Rio2 Limited (RIO) Earnings Call Transcript & Summary

Good morning again, ladies and gentlemen. The next company to present is Rio2. They're a diversified precious metals and copper producer, who's currently producing gold at its Fenix Gold heap leach mine in Chile and copper, gold and silver at its recently acquired Condestable underground mine in Peru. Presenting on behalf of the company today is President, CEO and Director and Executive Chairman, I guess, Alex Black. We'll go with that.

Thanks a lot. Just 2 acknowledgments before I start, I'd like to acknowledge BMO for inviting us to this conference. We've been trying for many years to get in the door, knocking hard, but we couldn't get in, and here we are. And the other acknowledgment is to Clive Johnson. As you know, Clive has retired from B2 this year. And Clive has been an inspiration for me and the way we've developed Rio Alto in the past and also Rio2. I've known Clive for more than 20 years, and he's a legend and he's going to be a big loss to the business. So the Rio2 story revolves around 2 operating mines, one in Peru, Condestable and the other one in Chile, Fenix Gold. And both projects are long-life, large-scale projects. Condestable is an underground copper mine. It's the only underground copper mine in Peru. Most of the copper mines or underground mines in Peru are polymetallic. But in this case, Condestable is copper with about 20% precious metals. Fenix Gold is 100% gold, and we started production just recently in January at Fenix Gold. Condestable has been operating for 60 years, and we bought it with a 10-year mine life. So 10 years of reserves, and there's plenty of potential to expand that. So, this is really hard for me because I can't even see that screen very well, but I'm going to have to look up here. The other thing that people need to know is this is not our first rodeo. We've done this before. We had a company called Rio Alto that we started in 2009. We sold in 2015 to Tahoe Resources for $1.2 billion. And unfortunately, we were all shown the door, and I decided that we hadn't had enough and formed Rio2. This Fenix Gold project was discovered by Atacama Pacific back in 2010, and they drilled it from 2010 to 2014, outlined 5 million ounces of gold. We haven't done any exploration at Fenix Gold because what's the point with 5 million ounces. But this year, we'll be starting for the first time in 12 years, an exploration program at the project. We merged with Atacama Pacific in 2018. In the case of the mineral endowment, you can see it there, 5 million ounces of gold at Fenix Gold and over 550,000 tonnes of copper in M&I at Condestable. The team, this is all about people. This is the ex-Rio Alto team, apart from a couple of faces on that chart. So our team develops, builds and operates mines. We're not a junior that tells a story and hopes that we're going to get taken out by a major. That's not our case. Our performance, our share price graph over the last 2 years, you can see the stellar run we had. We outdid the GDX, and we also outdid the gold price. Today, we're sitting at a market valuation of about $1.8 billion. We did a $200 million financing to finance the acquisition of Condestable in December. The book started at $160 million, and it got up to $600 million, but we ended up taking $200 million. The shareholders, you can see there, our largest institutional shareholder is Mackenzie and our largest high net worth holder is Eric Sprott. There's the 2 mines, very different. Condestable is 5 kilometers from the coast, 90 kilometers south of Lima. So we're at sea level. But Fenix Gold, the peaks that we're taking down at Fenix Gold are 5,000 meters above sea level. So very different geographies, but we know how to operate in that sort of environment. Just so you know, myself, who is the Executive Chairman, I was the CEO. Andrew Cox is the present CEO of the company now. Myself and Andrew, both live in Lima. We're different to a lot of Canadian companies. We don't have an office in Toronto or Vancouver. We're based in Lima, and we're overseeing the operation of these 2 assets. Statistics there are all very verbose, so you can check this out. This is on our website, so you can have a look at this any time. This is really key to everything. Why did we buy a copper mine when we were a gold company? Well, the reason was because of the cash-generating capabilities of Condestable. And you can see it there on the right-hand side, the EBITDA of Fenix Phase 1, which is a 20,000 tonnes a day of ore to pad Fenix is run of mine. There's no crushing, 75% recovery, which looks like the case. We're just ramping up now from a production perspective. And then you add Condestable to that and what you get is near on $400 million, $500 million of EBITDA from those 2 