Excellent presentation by Russell Starr Senior,my transcript Excellent presentation by Russell Starr Senior advisor to RNC Minerals June 20th 2019. Conference, webcast, RNC Investor Presentation and my transcript.
Conference: John Tumazos Very Independent Research Metals and Natural Resources Conference 2019.
Webcast: https://wsw.com/webcast/vir18/rnx.to/?lobby=true&day=2
RNC Investor Presentation: https://www.rncminerals.com/download/RNC+Corporate+Presentation+-12-June-2019+FINAL+.pdf
My transcript:
Russell Starr Senior advisor to RNC Minerals: « I’ll try to make this fairly brief and fairly focused […] RNC was formerly known as Royal Nickel. A lot of people don’t know who we are or what we are. It’s great to be here to be able to tell people what’s going on with RNC. The original company was formed around an asset in Quebec called the Dumont nickel project […] basically what happened, the Inco team obviously a very credible, legitimate nickel team still had a belief that nickel was going to be a very viable option in the global economy. Obviously, it’s involved in all sorts of high-end materials, stainless steel and what not. They purchased this fairly well-known asset called Dumont. Created Royal Nickel. They actually banked the company originally with UVS, RBC and it was a high flyer for a while. But, as we all know here today the commodities haven’t been all that loved and in particular nickel hasn’t and so, Royal Nickel acquired an asset in Australia of gold. It was a nickel asset at the time but it’s now become one of the largest gold discoveries in the world and as a result you have this, I don’t want to say terrible but it’s almost like a perverse relationship where you have this world class nickel asset in Quebec that’s getting no value in the company whatsoever and then, you have this new incredible gold discovery that people are really struggling to get their head around. So, I’m going to walk you through both of them and give you a value proposition as to why I think actually Royal Nickel should probably be owned at these levels.
The Beta Hunt mine was well known; it was owned by a company called Salt Lake Mining. A very interesting story. A 5 or 6-kilometre-long ramp into what’s called the Lunnon Basalt. It’s the only company currently in Kalgoorlie that’s actually mining in that area. What had happened was there was a geological layer where these nickel lenses would form and the ramp went down into this area. They would mine the nickel and the same chemistry that actually had the nickel fall out created these high, high, high grade gold discoveries and you can see some of them there. So, they would mine the nickel and then they’d have this really high, high grade gold by-product credit. RNC acquired it, it was debt ridden. Again, the view was nickel prices were going to go higher. The company was going to put Dumont into production. But again, nickel never went higher and literally RNC was running on fumes. The stock about 9-10 months ago was trading at almost 8 or 9 cents and the market cap would have been about 10 M $. Lo and behold they had a geological theory, go down about 150 metres from where the ramp is and you can test this secondary horizon in the Lunnon Basalt. Where again, a similar geological context occurred and the Fathers Day Vein discovery was had. It was world class. Literally CNN, NBC, CBC it was being carried all over the world. It was actually the highest hit topic for two or three days globally on some of these world class news sites. That’s about when the discovery was made hence the name. So, this is a prolific area of gold exploration and gold production.
We’ve recently acquired the Higginsville operation paid 50 M $ AUD: 25 M $ cash, 25 M $ in stock which makes them actually one of our largest shareholders. But it now gives us the ability of instead of toll milling our gold we actually own a mill now. So, that actually saves us about 35% on every ounce or about 100 $ USD. So, it’s a very meaningful cost saving and it also gave us another exploration foot print. I’m not sure what all of you guys would think about what’s going on in the industry right now? But you’ll have a company with a world class discovery and retail investors will chase it all over the place. But really truly there’s very few institutional investors. In fact, in this case, there’s only one: it’s Eric Sprott who owns this company currently. We just got a novo list and there were 14,600 retail shareholders.
So, debt has been fixed with the discovery, it was basically 30,000 ounces of high-grade bonanza gold. Processing those, a lot of specimens as well and then again, what I want to harp on: you really don’t have world class discoveries with infrastructure that already exists. So, for example, you get these great discoveries because the last company I worked for was a company called Cayden Resources and we had what looked to be a really discovery in Mexico. Agnico ultimately bought us out. But then you have to build the infrastructure. In this particular case you actually, don’t have to build any of the infrastructure. You have this brand-new gold discovery with already a mine shaft. It’s almost like open pit mining underground. You just bulk stope it, you drop the gold out and then you run it now with your own mill.
