The demise of Rubicon Mineral’s (TSX: RMX; US-OTC: RBYCD) Phoenix gold mine in Ontario’s Red Lake camp stunned the industry. Trial mining of the project’s F2 gold deposit was called off in late 2015, when the company realized the geology was more complex than it had thought and a new resource estimate revealed that contained gold ounces in the indicated resource category had plunged 91% from a 2013 resource estimate, while contained gold ounces in the inferred category had fallen 86%. The company halted all work and spent the rest of the year and much of 2016 in restructuring mode to stave off bankruptcy.
Today, Rubicon’s prospects look brighter. The company has emerged out of a restructuring with a new CEO who has earned a reputation for turning around companies and has expertise in high-grade, narrow vein gold deposits like F2. George Ogilvie, a mining engineer who began his career in 1989 with AngloGold in South Africa working in the ultra-deep, high-grade gold mines in the Witwatersand Basin, stepped into the breach at Rubicon in July 2016 and orchestrated a restructuring with the company’s creditors that culminated in Rubicon raising $45 million to guide exploration over the next 18 to 24 months.
Immediately prior to joining Rubicon, Ogilvie was the CEO of Kirkland Lake Gold (TSXL KGI; US-OTC: KGI) from 2013 to 2016, where his management team improved operations at the company’s Macassa mine and guided its acquisition of St. Andrew Goldfields. Before joining Kirkland, Ogilvie was the CEO of Rambler Metals and Mining (TSXV: RAB; LSE: RMM), where over a period of seven years he and his team guided the company from grassroots exploration to a profitable junior producer.
Mr. Ogilvie sat down with The Northern Miner in the second week of February to discuss his plans for the company. In the third week of February, the company announced that it had raised another $8.5 million for exploration, in a bought deal financing that is expected to close on March 3.
The Northern Miner: You are taking on a huge challenge. What were your thoughts when Rubicon first approached you last summer?
George Ogilvie: Well I did four months of due diligence myself. The company had been running a strategic process, including the sale of the company, since January of 2016, which was being led by BMO and TD Bank. So they had a very extensive data room, which I signed a confidentiality agreement and got access to. And then in early September I went up to site and spent a couple of days there underground, looking around the property, speaking to the small management team that we have remaining there. We only have eight employees there, so I spoke to them about what transpired and really tried to get a handle on how to get this project moving in the right direction again.
I think there were certainly mistakes made. And it’s not to be critical of the former management. Hindsight is a wonderful thing and we’re not trying to be critical. Certainly, taking a project from early stage all the way through to production on a preliminary economic assessment is one of the big, fundamental, missings, and trying to think that there is an economically viable mine there, on resources, as opposed to mineable reserves. When we publish resource statements there is language that lawyers tell us to put in that states that resources are not mineable reserves and may not be economically viable. So the warning signs were there.
From a geological structural perspective, the deposit obviously is complex. It’s a lot more complex than what we thought in 2013, and that was obviously when there was a NI 43-101 resource conducted, which had globally, I think, 3.3 million oz. of around 9 grams gold per tonne. It was very much a mechanized mining method, long-hole, 7.8-metre sort of stoping widths, bulk-tonnage mining, and I’m not necessarily convinced that that’s the appropriate mining method for this deposit now, which seems to be high-grade in areas but quite nuggety, so maybe a more selective mining method might be the way to go. Certainly that’s what should be initially considered.
TNM: For example?
GO: Well sort of a cut and fill style mining method, underhand or overhand. We have a paste fill plant in the mill. That’s exactly the style of mining that was predominantly used at Kirkland Lake Gold when we got that moving in the right direction. Shrinkage mining is another style we could deploy here. I do think there will be areas, if there is a mine there, where the deposit is going to be wide enough, contiguous enough, long enough on strike length, where we could put in a bulk-tonnage mining method. But I don’t think that will be the primary mining method. I think it has to be more selective and look at mining higher grades with less tonnes.
TNM: Without dwelling too much on the mistakes of previous management, why would they have built a mine on just a PEA?
