Rio2 (RIO) - Stands Up To Technical Due Diligence

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.

Merlin Marr-Johnson caught up with Alex Black, President, and CEO, Rio2 along with Andrew Cox, COO, and Enrique Garay, Senior Vice President, Geology. 

Alex Black 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. 

Andrew Cox has had 20 years of experience in the mining industry across South America. He specializes in project management, mining construction, contract management, and budget development. 

Enrique Garay has over 25 years of experience in the precious and base metals resource industry with a focus on exploration and mine geology. A professional Geoscientist, Enrique is a member of the Association of Professional Engineers and Geoscientists British Columbia (APEGBC). He is also a Qualified Person (QP) as defined by the Canadian National Instrument 43-101 guidelines. 

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). 

Cash Position

Rio2 has a current market cap of CAD$160M. The NPV (Net Present Value) of the Fenix Gold Project was previously $120M at a gold price of $1,300. At a current gold price of $1,800, the project's NPV stands at $400M with a 60% IRR (Internal Rate of Return). The company is currently in the process of starting construction at the Fenix Gold Project. 

Rio2 is fully financed to reach the production stage. The company carried out a capital raise 2 months ago, this was done through a small equity financing round for CAD$35M. The company also entered into a streaming deal with Wheaton Precious Metals for $50M, additionally, the company has a senior secure debt with BNP Paribas between $50M-$60M. The company is not looking to issue any additional stock at the moment. 

Rio2 is currently finalizing the definitive agreement with Wheaton Precious Metals. The company is anticipating EIA approval in March 2022. The EIA approval will also provide a $25M second tranche of capital from Wheaton Metals following the previous $25M which was obtained on signing the agreement.

Rio2 is expecting a construction permit for the Fenix Gold Project by June. This will enable the company to draw funds from BNP Paribas. 

The Fenix Gold Project

The average grade for the Fenix Gold project is 0.5g. Since it's a gold oxide heap leach project with simple metallurgy, the overall processing costs are low. The project features a large disseminated ore body with a strong exploration and growth potential. The company has carried out soil sampling within the resource pit and discovered that the deposit is open to the south. 

Additional soil sampling across the property lead to the discovery of a target that features similar mineralogy and ore type as the Fenix deposit. This deposit features close veins with breccia in domes. This deposit is located 7km northwest of the Fenix site. This is a brownfield property that Rio2 plans to develop. This deposit is homogeneous in nature and features outcropping. Stripping the resource pit, the reserve pit is expected at 0.85, along with a 1:1 ore-to-waste-ratio. 

Feasibility Study Considerations

Rio2 published a PFS (Pre-Feasibility Study) back in 2019. The company did not carry out a Feasibility Study (FS) as the project had a simple gold heap leach operation that doesn't require any crushing. This led the company to forego the FS to save time and resources and focus on detailed engineering. 

The detailed engineering work helped the company determine the capital cost and the overall configuration of the project. This was then presented to the financiers. The company is working towards entering production at the earliest. Since the company is a junior entity with a single asset, it is prioritizing the advancement of its project. 

Rio2 was successful in raising capital despite not having a Feasibility Study in place. The BNP Paribas loan was approved on the condition that the company attains a construction permit. The company is currently under the EIA (Environmental Impact Assessment) approval process. Rio2 currently has a 5Moz M&I (Measured and Indicated) resource which was initially discovered in 2010. 

Mining Contractors

The company is currently working with the contractors STRACON and HLC to develop the Fenix Gold Project. STRACON is an earth-moving civil mining contractor that will carry out the construction and the mining activity at the project. Meanwhile, HLC is a plant design and construction company that will build the ADR plant and associated infrastructure. 

The company has worked with both contractors on 2 successful projects in the past so there's an existing relationship between the entities. The company is working with the 2 contractors to export technical know-how from Peru into Chile. This is because a gold oxide heap leach project is a rarity in Chile. 

The STRACON deal is an alliance contract without any hard cost elements. It's based on an open-book cost-plus model where the cost will be developed alongside the project's growth. STRACON is currently mobilizing its team in Chile and taking an account of the updated equipment prices. In the next 6 months, Rio2 will be able to provide the overall costs of the operation. This is because the PFS specifics were based on 2019 numbers. The company anticipates that a true approximation of overall costs will be attained within the next 9-12 months as the project advances. 

