Royal Nickel Corp. RNKLF

Red Cloud Klondike Production at Baloo Kicks Off - $1.00/sh

[pierreg]

Red Cloud Klondike Strike Inc. August 26th 2019 RNC Minerals (TSX:RNX) Target $1.00 per share – Production at Baloo Kicks Off as per https://www.redcloudfs.com/wp-content/uploads/2019/08/20190823-RNC-Update-1.pdf

Impact: Mildly Positive Production has kicked off at the Baloo Stage I open pit, which we expect is likely to deliver 20-30koz/year to supplement production from Beta Hunt. With mining activities progressing well at both Higginsville and Beta Hunt, we believe that RNC is well positioned to grow to a +100koz/year steady state producer. Two quarters of operating performance and strengthening balance sheet to rerate the stock. Pending guidance, the next key catalyst for RNC.

Highlights:

• Baloo to supplement Beta Hunt and likely bring production to >100koz/year. The company has announced the start of mining at its fully funded and permitted Baloo Stage I open pit, as a part of its recently acquired Higginsville gold operation. Material from the Baloo pit is going to supply 30,000 tonnes per month (~986tpd) to the Higginsville mill, which based on grades ranging between 1.82.8g/t Au, would produce ~4.8-7.5koz Au/quarter (~20-30koz Au/year, assuming 92% recoveries). This adds to the 40,000-45,000 tonnes per month being delivered to the mill from Beta Hunt. The expected production rate from Baloo, supports our view that RNC is on track to become a+100koz/year producer in the near term. 

• Resource expansion opportunity at Baloo. Exploration work at Baloo indicates that there is potential to extend the Baloo pit further north beyond a large fault previously thought to truncate the zone. Drilling success in this area could warrant an expansion and extension of mining activities in the pit beyond 2019. A detailed review of the resource and previous exploration work at Higginsville is currently underway.

• Updated mine plan and guidance coming. The company plans to issue new guidance which should provide the market clarity on the potential of these assets. Based on the recently released Beta Hunt resource, we believe this mine could produce ~80k oz/year at cash costs ~US$800/oz. This coupled with ~20-30k oz/year from Higginsville, should make RNC a +100koz/year producer in the medium term. While the initial guidance may not be at this rate, we believe it is a short path to get there.

Valuation:
Mining activities progressing well at hybrid operation, which should drive value creation moving forward. 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 in the near future, as RNC reramps up production. Upcoming catalysts include: 1) Ongoing drill results, 2) Beta Hunt Reserve Update (Q3/19), 3) Integrated mine plan (H2/19) and 4) Ramp-up of mining at Beta Hunt (Q4/19).