GO: Well in 2011, when the first two resources were done, we were looking at global resources of around 2.8 million ounces. The inferred grade, and most of the material was inferred, would have been 17 grams per tonne, undiluted. And back then, what was interesting was that the stoping width was 2 metres. So that tells me that six or seven years ago when people were looking at this initially they were thinking of it as low-tonnage, high-grade, narrow veins, selective mining. And then, in 2013, when suddenly the tonnes doubled, the grade fell to 9 grams, the stoping width was up to almost 8 metres, suddenly now we were looking at a bulk-tonnage mining method. I think the real mining method here is going to fall somewhere in between those and it’s going to have to be a bit of everything that suits the resource and reserve blocks that are actually generated. In both scenarios the grades are robust enough to suggest an economically viable mine and of course it’s Red Lake where one would expect to find additional gold ounces.
TNM: When Rubicon first announced that information from new drilling and trial stoping had changed its understanding of the gold mineralization’s variable spatial distribution, and the new geological information highlighted the complexity of controls on the distribution of the gold mineralization, its grade and its continuity, it stated in a press release that: “The distribution of the higher grade mineralization is controlled by the intersection between the east- to west- trending D2 structures and the north-trending, high-titanium basalt unit.” Was this interpretation incorrect and what do you think the correct interpretation of the geology might be?
GO: The interpretation was correct with the information that was available at the time. In 2013 when that resource was produced, most of the drilling conducted on the Phoenix project up to that juncture in time would have been drilled from surface in an east-west direction perpendicular to the main F2-mineralized high titanium basalt zone. This would have been appropriate at that time. By the time mid-2015 came around, development out to the mineralized high titanium basalt zone would have occurred in the form of 4 metre x 4 metre drafts. Underground drilling would have occurred in an east-west direction drilling for the F2 mineralization. As the D2 structures were not fully known about at this time, and the fact they run east-west themselves, parallel to the diamond drilling, in a lot of cases they would have been missed. From these main underground drifts, perpendicular sill drifts were developed along the strike of the main F2 mineralized zone that would then have encountered the cross-cutting D2 structures. It was only once the 244mL and 305mL working areas were fully developed did it become apparent that the D2 structures occurred with more frequency and complexity than was previously understood. This significantly changed the 2016 resource model when compared to the 2013 resource model. This is why the initial new work programs aim to better understand the D2 structures and how they constrain the gold by re-logging historical core that would have intersected these D2 structures and actually diamond drilling for the D2 structures to understand their continuity from level to level, orientation, strike, dip, azimuth etc., etc. If they can be better understood, it will help produce a new more accurate resource model compared to what we physically see in the mine today.
TNM: You’re known in the industry as being something of a turnaround guy. Would you say that’s an accurate description?
GO: Well my team and I certainly got Rambler up and running from a junior explorer into commercial production over a four-year period. I think we did a very accretive deal in acquiring a mill there for only C$5 million, a fully permitted tailings pond, and obviously Kirkland Lake has been a tremendous success story over the last three years. I think it’s been one of the darlings on the street. Other than the first half of last year, we’ve been in a very difficult gold price environment, and Kirkland Lake has really outperformed its peers, so yes, I think I have a little bit of a reputation like that but rest assured it’s been a real team effort. But at the end of the day I’d like to think that it’s something bigger in that I’m here to create value for the shareholders, and whether that’s running just a regular mining company that’s in production and is looking for accretive deals, or looking to grow production, or cash flow, or free cash flow, or profits, I think that I can bring all of that to the table.
TNM: You’re also known as an expert on deep, high-grade and narrow vein gold mines. Can you tell me a little bit more about how your experience will fit with your new role?
