Rio Alto looking to be Peru’s next name in mining

With its planned acquisition of Iamgold‘s (IMG-T, IAG-N) La Arena copper and gold project, Rio Alto Mining’s president and chief executive Alex Black has signaled he’s ready to make another impact on mining in Peru.

Black is known on the Street for his being a founder of Chariot Resources (CHD-T) a company whose Marcona project is heading towards production — and also starting up AGR Limited which began developing what is now Centerra Gold‘s (CG-T) Boroo mine in Mongolia.

Now Black is turning to Peru again as the place where he can further his reputation for picking the right project.

“It’s the same sort of recipe of buying an asset that is not a core asset of a bigger company, adding value to it and bringing it to the next stage,” Black says of the La Arena acquisition.

Similarly Chariot acquired Marcona from Rio Tinto (RTP-N, RIO-L) by submitting a winning for bid for the asset back in 2004.

For this deal, Rio Alto will pay Iamgold $48 million for the project and give Iamgold a 5.5% stake in the company.

And while the freshly minted Rio Alto it was only incorporated in January of this year is currently privately held, it won’t stay that way for very long as it plans to go public in the coming few months.

Funds from its initial public offering will go towards financing the La Arena acquisition as well as into the ground in the form of a drill program at its other recently acquired project, Tambo de Viso.

Tambo de Viso was acquired in March of this year from a Peruvian national and is described by Black as a prospective polymetallic project that has the potential to host a significant high grade silver, lead, zinc and copper resource.

Tambo lies 100-km outside of the capital of Lima and the company plans to launch a US$2 million drill program in July of this yearwhich would represent the first modern exploration program on the property.

A mining engineer by background, Black started in the industry in 1981 working in the goldfields of Western Australia. He moved to Peru in 2001 and has had a significant presence and interest in the country ever since.

Leaving his post as Chariot’s chairman in 2006 due to friction between himself and current Chariot president Ulli Rath over the direction the company should be heading in, Black had no intention of abandoning Peru altogether.

Quick to assemble a team of directors with proven mining track records he set out to find well-developed projects that still had considerable exploration upside.

He believes he’s found just that with La Arena.

Made up of two deposits — a gold oxide deposit, and an adjacent gold-copper porphyry deposit La Arena offers Rio Alto the chance to mine in two phases, thus generating cash flows more quickly then what would normally be expected.

Black estimates that start-up capital for oxide gold production would come in at just US$30 million and once it is up and running cash flows would be used to help finance mining the copper and gold sulphides.

The company is targeting oxide gold production of the third quarter of 2010.

And while Black says the current measured and indicated resources of 1.1 billion lbs of copper and 2 million oz. of gold could sustain a mid-sized mining operation on its own, he anticipates those number will only get bigger.

With only 25% of the 210 sq. km of property explored, there is still plenty of upside resource potential.

Added to those bullish factors is the projects location.

Situated in a mining friendly region of Peru that hosts such mines as Barrick Gold‘s (ABX-T, ABX-N) Lagunas Norte old mine (18 km from La Arena) and Compania Minera San Simons La Virgen Mine (10 km from La Arena) the project also benefits from the power and road infrastructure that come from being in a developed district.

For Iamgold the move follows through on its plan to divest itself of one of its non-core assets.

“The process (of rationalization of non-core assets) has been on-going since we acquired Cambior,” says Iamgold spokesperson Lisa Doddridge. La Arena is a former Cambior project.

The market nodded its immediate approval of the deal on the day the news was announced — May 8 — as Toronto-based Iamgold shares gained roughly 7% or 42 to $6.25 on 3.2 million shares traded.

Iamgold says it expects the deal to close within the next two months and added it was confident Rio Alto would be able to bring it to production.

As for where the incoming cash would go, Iamgold was vague in its press release saying only that it would be used to help it reach its goal of doubling gold production over the next five years.

“This enhances our financial flexibility,” Doddridge adds, “so when we find something we like we can do something about it.”

Iamgold finished an internal pre-feasibility study on La Arena in November 2006 and when it found that there was “external interest expressed in the project”, it decided to work on selling it.