Same recipe, different dish: Rio Alto CEO sticks to the script with La Arena purchase

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

Black is known on the Street as a founder of Chariot Resources (CHD-T, CHDSF-O) — which is heading towards production at its Marcona project — and also for starting up AGR Ltd., which began developing what is now Centerra Gold’s (CG-T, CAGDF-O) Boroo mine in Mongolia.

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

“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.

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

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

And while the freshly minted Rio Alto — incorporated in January — is currently privately held, it won’t stay that way for very long. The company plans to go public within 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.

Black describes Tambo de Viso, acquired in March from a Peruvian national, as a prospective polymetallic project that has the potential to host a significant highgrade silver, lead, zinc and copper resource.

Tambo lies 100 km outside the capital of Lima and the company plans to launch a US$2-million drill program there in July. The drilling 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 with current Chariot president and chief executive 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 flow more quickly then would normally be expected.

Black estimates that startup capital for oxide gold production would come in at just US$30 million, and once up and running, would provide cash flow that could help finance mining the copper and gold sulphides.

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

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

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

Added to those bullish factors is the project’s location.

Situated in a mining friendly region of Peru that hosts such mines as Barrick Gold’s (ABX-T, ABX-N) Lagunas Norte mine (18 km from La Arena) and Compania Minera San Simon’s 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 ongoing 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 with Iamgold shares gaining roughly 7%, or 42 on the news, 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 La Arena to production.

As for where the incoming cash would go, Iamgold was vague, 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 says, “so when we find something we like we can do something about it.”

Iamgold finished an internal prefeasibility study on La Arena in November 2006 and decided to work on selling it after finding “external interest expressed” in the project.