GO: My experience tells me that the deposit at Phoenix is quite complex from a structural geological perspective. As I said, I don’t think the historical test trial mining method that was employed of a bulk-tonnage mining method, was appropriate for what I’m seeing in this mineralized zone with the new interpretation. So what we’ve got to do is we’ve got to go back to all the historical information and we’ve got to take a fresh look at it. So one of the key elements of the work program that we’re doing is to go back and take out historical core that we believe would have intersected these D2 structures, these dykes that have come through as a secondary event, and essentially, that’s what is giving us the structural complexity within the mineralized zone. To re-look at those from a structural geological perspective and detail re-log that core, and then there’s a 3,500 metre drill program that will actually drill parallel to the mineralized zone but perpendicular to the D2 structures. Again just to get more information on these D2 structures so we can better model them within our understanding of the new resource model.
Then there’s going to be 20,000 metres of infill drilling that will take place. The plan there is if we eventually, in 18-24 months time, have a large-enough new resource, with good enough grade associated with it, we want to move into a feasibility study with mineable reserves in the proven and probable category. The only way we can do that is to ensure the resource has measured and indicated. Inferred material is not going to help us here. So that’s the reason why we want to drill on 25-metre centers so that we can at least get as much material as possible certainly into the indicated category, which then, in the mineable reserve, would obviously be in the probable category.
TNM: What were your thoughts when you went underground for the first time?
GO: The mine is a dry mine, although it’s been on care and maintenance for fifteen months. Everything underground is in perfect, excellent condition. The company kept on some of the capital leased equipment from Atlas Copco and had continued to pay those monthly leases so we have got an equipment fleet there that allows us to go through this advanced exploration campaign and also start moving towards production, if that decision was ever given the green light, in two years time. So I was very happy with the conditions I saw underground and the general infrastructure.
If we have a slightly different approach to the mining method, and our understanding of the resource, I certainly think that we can get this moving towards potentially being a mine again. So for example the waste pass system within the existing mine was never commissioned. So what that means is that the mineralized material and waste was being batched through the ore pass system. And I know in my 27 years of experience, it’s very easy to co-mingle mineralized material and waste, and, basically, dilute yourself down, and send that through the ore pass system. So I think one of the first things we have to do is get the waste pass system commissioned, and we can certainly do that for less than a million dollars, and we have that in our budget. So before we would do any mining, now we’ve got two completely separate ore and waste pass systems that can keep the mineralized material and waste segregated.
The other thing that I saw happening was that because maybe there was a mentality that: “there was a mine there, there was a mine there,” and that we had such belief in the 2013 resource, when we hit the contact of the mineralized zone, if that resource was showing us that 200 feet ahead there was continuous ore, there was a propensity or whatever where we were actually taking those rounds, we were putting the muck in the ore re-muck, and it would have been going into the ore pass. But if you look at the resource now, of what we currently have in 2016 and 2017, as the ore body is a lot more broken up, so that tells me that some of the rounds undoubtedly that we would have been taking there would not have been mineralized material, and would not have been economically viable. But it was still going into the ore re-muck and then into the ore pass and to the mill, so that would have been dilutive. That is one of the reasons why I believe we weren’t able to reconcile our grades, tonnes or our ounces to the 2013 resource, because it wasn’t accurate.
So I think the 2013 resource was probably over-optimistic, but by the same token I think the 2016 resource is probably too conservative. They were taking chips and mucks and samples of that broken muck, but in more cases than not, it was taking three to four days before we were actually getting the assays back, and by then it’s too late because that muck pile has moved and it’s off in a storage area and nobody was keeping track of it. You’ve got to do that every shift. And that was one of the issues and challenges we had at Kirkland Lake and we got that resolved. Within three months of implementing new plans at Kirkland Lake, we saw the grade rise from under 10 grams to 14 grams, which is a 40% uplift, and it made a huge difference to that operation. I think we need that same sort of thought process here, with strict controls on the management of the mineralized material and waste and the mining.
TNM: When you decided to take this job what did your friends and family think? Did they think you were crazy?
