Pops
@pop_whiskey
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Whiskey drinker. Metals and mining investor. Skeptic.
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Now that Rio2 got permits for their Fenix gold heap leach project in Chile, time to dust off the ol' investment thesis. TL;DR: standard developer re-rate as with asymmetric upside. A 🧵:
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Developer re-rate with a proven mine builder as downside, and monster project with gold tailwinds as an upside.
I'll drink to that. 🥃🥃🥃🥃
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Since folks seem to be talking about $RIO.v
@Rio2Limited
today, the thesis is simple. It's a clean heap leach that works at ROM particle sizes. Low capex, low opex. It's funded to operation, which is about an 85 koz mine. Gold developers are trading at ~0.5x NAV, and .. 1/x
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@YellowLabLife
All we have is reputation. Give more than you take, the money sorts itself out.
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Execution timeline is likely Q4 2024 through first production in the first days of 2026, assuming finance comes in the next 6 months. So that's the "production re-rate" investment thesis with an ultra-credible management team of proven heap leach mine builders.
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Cheap to build, cheap to operate. Nobody ever gives a shit about heaps until the cashflow statements arrive and they realize that it's a money printer.
The project that's on the page here and was the basis of the 2023 FS is Phase 1, which I'm going to call Lil Fenix.
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... plus guided to a $25-30M equity raise, and the balance ~$70M in debt for about $120M. I'm not too scared by the size here... not a $400M capex on $100M MC (Osino) or a copper junior needing $1.5B on a $150M market cap. $120M on Rio2's $75M market cap is pretty reasonable.
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@JrMiningNetwork
Hey
@TheOreGroup
I wonder how you're feeling about the board of the company you just tried to put on a sensible path? Blindside deal with a big discount to recent $ volume, warrants with strike at last week's VWAP, and management front-run selling?
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This deposit is all oxide, no sulfides. No nasty elements to mess up recovery or drive up opex. No crushing, which saves a load of money. They ran a pilot heap to prove out the recovery. Sweetheart deposit for this type of mine, low geology and metallurgy risk.
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Rio2 has been in limbo on the permits, but with them they have to line up the financing, and they've been clear that they won't take awful terms. They have $25M from WPM (also a nice endorsement on the project, as their technical DD is widely considered very strong)...
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First, this is a heap leach project. These are profoundly unsexy, but very profitable if executed well. Grades are low (~0.5 g/t) but for an oxide gold heap of scale, that's actually a good number.
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But during that re-rate period (Q4 2024 to Jan 2026) we'll see a study on Big Fenix, and we might see a water solution appear. And then we may have a credible path to a >5x on the NAV compared to Lil Fenix, which implies a sexy ass return.
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$75M MC against the FS NAV of $210M at $1750/oz Au, so call that a 0.35x P/NAV multiple, which tracks reasonably well with market comps. The play here, on financing, is a re-rate from that 0.35x to something in the range of 0.6x to 0.8x for a junior gold producer.
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They have a permit application in for an eastern distribution line that would go right by Fenix. Watch this closely, because if it goes ahead then it would be as simple as signing a water supply agreement and voila, water.
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@YellowLabLife
Make money for investors, more money follows. This business has a hard time attracting capital because more often than not, it's a shitty business. If more companies were run like real businesses, it would save Canadian mining.
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A Chilean company called ENAPAC (recently backed by a group called Solaer) has recently received permits for a desal water plant and a northern distribution line, and have guided to a construction start in H2 2024 on both.
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No, I'm not drunk... it's hard to wrap your head around that when you compare against high-grade gold deposits, but the physical installation of these things is as close to a joke as one can find in this biz. It's a big pile of rocks, with some pumps and tanks. That's it.
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A couple notes:
Management - this team has successfully built and eventually sold two heap leach projects in Peru. So call that "been there, done that.". Credible, clear-eyed costs and assumptions. This isn't a "shine it up" study, this is what the project will be.
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That kind of project, assuming it starts in 2030, has a NAV5 somewhere between $1B and $1.5B (discounted to today!) at 1750 Au, depending on the capex it takes to make it happen, whether trucks are bought or leased, and the cost of getting water.
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So... if the water solution doesn't play, this is a standard production re-rate in the 50-150% range, and that's without any tailwind from gold price. Heaps have big torque, so a run in gold price ($100/oz = ~$70M in NAV) that's even better. At spot, Lil Fenix is ~$400M NAV.
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Where Rio2 gets really interesting is that unlike most developers, there is still asymmetric upside available beyond just the rerate. Fenix is a big orebody, but because it's waaay up in the altiplano, getting water is very very hard.
