Rio2's Fenix to rise again

Junior gold developer Rio2 has two main objectives for 2024 of financing the development of its Fenix heap leach gold oxide project in the Maricunga gold belt in the Atacama region of Chile, and showing its expansion potential, chief executive Alex Black told Mining Journal.

The company closed 2023 with receipt of the approval of the environmental impact assessment (EIA) for the construction and operation of Fenix by the Committee of Ministers, which reversed a July 2022 rejection by the Regional Evaluation Commission, even though it acknowledged that the project fulfilled all applicable regulations and met the environmental requirements for the granting of the permits. While acknowledging this, the Commission voiced concern over potential impacts on local fauna, such as camelids and chinchillas.

As part of its appeal to the Committee of Ministers Rio2 made some undertakings over and above what was required in the EIA to placate those concerns.

Black said the good news of the EIA approval is tempered by the damage the July 2022 rejection, which it considers an arbitrary decision, has caused the company.

"We demonstrated that we felt we did nothing wrong and were within the EIA guidelines. We did that within the first 12 months, but the process has no statutory time frame and can continue indefinitely. We were stuck in the loop for 18 months. During the 18 months, not one person from any authority or government official visited the project. During the whole 3.5 years of the EIA process before we got to this appeal, no one from government visited. They have no clue about that region," said Black.

The cost to Rio2 has included losing 80% of its share price, which cratered from 74c to 12c. Fortunately, the company did not need to raise equity during that period, as it raised about $5 million through selling non-core royalties and receiving a VAT refund in Chile.

Potentially more damaging is the cost of losing its momentum, which includes having to fire much of the team it had assembled to build Fenix. "We had recruited some good young talent in Chile to build our project, and we had to let 80 people go, shut our office in Copiapo, and let people go to Canada and [Peru]. There was a lot of pain in doing that. We were also in preconstruction and had started to spend money, so there were creditors we had to close out and make whole. A lot of damage was done," said Black.

Feasibility

Rio2 took advantage of its enforced hiatus to advance Fenix to feasibility and update project development costs.

This detailed 91,000ozpa of average annual gold production at a $1,237/oz all-in sustaining cost during the initial 12 years from an initial 20,000tpd open pit, run-of-mine heap leach operation with an average recovery of 75% and a 0.85:1 strip ratio to exploit a deposit hosting reserves of 1.77Moz grading 0.48gpt constrained within a $1,650/oz gold price pit shell.

Fenix will yield an after-tax net present value of $210.3 million and an internal rate of return of 28.5%, with a 2.8-year payback following an initial capital cost of $117 million.

Rio2 is planning a two-stage development strategy for the Fenix Gold Mine, with this FS representing the first production stage. Conceptually, the second stage will incorporate the expansion of ore mining from 20,000 tonnes per day to 80,000 - 100,000 tonnes per day with industrial water and/or desalinated water being transported to the site via a pipeline and project power being sourced from the nearby grid with estimated annual gold production rising to more than 250,000 oz. A study into the expansion of the mine will be launched during the construction of the first stage described in the FS to determine the most optimal water sourcing option, the related opex and capex, and the timing of the proposed mine expansion.

Financing

With financing one of the key goals of 2024 so that construction can start in the September-October Austral spring, Black faces a very different market to the one in which it negotiated and sold a US$50 million gold stream to Wheaton Precious Metals in November 2021.

"The financing climate has changed considerably from 18 months ago. Finding debt and equity for this project will be an interesting challenge going into 2024. Interest rates are much higher, the banks are more timid about investing in mining projects as there have been a few [gold mine development] disasters, which have scared many banks away from the sector," said Black.

In the near term, approval of the EIA will enable Rio2 to access the second $25 million tranche under the Wheaton stream. "We can get that, but we have to look at that within the context of the whole project financing," said Black.

Expansion

Rio2 also aims to add colour to the potential expansion to a throughput rate of 80,000-100,000tpd. This will require a different water solution to the use of tankers to supply water from Copiapo for the initial 20,000tpd phase.

Here, Rio2 may have caught a break. Whereas the company previously spoke about the potential of joint development with other Maricunga gold miners to pipe desalinated water to the region, water utilities may now look to develop infrastructure to supply several mines. This is similar to power purchase agreement concept, through which third parties invest in renewable energy generation, underpinned by long-term offtake contracts with miners.

"We are not going to discard trucking water for the first phase. It is not optimal, but it is fully costed. The idea is to do another study this year to look at the expansion and what is involved, and what happens when we pipe water from Copiapo. Our opex will decrease considerably, and Fenix will become a bigger, more profitable and cost-effective project. It would be difficult to get water from another miner, but there are a couple of companies setting up independent desalination operations in Copiapo to sell to third parties and planning to build pipelines to the east, west and north. If a third party brings that water up, they will have to do an EIA and then we would have to do an EIA from where they leave the water pipe for the last 20km to our project," said Black.