RNC Minerals (previously often known as Royal Nickel) (OTCQX:RNKLF) is an fascinating firm, with a 28% curiosity in a world-class nickel-cobalt asset and a gold mine with sky-high exploration potential. Each of the property are situated in secure jurisdictions of Canada and Australia. As may be seen within the chart beneath, RNC was a typical penny inventory just one yr in the past. The Dumont undertaking was giant however hardly economical on the prevailing metals costs, and the Beta Hunt mine was solely a marginal gold mining operation. However, in September, the ultra-high-grade Father’s Day Vein was found, the share value shot up, RNC rapidly generated comparatively lot of money. Furthermore, it made an fairness financing at elevated share costs and repaid its money owed. Though the preliminary post-Father’s Day Vein enthusiasm slowly pale away and RNC’s share value declined again to the $zero.three stage, loads of progress essential for the way forward for the corporate has been finished over the current months.
And, yesterday, RNC Minerals introduced the invention of a brand new high-grade zone of coarse gold in quartz veins, beneath the well-known Father’s Day Vein. It’s estimated that 987 toz of coarse gold was recovered in 238 kg of rock from a collection of veins (the accuracy of the estimate is +10%/-25%). In line with Mark Selby, the CEO of RNC Minerals:
This most up-to-date discovery gives additional help for our geological mannequin that predicts that the areas the place the mineralized shear zone and sedimentary sulphides intersect are able to producing “Father’s Day Vein” fashion coarse gold mineralization, and proves that such areas prolong at the least 25 metres beneath the Father’s Day Vein discovery.
Supply: RNC Minerals
Solely to have a gross image, 987 toz gold equals 30,699 grams. After deducting not 25% however 30% from this estimate, to be extra conservative, the ensuing quantity is 21,489 grams of gold that was recovered from 238 kg of rock. It implies that the gold grade of the talked about ore pattern was at the least 90,290 g/t gold. After all, that is solely a tough quantity, however it additional underlines the acute potential of the Beta Hunt mine.
The Beta Hunt Mine
The Beta Hunt mine is a former nickel mine acquired by RNC in 2013. In 2014, the nickel manufacturing was resumed and, in 2015 additionally, a small-scale gold manufacturing started. The humorous factor is that lower than one yr in the past, the mine was on the market. RNC was near closing the deal when it found the extremely high-grade Father’s Day Vein, and every little thing has modified. On September 9, RNC introduced that in a single week, it extracted roughly 9,250 toz gold, together with enormous specimen stones containing 2,440 toz and 1,620 toz gold. Greater than 30,000 toz gold was extracted from the preliminary improvement space of the Father’s Day Vein. The amount of gold produced over a single month equaled the amount of gold produced over the previous six months. What’s necessary, RNC has recognized a sediment horizon lengthy four km and open at depth, the place extra areas of ultra-high-grade gold mineralization much like Father’s Day Vein are believed to be discovered sooner or later.
RNC Minerals targeted on increasing the present Beta Hunt mine sources over the current months. A brand new useful resource estimate ought to be ready within the coming weeks, and it’s typically anticipated that the previous estimate of 239,000 toz gold indicated and 208,000 toz gold inferred (desk beneath) will likely be improved considerably.
Supply: RNC Minerals
RNC found a number of zones of high-grade to extremely high-grade gold. For instance, within the Western Flank Zone, an interval of 27.Eight meters grading 16.Eight g/t gold was intersected by drill gap WFN-071. Gap WFN-029 intersected 1,zero17.three g/t gold over 2 meters. Within the A-zone space, gap AZ15-022 intersected 119.37 g/t gold over 6.four meters and gap AZ14-012 intersected Eight.99 meters grading 10.9 g/t. Furthermore, a number of interceptions with gold grades that had solely single-digit values had been made at each zones. They had been solely single digit however notably above the present useful resource grades. It implies that not solely the amount of contained gold but additionally the gold grades ought to enhance meaningfully.