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Rio2 could also permit and build a water line themselves, though that'd cost hundreds of millions. This means the expansion wouldn't be executed until the late 2020s at the earliest.
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So with the upsized PP of $23M... is that it for equity?
Napkin math said $rio.v needed ~$125M to $135M for the build. $25M from WPM, now $23M equity... feels like $77M to $87M debt is in reach. Last chance to board the train?
@Mark_IKN
Now that Rio2 got permits for their Fenix gold heap leach project in Chile, time to dust off the ol' investment thesis. TL;DR: standard developer re-rate as with asymmetric upside. A 🧵:
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The mine opex is done by the same mine contractor that did the construction and contract mining at the two other mines in Peru. Fleet is small and nimble, appropriate for this 20,000 tpd operation. This a high-confidence opex for Lil Fenix.
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And if there was water? Well then we get Big Fenix. Rio2 is kicking off a study in the new year on Big Fenix, because there's a solution brewing for the water.
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Now since we're all impatient, here's my best guidance on what the Big Fenix study might look like. The big operation would produce something in the range of 200-300koz/a by running a ~80,000 tpd operation on low-grade (0.3-0.4 g/t) material with dirt cheap cost structure.
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Now that there seems to be interest in the precious metal space instead of the usual chorus of boos, an idea in the 🧵below for bigtime explorer-like upside on a simple development project with a mgmt team who has done it before. $rio.v $rioff.
Now that Rio2 got permits for their Fenix gold heap leach project in Chile, time to dust off the ol' investment thesis. TL;DR: standard developer re-rate as with asymmetric upside. A 🧵:
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To get the project into production, management is trucking water from Copiapo for Lil Fenix, which is scoped not based on the economics of the deposit, but by the availability of trucked water.
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The site G&A is high for an operation like Lil Fenix (80-100koz/a), but it's in the high Andes and needs a camp, so what can you do? Costs, stream, taxes, working capital, etc are all fairly accounted in the FS financial model.
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The old Atacama Pacific version of the project was much bigger (and more profitable), but no water means the concept didn't have legs.
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It'd use a bigger, more efficient trucks (the kind that operate in the SW USA for <$2/t mined), and get economies of scale on that Andes site G&A. Water would be 80+% cheaper than trucking.
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@YellowLabLife
This. This. 1,000,000x this.
This is also why mining industry voices calling for "mining needs more capital" are so wrong-headed. Money chases returns, and right now higher prices are needed to generate those returns. Price first, investment after.
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None of this is predicated on success with the drill bit, but rather skilled execution of a boring, low-risk project and finding water in a place where it's scarce.
That's why I have an outsized position in
@Rio2Limited
. end/x
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Holy snot EQX.wt got cheap. With $SLS trading above $4/sh, that's $0.20/wt in value. So you get a 1 year option on 1/5 of a share in $EQX (in the money!!) in a gold bull market for $0.50?! Sign me up.
@TraderPamplona
@flaschinger
@DanielEarle3
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@Mark_IKN
But what about the fact that mining stocks suck and they always find a way to mess it up?
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@BlackAlex58
@Mark_IKN
@FL46568347
@real_MikeBarnes
No ill will towards the little fluff balls. Maybe the win-win is a First Majestic style online store that sells these?
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@DaveHcontrarian
Aren't you always taking grief,
@DaveHcontrarian
? Being a contrarian is a lonely occupation! A least you can take comfort in the fact that you have been bang on. It's helped my positioning (and profits) immensely.
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@MiningCatalyst
@VukasinPekovic
And the warrants are priced at last week's VWAP?! What the hell is management thinking?
The shareholders own the company. This is management acting directly counter to the interests of their owners. Horrible terms.
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@MiningCatalyst
@VukasinPekovic
Bigtime discount (especially comparing $ traded over the last several weeks), half warrant, and management selling ahead of it? 🤮🤮🤮
As an owner, this is the kind of thing that makes you want board changes. And in a company where that JUST happened!
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@gringo_in_arg
My model of Big Fenix @ $2k/oz NPV5 = ~$2B. NPV10 @ $2.5k/oz = ~$1.8B... so SP appreciation has been pure metal price, and execution re-rate is still in the 2-10x range if the team pulls off Big Fenix.
Study on Big Fenix still this year
@BlackAlex58
?
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@Mark_IKN
Historically, seeing silver producers up 6-10% in a day is a strong sell signal. But but but Pops, this is the start of a raging bull market!
I know, I know.
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@gringo_in_arg
Just did this. :)
Lil Fenix @ $2000/oz NPV5 = ~$390M, NPV10 @ $2500/oz = ~$490M. Market cap = ~$150M so P/NAV of 0.3x to 0.4x - implying a production rerate of 2-3x.