Shares outstanding very, very liquid. There are days in the past, where it’s traded almost 60 or 70 million shares. Currently, I think yesterday, we traded 10 or 11. We we’re just put into the GDXJ which is why the liquidity has picked up. But not necessarily the best share structure from a North American perspective. But obviously a great way for people to be able to get in and out theoretically. So, 600 million shares fully diluted and just recently we agreed to a debt facility very, very manageable. You can see it in our press release. It gives us the ability to now explore more aggressively and start mining more aggressively. I often joke that if Osisko had this asset they’d probably have 20 or 30 drills turning on it. It’s that good and there’s that much high-grade gold.
So, where are we? Kalgoorlie, a prolific jurisdiction. You can see where the mine shaft is down there and I’ll show you where the Higginsville operations are. We actually were toll milling our gold at the Higginsville operation. So, we know the gold actually works in their mill. But they say seven kilometers of prime gold exploration underground. The reality is if you really want to simplify this opportunity there are four shears open at depth. All four of those shears have somewhere along them open pit gold operation. So, everybody knew these shears carried gold. No one had really bothered to test the further underground exploration potential below this mine shaft and you’ll see I’ll show you the diagrams. Effectively the Lunnon Basalt, this new pyritic sediment that we’re currently exploring, generating this bonanza grade gold crosses all four of these shears, basically on the same horizon. If you we’re to look at this from an exploration potential for getting the gold that’s being mined and the cash that’s being generated from that gold. You effectively have 16 kilometers of potential strike. To give you context, I sit on a board of company called TerraX Minerals and the chief geologist of TerraX discovered Meliadine and it was a tiny shear run at the time and it’s now 7 or 8 kilometres long and holds close to 11 million ounces of high-grade gold. So, these shears in the right geological context and in the right jurisdiction have the potential to carry a lot of gold. Here’s a diagram of it. We’ve really truly only been operating basically in Western Flanks and those green areas and you can see where we’re upgrading resources as well. But basically, if you we’re to look at what the company has done thus far, the exploration and the recent high-grade gold discovery. We just found 1,000 ounces of gold basically in a quarter of this table. You’re encountering these across the same geological setting throughout this one shear that we are paying attention to right now.
But the value proposition that I suggest to you is there are four of these shears, two of which have not basically been touched at all and then, the other two really truly we’ve only scratched the surface on maybe 5 or 10 percent of the actual resource potential. So, with cash, with the drills turning there’s really truly a huge opportunity to upgrade the resource. You’re going to see an upgrade of resource here very, very shortly. But again, the exploration potential it’s the fact that there’s infrastructure there already, it’s over 600 M $ worth of infrastructure that currently exists. Actually, the replacement costs of the mill that we bought is probably 120 M $. So, there is real value here that’s just not being told to you all that well historically and there’s probably some confusion surrounding the fact that Dumont was there. But this is a previously operating mine with a new world class discovery that’s underground yes, but because all the infrastructure is already there you can mine 3-4 grams gold all day long and it’s economic. I’m not going to pay too much attention to all the beautiful pictures.
But truly there’s been a ton of drilling here it’s just none of it focused on that brown layer you can see below and that’s the layer that is generating this bonanza grade gold currently and that’s where we’re focusing all of our drilling. Literally the analogy would be that you can actually just sort of follow these veins and continue to intersect the gold to mine it. There’s the Fathers Day Vein discovery and that was the one that was 30,000 ounces. There was a period where Mark was running around the world with these. There was a 16 KG and 90 KG gold specimens that were I think 40% to 60% gold, 16 KG one 40% and then the other. We were at the BMO conference and came to help them there as well and literally at the show and tell at the end of the BMO conference it was the highlight of the entire conference. CEO’s were coming to get pictures taken beside these gold specimens. It was pretty cool. This is sort of a gantt chart of how the discovery occurred and what happened to the company and again, a geological drawing if you want to call it. It just shows how this setting is occurring. You can see the Lunnon Basalt, the green line going and then the pyritic sediment and the shear zones effectively get torn apart by the structures going through it and these veins come out and are basically carrying this high-grade gold. Very good picture as well. Really truly typically when I help Mark out and do this, this is what I focus on. You can see the four shears; you can see two open pits sitting literally above two of our shears that we haven’t really tested yet. You can see basically where all of the attention is being focused. This upper green layer where the historical mine was operating. Where you had the nickel sulfide lenses with the high-grade gold dissipating. It’s just that 150 metres below that you’re getting gold with no nickel. So, truly this is a brand-new gold discovery in an operating mine in a really safe jurisdiction and so, it takes a lot of the boxes. I guess the only one criticism I would have is probably we can market the opportunity a little bit better and the other one would be the Dumont sort of understanding and the fact that you’ve got a gold mine and a potential nickel mine to go into production here in near term.
