Rio2 Limited (TSX-V:RIO, OTCQX:RIOFF) has provided investors with an outline of its plans to complete financing for the construction of the Fenix Gold Project in Chile.
The company said the plan includes appointing an independent financial advisor, completing a feasibility study on the development of the project, reviewing and restructuring the precious metals purchase agreement with Wheaton Precious Metals International Ltd and re-engaging with lenders for the senior project debt facility of the project construction financing.
Rio2 said it has already appointed Endeavour Financial to provide financial advisory services concerning the financing and construction of the Fenix Gold Mine. Endeavour will work closely with its board and management in developing the optimum financing solution for the project given its current status.
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The company said Endeavour will provide a full-service approach to the financial advisory, which includes the review and restructuring of the existing precious metals purchase agreement, technical guidance during the completion of the feasibility study, and dealing with lenders on the debt component of the financing.
Feasibility study
Rio2 noted that an updated pre-feasibility study was prepared for the Fenix Gold Project in August 2019 and amended and restated on August 3, 2021.
Since then, and throughout the first half of 2022, the company said it has completed detailed engineering and updated cost estimates to finance discussions with lenders for the construction of the project.
Discussions with lenders were halted on July 5, 2022, when the approval of the project’s Environmental Impact Assessment (EIA) was formally declined by the Chilean Government, the company said.
“Given the project's current status, the company has decided to incorporate the detailed engineering into a new study and update operating and capital costs to reflect today’s cost environment,” Rio2 said in a statement. “The gold price will also be updated to a more appropriate level, given the August 2019 study was based on a gold price of $1,250. This new study will be completed to a feasibility level and is expected to be completed and published by the end of 2Q 2023. The feasibility study will be a key document for consideration by the project’s potential lenders.”
Precious metals purchase agreement
In the meantime, Rio2 said it plans to revise and restructure a gold stream agreement with Wheaton Precious Metals International (WPMI), in close consultation with Endeavour Financial, due to uncertainty over the timing and completion dates of the construction and eventual production of the Fenix Gold Project as a result of the Chilean Government deciding its EIA.
In March 2022, the company announced that it had received a deposit payment of US$25 million from WPMI as part of the precious metals purchase agreement on the project.
Under the gold stream deal, WPMI agreed to purchase 6% of the gold production until 90,000 ounces of gold had been delivered, thereafter dropping to 4% of the gold production until 140,000 ounces of gold had been delivered, after which the gold stream would reduce to 3.5% of the gold production for the life of mine from the project.
WPMI also agreed to make ongoing production payments for gold ounces delivered equal to 18% of the spot gold price until the value of gold delivered to WPMI less the production payments was equal to the total upfront consideration payable by WPMI under the gold stream of US$50 million, at which point the production payment would increase to 22% of the spot gold price. As part of the agreement, a second deposit of US$25 million was to have been paid to Rio2 following the receipt of the EIA approval for the Fenix Gold Project, and subject to the satisfaction of certain other customary conditions
Discussions with lenders
Rio2 said discussions with potential lenders were well advanced before last July’s negative EIA decision by the Chilean government.
Technical due diligence also was almost completed by independent experts acting on behalf of the lenders before July. On receipt of the negative EIA decision, the company said it was decided with the lenders that the due diligence work be put on hold, with reactivation expected once the planned feasibility study is completed.
“Despite the suspension of activities pertaining to the construction of the project, Rio2 is encouraged that lenders are still showing interest in participating in financing the Fenix Gold Mine construction,” the company said.
Status of administrative appeal process
The company said local subsidiary Fenix Gold Limitada exercised its right to file an administrative appeal before the Ministries Committee on August 31, 2022. It noted that the Ministries Committee is composed of the Ministries of Environment, Health, Economy, Agriculture, Energy and Mining. The national director of the Environmental Assessment Service is the secretary of the committee.
The rejection of the EIA was not based on legal incompatibilities that cannot be overcome, but on the need, according to the authorities´ view, to provide additional information to discard potential impacts to indigenous fauna species including Chinchilla chinchilla, Lama guanicoe and Vicugna vicugna. The company said Fenix Gold provided quality information in the EIA to demonstrate there were no significant risks, with the finding incrementally strengthened and supported during the process through additional monitoring campaigns and data compilation, in direct response to the authorities’ requests. However, it said certain requests or observations from the authorities, incorrectly referred to by SEA as “not addressed” by Fenix Gold, were made after the assessment process was closed.
“As a result of these key findings, Rio2 is of the view that the rejection of the project is not consistent with the environmental assessment process that took place, and, therefore, the company believes there are strong legal and technical grounds for seeking the review of the rejection of the EIA before the Ministries Committee, which has the faculties to reverse the decision made at the regional level,” Rio2 said.
The company noted that the administrative appeal is not a judicial process, and the decision of the Ministries Committee may be subjective and not consider the technical and legal arguments of the EIA decision being appealed.
Should it receive a negative decision from the appeal, Rio2 said it will take the matter to a judicial level and vigorously defend its legal rights to have the decision overturned.
In parallel with the administrative process, the company said it is conducting additional monitoring studies of the fauna in the project area to provide supporting information for the appeal process. A list of additional voluntary commitments has been developed to help address any remaining concerns that the authorities may require to guarantee the sustainable execution of the project. The company said it believes this additional work will provide a positive contribution during the administrative appeal process.
Timing for the administrative appeal has yet to be formally communicated to management, it added.
Rio2 is focused on taking its Fenix Gold Project in Chile to production in the shortest possible timeframe based on a staged development strategy.
It says the project is one of the largest undeveloped gold oxide, heap leach projects in the Americas, hosting a Measured and Indicated (M&I) mineral resource of five million ounces of gold which Rio2 believes will make a positive contribution to the Atacama Region and Chile.
Contact the author at stephen.gunnion@proactiveinvestors.com