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@YellowLabLife
The Lundins will notice and pivot to the next phase of value creation when the drill results stop moving the needle.
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#savecanadianmining
Well done Vuk.
$ARIC.V
#mintwit
Story Time
Congratulations to Mr. Robin Birchall, apparently also known as Postman Pat around London, for getting fired for the umpteenth time in his career. Congratulations to Mr. Derk Hartman too - not a first one!
It's looking like there's a pattern at this
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@KJKLtd
Study was done in Q3 2023, so inflation is baked in. Using flat long-term metal price gives an idea of margin, because cost will rise with price, usually leaving extra in the miner's pocket. A pilot heap on ROM material is way more than gets done for most projects.
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@KJKLtd
The assumptions on inputs don't matter nearly as much as the commodity price - so it all gets washed away. There is some merit in real options analysis, but when all valuation is based on a flat LT commodity price, it makes the probablistic analysis on the rest somewhat moot.
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@torchincapital
$SLS has been a rocket under
@DanielEarle3
. Now we need $EQX to live up to its substantial re-rate potential (leverage to Au, big growth baked in) as generalists come to the space in this next wave up.
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@jtourzan
Shafts are already in place (though will require some rehab). Thesis is that the two different orebodies connect, which is 2km of mineralization.
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Gold investors are taking this drop too well... so I'm expecting more time down here or lower. When folks are saying "f this stupid sector, I'm out" then we're good to go.
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@EconomicAlpha
For me it's Kinross because of torque. Geopolitics have them lagging on P/NAV (Russia, Brazil) and AISC is higher, but that means if metal price runs there is more room for gains. Simply put, it's higher risk, higher reward.
I like EQX for the same reason.
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@nicholasavery
People look at 0.5-1.0 g/t and sneer at the grade, but heap leaches an be some of the most profitable mines out there. They are dirt cheap to build (small hole to dig out of) and operate.
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@Pete__Panda
Massively. In the same way some rock is easy to crush, and some is a nightmare, so it goes with drilling. Natural abrasion characteristics are big influences, as is the competency of the rock. Time costs are about the same, but $/m will vary wildly.
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@YellowLabLife
The rest of the business world says "A money goes out, B time passes, range of C to D money comes back. Here are the assumptions underneath that. X, Y, and Z
are the things we'll do by H, I, J dates, and you should hold us to account on that.
Don't see miners doing that.
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@YellowLabLife
What's the real solve to getting management and boards in the mining biz to actually align interests with shareholders. It seems this biz does it much worse than others.
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$MAI.V and $RIO.V - both heap leach development projects by experienced heap leach teams.
@real_MikeBarnes
&
@EconomicAlpha
you guys both have high conviction about $MAI.V but largely silent on $RIO.V. Any comments as to why? 1/x
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A 250koz/a producer is bigger than "junior" and should support a valuation in the range of $750M to $1B at consensus gold price, call that a 0.75-1x NAV multiple. That's a 5-7x on SP. The company is cagey about the water, because it is the key to unlocking huge value. 4/x
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@KJKLtd
Absolutely not! A project model is asset-level and standalone. Enterprise level financial models (incorporating debt/equity/stream/offtake/whatever) are a different animal and not directly tied to the project.
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@BlackAlex58
@Mark_IKN
@FL46568347
@real_MikeBarnes
Sorry mate, the only way shareholders got through the purgatory phase was to lean into the Chinchilla jokes. They will go away only when we see gold bars from ops.
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@real_MikeBarnes
@dougcan
Reflecting a bit more, once both companies are successfully transitioned to being cash flowing businesses (heap leaches are the best!!) Where they differ is how a potential acquiror would see them. $RIO.V will be a single asset producing >200koz, which will be extremely...
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... they are now doing a reverse consolidation and name/symbol change to Augusta Gold ($G). It is smart. The model works, especially in a bull market. Easy multibagger in a rising gold environment. Can I get an amen,
@DanielEarle3
? (cc
@TraderPamplona
) 6/6
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@VukasinPekovic
@TRAVmoneyofmine
@YellowLabLife
@ftcommodities
There's also a different operating mindset in base metals companies compared to precious metals. Grade variability in gold means that the ops can raid the honeypot to hit their numbers, and that fosters a gambling mentality. In base metals, grade variability...
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Rio's NPV at consensus gold price of $1,600/oz is $300M. Market cap is $150M CAD, so let's call that $120M USD. A junior producer these days is about ~0.75x NAV, so an investor today is looking at >85% upside as the re-rate potential for
@BlackAlex58
and team executing .. 2/x
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... but availability isn't the question so much as cost. Resource size implies Fenix can hit 200+koz/a out of a single mine. Just curious if you had thoughts as to what makes $MAI so high-conviction in your mind but not the other one. Hopefully all can learn from the thread?