Higginsville, one of our shareholders wasn’t all that impressed with the Higginsville acquisition. But the reality is that with the amount of gold we’re finding we were paying a very large amount of money for tolling operations. It’s very common in this area that people will toll mill and if you look at the cost savings, about 35% per ounce, it’s almost 100 $ USD per ounce. It just made a lot of sense with what was going on with Dumont to actually acquire this mill and no, we’re not at a production level where we can fill the mill ourselves. But just like Higginsville was doing, you can make cash off of the toll milling opportunity. So, there’s another cash flowing opportunity. If you can imagine what’s plagued this industry over time you had a lot of companies that would take on debt with no real cash flow or only one cash flowing asset and the minute that cash flowing asset goes offline or commodity prices change many of those companies went under and that effectively what happens to RNC prior to the Fathers Day Vein discovery. So, now that we have an incremental exploration asset, we have another cash flowing asset, we have a mine that’s actually generating on a run rate I think annualised now we’re looking at 40,000 ounces per year. We’re finding more and more gold. We’re finding high grade gold specimens. We’re intersecting bonanza grade gold all over the place right around the Fathers Day Vein. So, you can easily see a context where as we drill more that run rate will go up and as I mentioned you will see an upgraded resource here very near term. These are the assets that we acquired and Westgold is staying as a very large shareholder of ours as well. I think it bears note that they didn’t want all cash, they actually wanted 50% of settlement in RNC shares and the reason is the gentleman who ran the company actually worked on the Beta Hunt mine and he actually understands what the potential is. So, it’s a real plus they took half in stock.
So, I’m gonna quickly go to Dumont. This is a very well understood asset. When RNC was on the verge of bankruptcy they did a deal with really a Hedge Fund called Waterton, the principle is out of New York, the office is in Toronto. Waterton now owns 72% of this. We own 28% of it. But even the 28% that we own is actually quite valuable and as I mentioned you’re basically getting no value in the share price currently, at least that’s my opinion. Everything is trading basically on a gold basis. But great jurisdiction, the project works because it is in Quebec. Just put out a new FS, you can see all the highlights, 920 M $, decent IRR. Of course, you need higher nickel prices. But legitimately it’s one of the only fully permitted nickel cobalt assets in the world. Ready to be turned on if and when nickel prices go higher. It will generate a lot of cash flow once it’s in operation. All is arranged if nickel prices go higher to put it into construction. But these are the metrics that I think you want to pay attention to.
So, truly one of the largest global opportunities in the nickel space. I was talking with a gentleman about the EV trade. If you look at the key components that go into EV, you’re predominately looking at copper and then, of course nickel is I think the second largest component in the EV cars primarily on the battery side. You’ve seen this mad rush into lithium, you’ve seen a mad rush into cobalt but really you didn’t see any of that follow through in the nickel which is kind of perverse as well. It’s the second largest nickel reserve in the world, it’s the ninth largest cobalt reserve in the world and as I said basically getting no value in the company. If you use a reasonable value for it you come to about $0.20-$0.25 of value in the company. So, as we sit today trading at $0.50 half of that theoretically should be valued for Dumont. But then, theoretically you’d be getting a very, very discounted value on the Beta Hunt mine about gold production. So, I don’t want to overly complicate it. I want to leave time for questions.
