal to allow existing shareholders to participate in the project financing. This decision brought investments from existing shareholders while also bringing new institutions on board the deal. Alex Black invested $200,000 and Albrecht Schneider invested $160,000. These investments were made on a 10% financing discount. 

The company is open to a potential M&A (Merger and Acquisition) in the future. Despite the delays, the company strongly believes that going with a Foreign Asset Investment Trust (FAIT) was the ideal plan of action. 

Capital Raised

The deal signed with WPMI amounts to $50M in financing upon closing. This definitive deal will provide the $25M balance once the EIA approval has been received. The BNP Paribas deal will come into effect as the construction permit is acquired, tentatively by August 2022. Upon acquiring the permit, Rio2 will work with BNP to carry out assembly work on the mine site along with contractor mobilization. The next step would be to build the camp and set up the infrastructure. 

Rio2 is focused on demonstrating the results of the run-of-the-mine work. Despite the indications of water shortages at the site, the company showcased a demo operation by utilizing the re-treated water from the facility over a 400t representative sample. The company managed a workaround for carrying out the operations at a 4,500m altitude. A 2100 liter water supply will be sent to the site in tanker trucks. The company is currently seeking additional groundwater supplies. 

Production Scale

Rio2 is looking to initiate the production with an annual supply of 100,000oz. Once the company is able to resolve the water sourcing issue, they are looking towards concluding a study on an expanded product. This will potentially expand the company's supply capacity to 80,000t-100,000t per day, which would lead to a 4-5 times growth in the company's mining output. The production numbers for the mining operation will hover between 250,000oz - 300,000oz gold. 

To find out more, go to the Rio2 Website