Royal Nickel Corp. RNKLF

RNC Minerals Q1 2019 Results Conference Call, my transcript

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RNC Minerals Q1 2019 Results Conference Call May 15th 2019, my transcript. I added an about section for the insightful Q & A.
https://www.rncminerals.com/2019-05-15-RNC-Announces-First-Quarter-2019-Results

Mark Selby: « Thank you to everyone for joining us on our first quarter 2019 results call today. This morning, we issued a news release outlining first quarter 2019 results, and our MD&A and financial statements for the period ended March 31, 2019 have been filed on SEDAR. I'll be referring to presentation slides during this call and, these slides are available for download through a link on the homepage on our website at www.rncminerals.com. Before I begin, let me remind you to please review our cautionary statement, which can be found in our news release and in our presentation slides. With that, I will begin the presentation.

Before I dive into the specific slides, this quarter we advanced on two important fronts with Beta Hunt. When we initially acquired the asset, we had a few key objectives we wanted to accomplish as soon as we could and this quarter, we took some important steps forward. First, we wanted the capital to drill to highlight what we believe is the massive resource potential of this asset, which we're now doing and getting excellent results at both Western Flanks and A Zone and, some spectacular intersections at the intersection of these shears and these sediment zones, which highlights the potential of all of this resource. We wanted a long-term milling solution. With the exercise of the option that we just announced for the Higginsville mill and operation, it provides an excellent mill for processing Beta Hunt ore and in addition, provides a large resource and reserve base and a land package and a prolific gold camp.

Turning to Slide 3 for the results for the quarter. The key driver of the activity in the quarter was the fact that we had ramped down mining during the quarter to focus on exploration and, at the end of the quarter had resumed those activities. So, during the quarter, mining had dropped significantly to 3,700 ounces from 13,000 ounces. But, by the end of April 2019, the restart was well underway and we'd achieved the 40,000-ounce annualized run rate. We also completed enough development that we are now moving towards the Fathers Day Vein a level lower on the 16 level in A Zone and, should be there by the end of May. Again, we're targeting a hole of 1,400-gram intersection, that's just 7 meters below the Fathers Day Vein and the structures that were remaining in the floor of the Fathers Day Vein when we stopped mining in that area. We have had exceptional exploration results. The results to date from the 40,000 program have been very positive. We are on track to have a resource update out by the end of the second quarter of 2019 and, as the resource drilling is largely completed, we're now focused on the remaining meters on the substantial exploration potential across each of the 4 shears on the property.

Turning to Slide 4 in terms of summary of the quarter. Again, ounces were down since we halted mining for most of the quarter to 3,700 ounces, which were down substantially from the same period in 2018. All-in sustaining costs (ASIC), even with the lower mining rate because we are mining substantially, mining and processing substantially higher grades, our ASIC was much lower than the prior quarter of 2018 and cash operating costs were also substantially lower. Adjusted EBITDA was an improvement over the prior period. Again, with the lower mining rate, we were in a position to generate any operating earnings during the quarter.

Turning to Slide 5, again looking at the contained ounces, for the quarter there was a sharp drop-off as mining was substantially halted during the quarter. In terms of grade, we saw a drop in grade as the coarse gold ounces in the Fathers Day Vein came to an end versus Q3 and Q4 and, the ASIC reflects the grade had been mined and processed.

Turning to Slide 6. This is a very exciting part now as we've done enough development to get in underneath the Fathers Day Vein and, we expect to be there towards the end of this month and again, we've got a nice high-grade drill hole with coarse gold at 1,400 grams per ton and, we look forward to the results from that area when we get there later this month.

On Slide 7 we've provided a number of diagrams in the exploration results that have come out through the quarter. Again, very happy with both the grade and thicknesses that we're seeing, particularly at Western Flanks, where we've extended the resource at 170 meters beyond the prior resource definition and so, very much looking forward to the resource update coming at the end of this quarter.

Turning to Slide 8 and just an overview of the Higginsville transaction. Again, we're acquiring the asset for AUD 50 million, $25 million in cash and $25 million in RNC shares and, that would be satisfied by the issue of just under 50 million RNC shares and, one very important thing to note is that the remaining cash component of the purchase price, we expect to finance with cash on hand and non-dilutive capital. We've got a number of options that we're looking at right now and so, our hope is to finance the balance of that without any further equity dilution. The acquisition is expected to close on or before June 10 and again, the primary driver for this acquisition is to drive that long-term milling solution to make Beta Hunt a much more robust operation going forward. It provides significantly lower costs versus our current toll milling setup of over $15 a ton or nearly 35% cost savings and, we're shipping to Higginsville at a distance that's comparable to other locations that we're currently shipping. Fundamentally, the Higginsville acquisition turns Beta Hunt from a single-mine operation to multi-mine operation with a large land position anchored by a relatively new mill. We've successfully tolled our ore at Higginsville, so we're very confident in terms of the performance of that mill on Beta Hunt ore going forward.