GO: Well my wife was happy that I was coming to work, because I was getting in and around her feet. She thought it had been three months and it was time that I should get back to work! So she was happy. But certainly colleagues within the industry who knew Rubicon thought that maybe this may not have been the wisest choice. But after sitting down with them and actually explaining to them what I had seen and what I thought we could do, they actually got it. And I think the market and the street gets that as well to a certain extent, because we have been able to raise $45 million for this company in a financing. The book was oversubscribed. We could have taken more had we wanted to, but we decided that $45 million was the right amount. It funds our two-year campaign now and of course we had to pay some of that money to the Canada Pension Plan Investment Board (CCPIB) as part of the renegotiation of their debt, but the company now has $27 million in the bank, it funds our next eighteen months of this advanced exploration program, and we’ve seen the share price rise quite dramatically since we did that offer at $1.33. As of Feb. 9 we were at $2.27, so that’s almost a 70% uplift in about a six-week period.
TNM: Did the company arrange the financing before or after you joined?
GO: I joined as a consultant. If you are an officer or a director of a company that’s in CCAA, then when it comes to the reporting requirement such as PIF (Personal Information Form), the reporting requirements increase substantially for the next ten years, so generally people in the industry don’t like to be associated with bankruptcies. So I joined as a consultant, I wasn’t an employee. We raised the money on that basis. But if the company successfully came out of CCAA, it was agreed that I would then come on as a full time employee — as president & CEO.
TNM: What I meant was that because you agreed to join the company as CEO, Rubicon was able to raise that kind of money.
GO: I think it would be fair to say yes, the money got put into the company on George Ogilvie’s reputation and what we had been able to achieve at Kirkland Lake and at Rambler. But it was a really good fit for the company because Rubicon had formulated this restructuring plan, it seemed quite credible and doable, but it required a new leader with that reputation to be able to raise the monies. In my opinion, this is going to be a win-win, and for me personally as one door closed, another door opened.
TNM: There is a view that, while the task you’ve taken on at Rubicon is stressful, it won’t reflect badly on you if Phoenix doesn’t succeed, because you inherited such a mess to begin with. Would you agree?
GO: Certainly we’re keeping expectations low and that’s how we’ve marketed the company up until now. Nobody can categorically say there is a mine there today without going through this 18-month program. But at the end of 18- to 24- months, we will know whether there is an economically viable mine, so we are trying to keep the expectations as low as possible. Obviously investors have put their money into the Company and I’d be disappointed in myself if I didn’t create value for them.
But you know the street. We have to be careful here when we put out results. I know I could put drills underground in this deposit, drill some areas, and hit some very nice intersections. But if I put those out into the market and I don’t understand the materiality of those holes on the NI43-101, it would be very easy with the right external environment and positive momentum in the gold price for people to put one and one together and end up with five, and suddenly think that there’s a mine there tomorrow.
We have incredibly good holes drilled historically yet if you believe the 2016 global resource, there are only 400,000 ounces. So I’ve been explaining that to shareholders, because they ask me, what about news flow? And I walk them through the news flow, but what I’m saying to them is this, ‘Yes there will be constant news flow, but it’s going to be rather boring and mundane because I can’t put out super-sexy holes until I understand the materiality of those holes with respect to that resource.’ If I just put them out I’m setting myself and the company up, probably, for failure, you know, raising those expectations without understanding whether we can deliver on them. A prudent approach is what is required at present.
TNM: Is there anything that keeps you up at night?
GO: No, not really from being worried. I’m super excited. The excitement is what keeps my energy levels high. You’ve got a company now that has got an asset where there’s $770 million of sunk costs. Now, $200-plus million of that would have been in the drill bit. But there’s $300 million-$350 million there today in hard tangible assets, so you’ve got a 720-metre-deep shaft, there’s a hoisting system, there’s a mill capable of 1,800 metric tonnes per day, but it’s permitted only for 1,250 tonnes per day at present, you’ve got a tailings impoundment area, you’ve got 9,000 metres of underground development, and a mine, there are several stopes down there where the holes are actually drilled, they’re waiting to be loaded with explosives. But until we understand are they in the right areas and is this the appropriate mining method, it doesn’t help just to go blast rock for the sake of blasting rock, because we could be throwing money away. Every tonne of waste you bring to surface costs as much as a tonne of ore rock, right? But this is a wonderful opportunity. We’ve also have a company now that has got a clean balance sheet, only 53 million shares issued, 3 million stock options, so 56–57 million issued fully diluted, $27 million cash in the bank, $12 million of long-term debt, but that only needs to be repaid on the first of December, 2020. We can pay it back early with no penalty. There is a 5% interest rate associated with that, but again, that only has to be repaid in four years time when we repay the principle. So it’s a wonderful opportunity, and you have got a company here now that essentially is a mine that’s 95% built but is lacking the ore body.