Water Supply Challenges

Rio2 has faced water supply shortages for its Fenix Gold Project in Chile. The project does not feature any water rights or a permanent water supply. To remedy this, the company planned to carry out a starter project with minimal water requirements. To achieve this, the company is looking to truck the water from Copiapo from an existing water re-treatment facility. This would provide the company with a 20,000t/day water supply. 

Additionally, there are 2 desalination options that are under development in Copiapo. Rio2 is currently purchasing re-treated water from the Enerpac group. Enerpac is carrying out a desalination project and is actively seeking new clients. Enerpac is considering putting together a consortium of end-users to bring a pipe to the Fenix Gold Project. Rio2 has also had discussions with Coldelco re-tailing to procure surplus water from the tailings re-treatment at the El Salvador copper project. 

Another option for the company is located northeast of its operations. These water supplies are under consideration for future iterations of the project. The company is looking to source between 80,000t-100,000t water daily to reach an annual production target of 250,000oz-300,000oz for a period of 15 years. 

To attain an initial 20,000t water supply, the company will require around 72 trucks a day. This comes out to one truck every 20 minutes. The key component of this project is to ensure that the logistics for the water supply are maintained. 

The transport costs for trucking the water were a part of the company's PFS study, carried out by STRACON. As per the study, the price of trucking per cubic meter per tonne is approximated at $14 for the initial 4 years of operations. These costs are based on 2019 estimations and the company is currently looking to determine round-up calculations taking into account various factors related to trucking the water to its facility.

The company plans to update the costs before restarting its operations. The ownership of the trucks can provide a significant reduction in overall costs. The water supply logistics and costs are currently being assessed by STRACON. 

Acquisition from Minera Paso

Rio2 purchased an old processing plant from Minera Paso San Francisco. This plant was originally used to process ore from various operations in the 1990s. It was shut down and restarted temporarily in 2013 to process ore from Arqueros in the north. This facility has a pre-existing camp, a land area along with a 5L second water well, and installed electrical infrastructure. 

Rio2 purchased this plant due to its close proximity to the Fenix Gold Mine. This plant will serve as a working base for its operations. This facility is situated at an altitude of 3,200m making it ideal for building a camp. The company is expecting that this site will help kickstart the construction at the Fenix Gold Mine. 

The facility does not require an EIA as it's independent of the project. This enables the company to initiate pre-fabrication work for component storage, which can later be trucked and installed on the site. This facility will serve as a starting base for the company's construction camp, giving it a head start. 

This processing plant also benefits from a well-developed road infrastructure that offers easy access to the international highway and the access road that leads to the company's site. The company plans to prioritize the optimization of roads to facilitate the delivery of materials and construction machinery at the Fenix gold project. This improvement will make the road suitable for tankers and heavy trucks. 

Another benefit of this processing plant is that the facility is located on a tourist road that does not face heavy traffic. This facility can serve as an infrastructure site and as a staging point for project construction. 

Cost Projections

Rio2 is focusing on the PFS results while maintaining its margins at the current gold price. The company has the room to accommodate the jump in gold prices. As the operation does not require a crushing circuit or re-handling, the company has seen a drop in its overall OpEx (Operational Expenditure). There's also a drop in processing and mining costs which is currently being managed internally. 

The company is looking to maintain its product costs at $1,000oz accounting for any potential market fluctuations. Rio2's PFS outlined ASIC (All-in Sustaining Costs) at $1,000. The company is taking measures to ensure that it stays at the $1,000 mark. 

Over time, the company plans to bring down the average ASIC between $800-$1,000. The company is not focused on the gold price fluctuations or inflation as it's out of its control. It is focusing on the aspects of the project that can be managed internally. The company has a current share price of $0.65 with a $400M NPV at a 5% discount. The company is focused on execution and delivery for its value proposition.

Rio2 anticipates that the existing 5Moz M&I resource has the potential for a 1.4Moz inferred resource. It speculates that the project will grow to 6Moz-10Moz over time through continued expansion and exploration. Once the mining operations are underway, the company plans to utilize 2 rigs to add the inferred supply to the M&I resource base.

To find out more, go to the Rio2 Website