Here's the chunk on Rio Alto Mining (RIO.v) as it appears in Scotia's Mining Scoop morning letter today. By way of disclosure I'm long RIO.v and I think Scotia is right about this stock, but i can't understand why they insist on pumping other dogs on their list like Duran Ventures (DRV.v). Anyway, WTFDIK, here's the RIO.v promo:
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