Rio2 expands with $241M deal for Peru copper mine

Rio2 (TSX: RIO), a gold developer advancing one of the largest undeveloped oxide gold projects in the Americas, is expanding to diversified producer via a $241-million deal for copper mine in Peru that will give it cash flow.

The company, which is building a gold project in Chile called Fenix, said Monday it will acquire a 99% interest in the Condestable mine from Southern Peaks Mining, a private company. Southern Peaks is backed by Global Natural Resource Investments, a London-based private equity firm with about $3 billion in assets under management.

Total consideration comprises an upfront payment of $180 million, paid $80 million in cash, $65 million in debt financing and about $35 million in Rio2 common shares. Southern Peaks is to receive a deferred payment of $37 million due between 2027 and 2030. Rio2 will also assume $24 million of its debt.

To fund the transaction, Rio2 has arranged a financing package comprising the $65 million in vendor debt and a $100-million equity financing, under which it would issue subscription receipts priced at C$2.22 each. Due to investor demand, the financing was later upsized to $120 million.

Shares of Rio2 fell as much as 5% to C$3.26 a share on the potential dilution, maintaining its market capitalization to just above C$1 billion.

Cash flow 

“With first gold production at Fenix Gold just weeks away, Condestable brings immediate and growing cash flow to support our future growth in gold,” Rio2 executive chairman Alex Black said. Condestable also provides “meaningful exposure to copper at a time when copper trades at historic lows relative to gold,” Black said. 

Located about 90 km south of Lima, Condestable is a long-life underground copper operation with over 60 years of continuous production history. The mine and its 8,400-tonne-per-day (tpd) processing plant currently produce a clean concentrate with no penalties, with potential to expand underground mining capacity to 12,000 tpd and for open pit development

With a projected annual copper-equivalent production of about 27,000 tonnes, the mine would generate a cash flow of $110 million at consensus prices, or $145 million at spot prices over the next five years. This cash flow, Rio2 says, would be used to support expansions at both Condestable and Fenix, which is under construction.

Fenix build

Fenix, hosting almost 4.8 million measured and indicated ounces, is expected to produce 1.3 million oz. of gold over a 17-year life (or 81,900 oz. annually), according to a feasibility study completed in 2023. Its after-tax net present value is calculated at $210.3 million (using a 5% discount rate), and its internal rate of return is 29%.

The Fenix construction is projected to cost around $122 million, backed by financings of a $50-million pre-paid gold deposit from Wheaton Precious Metals (TSX: WPM; NYSE: WPM; LSE: WPM), a $63-million public offering and a $5-million private placement with Wheaton.

Together, Fenix and Condestable are expected to produce 180,000 gold-equivalent oz., with a pathway to potentially produce 380,000 gold-equivalent oz. if Fenix undergoes expansion.

Rio2 President and CEO Andrew Cox added: “Condestable is a stable, well-run, cash-flowing operation that has meaningful expansion potential. We believe there is an excellent opportunity to add value at the mine and see it as a complementary component of Rio2’s growth strategy.”