Rio2 (TSX: RIO), known for advancing one of the largest undeveloped oxide gold projects in the Americas, is set to transform into a diversified gold-copper producer through a US$241-million agreement to acquire the Condestable copper mine in Peru.
The company announced Monday it will purchase a 99% stake in the long-running operation from Southern Peaks Mining, a privately held miner backed by London-based Global Natural Resource Investments, which manages roughly US$3 billion in assets.
Deal Structure and Financing
The transaction includes an upfront US$180 million payment, consisting of:
- US$80 million in cash
- US$65 million in debt financing
- Approximately US$35 million in Rio2 shares
Southern Peaks will also receive a US$37 million deferred payment between 2027 and 2030, and Rio2 will assume US$24 million of existing debt tied to the mine.
To fund the acquisition, Rio2 arranged a financing package combining the US$65 million vendor loan with a US$100-million equity offering priced at C$2.22 per subscription receipt. Strong investor interest prompted the company to increase the raise to US$120 million.
Rio2 shares slipped as much as 5% to C$3.26 on the dilution concerns, leaving the company’s market capitalization just above C$1 billion.
Cash Flow Boost
“With first gold production at Fenix Gold just weeks away, Condestable brings immediate and growing cash flow to support our future growth in gold,” said Rio2 executive chairman Alex Black. The copper mine also offers “meaningful exposure to copper at a time when copper trades at historic lows relative to gold,” he added.
A 60-Year Copper Producer With Expansion Upside
Located roughly 90 km south of Lima, Condestable is an established underground mine with more than six decades of continuous output. It currently runs an 8,400-tonne-per-day processing plant that produces a clean copper concentrate with no smelter penalties.
Rio2 sees potential to:
- Increase underground mining rates to 12,000 tpd, and
- Advance additional open-pit development
At consensus copper prices, the mine is projected to deliver US$110 million in annual cash flow, rising to US$145 million at spot over the next five years. Those funds would help finance expansion at both Condestable and Rio2’s flagship Fenix Gold project in Chile.
Fenix: A Major Oxide Gold Build
The Fenix project hosts 4.8 million measured and indicated ounces of gold and is designed to produce 1.3 million oz. over a 17-year mine life — roughly 81,900 oz. per year — according to a 2023 feasibility study.
Key financial metrics from that study include:
- After-tax NPV (5%): US$210.3 million
- Internal rate of return: 29%
- Construction cost: ~US$122 million
Rio2 has already secured US$118 million in financing through:
- A US$50-million pre-paid gold deposit from Wheaton Precious Metals (TSX: WPM; NYSE: WPM; LSE: WPM)
- A US$63-million public offering
- A US$5-million private placement with Wheaton
A Combined Growth Platform
Once the acquisition closes, Rio2 expects combined output from Fenix and Condestable to total 180,000 gold-equivalent ounces annually, with long-term potential to reach up to 380,000 oz. if the Fenix project is expanded.
“Condestable is a stable, well-run, cash-flowing operation with meaningful expansion potential,” said Rio2 president and CEO Andrew Cox. “We see a strong opportunity to add value at the mine and view it as a natural complement to Rio2’s growth strategy.”
