Royal Nickel Corp. RNKLF

Higginsville Purchase Option Agreement Conf., my transcript

[pierreg]

Higginsville Purchase Option Agreement Conference March 26th 2019, that I transcribed:

Mark Selby: «Turning to slide 3 to give you an overview of this transaction. Fundamentally this is a significant step forward for RNC and at Beta Hunt Mine in terms of unlocking the potential of Beta Hunt and creating value for shareholders. When we acquired the asset there was two key things that we wanted to get in place to unlock that value. One, was to raise the capital to do the resource drilling to help to find a massive exploration potential that we’ve always seen as a property and second, to have a long-term milling solution in place so that we can take that resource and turn it into cash flow for our shareholders and generate significant cash flow going forward. Since this potential acquisition provides that milling solution to unlock this potential at Beta Hunt. Fundamentally, its about lower processing costs compared to our current toll milling arrangement. Those costs we believe are in the order of $15 per ton, over 35% on our current processing costs where were toll milling. Distance wise it is comparable to our toll milling costs over non incurring additional shipping costs to realize these cost savings benefits. As well, it takes our operations from a single mine operation in Western Australia into a multi-mine operation with a large land package anchored by a significant new mill. We’ve been fortunate that we’ve successfully toll milled our ore at Beta Hunt and we’re quite happy with recovery at over 94% and that’s comparable with the best performance that we’ve achieved at other tolling facilities that we’ve worked with in the area. As well right now our drilling program at Beta Hunt has sufficiently advanced to allow for the commencement of a limited restart of bulk mining in areas where we have mine development already in place. We are accessing ore that’s there to be able to generate cash while we’re continuing to drill out and complete the balance of the drilling program at Beta Hunt. The option structure here that we have in place provides RNC a full range of financing options to choose the most secretive solution for shareholders. Given that we had an opportunity to acquire another one of Westgold assets several years ago, we talked to a number of potential financing sources at that point in time and we’ll be able to reengage with them as we complete the due diligence process and come up with the most secretive solution for shareholders going forward.

Turning to the next slide just to give you an overview of the assets that make up the Higginsville mine-mill operations. Fundamentally, you have a 1.3 Mtpa mill and a very large land package that is scattered to the area south of Kambalda and part of the very prolific Kalgoorlie gold camp. In terms of production, and I’ll quote these estimates from Westgold at this point in time, again we are relying on Westgold estimates. We’ll come back once we’ve completed the deal with our view on the assets specifically, they will produce through the balance of the year 40-45 koz at an AISC of 1000-1050 USD per oz. Right now, mining occurred primarily at the Mt Henry open pit and several smaller open pits within the land package. They also generated additional revenue and cash flow from third party tolling and the land package itself comprises a very large land package of over 350 km 2 judging from Kambalda endorsement.

Turning to slide 5 in terms of the mill specifically this is a 1.3 Mtpa mill which will have significant room for us to not only restart Beta Hunt but to continue to grow potentially in the future. Obviously with the kind of gold we have at Beta Hunt, gravity gold recovery is very important and we were very happy when we complete the toll with the gravity performance there again underscoring that we were able to achieve 94% recovery on the ore parcel that we delivered there. In contrast to a number of the mills in the area which are in many cases many decades old, the construction on this facility started in 2007 so it is a relatively modern facility and again with the mill of this size it has the infrastructure and tailings storage facility supports its operations.

Turning to slide 6 to summarize the terms of the transaction this is a purchase option agreement to acquire the entire Higginsville operation mining, milling, infrastructure assets for 50 M AUD in return for this purchase option. We’ll make a non refundable payment of 4 M AUD payable in RNC shares for an exclusive 40-day period to complete due diligence. If that option is exercised closing would occur 30 days later and then on closing, we would pay a further 21 M AUD in RNC shares and 25 M AUD in cash for a total consideration of 50 M AUD. On closing of this transaction Westgold would become a meaningful shareholder for RNC and again we would welcome having Peter Cook and his extensive Western Australian experience as a shareholder.

Turning to slide 7 in terms of the resource reserve statement, again the bulk of the resource that is there are contained in a number of open pitable deposits across the property and again, what we are publishing here is Westgold JORG compliant resource and reserve statement.

Slide 8 two years ago we had the opportunity to purchase Westgold South Kalgoorlie business at that time we declined to go ahead with the option payment at that time but we are very happy with the mill relative to the South Kalgoorlie. That transaction was well received at the time, but we think Higginsville is superior on a number of fronts, the plant recovery is 5% higher so significantly higher on our ore, it is slightly larger, its much younger than the Jubilee mill, the deal value is substantially lower and most importantly in terms of percentage of our market cap and on an enterprise value per ton per day of capacity that requiring much, much more accretive relative to the South Kalgoorlie mill.

To summarize this option agreement, again fundamentally unlocking the potential of Beta Hunt require one the capital to do the drilling which we’ve now added place and we’re now well underway with our drilling program. Secondly, a long-term milling solution to be able to turn that ore into cash for our shareholders and we’re glad to have the opportunity to look at this milling option. Fundamentally, this is about lower processing costs compared to our current toll milling agreement and as we stated over $15 per ton or $100 per oz which is a very meaningful cash saving for the company as we move forward. It transforms us from a single mine asset into a multi mine asset anchored by a large mill and again, we believe that Beta Hunt, a significant exploration potential there and the option structure allows us to look at a number of financing alternatives to come up with a solution that is most secretive for shareholders. »

The slides:
https://cdn.ceo.ca/1e9kc0k-20190326rnchgoconferencecallfinal1553604210942.pdf