Though the useful resource replace will likely be an necessary milestone, RNC made additionally different necessary steps as a way to help the Beta Hunt mine future. On Might 13, it exercised the choice to buy the Higginsville Gold Operation from Westgold Sources for A$25 million ($17.5 million) and 49.Eight million RNC shares. The Higginsville operation is fascinating particularly for its 1.three Mtpa mill. The processing plant is comparatively new, it was inbuilt 2007. Proper now, the ore from Beta Hunt is being processed below a toll milling settlement. Because of the Higginsville mill, RNC will be capable to course of the ore by itself, saving round $100/toz gold.
Nevertheless it does not finish on the processing plant. RNC acquires additionally an lively mining operation that’s anticipated to supply 40,000-45,000 toz gold at an AISC of $1,000-1,050/toz this yr. The Higginsville mine accommodates reserves of 367,000 toz gold and measured, indicated, and inferred sources of 1.92 million toz gold (desk above). Furthermore, there’s a vital exploration potential, because the Higginsville property covers an space of 38,600 ha (386 km2).
Supply: RNC Minerals
To sum it up, the Higginsville acquisition won’t solely increase RNC’s present gold manufacturing however can even assist to cut back RNC’s AISC/toz gold, will develop the general company-wide gold sources considerably, and can present a big land package deal for exploration. The transaction is predicted to be accomplished by June 10.
The Dumont Challenge
It’s also necessary to not overlook that Beta Hunt (and shortly additionally Higginsville) will not be RNC’s solely asset. RNC owns additionally 28% of the Dumont nickel undertaking, one of many greatest nickel-sulfide deposits on this planet. An up to date feasibility examine for Dumont was ready solely final week.
In line with the replace, the Dumont deposit accommodates reserves of 6.082 billion lb nickel, 243 million lb cobalt, 627,000 toz palladium and 287,000 toz platinum. Furthermore, the measured and indicated sources (together with reserves) include 9.75 billion lb nickel, 394 million lb cobalt, 1 million toz palladium, 461,000 toz platinum, and 47.58 million tonnes of magnetite (desk beneath). And, there are additionally inferred sources of two.86 billion lb nickel, 112 million lb cobalt, 220,000 toz palladium, 92,000 toz platinum, and 33.43 million tonnes of magnetite.
Supply: RNC Minerals
The mine ought to be developed in two phases. Within the first section (years 1-7), the typical annual manufacturing ought to equal 73 million lb nickel, 2 million lb cobalt and 14,000 toz palladium and platinum. This all at an AISC of $four.19/lb nickel. Within the second section, the manufacturing ought to enhance to 111 million lb nickel, three.four million lb cobalt and 25,000 toz of platinum and palladium, at an AISC of $three.Eight/lb nickel (years Eight-19). Over the 30-year mine life, the annual manufacturing ought to common 87 million lb nickel, 2.6 million lb cobalt, and 19,000 toz platinum and palladium, at an AISC of $three.Eight/lb nickel.
The preliminary CAPEX is estimated at $1 billion. The growth CAPEX ought to equal $601 million and lifetime of mine sustaining CAPEX $611 million. At a nickel value of $7.75/lb ($5.35/lb nickel proper now), cobalt value of $25/lb ($15/lb proper now), platinum and palladium value of $1,000/toz ($800/toz and $1,320/toz proper now), CAD/USD change charge of zero.75 (zero.746 proper now) and oil value of $60/barrel ($52/barrel proper now), the after-tax NPV(Eight%) of the Dumont undertaking equals $920 million, and the after-tax IRR equals 15.2%.
The outcomes of the up to date feasibility examine present that though Dumont is a world-class undertaking, its improvement is unbelievable on the present metals costs. Nevertheless, it’s nonetheless a beneficial asset, and the 28% curiosity affords RNC a number of choices. RNC can attempt to promote its Dumont curiosity and use the proceeds to finance the Beta Hunt exploration and improvement. Nevertheless, it’s arduous to say whether or not somebody could be keen to pay an inexpensive value proper now. Another choice is simply to sit down tight, and later, after the nickel costs enhance, use money flows from Beta Hunt to finance RNC’s share of preliminary Dumont CAPEX (round $280 million).
