Rio Alto squeezes more out of La Arena

On the back of its La Arena gold operation in Peru, Rio Alto Mining’s (RIO-T, RIO-N) is becoming a miner to be reckoned with.

Just a week after reporting earnings of just over $100 million in 2012, Rio Alto reported the mine had poured 36,355 oz. gold during the first quarter.

The results were bolstered by more tonnage making it onto the leach pad than expected, which brought in another 1,739 oz. gold. But that wasn’t the end of the good news: the average grade was also higher than the company had anticipated, and Rio Alto says this added another 665 oz. gold.

In all, 2.3 million tonnes were placed on the leach pad with grades averaging 0.51 gram per tonne, while Rio Alto had expected to leach 2.2 million tonnes with an average grade of 0.50 gram per tonne.

The production levels beat CIBC analyst Matthew Gibson’s estimate of 33,800 oz. for the quarter.

“We expect production to increase in the second quarter, as mining activities return to the higher-grade Calaorco pit,” Gibson writes in a research note. “In the near-term, we see a revised mine plan for both the oxides and sulphides, as well as an updated resource estimate as catalysts for the stock.”

CIBC rates Rio Alto as a “sector outperform,” with a price target of $8 per share.

On April 9 the company’s shares were up 5% — or 23¢ to $4.63 — on the news on 490,000 shares traded. However, they ended April at $3.70 apiece.

La Arena sits in north-central Peru, 18 km east of Barrick Gold’s (ABX-T, ABX-N) Lagunas Norte gold mine.

La Arena has oxide measured and indicated resources of 100 million tonnes grading 0.46 gram gold and inferred oxide resources of 10.4 million tonnes grading 0.27 gram gold. Sulphide indicated resources come in at 313 million tonnes grading 0.29% copper and 0.24 gram gold, with more inferred resources at 320 million tonnes grading 0.3% copper and 0.2 gram gold.

In total the project has measured and indicated resources of 3.9 million oz. gold and 2 billion lb. copper, and inferred resources totalling 2.2 million oz. gold and 2.1 billion lb. copper.

The company expects to complete a feasibility study on the sulphide resources sometime this year.

Gold was first poured at the mine in May 2011, and last year’s output — its first in commercial production — came in at 201,113 oz. at cash costs of US$532 per oz. gold. This production helped generate net income of $100 million, or 58¢ per share, and cash flows from operating activities of $97.6 million.

Rio Alto expects to produce between 190,000 and 210,000 oz. gold this year at cash costs between US$675 and US$725 per oz. gold.

The company began the year with US$62 million in cash.