Key highlights: four shears, four kilometres long all of them have this geological context that hasn’t been tested, only just scratched the surface. So, that’s 16 kilometres of potential strike for this high-grade bonanza gold. But as we drill more, you’re also seeing resources that are gonna be updated. I was joking with someone here, but really truly the majority of the analysts I at least come across are MBA’s who basically sit in a commodity price deck and if you don’t have a resource you really can’t come up with a reasonable projection. The guy that I worked with George […] and Pierre Vaillancourt, legitimate miners really smart guys. They train me to understand what you should be looking for in a company and this kind of has it all. It’s got huge exploration potential, cash flow, reasonable debt facility in place. It now owns its supply chain. It rocketed I think to $1.10 and it’s come back to $0.50 with 600 million fully diluted. You’re looking at a 300 million $ market cap with 600 million $ of infrastructure. Replacement costs of the mill 120 million $. You’ve got Dumont sitting on the sidelines. So, it’s our job to get out and try to convince you that if you’re a believer in the EV story well take a look at the nickel cobalt and then you get the gold asset theoretically for free. If you’re a believer in gold as many are changing their tune now with what’s happening in the price you’ve got a great opportunity there as well. So, I’ll stop there. »
Q & A:
John Tumazos: « Russell this 1406 grams over half a meter sounds pretty good? »
Russell Starr: « Nuggety »
John Tumazos: « I’m guessing the coefficient of variation would be over 100? With a ratio standard deviation in the grade? »
Russell Starr: «Yeah, probably more than that. »
John Tumazos: « Maybe it’s better for the old mine of the old miners’ way? Just follow the veins? For example, when you go through the ore box what top cut do you apply? »
Russell Starr: « It’s changed recently but it’s very, very low, I’d have to get you the number. »
John Tumazos: « 30, 100? »
Russell Starr: « I think it’s closer to 30. »
John Tumazos: « So it goes through the JORC or 43-101 compliance process. »
Russell Starr: « What we’ve done actually is, the best way to look at that, for geological reasons, we spent a lot of time, we just drilled 40,000 metres and 15,000 metres of that 40,000 metres was allocated to just pure blue-sky exploration like long holes into these other shears and the balance, the 25,000 was to get a better handle on what’s going on with the average grade not the bonanza grade. Everybody is focused on these bonanza grade discoveries but the Western Flanks shear zone is about 25 meters wide and as we drilled it out more, we’re averaging between 4 or 6 grams per ton and the A Zone is about 10 to 15 metres wide and it’s averaging 3 to 4 grams. So, what we focus on is try to take away that nuggety difficulty and who knows when you’re going to encounter these tables full of gold. Is the focus on what would a resource look like in a very a very small area if we only focus on, called a reasonable minable grade? Let’s just hope that we get some of this bonanza grade as potential blue sky outside. So, without saying too much the resource historically was something people focused on it was tiny. But you’re going to see a very substantial increase in the resource very, very shortly. Obviously can’t really talk about it. But that’s only call it a kilometre of the four kilometres of strike in one of the shears. So, if you can actually logically apply what you were just questioning and obviously you can’t do it until you have a couple of drill holes in these other shears. But if you’re intersecting there’s every reason to believe you will, decent grades in the other shears, you can put together a pretty meaningful resource and mine opportunity in short order. Does that answer your question? »
John Tumazos: « […] This is an unusually variable deposit which is why I asked Russell why not just follow the veins like the 19th century miner and not try to do a 43-101? »
Russell Starr: « We could do that specifically on the bonanza vein. There’s just no guarantee that’s going to continue. So, maybe the better way to answer your question is the coefficient of variation on the reasonable expectation of what Western Flanks would be without the bonanza grade is probably very reasonable. I haven’t looked at it. It’s very consistent. It’s 30 metres of 5 grams per ton and for many companies 30 metres of 5 grams per ton is a very reasonable hit and for whatever reason this company because people they’re stuck on this bonanza grade theory, they’re not understanding that this mine operates on a 3 to 5 gram per ton run rate rather than these bonanza grades that are really driving the retail frenzy. »
Investor: « If it’s a 4-gram resource let’s say, if you make that assumption can you give us an idea what the cost might be and also what percentage of this mill would you be using? »
Russell Starr: « So, we’re only going to be using about 30% or 40% of the mill with the current run rate which is 40,000 ounces. That will obviously go up as we drill more and find more. The AISC assuming we don’t hit other bonanza grade material is about $800 or $900 USD. So, its actually quite profitable right now and the reason we acquired that mill was you drop yourself below $ 1000 USD very quickly. »
Investor: « It was an exciting presentation, thank you. A few months ago, the company RNC was saying that all the Father Day nuggets that would be better to sell them to collectors than to the Perth mint and then, the Australian Government threw a wrench in the works by declaring them to be of Australian National Heritage. Where does that stand now. Have you been able to find collectors for the nuggets? »
