Rio Alto gets green light for La Arena

Vancouver – Rio Alto Mining (RIO-V) has almost everything it needs to develop a heap leach mine at the La Arena gold oxide project in Peru – the company has $15 million in the bank from two recent financings, has another $24 million available through a gold presale agreement, and now has an approved environmental impact study in hand.

With the environmental study go-ahead, all Rio needs now are a few construction permits before it can start clearing the area and pouring concrete. Rio expects to be placing its first ore onto the leach pads before the end of the year.

Rio was born from the 2009 merger of Mexican Silver Mines with Rio Alto Mining, which was then a private company that had been formed to earn into and eventually acquire the La Arena project. The earn-in deal gives Rio the right to purchase all of the shares of La Arena, the property holding company, from previous owner Iamgold (IMG-T) for cash payments totaling US$47.55 million plus US$30 million worth of exploration. To date Rio has spent roughly US$5 million at the site but that amount should ramp up quickly once the company receives the final construction permits.

The 206-sq. km project is located about 480 km north-northwest of Lima, in the Huamachuco District, at an average altitude of 3,400 metres. A 30-km radius extending outwards from La Arena encompasses numerous projects that together host more than 20 million oz. of gold, including Barrick Gold‘s (ABX-T, ABX-N) Lagunas Norte mine and Sulliden Gold‘s (SUE-T) Shahuindo gold-silver project.

A technical report from mid-2008 pegged La Arena’s oxide resource at 55 million indicated tonnes grading 0.49 gram gold per tonne plus 1.7 million inferred resources averaging 0.28 gram gold. Rio’s plan is to first develop an inexpensive dump leach operation processing 10,000 tonnes of ore daily. Cash flow from that operation would then be used to increase throughput to 24,000 tonnes. The company expects to spend between US$25 million and US$30 million developing the leach operation.

The company is well positioned to foot that bill, after closing two financings and arranging a gold presale agreement. In May Rio raised $8.5 million by selling 11.4 million shares at 75¢ a piece in a private placement. A few weeks later the company closed a second financing, this one exclusively with JP Morgan Asset Management, that raised $7.8 million from the sale of 10.2 million shares at 76¢ each.

And in April Rio inked a deal with Red Kite Explorer Trust out of New York to pre-sell 36,700 ounces of gold for US$24.25 million. Red Kite recently completed its due diligence for that deal and the companies are about to sign final papers. The funds will be available to Rio once it receives the necessary construction permits.

La Arena is also home to a sulphide resource, which contains 226 million indicated tonnes grading 0.27 gram gold and 0.36% copper as well as 170 million inferred tonnes averaging 0.22 gram gold and 0.32% copper. Rio says it is preparing to commence a feasibility study examining the economics of tapping into that resource as well.

Rio’s share price jumped 10¢ or 14% on news of the environmental green light for La Arena to close at 80¢. The company has a 52-week trading range of 19¢ to 92¢ and has 119 million shares outstanding.