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By Dennis Boyko (version 1.5)
Last Update: January 14, 2010: Updated Insider Ownership and added Status Update
Rio Alto Mining (RIO) is a GoldMinerPulse junior gold stock pick for 2010.
Why? On December 18, 2009, Rio Alto was trading at a market capitalization of $3.28 per ounce of gold equivalent. As Rio Alto's La Arena approaches production in 2010, assuming relatively steady gold and copper pricing, a company with 100% ownership of La Arena should be valued closer to $60 per ounce of gold equivalent. Therefore, allowing for future dilution for financing as may be required to raise capital for development and/or for payments to IAMGold, GoldMinerPulse has a price appreciation target for 2010 of $1.10 to $1.60 (or roughly 3 to 5 times the December 18, 2009 closing price).
For reference, the latest Rio Alto Mining closing price and related metrics are produced below (and updated after the close of each market trading day) for ease of tracking this GoldMinerPulse 2010 pick follow:
Rio Alto's La Arena deposit is strikingly similar to Yamana's Chapada deposit:
The size and the nature of the grades in the sulphides, this is not very different to the Chapada copper,
copper-gold project Yamana has in Brazil. I was looking at that yesterday and the grades and gold and copper are very similar to that of
Chapada, a flagship operation for Yamana gold, so something you people should have a look at when we have a moment.
[source Mexican Silver Mines Webcast from Thursday, May 28, 2009]
Initial gold production at La Arena is planned to be gold oxides by dump leaching operations. Rio Alto Mining will be able to use gold sales from La Arena production towards IAMGold payment to acquire ownership of La Arena (IAMGold is a Rio Alto Mining shareholder).
Alex Black, COO and Director of Rio Alto Mining brings extensive experience based on his past project experience at Centerra Gold, Adamus Resources, and Chariot Resources. Quoting from Mexican Silver Mines Webcast from Thursday, May 28, 2009:
Here in Peru, I took control of Chariot Resources (chart and message board) as a listed shell back in 2002/2003. At that stage Chariot was about a $10M company. It then acquired the Marcona Copper project and grew into a $350M company. That was its market cap about 12 months ago.
Alex built the La Arena project opportunity prior to merging his private company with Mexican Silver Mining to form Rio Alto. Alex is based in Peru and is hands-on with the La Arena project. Alex and the Rio Alto management team are on record with an objective to start producing gold in 2010.
During January 2010 Alex Black has added 429,219 shares to his holdings (see CanadianInsider). Alex Black and his family now hold 6,800,000 shares and are the second largest shareholders with IAMGold being the #1 holder with approximately 8,000,000 shares.
Roger Norwich, an indepedent director, has purchased 1,000,000 shares at $0.40 (source Canadian Insider in December 2009. Alex Black and Klaus Zeilter (another director at Rio Alto Mining) have also made purchases of 100K or more in the last quarter.
IAMGold have taken Rio Alto Mining payments in company shares.
Peru is a strong mining economy and is one of the top mining friendly countries in the world. La Arena is located in a region of the country with several other gold mines in operation today.
This past November, Rio Alto listed on the Lima exchange. Since listing, Rio Alto has raised $6M Canadian to Pervian investors, another sign of strong in country support for the project.
Rio Alto have budgeted 6 to 9 months for the approval of the La Arena's Environmental Impact Assessment which based on submission dates translates into an approval before fall 2010. Rio Alto is working with the community and the community supports the project.
With January 2010 purchases, Alex Black (and his wife) hold 6,800,000 shares of Rio Alto and as a result Alex Black is the #2 shareholder in RIO. IAMGold is the #1 shareholder with 8,000,000 shares. As detailed in the section Insider Ownership, there has been significant buying of RIO shares by insiders.
Quote from an e-mail exchange with Alex Black regarding La Arena project status:
As far as the project is concerned, everything is still on track for production by year end.
Alex Black on the La Arena project:
Let me tell you it was a lot of hard work and perseverance to hold on to the opportunity to acquire La Arena. With the world suffering its worst financial crisis for decades it wasn't easy but we did it. I have been involved with the acquisition of three other world class projects in the world being Boroo Gold Project (Centerra Gold) Salman Gold Project (Adamus Resources) and Marcona Copper Project (Chariot Resources) and let me tell you, La Arena is as good as any of them.
Quote [from e-mail December 19, 2009]
Despite all the gloom re the sovereign debt of emerging market countries, Peru is clearly setting the lead in a positive way in South America.
Rio Alto in advancing its La Arena Gold / Copper project to production is well placed to benefit from this strong performance of the Peruvian economy.
Quote [from article dated December 16, 2009]
Peru Applauds Upgrade To Investment Grade From Moody's
By Robert Kozak - DOW JONES NEWSWIRES
LIMA (Dow Jones)--Moody's Investors Service on Tuesday became the last of the ratings agencies to lift Peru's sovereign debt
rating to investment grade, a move that was quickly applauded by the government. Finance Minister Luis Carranza said that
the lifting of Peru's rating will bolster the trend towards increased foreign direct investments in Peru and also in the
longer term help lower the spread on Peru's sovereign debt. Central Reserve Bank of Peru President Julio Velarde said the
decision acknowledges good monetary and fiscal management of the economy.
...
The economy, which expanded by 10% last year, is seen growing by only about 1.0% this year,
although economists expect a rebound to growth of around 5.0% in 2010.
"In 2010 Peru should go back to the top of the regional growth charts [perhaps only surpassed by the fiscally over-stimulated Brazilian economy]
which should help cement the orthodox, disciplined and investor-friendly policy approach that differentiates
it positively from most of its peers in the region," Goldman Sachs' Alberto Ramos said.
Quoting from Mexican Silver Mines Webcast from Thursday, May 28, 2009:
Why La Arena? Well, if we look at that circle, the red circle on that page which is about 50 km across. This is a map that was produced by Cambior in 2003 so all the status you see there 2003 so they need to updated but it give you a good snapshot. But in that circle today is in access of 20M oz of gold resources known today. So this is a gold district. If we look at projects starting at top of the circle we have Shahuindo which is owned by a company called Sulliden Resources [sic] which is a TSX listed company, 2M oz of gold inferred resources. We have El Toro. El Toro is owned by a private Peruvian family. It has about a million oz of gold. La Virgen which is to the south of La Arena, has been operation since about 2004. Juan Rodriguez worked there as I mentioned before. It is currently produced at the rate of 80K oz per annum from gold oxides by dump leaching operations which is exactly the same as we are going to do at La Arena. It has exactly the same rocks. It is a carbon copy of what we are going to do.
For more background on the Peruvian mining industry, please review the Republic of Peru Wealth and Sustainability: The Environmental and Social Dimensions of the Mining Sector in Peru May, 2005, a 195 page report from the World Bank. Andres Recalde, who has consulted for the mining industry in the region, has said
It is a World Bank research paper from 2005 but still current with a very good description of the main pieces of regulations in the mining sector related to social and environmental aspects.
Also see Precious Things in Peru by
Anthony C. LoBaido at alternativelatininvestor.com.
Quote:
Peru's mining industry, which has consistently been the country's major foreign exchange generator since 1997, accounted for almost 61.8% ($14.7 billion) of total export revenues of more than $23.8 billion in 2006 compared with 56.3% ($9.8 billion) of total export revenues of about $17.4 billion in 2005. In 2006, Peru's total trade balance recorded a surplus of about $8.9 billion compared with $5.3 billion in 2005, which increased by almost 68% compared with 6.6% in 2005. Peru's minerals sector had a trade surplus of $16.2 billion compared with $11 billion in 2005.
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