Rio Alto Mining (TSX: RIO; TSXV: RIO; NYSE: RIOM) is inching closer to producing copper from its La Arena project in northern Peru, with a recent environmental approval for an 18,000-tonne-per-day, open-pit sulphide operation.
Rio Alto produces gold from an oxide dump leach mine at La Arena. The gold mine reached commercial production in January 2012, and is slated to churn out 190,000 to 210,000 oz. in 2013, at all-in sustaining costs of US$900 to US$1,000 per oz.
Ore at La Arena is extracted from two high-sulphidation epithermal pits — Calaorco and Ethel — and dumped by truck onto leach pads before being treated with cyanide-leach solution for 60 days. The pregnant solution is then pumped into a nearby adsorption, desorption and refining plant that has a daily capacity of 36,000 tonnes. This production rate should continue into the first half of 2017, before tapering off and giving way to the second, more robust phase of the project. Phase two consists of mining copper with gold credits from the adjacent copper–gold–molybdenum porphyry pit.
On Jan. 6, Rio Alto announced that Peru’s Ministry of Energy and Mines approved the modifications it made to the environmental-impact assessment (EIA) for an expanded La Arena. The amended EIA “allows us to begin preparation of additional permit applications for the sulphide mine [such as modifying facilities], concentrator and waste dump, and tailings disposal,” Alejandra Gomez, Rio Alto’s manager of investor relations, said in an email. She estimates phase-two construction could start in late 2014 or 2015, depending on when Rio Alto receives the construction permits.
Commenting on the EIA approval that took seven months to complete, Gomez says in an interview that “everyone is working hard — especially our Lima environmental team, which was working in record time to obtain approval for the modifications to the EIA. That’s a great milestone for us. Things don’t usually happen that quickly.”
Raymond James analyst Adam Low echoed that the milestone helps the company’s aspirations to become a copper producer at La Arena, and that “longer-term, the company is backed by organic growth from an attractive copper–gold project at La Arena that is scalable, and can be internally funded due to its low capital intensity,” he writes in a note. Low has a $3.50 price target and an “outperform 2” rating on Rio Alto.
Meanwhile, the single-asset miner is wrapping up a feasibility study for the sulphide project due in the second quarter. It says building the 18,000-tonne-per-day copper–gold project would cost US$200 million to US$250 million. Start-up production is slated at 50 million lb. copper and 40,000 oz. gold a year, at an average grade of 0.4% copper and 0.3 gram gold per tonne. Rio Alto plans on expanding throughput to 36,000 tonnes per day.
Desjardins analyst Adam Melnyk predicts that phase-two production will kick off in 2018 and run for 21 years. He has a “speculative buy” and a $4 target.
However BMO analyst Brian Quast appears less bullish on the stock, with a $2.25 price target and a “market perform” rating. “The environmental modifications indicate positive progress in the development of the phase-two project, which has been moving forward slowly,” he notes.
In a November 2013 presentation, Rio Alto said that over the next 12 months, it expected to spend at least US$3 million on feasibility costs, US$16 million building a substation and transmission line, and US$12 million acquiring surface rights for the project’s third phase, which contemplates underground mining.
The miner expects to publish an updated oxide reserve-and-resource statement for La Arena in the second quarter. Gomez says the update could add another year or two to the mine’s oxide reserve life, pushing production beyond 2017.
Rio Alto plans to release its year-end 2013 results and 2014 production guidance at the end of March. It has US$50 million in cash, Gomez says.
The 206 sq. km La Arena project — acquired from Iamgold (TSX: IMG; NYSE: IAG) in early 2011 — is 480 km north from Lima and 18 km from the town of Huamachuco. It is 3,400 metres above sea level in a known gold district that includes Barrick Gold’s (TSX: ABX; NYSE: ABX) Lagunas Norte mine and Sulliden Gold’s (TSX: SUE; US-OTC: SDDDF) Shahuindo gold–silver project.
The stock recently closed at $1.78, or 68% below its 52-week high of $5.64 on Jan. 16, 2013. It sank to a yearly low of $1.33 early last December.
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