The next slide outlines the map of the land package. So, almost 390 square kilometers in one of the most prolific gold camps. Those of you who are following the news in the area, you'll see the Pantoro Resources acquired the property just to the south of us from a private company. So again, the ability to have this scale of a land package in one of the most prolific gold camps is quite exciting.

Turning to the next slide. Again, there's a number of mills in the area. The nice thing with this mill is that it's just over a decade old. It's the right scale mill for Beta Hunt and, the resource base that we currently have at Higginsville were 1.3 million-ton per annum. There's potential to expand that further in the future and as I said, it performed very well on our Beta Hunt ore when we tolled there last year. In conclusion, on the Higginsville, the milling solution has provided a key piece of our strategy around Beta Hunt gold mine since we acquired it in 2016. It provides significantly lower processing costs going forward and, it anchors our operation into a multi-mine operation.

Turning to slide 12 and our other key asset is the Dumont Nickel-Cobalt Project. We continue to advance the feasibility study during the quarter and, we are on track to announce it by the end of this quarter. The highlight, for those investors who have not followed Dumont as much, it is one of the world's premier battery metals project. It's the largest underdeveloped reserve of nickel, the second largest undeveloped reserve of cobalt. It's one of the only large-scale fully permitted nickel-cobalt projects that's ready to go and, we're ideally positioned to take advantage of the massive interest that's coming from the electric vehicle market for both nickel and cobalt supply in the coming decade.

In conclusion, on Slide 13, we're in a very fortunate position as a junior mining company to have 2 great assets. One, the most exciting gold discovery in many decades is the Beta Hunt Mine in Western Australia and, we're unlocking exploration potential of the asset as we're going forward and, with the Dumont Nickel-Cobalt Project, we're on the verge, with the updated feasibility study, to really demonstrate to the world the value of this asset, which is again ideally positioned to take advantage of the massive demand for nickel and cobalt from the electrical vehicle sector that's coming. As Robert Friedland said, "Nickel is the new gasoline." With Dumont, we have a lot of the world's future gasoline.

With that, I'll turn it over for questions. Thank you. »


Q & A Matthew O'Keefe of Cantor Fitzgerald and Mark Selby about production in Q2, resource update and mine plan, specimens and non-dilutive financing options.

Matthew O'Keefe, Cantor Fitzgerald: «Good morning Mark, congratulations. Nice to see that you've got some production. I wasn't expecting to see any gold production in Q1, but it looks like you got in there a little quicker than you had originally planned. I was wondering if you could give us a sense of what kind of production, we might see from Beta Hunt in Q2 this quarter and, maybe for the balance of the year, if you've got a thought on what that's going to look like. »

Mark Selby: « I think in terms of run rate through the second quarter, we'll be looking at around that 40,000-ounce run rate. Again, this is a limited resource of the mining operation we're just taking advantage, but those gold resources that are in close proximity to the existing development. Once we have the resource updated at the end of the quarter, we'll be looking to ramp up in towards the balance of the year and at this point, I think until that resource report is out, it will be a little premature in terms of what the ounces would look like for the balance of the year. But again, our hope is that there'll be at a significantly higher rate and grade than where we are right now. »

Matthew O'Keefe: « With that resource update, will that be followed by a revised mine plan within a short period? Or is that something to follow in quarters beyond that? »

Mark Selby: « We'll have the resource update out at the end of the second quarter and, then once the resource is baked down, we'll have an updated mine plan likely by the end of the third quarter. »

Matthew O'Keefe: « OK, OK, great, that’s helpful and then, just one other question, if I may. The funding of the acquisition of Higginsville. So, you're going to fund that, what's your current cash now? When you talk about non-dilutive options, what kind of options are those? »

Mark Selby: « In terms of cash and cash equivalents again, with the specimens on hand, which we're now aggressively marketing. We've got, that number is just over CAD 10 million. With regard to non-dilutive financing options, we're looking at a number of different debt options that would provide the balance of the financing. We received a great deal of interest in providing that financing and have gotten good terms from a number of different groups. Nothing is closed yet, but we're looking to have that in place well before the June 10 closing date. »


Q & A Terence Ortslan with TSO and Mark Selby about Beta Hunt generating interest on the Australian market and the Dumont feasibility focus.