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@TheWealthMiner
@Buy100ozSilver
Was talking a reasonably smart person last night, and very few miners are actually making good money... partly that's talent challenges, but revenues just aren't good enough. Given that the biz still is seen as a leper for capital, it will sort itself out.
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@nicholasavery
Look at the share registry. Private Equity always has a clock ticking from fund duration, and Denham (50+%) probably needs an exit.
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@Pete__Panda
@VukasinPekovic
Thanks for the nudge 🐼
Bulk concentrate typically means off the rougher circuit, where it hasn't gone through any cleaning yet... so if that's the case, these are strong met results.
1/n
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So to recap: this company is playing for a ~2x just based on an execution rerate. With market tailwinds, 4x on the current project configuration and a greater than 10x on the bigger project, unlocked by more water. 6/x
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@BlackAlex58
@Mark_IKN
@michaelbhorner
I think that's more a function (and indictment) of the owner's teams that hire the consultant. It's the owner's business, and they are responsible for all the outcomes.
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@VukasinPekovic
@TRAVmoneyofmine
@YellowLabLife
@ftcommodities
It's why I like gold heap leaches for sure. Efficiency-driven profits.
The other reason gold miners are getting into copper is that the gold content of copper concentrates for a big scale copper mine is the real scale they're after. 250-500koz/a production is hard to find....
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@real_MikeBarnes
@dougcan
... attractive to most sized gold producers. $MAI.V should have a >150koz profile from 3 mines, but spitting cash. That's less sexy as a takeout target, but a solid platform from which to go shopping for more assets. Both are great companies. (Outsized positions in both)
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@JordiEngineer
@TheWealthMiner
It's not consultant that matters so much as owners team. Right or wrong, human nature and behavioural economics makes consultants malleable.
All risk is owner's risk. It starts and ends with the owner's team.
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@Mark_IKN
Wait, you want to talk about the plausibility of this being a mine? Wet blanket!!
This whole district is a long way away from producing, but there is monster scale here that hasn't yet been doused by the realities of the lassonde curve.
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@minestockwatch
@BlackAlex58
It is indeed goofy. I mean it's a ROM heap FFS! Capex risk is a package ADR plant and a bunch of dirt work.
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@Mark_IKN
@TheWealthMiner
He's in efficient, and he knows it. This is the natural next step for a junior mining punter...
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@bigdude6669
@Edark94
@SA_VanInvestor
In the interview with Jay Martin you said you wanted to see a few more things in DD on PNRL before going big... fair to assume this 1.5M shares reflects your intent?
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Seems like the timeline to production is faster for Alamos, but then expansion strategy is multi-mine at a smaller scale. Rio2 is a little longer to get the starter size Fenix going, then the scaling to a larger operation is based on water availability... 2/x
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@JBarabi
@Mark_IKN
@gringo_in_arg
@BlackAlex58
Not sure, Jim - made my model needlessly complicated in order to be able to flex opex etc from first principles, and goalseeked it to line up at the FS numbers. In any case, given the uncertainty in the inputs and the multiples, all you can do is give yourself direction.
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@Mark_IKN
@michaelbhorner
@croninpd
@YellowLabLife
@siebebreed
@AdriaticMetals
Everyone in this conversation. Peace to all, checking out here.
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Despite being a 250koz/a producer, it would still be tiny capex (ROM heap) and a simple damn mine because it's just a big dirt moving operation. No sweat to execute for this team. During the last gold bull market, producer prices peaked at 2x NAV. 5/x
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@real_MikeBarnes
@dougcan
Appreciate the thoughtful response on the ODEV hangover. I think the multi-mine thing is double edged... Diversification & split attention by mgmt team vs one bucket and 100% focus. Both can work, both can bite.
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@TheWealthMiner
@JrMiningNetwork
@TheOreGroup
Sure, but 62c and a half warrant, where mgmt sells into it?
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@michaelbhorner
Nah, it's the smelters adding a germanium circuit, looking at market terms and realizing they don't have to pay a credit to Zn producers. ;)
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@YellowLabLife
All that yelling into the wind is based on PROJECTIONS for demand (and price increase). But we know how good crystal balls are... if it's right, the signal is price. And then money comes. Basic, elementary shit.
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@BlackAlex58
@TheWealthMiner
You won't be free of this nonsense until that first pour, mate...
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@VukasinPekovic
@TRAVmoneyofmine
@YellowLabLife
@ftcommodities
... is generally low, which means money is only made through relentless efficiency.
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