The following came from Canaccord on Nov 12, 2012:
Rio Novo Gold (RN : TSX| HOLD, Target C$0.25)
Almas DFS and Board approval; financing the key challenge
We maintain our HOLD rating on Rio Novo Gold following the release of the Almas Definitive Feasibility Study (DFS). The DFS highlighted decent economics (relative to market expectations of a possibly uneconomic project) and has been approved for construction by the board. However, construction will be subject to the successful arrangement of project financing, which, in our view, will remain a key challenge to overcome in these markets.
The DFS is based on reserves of 763,940 oz Au grading 0.87 g/t and envisions a project producing on average 51,908 oz over a 13.5-year mine life with cash operating costs (excluding royalties) of US$721/oz LOM average.
Pre-production capital costs are estimated at US$150 million and life-of-mine sustaining capital of $88.4 million, vs the PEA estimates of US$94.4 million and $33.7 million, respectively.
Over the first three years production is expected to average 73,172 oz at cash operating costs of US$483/oz based on higher grades of 1.25 g/t. The optimization of the mine plan and the processing of higher grades in the first three years help generate a decent 22% after-tax IRR at $1450/oz Au (2.8 year payback), which is encouraging for a project that had essentially been written off by the market.
Endeavour Financial has been engaged as Rio Novo’s financial advisor to secure debt financing for the project. Management remains optimistic that debt financing can be secured for up to 80% of initial capital requirements. However, in our view raising the $150 million in capital could prove to be a challenge given current market conditions.
Given the risks associated with project financing, our 12-month target price remains unchanged at C$0.25 based on an in-situ valuation of approximately $8/oz total resources ($18 million), plus 50% of cash on-hand ($8 million), plus the ball mill valued at cost, i.e., $3.8 million. There could be considerable upside to our valuation, if financing can be arranged on reasonable terms and without excessive dilution.
Upcoming potential catalysts
Project financing arrangements for Almas (late 2012E/early 2013E)
The typical risks associated with any mining investment include commodity and exchange rate risk, social/political/regulatory risk, permitting, technical (development/operating) and financing risk. As a mining company in the exploration stage, Rio Novo is also subject to the above risks. In addition, investors considering an investment in Rio Novo should consider the early stage and speculative status of the Almas, Guaranta and Toldafria projects and note specific risks associated with assumptions driving our valuation and recommendation. Given the associated risks, we believe an investment in Rio is appropriate only for investors with a high tolerance for risk.
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P.S. I am also keen on Duran Ventures as it is now focused on production in Peru and Rio Alto is carrying the ball in its first venture outside its $200,000+ oz/annum La Arena gold mine. Here is recent insight to help you do your DD http://miningmarketwatch.net/drv.htm is URL.