assets. We have an expansion plan for Fenix Gold. Obviously, we need money for that. But what we feel very comfortable about is that our starter project at Fenix and Condestable are going to help us self-fund that expansion. You can also see the gold equivalent production there on the left. And what you see there is from 2 assets, we will get up to about 400,000 ounces of gold equivalent once we expand Fenix Gold. There's also expansion possibilities at Condestable, which I'll talk about in a minute. When you look at the EBITDA there, you can see what happens at spot. All the EBITDA that I showed you on the previous graph was at consensus. But the graph on the left there, which shows the -- on the right there, sorry, the EBITDA at spot, we are over $400 million of EBITDA per annum coming out of these 2 projects. So we've got a lot of leverage to the metal price. We've got a pathway to expansion at Fenix Gold. The secret sauce is water. We're trucking water to the project now very successfully for the starter project. We'll get to a run rate of 20,000 tonnes a day by the end of this year. That will see us produce 60,000 to 70,000 ounces this year of gold from Fenix. Then next year, with a run rate of 20,000 tonnes a day, we'll do about 100,000 ounces, and we'll do that for at least 4 or 5 years going forward. The answer to the water is going to be desal. We're talking to several providers in the Copiapo area who already have desal plants already bring water up to Copiapo. What we have to look at is building a pipe from Copiapo to the project, which is about 160 kilometers. And so we have a clear pathway of permitting and other things, and you can see us get to the expanded case of 80,000 tonnes a day, producing about 300,000 ounces per annum by around 2030, 2031. The other thing is Condestable is expandable. It's in a process of being expanded to 12,000 tonnes a day. We envisage that to happen by the end of 2027. And so '28 will be at a run rate of about 12,000 tonnes a day. And with that, the gold equivalent production will be about 120,000 ounces coming out of Condestable. So you put that together with the expanded case of Fenix of 300,000, that's how you get the 420,000 ounces per annum of gold equivalent production. As Fenix Gold, beautiful location, 4,300 meters above sea level is where the plant is. You can see the PLS pond. You can see the leach pad. That leach pad area has capacity of 400 million tonnes, that valley there. So it will be suitable for the expansion case. Fenix North is in the top left hand of that photo. Fenix North -- the peak at Fenix North is at 5,000 meters. So we know how to operate in this type of environment. And as you can see, there's nothing there, which is a great thing from a mining operation. The only thing is we don't have water from the point of view of -- there is water -- opportunities to get water from subsurface, but you can't get that permitted in Chile. So it's not worth worrying about. I'm going to go through -- this presentation is on our website. You can see the first gold pour happened in January. Everybody was pretty happy about that. A couple of different views of the plant. You can see the leach pad there in the photo wet. A lot of people didn't believe we were going to truck water this project and do it economically. We are, we will. And the other thing is from the metallurgical test work we've continued to do during the construction period from samples at deeper levels than the current metallurgical samples, we're seeing that probably this mine is going to continue as a run of mine for the life of its time. So that's a very positive thing as well. First time, we're going to do exploration. You can see everything our crops at surface, beautiful thing. Strip ratio is less than 1. We're mining at Fenix South, which is to the right of the vision there. The black line there is the $1,800 resource shell. So you can see the potential here to really upgrade the reserves of this project over time and with drilling. And we put together a lot of information. This is what the drilling targets look like around the ore body, and that will be starting very shortly. Two options shown here for desal water. And Condestable, a different view once again at the coast, great operation. We loved what we saw there, and that's why we bought the asset. We paid 2x EBITDA for this asset. Condestable has a silver stream with -- sorry, a precious metal stream with Franco-Nevada, and we have a stream at Fenix Gold with Wheaton Precious Metals. All the reserves at Condestable are from the 950 -- 900 level above, and it's had a great history over its time, and we're going to be doing more exploration there during the coming years. So I think I'll stop there.

And we are completely out of time. Thank you very much, Alex.