I’ve always dreampt of being able to go into a company with a blank page and develop the culture and the policy and procedures in the way I’ve always wanted. When you go into companies that have been around for ten years, or fifty years, or eighty years, if you want things to move you’ve got to try to change the culture. And it’s a hell of a lot more intense. Now you’ve have a company where you’re starting with a blank page almost and as I said, when I joined, including myself, we were five people here at head office, we had only eight people on site, and we’ll be bringing that up to a peak labour force, including head office, of 40 people in September of this year. And hopefully as we move into 2018, as we continue to see success with the project, we can start expanding that and give this thing the green light.
TNM: The fact that you invested $500,000 of your own money into Rubicon for about a 0.70% equity stake should also reassure investors, no? That’s a lot of money for most people. What did your wife say: ‘You did WHAT?’
GO: (Laughs) No, my wife trusts me as a businessman.
TNM: I’m just kidding. But it’s a positive signal.
GO: Exactly. I think that’s a good sign for shareholders within the company and people looking to invest, when a CEO really has some skin in the game.
TNM: Given the experience you’ve had working in some of the deepest mines in South Africa and your expertise in high-grade narrow vein systems, have you seen anything that helped you at Kirkland Lake or will help you here?
GO: Yes absolutely. I think that was one of the reasons why Harry Dobson asked me to join Kirkland Lake. The mines in South Africa typically are very deep, they are hot mines. They have a lot of seismicity, the gold mines are very labour-intensive. It’s narrow vein, jack leg, stopers, cut and fill style mining in some areas, so very, very similar to what was happening at Kirkland Lake four years ago. So I think a lot of the experience I had from my eight years in South Africa stood me in good stead for Kirkland Lake and I think it’s going to help me here with Rubicon and the Phoenix project.
TNM: Can you summarize the key things you accomplished at Kirkland Lake to turn the Macassa mine around?
GO: Well I would say we really wanted to focus on quality over quantity — so focus in more on mining at the reserve grade as much as possible as opposed to try to fill the mill just with tonnes. By doing that, it allowed us then over a three-year period, to see 400 people leave the labour force, because we weren’t pushing so much for tonnes. And we all know in Canada, labour is your largest operating cost, so typically including payroll burdens, your average miner in Canada will cost you $100,000 a year in salary with payroll burdens. If you’re losing 400 people, there’s 40 million dollars a year you’re taking out of wages and salaries. And then what we did was we took a look at restructuring the bonus system so that the miners’ bonus and the frontline supervisors, their key performance indicators, were more aligned with overall corporate objectives. Then you get everybody pulling in the same direction — moving together as a team — because you all have common objectives. That’s not always the case in mines, because in most cases, miners are paid purely on tonnes and footage, which isn’t necessarily related to ounces and costs, so you have to try, in my opinion, to have a holistic bonus system where, yes, tonnes and footage are important, but there must also be ounces and costs in there, and of course safety. Those were the key elements that we introduced and I would see ourselves doing something very, very similar, certainly with the grade, and eventually with the incentive systems, here at Rubicon. But as I said, at the moment, I’m starting with a blank page, so I get the opportunity to bring those in at the appropriate time as we evolve as a business.
TNM: Are you putting in a lot of overtime?
GO: I was certainly before Xmas. But I’ve got a very good team here. At the end of the day no one person can get all these issues resolved so I have to rely on the people around me and put my trust in them, which I’ve done in the past, and that’s why I’ve been successful because I’ve got great people always working for me.
TNM: Does mining run in your family?
