Rio2 Comparison20 Mar 2022 10:37
I find it helpful to try and look for other companies that are a similar size and similar stage (or just ahead of us) to look for possible comparisons and track their share price (in relation to the lassonde curve). Rio2 are a reasonably decent comparison.
First off, I'm not doing anything special here and I'm not technical in anyway (I work in the NHS as a healthcare professional!). It is pretty basic comparisons. I just look at companies presentations, I don't go much deeper than that, maybe read some RNSs etc.
https://www.rio2.com/_files/ugd/d7ae14_2993bdc12eec4d8d9031ffd4027bcab4.pdf
Rio2 have a single project called the fenix gold project in Chile. It is a gold heap leach project. They do have a higher M&I resource of 5M but based on their 2019 PFS they have 1.371m recoverable gold (a bit more than us). Their grade is much lower and they are looking at around 90,000oz per annum with AISC USD$980. At $1700 gold their 5% after tax NPV is ~ USD$375m with IRR ~55% (see slide 13 on the above pdf).
Our numbers are very similar depending if which numbers you use (Open pit and feeder pit only IRR 58% and 5% post tax NPV $302m at $1700 gold) or add underground operations from cashflow (54% IRR and 5% post tax NPV $418 at $1700 gold).
Rio2 construction finance was $125-135m (similar to us). They only had to do a 15% equity raise. See slide 11 of the above pdf. Equity USD$27m, USD$50m gold stream and USD$50-60m senior project debt facility. They announced this around August 2021. Their share price at the time was around 0.74CAD and the equity was raised at 0.65CAD. The share price did then drop to as low as 0.53CAD in October 2021 (think there was some political issues in chile around that time from memory). Since then, their share price has recovered and it back around 0.78CAD.
Now Rio2 have all the funds in place for construction and similar NPV, IRR and capex costs, they are currently valued at £120m.
The debt/equity spilt is vital for the share price. If a company like Rio2 can strike that type of deal with similar NPV to us, then why can't we? Rio 2 insiders own 13%, we own 22%. Mark wants minimal dilution. We are in a strong position, we could go alone and I would hope MC strikes a similar deal to equity/gold stream/debt or we have the toll as a back up/calibre buys us out.
All depends where our share price is when we organise financing. Even at 15% equity of USD$125m, at 30p a share, we would be adding 70m shares which gives us around 220m shares. Compare that with Rio2's current market cap of £120m, gives us around 55p per share once fully diluted and fully funded (ignore warrants and money to keep the lights on!). There are obviously differences as we are in different jurisdictions but the numbers are very similar.
Lots of variables between now and actual production that could effect the above numbers (gold price, inflation, market conditions etc).
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