Terence Ortslan with TSO: « Mark, how much interest you're getting on the Australian market about all the activities that you're pursuing? »

Mark Selby: « That's a good question Terry, thank you. With Beta Hunt, at this point forward, we had several companies approach us earlier in the year. I think right now people are waiting to see the results of the drilling program. I've been saying that I think this asset was well shopped just over a year ago and so, a number of companies could have picked it up for a 10th of the price and so, I think they're waiting to see what the resource results look like and again, from what we're seeing, from the results that we are seeing, I expect  as we get into the next release or two, we're going to continue to get much more interest from that sector. Unlike the mining stocks in the TSX in Toronto, there's a number of mid-tier gold producers in Australia who have a very well-valued paper, who have cashed-up balance sheets and, because a number of them acquired some fairly old gold mines that they've been able to stretch a bunch of ounces out of, some of them are facing some real production and resource profile issues. Well, we're quite fortunate with Beta Hunt that we picked up an old nickel mine, but is basically a brand-new gold deposit. So, my view is once we get into Q3 and Q4, we'll expect to see a great deal more interest from a number of players in this sector. »

Terence Ortslan: « The Dumont feasibility focus. What was the focus on for this time around? »

Mark Selby: « The key areas with Dumont, we had a very robust mine plan and flow sheet last time, so the bulk of it's remaining unchanged. We're updating the macro assumptions. So, we had a $0.95 CAD and today's Canadian dollar is under $0.75 CAD. We had a $90 oil price and oil prices today are well below that number. So, we are updating the macro deck. With that macro deck, we're updating the mine plan that goes along with that and then, we're baking in our path to market around roasting, which is a much higher-value, lower-cost path to market which was proven with the plant that Tsingshan built and so, those are the key differences versus the 2013 study. »

Terence Ortslan: « That should bring the capital down irrespective of your roasting option? »

Mark Selby: « That'll bring the change in the Canadian dollar will change the U.S. dollar amount pretty dramatically. We're focused on producing a concentrate and we'll joint venture with someone to do the roasting for us at least initially and then longer term, look at building some sort of roasting facility potentially in Quebec or elsewhere. »


Q & A Derek Macpherson with Red Cloud Klondike Strike and Mark Selby about exploration results after resources definition period, production ramp up and new open pit called Baloo with soft ore.

Derek Macpherson with Red Cloud Klondike Strike: « Congratulations on sort of what've been a transformational several months for you guys. Just quickly, on the balance sheet, what's the current debt situation? »

Mark Selby: « The current debt situation is as we have no long-term debt. We have working capital facility that we used to finance our ore that we ship to third-party tollers and for carrying the specimens. So, as we said, we've got no long-term debt, just those working facilities that just revolved. »

Derek Macpherson: « At the end of quarter, they're right around $6 million. Is that still about the same level? »

Mark Selby: « Yes, that would be about the same number. So, as we toll, we continue to ship additional ore. »

Derek Macpherson: « Then just on sort on some exciting side, on exploration results, are we going to see all the exploration results before the resource comes? Or are you going to be drilling beyond the sort of resource definition period? »

Mark Selby: « Yes, we're cutting off the resources definition period shortly and then, we're going to turn the remaining 5,000 meters-or-so of drilling to target the exploration potential this year. Those holes that won't make it, won't be included in the resource and, they're really focused on highlighting the massive potential of the 4 shears across the 4 kilometers. So, most of the resource drilling is focused in a relatively small area and a relatively small fraction of the overall area. What we want to use these set of holes is to demonstrate to investors just what the scale of this asset could be. »

Derek Macpherson: « So, starting to test that 4 kilometers strike across the 4 different shears? »

Mark Selby: « Exactly. »

Derek Macpherson: « Okay and then, I guess just lastly, on sort of the progress you're making. You mentioned both in this release and in the last one that you're up to sort of 40,000 ounces a year sort of run rate. Is that a good way to think about sort of Q2, Q3 as you sort of digest the resource and then update the mine plan? »

Mark Selby: « Yes, that would be a good target for both of those quarters. Again, towards the end of third quarter, hopefully we're starting to ramp up based on the information from the resource that we put together during Q2. »

Derek Macpherson: « Okay and then, just lastly on Higginsville. Obviously, that asset is sort of clipping on 30,000 ounces a year. I guess, do you expect the status quo once you acquire? »

Mark Selby: « Yes, that's what we would expect. So, most of the production at Higginsville has kind of come from the Mt. Henry open pit, which has very hard ore, has lower recovery and requires more reagents to process. Then the ore that'll be coming for us during the second half of the year is from a new pit called Baloo, which is much softer, much higher recovery and much easier to process. So, we're quite fortunate timing-wise to be able to make that shift, and that's where the bulk of the ounces from Higginsville will be coming through in the second half of the year. »



Q & A Retail investor and Mark Selby about Beta Hunt nickel restart and status of gold specimens.