What To Count on Subsequent
The gold manufacturing ought to enhance considerably on the Beta Hunt mine. In Q1 2019, RNC produced solely three,716 toz gold, however it was attributable to the manufacturing ramp-down associated to the continued 40,000 meters drill program. Nevertheless, a restricted bulk gold mining has been restarted in April. The total ramp-up ought to comply with after the useful resource replace is accomplished. Furthermore, additionally some nickel manufacturing ought to assist to spice up the money circulation. In line with the Q1 information launch:
Restricted restart of bulk gold mining is nicely underway at Beta Hunt. By the top of April 2019, the restart had already achieved a 40,000 ounce annualized run charge. Nickel manufacturing has additionally resumed and can contribute money circulation going ahead.
It’s doable to anticipate that, in Q2 or Q3, RNC’s annualized general (Beta Hunt + Higginsville) gold manufacturing charge ought to cross the 100,000 toz stage, with some nickel manufacturing as a bonus.
After the brand new useful resource estimate is accomplished (anticipated by the top of June), RNC’s exploration actions will begin to deal with the extremely high-grade potential of the areas the place the 4 shear zones meet the Lunnon sediment layer. The purpose is to make additional high-grade coarse gold discoveries.
The Potential Dangers
After all, no funding is totally risk-free. RNC Minerals has an enormous benefit that each of its key property are situated in secure jurisdictions, Dumont in Canada and Beta Hunt in Western Australia, within the Kalgoorlie area. Proper now, the most important potential threat appears to be associated to financing. Though, as of the top of Q1, RNC had a debt of solely C$6.96 million ($5.2 million), it held money of solely C$752,000 ($562,000). As a result of exploration-related manufacturing ramp-down, the money circulation was damaging C$5.5 million ($four.1 million) in Q1. Over the current quarters, RNC had to make use of fairness financings to partially finance the debt compensation and the intensive exploration program at Beta Hunt. Furthermore, one other 49.Eight million shares will likely be issued as part of the Higginsville mine acquisition. The excellent news is that RNC ought to begin to be money circulation optimistic most likely as quickly as in Q2. Furthermore, with Beta Hunt again in manufacturing and with the newly acquired Higginsville mine, it ought to be a lot simpler to safe additionally a debt financing at some affordable phrases, if wanted.
And, it will be significant to not overlook the geological dangers. Though RNC’s mannequin appears to be working and the exploration outcomes carry on confirming it, there may be some threat that the ultimate outcomes will not be as optimistic as anticipated. Nevertheless, this threat retains on diminishing with each launch of exploration outcomes. Particularly if they’re much like those launched yesterday.
RNC Minerals goes to personal two producing gold mines quickly. As a bonus, there may be additionally the 28% curiosity within the Dumont undertaking. RNC’s annualized gold manufacturing charge ought to attain the 100,000 toz stage within the coming quarters. Furthermore, there’s a blue-sky exploration potential on the Beta Hunt property. And, though RNC is sort of debt-free, its market capitalization is simply $190 million (market capitalization after RNC’s share value opened buying and selling at $zero.four, following yesterday’s information launch). I imagine that RNC’s 28% Dumont curiosity alone is value greater than this, as $190 million represents only one.82% of the present market worth of metals contained in Dumont reserves attributable to RNC and only one.14% of the present market worth of metals contained in Dumont sources (excluding magnetite) attributable to RNC.
Given the exploration potential, the sky appears to be the restrict for RNC’s share value. Nevertheless, it’s arduous to set a precise value goal proper now. The upcoming Beta Hunt useful resource estimate along with Q2 and Q3 manufacturing outcomes ought to push the share value larger, perhaps again to final yr’s highs round $zero.Eight, if the gold value stays above $1,300/toz. Additional upside will rely upon additional exploration outcomes.
Disclosure: I’m/we’re lengthy RNKLF. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (aside from from Searching for Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.