Ms. Kathryn Johnson reports
RIO2 OUTLINES PLANS FOR COMPLETION OF FENIX GOLD MINE FINANCING
Rio2 Ltd. has provided an outline of its plans to complete the financing for the construction of the Fenix gold project in Chile.
The plan includes appointing an independent financial adviser, completing a feasibility study on the development of the Fenix gold 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.
Appointment of independent financial adviser
Rio2 has appointed Endeavour Financial to provide financial advisory services with respect to the financing and construction of the Fenix gold mine.
Endeavour will work closely with Rio2's board and management in developing the optimum financing solution for the Fenix gold project given the project's current status. 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.
Fenix gold feasibility study
An updated prefeasibility study was prepared for the Fenix gold project in August, 2019, and amended and restated on Aug. 3, 2021.
Since that date, and over the course of H1 2022, the company completed detailed engineering and updated cost estimates for the purpose of financing 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. 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. 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 Q2 2023. The feasibility study will be a key document for consideration by the project's potential lenders.
Precious metals purchase agreement
On March 29, 2022, Rio2 announced that it had received a deposit payment of $25-million (U.S.) from Wheaton Precious Metals International (WPMI) in connection with the previously announced precious metals purchase agreement on Rio2's Fenix gold project in Chile.
Under the gold stream, WPMI will purchase 6 per cent of the gold production until 90,000 ounces of gold have been delivered, thereafter dropping to 4 per cent of the gold production until 140,000 ounces of gold have been delivered, after which the gold stream will reduce to 3.5 per cent of the gold production for the life of mine from the Fenix gold project. In addition, WPMI will make continuing production payments for gold ounces delivered equal to 18 per cent of the spot gold price until the value of gold delivered to WPMI less the production payments is equal to the total upfront consideration payable by WPMI under the gold stream of $50-million (U.S.), at which point the production payment will increase to 22 per cent of the spot gold price. As part of the agreement, a second deposit of $25-million (U.S.) was to be 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.
As the approval of the EIA was declined by the Chilean government on July 5, 2022, the timing and completion dates of the construction and eventual production of the Fenix gold project are currently unknown. Given this uncertainty, Rio2, in close consultation with Endeavour Financial, is planning to revise and restructure the agreement with WPMI as soon as practicable.
Discussions with lenders
Discussions with potential lenders were well advanced prior to the negative EIA decision by the Chilean government on July 5, 2022.
Technical due diligence was almost completed by independent experts acting on behalf of the lenders before July. On receipt of the negative EIA decision, 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.
Status of administrative appeal process
On Aug. 31, 2022, Rio2's local subsidiary, Fenix Gold Ltda., decided to exercise its right to file an administrative appeal before the ministries committee. The ministries committee is composed of the Ministries of Environment (chairman), Health, Economy, Agriculture, Energy and Mining. The national director of the Environmental Assessment Service (SEA) is the secretary of the committee.
The basis of the administrative appeal is based on the following key findings:
- The Fenix gold project was presented for environmental assessment through an EIA, which is the most stringent instrument contemplated by Chilean environmental law. The EIA also included a successful public consultation process and successful special consultation process for indigenous communities, under the rules of the OIT No. 169 International Convention. The rejection of the EIA is 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 Chinchilla chinchilla, Lama guanicoe and Vicugna vicugna;
- Fenix Gold provided quality information in the EIA to demonstrate there were no significant risks to the aforementioned fauna species. This finding was incrementally strengthened and supported during the process through additional monitoring campaigns and data compilation, in direct response to the authorities' requests;
- The monitoring campaigns and technical information produced by Fenix Gold and its external advisers were prepared using the methodologies and guidelines established by the authorities and consistent with similar precedents in the area;
- 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, in which it is not legally possible for the company to present additional answers. Making requests or observations after the EIA process is closed is not consistent with the nature and rules of the environmental impact assessment process.
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.
It should be 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 Rio2 receive a negative decision from the appeal, the company will take the matter to a judicial level and vigorously defend its legal rights to having the decision overturned.
In parallel with the administrative process, Rio2 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 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 Rio2 management.
Fenix gold project
The Fenix gold project is one of the largest undeveloped gold oxide, heap leach projects in the Americas, hosting a measured and indicated mineral resource (as such term is defined in National Instrument 43-101 -- Standards of Disclosure for Mineral Projects) of five million ounces of gold which the company believes will make a positive contribution to the Atacama region and Chile. The project is an example of modern gold mining where a full complement of technical, environmental and social considerations has been consulted on and designed in from the outset. The project represents a significant investment in the gold mining business in Chile by a junior mining company of approximately $210-million (U.S.) of initial and sustaining capital and will generate employment for at least 1,200 people during the construction phase and 550 people during the 17-year operations phase. The mine being contemplated at the project will be a run-of-mine heap leach operation; no crushing or tailings storage facilities are required, thereby minimizing the overall impact and footprint of the project.
The scientific and technical content of this news release has been reviewed, approved and verified by Enrique Garay, MSc, PGeo (AIG member), a consultant to Rio2, who is a qualified person under NI 43-101 and has also reviewed, approved and verified the scientific and technical content of this news release. For additional information regarding the project, including key parameters, assumptions and risks associated with its development, see the independent technical report entitled "Updated Pre-Feasibility Study for the Fenix Gold Project, Atacama, III Region, Chile" dated Aug. 3, 2021, with an effective date of Aug. 15, 2019, a copy of which document is available under Rio2's SEDAR profile.
About Rio2 Ltd.
Rio2 is a mining company with a focus on development and mining operations with a team that has proven technical skills as well as a successful capital markets record. Rio2 is focused on taking its Fenix gold project in Chile to production in the shortest possible time frame based on a staged development strategy. Rio2 and its wholly owned subsidiary, Fenix Gold, are companies with the highest environmental standards and responsibility with the firm conviction that it is possible to develop mining projects that respect the three axes (social, environment and economics) of sustainable development. As related companies, Rio2 reaffirms its commitment to apply environmental standards beyond those that are mandated by regulators, seeking to protect and preserve the environment of the territories that it operates in.
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