Sometimes the best way to destroy the value of a resource project is to stick a drill in the ground.
Such was the case at Rubicon Minerals (
TSX:RMX,
Forum) Monday, where a newly released restated geological model removed 88% of indicated reserves and 80% of inferred reserves from a resource estimate that some said, back in 2014, was
needlessly conservative.
Like a slow motion train wreck, the once hallowed Rubicon projected has busted in a most spectacular way. The company suspended mill operations back in October as part of a
trial stopping period when the Ministry of Environment and Climate Change demanded it see to elevated ammonia levels in a nearby tailings pond. That stoppage saw 87% of employees and contractors laid off while T.RMX stock dropped by a third, from $1 to $0.67.
It was beaten up again in November, falling by more than half, when the company announced the trial stoppage period had revealed the underground F2 Gold Deposit was “
much more geologically complex“ than previously believed, giving them cause to ‘enhance the geological model.’
That new enhancement
has duly removed 4/5 of the resource estimate, and dropped grades by 21% (indicated) and 32% (inferred), leaving the property unviable in its present form, and the value of the company in shreds.
“The revised geological model prepared by SRK indicates that the gold mineralization in the upper-levels of the F2 Gold Deposit is less continuous compared to the geological model for the 2013 mineral resource estimate,” said Michael Winship, interim President and Chief Executive Officer of Rubicon.
“The revised model has significantly decreased the tonnes, grade and ounces in the F2 Gold Deposit. The revised model suggests that more exploration is required at depth and along strike in order to develop an economic mining operation at the Phoenix Gold Project. The Board has retained financial advisors to evaluate strategic alternatives with the goal to maximize shareholder value.”
T.RMX stock lost 64.2% of value on the trading day on heavy trading volume, almost all at the open, dropping from $0.14 to $0.05. That continues a 95% slide over the last four months.
A $5+ stock with a $2 billion market cap back in the salad days of 2010, the big board play coasted between $1 and $2 for more of the three years between 2013 and 2015, before the second half of last year saw everything go wrong.
Today’s market cap sits at $19.8 million, which is lower than the $22.4 million the company says it holds as cash on hand. The company produced 4,906 ounces of gold through 2015.
As for how this happened, company management says, “It is difficult to reconcile the 2016 SRK Resource Estimate with the 2013 SRK Resource Estimate disclosed on June 25, 2013 because the two models differ. The 2016 SRK Resource Estimate considers an additional 94,600 m of core drilling and underground exposures of the gold mineralization that were not available for the 2013 SRK Resource Estimate. The 2016 SRK Resource Estimate also excludes the crown pillar and isolated gold intersections and interpretations outside the main domains modelled.”
It goes on to explain, “Locally, significant gold mineralization exists outside the 2016 modelled domains. In 2013, to account for this mineralization, the areas located outside the modelled domains were also evaluated as a separate "unconstrained" domain (External domain) and the resultant mineralization was assigned an inferred classification. In 2016, based on observed gold mineralization continuity noted from the new data, the areas in the 2013 inferred mineral resource estimate were excluded.”
These exclusions include: 355k oz of gold in the external domain, 267k oz of crown pillar, and 728k oz in the below 1220-metre level, totalling 1.3m oz.
The company expects to incur a significant impairment charge in its next quarterly financials.
In a
hastily convened 10-minute web-call Monday morning, Winship told analysts and investors he had yet to do a detailed assessment on what the salvage value of the project might be.
Private investor Roy Diskowksi expressed outrage on the call, saying,
“This is a real shock what you’ve done here, with this company because […] you weren’t being public with the information, and this is hurting me tremendously. I paid a lot of money for this stock and now you’re talking about recapitalization. What does that mean?” Winship sympathized with the investor, but stated he believes the company had made appropriate public statements and would be looking at various strategic alternatives, including ways in which the company may go forward as a resource exploration company.
--Chris Parry https://www.twitter.com/chrisparry