Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Ride the Tiger with CD -- Ignore unavailable to you. Want to Upgrade?

To: dara who wrote (200135)	5/25/2011 11:25:58 AM
From: mimur	Read Replies (1) \| Respond to of 314106

Rio Alto Comes Free Trading Today…Time to Revisit: Note that the $2.05/sh Rio Alto (RIO-CN, not covered) deal that closed on January 25th comes free trading today. Recall Scotia Mining Sales likes Rio Alto for its 100kozs/year of gold production currently which implies 4x ebitda BUT management is seeing a 170kozs run rate now because they “underestimated” the gold grades in the ore… They are only in their first month of production so won’t revise guidance until they see a full quarter of this. Also, stock has been held back in our view because of uncertainty associated with the upcoming Peru election on June 5th. Scotia Mining Sales thinks Rio Alto is a takeover target… See Scoop from Friday, May 20th…. -- Looking for a Takeover Target? Scotia Mining Sales likes Rio Alto - Scotia Mining Sales thinks Rio Alto is a strong candidate for takeover in the coming year. The company has current gold oxide production and a copper-gold porphyry project that looks to be getting bigger with ongoing drilling. 1) Current Gold Oxide Production - Guidance is for 100kozs/year for 7 years at cash costs of $500/oz - however early indications thus far is that grades are reconciling much higher than their mine plan - if this continues production could be over 170kozs/year. Management says it is still too early to increase guidance given they just poured their first gold bar 2 weeks ago but are encouraged by the early production numbers. Even at 100kozs/year - Rio Alto is trading around 4x EBITDA so we think the market is ignoring the company's copper-gold porphyry project at this point. 2) La Arena Porphyry - Watch for drilling results over the course of this year pointing to a much bigger resource than the current 187MT at 0.4% cu and 0.3 gpt gold - we think this resource grows to over 400Mt with similar grades - we expect the new resource update in Q1/12 followed by metallurgy which is likely to show improved gold recoveries to 60% by Q2/12. A 50,000 tpd plant, capex of $1.2B, total cash costs net of gold production of $1.10/Ib, $2.75 copper price & $1,000 gold price, with 130MIbs copper production & 100kozs gold production would lead to a US$400 to US$500M after-tax NPV project. Conclusion: Scotia Mining Sales thinks you can buy Rio Alto for their Gold Oxide Production and get their Porphyry Project for free - a project likely to show a value of US$400 to US$500 NPV discounted at 8% by this time next year. And remember that the company only has a market cap of ~C$380mm