Russell Starr: « Yeah, literally but I don’t know if he’s the wealthiest Australian but literally. There’s been buyers that have approached the company repeatedly. We’ve taken loans out against the specimens. It’s almost like you can actually bank the specimens. They know how much the value is. We haven’t sold them yet and we are about to sell them. We’ve effectively generated cash on them already if that makes sense. But yes, there’s many Australian buyers for them. I don’t know what your going to do with a 90 KG rock with 60% gold. Someone is gonna put it in their living room. Yeah, they can trade as high as two times the inherent gold value. Look what’s happening in the gold market right now is helping. I don’t know why you pay double the value. But, what do you do when your so rich? »
Investor: « […] I just want to congratulate you because this one of the more exciting things happening in the industry over the past year. Perseverance can pay off. I think John makes a good point. You’re gonna have to test this question about scaling up going after a bigger system or going old school and follow the vein. They’ll be your management call on this one. »
Russell Starr: « We tried old school to start and it almost bankrupted the company and hence, that’s why they wanted drill out a bit of the resource. But, look it’s not lost on us, that you can follow these high-grade veins. Literally we hit on every 14-15-16 level we hit effectively the same structure so the model’s working. Just so you understand what’s happening is literally this 5-6-kilometre-long ramp and then now that we’ve confirmed our geological model, we just go underneath and hit high-grade gold and then we just bulk stope it, old school mining you just dig underneath drop it out and process it. We do a little of both. »
Investor: « I have a question Russell. So, you’re saying nickel big use is going to be in EV? »
Russell Starr: « Lithium-ion, nickel cobalt those are the four components of the battery that’s generated the lithium frenzy and nickel is the largest component. »
Investor: « Is nickel used in the hybrid batteries now? »
Russell Starr: « Yeah »
Investor: « So a big use of it? »
Russell Starr: « I don’t even want to pretend what drives investors anymore because valuations I don’t understand. Truly there are companies that are trading at 1 billion dollars and some others that are trading at 300 M $. For whatever reason lithium and cobalt went crazy over the last 3 to 5 years. But no one focused on nickel and you’ll see just recently that Pala bought out the balance of the Cobalt 27 and the guys of Cobalt 27 have now formed Nickel 28 and it’s their view it’s like the new graphene or Robert Friedland, nickel is the future. Why aren’t people buying every nickel asset they can find? »
Investor: « So what are the other main uses of nickel? »
Russell Starr: « Stainless steel would be the primary one and the reason why nickel remains under pressure is what’s called nickel pig iron and there’s nickel laterites and nickel sulfides. We can talk about it afterwards, effectively there’s been no real investments in nickel in the last decade or two. »
Investor: « […] Russell do you expect to prepare an updated 43-101 or JORC compliant resource from the 40 kilometres? When should we expect that? »
Russell Starr: «Yes, imminently. »
Investor: « Imminently like in weeks? »
Russell Starr: «Yeah and you’ll be very impressed with it. »
Investor: « With regard to Dumont, six years ago there was a 100% stake in it? What are your strategies to keep the company well financed so you don’t dilute down? »
Russell Starr: « I can tell you what I would do and this is obviously going to be in the hands of the Inco board but I would spin it out. Waterton is not the operator. We would be the operator. We’ve got the team in place. We need slightly higher nickel prices. But it’s getting no value now. RNC changes the name from Royal Nickel to RNC Minerals because of the discovery of gold. The gold component and the discovery. So, we’ve got that credit facility that we can access anytime. I don’t see us doing anymore equity financing. So, from a dilution perspective your real risk is what happens on a spin out and how do you maintain the 28% interest and what does Waterton do with their 72%. »
Investor: « So, does your board consider putting the company up for sale? »
Russell Starr: « Dumont or the entire company? »
Investor: « The entire company, given the history of once in a while of having a diluted share or having the 72% slipped out of your hands? »
Russell Starr: « Clearly that can only be answered by other mid-tiers and majors. The Aussies are very cashed up and you’re seeing make acquisitions in North American companies not religiously but frequently now. The only caveat I’ll throw in there is Beta Hunt was for sale literally a year ago now and there was a buyer that dragged their feet, literally they dragged they’re feet until the Father’s Day Vein discovery at which point, we no longer wanted to sell it. Many people looked at it and passed on it and I think as there’s more drilling success and more exploration success you will see a suitor take a run at it just because of the infrastructure. »
Investor: « […] Question about the specimens selling as museum pieces for two times value, it’s a great hype to sell the whole company on? »
Russell Starr: « Look the reason I’m helping this company and involved at all is because I’ve got reasonable experience in the market and to me this is a very logical buyout candidate. There’s too much value sitting inherent and the market has created all these opportunities for everyone. If the market was efficient there’s no way this company would be here. The market is not efficient right now and that’s your opportunity. »
John Tumazos: « Russell thank you for coming down and standing in for Mark. »