Rio Verde to secure $15M for key projects

Rio Verde Minerals (RVD-T) aims to add $15 million to its coffers to help fund exploration and development at its key potash and phosphate projects in northern Brazil, by selling its shares at a premium.

The company announced a non-brokered private placement of up to 35.7 million shares priced at 42¢ apiece for total proceeds of $15 million, of which $11 million has been committed.

The offering price is an 87% premium to the company’s May 24 closing price, impressing investors, who pushed Rio Verde’s shares up 33% the next day to finish at 30¢.

Rio Verde plans to use the funds to fuel exploration and a scoping study at its Sergipe potash project and to advance its Fosfatar phosphate project, while exploring its other phosphate prospects.  

The Brazilian junior is targeting first production at Fosfatar by early 2013 and says it’s in discussions with several lenders to raise debt financing for the project, located in the port city of Belem in Para State. The recent scoping study, prepared by international consultants Coffey Mining, pegs the cost to build the project at $10 million.

Based on Sapucaia’s resource estimate, which is one of the three phosphate targets on the land package, Fosfatar is envisioned to produce 150,000 tonnes of thermophosphate a year at an average grade of 25% phosphorous pentoxide (P2O5) over eight years.  

At a 10% discount, Fosfatar boasts a post-tax net present value of $62.9 million and a 113% internal rate of return. Payback is expected within a year.

Following the study, the company received a trial mining permit from Brazilian authorities to start mining activities at Sapucaia. The permit allows recovery of 100,000 tonnes of phosphate-bearing material a year, and is renewable for up to 36 months. Construction at the project is on track to start in August.

On the potash front, Rio Verde intends to complete its second hole at Sergipe with assays expected out by August, followed by an initial resource estimate by year-end, and a scoping study in early 2013.

Sergipe, Rio Verde’s chief potash asset, sits in the country’s northeastern region in the Sergipe basin. This basin is home to oil-producing wells and Brazil’s sole producing potash mine, Taquari-Vassouras, operated by Vale (VALE-N).

 “With multiple important catalysts on the horizon at both Sergipe and Fosfatar, Rio Verde is expected to receive increased investor attention over the coming quarters,” Jaret Anderson, an analyst at Mackie Research Capital, writes in a recent note.

He adds that “the exploration potential at Sergipe and the visibility of near-term cash flow at Fosfatar, along with a solid management team, are reasons to like this stock.”

He has a target price of $1.30 and a “speculative buy” on Rio Verde.

The private placement is expected to close around June 15, following regulatory approvals.