Royal Nickel Corp. RNKLF

Red Cloud Klondike Strike Inc. July 31st 2019 report

[pierreg]

Red Cloud Klondike Strike Inc. July 31st 2019 RNC Minerals (TSX:RNX) – Production Ramping Up – Expecting a Better Q3/19 as per  https://cdn.ceo.ca/1ek3itt-20190730-RNX-Q2-Reporting-2.pdf

Impact: Mildly Positive
« RNC announced Q2/19 operating results highlighting that the company is getting close to its guided production rate of 40koz/year at Beta Hunt. In addition, the recently acquired Higginsville mine is expected to post improved Q3/19 operating results as a function of lower costs and better recoveries from the ore sourced from the Baloo pit. The newly combined assets (Beta Hunt/Higginsville) should have the potential to reach +100koz/year of gold production by 2021. We expect the market to start pricing in this potential upon the release of: 1) a resource update in Q3/19 and 2) updated mine plan/guidance in Q4/19.

Highlights:
• Beta Hunt production rate approaching 40k oz/year. Beta Hunt produced 9.1koz, 76% higher QoQ suggesting it is operating close to the guided 40koz/year run-rate. Higginsville only had a minor contribution (295 oz) as the acquisition closed on June 10th. Additionally, the company estimates that processing Beta Hunt ore at the Higginsville mill saved the company >US$100/oz, which at the current run rate should save at least US$4M (~A$5.8M) per year.

• Higginsville operations to improve with Baloo. Operating results at Higginsville should benefit from a higher percentage of ore coming from Baloo in Q3/19. Baloo ore is expected to be softer and have better recoveries, which should translate to lower costs in H2/19. The Baloo pit is expected to deliver ~1,000tpd (~30kt/month) of ore to the Higginsville mill starting in August, to blend with ~1,400tpd (40-45kt/month) Beta Hunt. Based on Q2/19 grades and recoveries this should equate to ~16.7k oz per quarter.

• Resource and mine plan updates are keys to re-rate. The recent 5-fold increase in the M&I resource at the Western Flanks Zone of Beta Hunt coupled with an upcoming resource at the A Zone (Q3/19), should provide the basis for a revised mine plan and guidance (Q4/19). This should help the market properly value the production potential of these assets.

Valuation: Combined Beta Hunt/Higginsville operations should drive a rerating. We are maintaining our fair value estimate for RNC at C$1.00/sh (unchanged). We note that we plan to move to a DCF based valuation shortly to reflect the ramp up to full-scale production later this year. Upcoming catalysts include: 1) Ongoing drill results, 2) A zone resource Update (Q3/19), 3) Beta Hunt mine plan (Q4/19) and 4) Rampup of mining at Beta Hunt (Q4/19). »