Rio2 eyes bold water plan for giant Chilean gold expansion

TSX-listed Rio2 Limited has chalked up a major win for its flagship Fenix Gold mine in Chile’s Atacama region by inking deals with two separate desalinated water providers that could more than triple output to 300,000 ounces of gold a year.

The Canadian developer’s Chilean subsidiary, Fenix Gold Limitada, has teamed up with water distributors in Copiapó to investigate the logistics of piping desalinated water from the coast to the mine’s lofty Andean location.

If it comes off, it will be the first-ever use of desalinated water at a high-altitude mine in the Atacama and an industry breakthrough in one of the planet’s driest regions.

Under the deals, each water provider will launch concept studies to weigh up supply options and the pipeline infrastructure needed to pump water up to Fenix Gold, before Rio2 picks a partner for full feasibility and to run a joint development. 

The company says it is discussing the concept with other miners in the area to see if they want in as well, thereby potentially lowering costs all round.

Rio2’s new water strategy has cracked open the door to an ambitious plan to increase production threefold at the company’s Fenix Gold mine.

The company says it will start its own pre-feasibility study on the expansion early next year, followed by a resource and reserve update by the end of 2026. A full feasibility study has been pencilled in for the second half of 2027, setting the stage for budgets and funding approvals in early 2029.

Both the desalinated water supply works and broader project capital works should be wrapped up by the second half of 2030, according to the company, allowing the mine to ramp up to its higher production target. 

If the studies hang together, the expansion plan could deliver 80,000 tonnes of ore per day to the heap leach pad, with a whopping production target of at least 300,000 gold ounces per year for 10 years. 

Rio2 Limited president and chief executive Andrew Cox said: “This is a significant milestone for the planned future expansion of the Fenix Gold mine and we are very pleased to have got to this position with the two potential water providers.”

Fenix Gold is already a monster deposit, hosting 389 million tonnes of ore at a grade of 0.38 grams per tonne (g/t) gold for 4.8 million measured and indicated ounces of gold.

Rio2 is already deep into phase one construction of the mine and is scheduled to tip US$235 million (A$355 million) of initial and sustaining capital into the build, with the first gold pour due in January next year. 

Using a simple, low-cost heap leach process, the mine is forecast to churn out 91,000 ounces of gold a year at a higher grade of 0.54g/t for the first 12 years and average 82,000 ounces a year at 0.48g/t over its 17-year life.

A 2023 feasibility study valued the project at a US$210.3 million (A$333 million) after-tax net present value (NPV) using a conservative US$1750 an ounce gold price to deliver a quick 3.5-year payback. 

However, with gold now fetching more than double that, the economics look jaw-dropping. Even at a modest US$2250 an ounce, Rio2’s updated modelling shows the NPV rocketing to US$546 million (A$824 million), with a blistering 64 per cent internal rate of return, underlining the mine’s serious upside.

The project has already been touted as one of the largest undeveloped gold oxide, heap-leach assets in the Americas, with minimal environmental footprint thanks to its run-of-mine approach. The company says its mining process involves no crushing, no tailings and a design shaped around modern environmental and social best practices.

With water security long seen as the Achilles’ heel of mining in northern Chile, Rio2’s strategy to sign up water companies to study the potential for a constant supply of desalinated water could give it a serious edge. 

If Rio2 can turn the taps on at Fenix Gold, it won’t just quench the project’s thirst. It could cement the mine as one of the most transformative gold stories in South America.

Is your ASX-listed company doing something interesting? Contact: mattbirney@bullsnbears.com.au