Rio Alto Mining Ltd (RIO) is poised for success in exploration, according to Raymond James & Associates Analyst Adam Low. He says the outlook for the company’s La Arena mine in northern Peru is promising.
“They are producing about 200,000 ounces of gold per year at all-in sustaining cash costs in the range of about $700 to $800 per ounce. So they are making very good cash flow right now,” Low says. “And the mine is actually becoming more efficient. Later on this year, they are going to be completing the installation of a connection to the electrical grid in Peru, which will allow them to source much cheaper power than they’re currently getting from their diesel generators that they have on-site.”
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In addition to lower electrical costs, Low says Rio Alto Mining has done a major pushback on the west-wall pit, which he says bring down the company’s strip ratio, and therefore mining costs, over the next couple of years. As a result, Low says Rio Alto will be producing roughly the same number of ounces, but at a lower cost.
“This is a company that is generating good profits. The margin should be improving going forward,” Low says. “It’s got a very strong balance sheet, essentially no debt. They are generating free cash flow.”
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