Retail investor: « Congratulations on the drilling program. »

Mark Selby: « Thank you »

Retail investor: « I've got a couple of questions. On your announcement today, you mentioned that the nickel production has also resumed and will contribute cash flow going forward. How significant will this be? The last time, I recall, the numbers weren't very significant? »

Mark Selby: « It won't be a significant number. Again, both on the gold and the nickel front, right now, we're just tapping into those areas where we have development in place. So, that we can generate some cash flow to basically cover our cost while we're in this exploration phase and then longer term, as part of the overall mine plan, we'll look to see how much nickel we'll do and again, it'll just come down to where we can make the most money between the gold and nickel production at the mine. »

Retail investor: « Okay, and then further down under the financing section, you say that the cash and cash equivalents, including specimens, at March 31st was $2.1 million. Now does that imply that the Fathers Day specimens have been sold? »

Mark Selby: « No, we financed the bulk of the gold content of the specimens, so that way we had a cash available to us and so, that number is just the unfinanced portion of the gold specimens and then on top of that, there's all of the premium value for the gold specimens which we don't include in the accounting statement. »

Retail investor: « I think the other questions have all been answered. »

Mark Selby: « Thank you and thanks for continuing to follow our story. »


Q & A Private investor and Mark Selby about facilities for good cash flow flexibility, Mark Selby has most of his net worth in RNX stock and Q3-Q4 ramped up production

Private investor: « Mark, just want to follow-up on a couple of questions that I believe Mr. Macpherson and I believe the gentlemen from Cantor Fitzgerald asked. Just to be clear, as far as the current debt, we're looking at the end of the quarter of around $6 million, and you anticipate that's around where we are right now? »

Mark Selby: « Yes. That's correct. »

Private investor: « Okay and then, as far as the nondilutive collateral that you're going to use to finance this deal that's due to come to fruition in a couple of weeks, you're looking at debt options in addition to the cash on hand, which is about $10 million. Can you get more into those debt options as far as what they’re going to be again? »

Mark Selby: « Yes, I don't want to give you too many specifics at this point. We haven't closed anything. They'll be facilities which we'll provide good cash flow flexibility for us as we re-ramp up the mine and then, as I said, should allow to complete the Higginsville transaction without having to issue any more equity. »

Private investor: « Yes, because the concern, I think among a lot of shareholders is that we're probably now up to, I'm going to guess, 520 million, something along those lines, of issued shares with this 49,000 that's going to be issued with the deal. Are we right about that? Can you give me a number on that? »

Mark Selby: « Yes, that's right. In terms of additional 49 million shares and again, I think the key thing is that I have most of my net worth in the stock at this company. So, I'm very sensitive to accretive collusion and, I can assure you that we only do it when we believe it's absolutely necessary to do it going forward. Because again, I've continued to buy stock also last year and want to see share prices significantly higher than the prices I bought it out as well, so... »

Private investor: « We'll believe it. We're making bets on you also. So, I mean the fact that you feel that way, it gives me some assurance. But the whole point is that it sounds like and, maybe you can generally speak to this, that these placements and debt options that have occurred and are going to occur in the short run, maybe to a lesser extent, really is just to hold you over until we can start producing. The production you're seeming by the tone of your voice is going to increase once Higginsville is fully operational and you can get that run rate up above 40,000 that you anticipated to be in the second and third quarters. Is that a fair assessment of the situation? »

Mark Selby: « Yes, that's correct. As we're going to Q3 and Q4, we'll be looking to ramp up production. »

Private investor: « Okay, all right, Mark. Well, congratulations and continue the good luck. »

Mark Selby: « Oh no, thank you. »

Closing remarks by Mark Selby: « I'd like to thank everyone for joining the call today. As I said, we took some major advances with Beta Hunt during the quarter. This coming quarter with the closing of Higginsville, the further resource drilling and, most excitingly, the exploration drilling that we really want to do to show what the scale of this asset could be and then getting back in underneath the Fathers Day Vein later this month. I think we’ll make some interesting news flow through the coming quarter and, I look forward to talking to you again at the end of the second quarter results. Thank you. »