Rio2 expands with $241M deal for Peru copper mine

[Ben Graham]

Rio2 (TSX: RIO) is expanding its Latin American presence and its metals exposure by acquiring a majority interest in a producing copper mine in Peru in a deal worth $241 million.

In a statement on Monday, Rio2 said it will acquire a 99.1% interest in the Condestable mine from Southern Peaks Mining, a company backed by UK private equity firm Global Natural Resource Investments.

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 will also receive a deferred payment of $37 million, due between 2027 and 2030. Rio2 will also assume $24 million of its debt, bringing the transaction value to $241 million.

To fund the transaction, Rio2 has arranged a financing package, comprising the $65 million 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.

‘Major moment’

Alex Black, executive chairman of Rio2, said the mine acquisition marks “a major moment” in the company’s evolution from a gold developer to a Latin American diversified producer.

Located approximately 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 copper-equivalent production of approximately 27,000 tonnes per annum, the mine would generate a cash flow of $110 million at consensus prices, or approximately $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 its existing Fenix gold project in Chile, which is under construction.

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Together, the two operations are expected to produce approximately 180,000 oz. of gold equivalent a year, with a pathway to potentially produce approximately 380,000 oz. gold equivalent with the potential Phase 2 expansion at Fenix Gold.

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

“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,” Andrew Cox, president and CEO of Rio2, added.