Interview with Alex Black, Executive Chairman of Rio2 Ltd.

Our previous interview: https://www.cruxinvestor.com/posts/rio2-tsxvrio-and-erdene-resource-development-tsxerd-nearing-gold-production-milestone-5653

Recording date: 5th November 2024

Rio2 Limited (TSXV:RIO) is on the verge of constructing its flagship Fenix Gold Project in Chile's Atacama region. The fully permitted and financed oxide gold heap leach mine is expected to pour first gold within 12 months, putting the company on a fast track to near-term cash flow and a potential re-rating.

In the interview, Rio2 CEO Alex Black laid out the investment case for the junior developer. With 5 million ounces of gold in a low-cost, run-of-mine operation, Fenix stands out as one of the most attractive advanced-stage projects in the hands of a junior. The after-tax NPV(5%) of $800 million is four times the company's current market capitalization, suggesting Rio2 is deeply undervalued. But the real blue sky lies in Fenix's expansion potential. Black sees the project ramping up from 20,000 tonnes per day to 80,000 tpd in relatively short order, which would propel annual gold production to approximately 300,000 ounces. At that scale, Rio2 would stand out as a prime takeover target.

"When we get to 300,000 ounces per annum, from one mine, we become a world-class project that somebody else is going to want," Black explained. The key hurdle is securing additional water supply, with studies already underway on desalination options.

Fenix's straightforward oxide mineralogy and no-crush, run-of-mine heap leach process make for an expedited path to production. With earthworks already underway, Black expects to be in production in the second half of 2025, far quicker than the multi-year development timetables of most peers. 

Rio2 also aspires to be a regional consolidator, assembling a portfolio of undervalued gold projects in Latin America. Black sees considerable opportunity to unlock stranded assets by applying his team's skill set in permitting, construction and community relations. Chile in particular is ripe for consolidation, with few key players and a long list of undeveloped gold projects. "I think there's a consolidation opportunity for Rio2 to consolidate projects and become something that somebody else will walk into and go 'great, we've got an entree and a big base in Chile,'" said Black.

With over US$60 million in cash and a market cap of just US$200 million, Rio2 has ample currency to transact and a compelling valuation arbitrage to exploit. As Fenix advances through construction and begins generating cash flow, the company will be well positioned to build an attractive acquisition pipeline.

The macro backdrop is also highly favorable, with gold prices hitting all-time highs and industry consolidation accelerating. Advanced-stage projects like Fenix are in high demand as producers race to replenish depleted reserves. Rio2 offers substantial leverage to a rising gold price and M&A premiums.

With a proven CEO, near-term path to production, and organic/external growth potential, Rio2 is a junior developer to watch. As Fenix de-risks further and the company executes on its strategic vision, the stock appears poised for a material re-rating. Rio2 offers a unique combination of imminent cash flow and expansive blue sky in a rapidly evolving gold bull market.

View Rio2 Limited's company profile: https://www.cruxinvestor.com/companies/rio2-limited

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