GO: I’m originally from Scotland and all my forefathers were coal miners in the Scottish coal fields — underground coal miners. My father was the first Ogilvie in the family who was more of a white collar worker. He went to college and got a diploma in metallurgy, and so I think that’s where I sort of maybe got a bit of the engineering in my blood.
TNM: So it was preordained?
GO: Well, I don’t know about that, but mining has been a fantastic career choice for me. I’ve been so blessed to travel the world and meet fantastic people throughout my career and I’m very happy to be in mining and hopefully I’ll continue to get the opportunity for a few years more!
TNM: Often success can come from getting the timing right.
GO: I have always believed that in business, timing is everything, and you also need a little bit of luck. Take housing in Red Lake as an example. When we initially tried to start the project in Red Lake, obviously the shaft sinking was going on in 2013 and the development, and we were manning up, housing was just not available. We had to put in a 200-man camp, and most of our labour force that we had therefore was fly-in, fly-out, probably as much as 80%. It’s expensive and we’re not in the hotel business and I’m not a restaurateur. And I have always found that with the miners that are coming from the community, there’s maybe more commitment there. And any money they make, any disposable income, goes into the local economy, whereas the fly-in fly-out miners are taking their money away to wherever their families are based and are spending their money there.
If we could get this project moving back on track and we’re still in a labour market like this, it might actually mean that we could hire more local miners, or miners we were hiring could come to Red Lake and actually have housing to stay in, so that more of the core nucleus of our future labour force is Red Lake-based. I’ve met with the mayor and the councilors and that’s one thing I’ve expressed to them, that if we get the opportunity to hire locally, we absolutely will. Goldcorp had a few layoffs there late last year. They downsized by 20 or so people, and you know, I think their mills have a little bit of excess capacity at the moment, so obviously economically that affects the town, it’s a mining town.
TNM: You’re certainly in a good part of the world.
GO: It’s a great jurisdiction to have a mine. Red Lake is known for being a very prestigious, premier, gold mining camp, not just in Canada, but in the world, with the number of ounces that have come out of that camp and been discovered there, and I’m quite sure there’s more gold to find.
TNM: You’ve also got a large land position there in addition to the F2 deposit.
GO: That is the nice thing as well and a lot of people forget that we have 28,000 hectares of prime real estate in Red Lake. I don’t think this year, but certainly in 2018 if the company is moving in the right direction, I can certainly see ourselves wanting to put some diamond drills on some of our regional property and drill it. We have the second-largest land package in Red Lake, second only behind Goldcorp, and I think in the past the company has been very, very, very focused on getting Phoenix into production, which is fine, but the danger is, if things don’t work out, well, with a single-asset company things can go very bad. So let’s assume that we can get the green light to put this into production and we have a producing mine there in three or four years time, that would be fantastic, but it really would be nice to have another project in the pipeline too.
TNM: Do you have any targets on the property?
GO: Yeah absolutely. There has been some drilling done out there. There have been samples taken and we’ve got some highly prospective areas with some good mineralization on them, so they need follow-up. But the use of proceeds that I raised from the financing is all for Phoenix. And I think at the moment, with maybe the company having a black eye, if that’s the right phrase, if I was to go and do something regionally, I think that maybe with some of the skepticism and negativity around the company, people might jump on that, and say, ‘Oh, George already knows there’s nothing there at Phoenix and he’s already trying to mount his next horse,’ so to speak, which isn’t the case.
So I think, let’s spend the time, get Phoenix moving the right way in 2017, and if that still continues on in 2018, and we’ve got the constant news flow going out to the market, I think then it becomes a wonderful opportunity in 2018 to start doing something with the regional ground, in conjunction with getting Phoenix moving back, hopefully, to a positive production decision.
TNM: With commodity prices improving it’s not a bad time to be doing what you’re doing.
GO: Yeah, absolutely, it’s not a bad time. And every year, obviously, with those regional lands, any monies we would look to raise for a small drill program or whatever, that would be flow-through eligible, and usually there’s always some monies available for flow-through for investors.