Paul Huet Denver presentation with video & my transcript RNC Minerals Paul Huet, Chairman & CEO Webcasts for Gold Forum Americas 2019. Video, presentation & my transcript.
Video: https://www.denvergold.org/company-webcast/dgf19/275/
Presentation: https://cdn.ceo.ca/1eo585k-slides.pdf
My transcript:
Paul Huet: « Thanks everyone and thanks for being here this morning. It's a privilege to be here again in Denver at the Gold show especially at a time we've got so much momentum behind us both gold and nickel in our case. I have to admit I'm trully excited to talk about the new RNC and it truly is a new company. I want to make sure the slides are right. I'll talk about the strategy, where we're going and wants changed in the last 60 days. I've been at the helm now for 55 days.
Historically RNC, Royal Nickel has always been predominantly about the Dumont asset in Quebec. While we still own 28% of that asset and are very confident that there's a strong likelihood that asset could get built here during this next cycle. We're seeing a lot of good momentum behind us with the Nickel here.
We believe our focus relly needs to be in Western Australia. We think to create near-term shareholder value we need to focus on something that's in operation or we're putting into operation now which is our Western Australia assets. I'm happy to talk about it today. By the way that simple comment on it's own is a big change for the company. Having spent the last 10 years and even IPO'd as a Nickel company. Now evolving and saying look our focus is really going to be on the Gold. We're happy about the Nickel but really laser like focused on the Gold assets we have.
So first and foremost new CEO. You'll hear me talk about new Management. We're not unlike any other company in the World whether you're Tesla, anything, you're creating bow ties. In our case we're melting gold. We need a strong team and you'll see that we've already put together a strong operational team in Western Australia. I'll talk specifically about them. But this will change the direction of our company.
Increasing growth production at both assets. We now have a centralized mill since the middle of June. We bought a mill. The Higginsville asset that included a mill and a mine and I'm going to get in the detail about it. We're now producing from two assets. Filling our own mill in the district of Western Australia.
We've got a much healthier balance sheet. During my due diligence, I made a very comprehensive due diligence. This is not the first time I do this. In fact there's so many similarities between this and my years at KDX. Part of my due diligence uncovered we need a healthier balance sheet. We need more cash to make sure we have the flexibility to put the ore in front of the mill for at least 24 months. So we were successful in doing that 18 million $ bought deal led by Haywood. That deal was oversubscribed I'm happy to say and it was predominantly all bought by institutions. Again a new change for RNC. We've got 5 new institutions that have taken up about 85% of the book that are going to be long with us and agree and like the vision that we presented to them. So we're quite excited to have them as new shareholders.
One of the things that also happened in the middle of June was the addition of RNC onto the GDXJ. There are several funds out there that require you to be onto the GDXJ in order for them to participate. That just demonstrates our liquidity and another good thing for us.
Maiden production. So, as I mentioned earlier we just bought the Higginsville mill. In fact, that was really the first fingerprint of Paul Huet joining. As Executive Chairman I made a pitch to the board and just explained look right now we have one asset. We have Beta Hunt. We have 400,000 ounces. In order for us to create value here we need to have a long-term strategy and that long-term strategy really requires a mill. We've been toll milling since we acquired Beta Hunt and I've done toll milling for many years in my career and the owner of the mill always gets to call the shots. You get to decide when the ore comes in. Sometimes the rates change. But displacing ore is very problematic for us. We don't have that anymore. We don't have that problem anymore. That's in our rear-view mirror. We are looking forward. We have our own mill. We don't have to worry about when we monetize our ore. We don't have to worry our costs. About are we going to recapture our costs, recover them. We were mined to a stockpile for a significant time here and we're no longer doing that. That's another huge big change for ourselves. So, our maiden production. The first month we had the mill we did just short of 8,000 ounces. So, you'll see in that table we have July about 7,873 ounces. That's our first month and that's treating our own ore that stores from Higginsville and from Beta Hunt. So, 100% of that ore is ours. That's our first production with our mill. Second month we do 8,100 ounces. We're on a really good path here to be doing 7,000-8,000 ounces a month. This is right out of the gate. This is the first production.
We haven't even announced guidance. We haven't put out a 2P Reserve. We are working on that. We recognize and know that we need a disciplined appoach and we need to be in control of our destiny. We want things to go well. We got to have a really disciplined approach. Part of that approach has got to be putting together a 2P Reserve. Putting together targets. Putting out guidance and holding ourselves accountable to it. Again, we've never had a 2P Reserve in the Gold. We did in the Nickel with Dumont. We've never had a guidance in the market. This will be the first time. We can expect that here. In the next month here post the financing.
Some of the other things we're doing just like any other junior we're on a huge cost cutting campaign. I have a slide specifically on it. I'll get into the more details. We're assessing the inclusion of the ASX. Is this something we should do? Something we shouldn't do? We're going to be reaching out to experts in trying to understand the value it provides us and if it's something we ought to be doing. Just before I swtch to the next slide I want to comment that while we had 16,000 in the first two months of owning our mill, the first half of the year we had 14,000 ounces. So, from January to June that 14,000 ounces and we're paying toll milling prices. Here we're paying $45 a ton. Our own mill we're paying $29 a ton and we have to sacrifice recoveries as well while using someone else's mill.
I was talking about the Management and every team requires a strong Management. Besides myself, there's been an addition to the Board with Warwick Jepson whose a former COO of Kinross. So, we're trying to put strong people on the Board that can help us with our new vision and our laser-like strategy on the Gold. Graeme Sloan has been added as Managing director of Western Australia. Graeme comes with a very decorated history in Western Australia. He knows the district. He knows the players. He knows the industry very well. In fact, Graeme was the CEO of Perseverance who actually built the Fosterville mine. I don't think anybody needs an introduction of the Fosterville mine. I think just everybody in our industry today understands what Fosterville has done over the last couple of years. Graeme was the CEO from 2002 to 2007. He's also been the CEO of two other Junior companies in Western Australia. The value he adds is tremendous with his network. The first thing Graeme did was brought on two new GM's. So we've recently appointed Greg Harvey as General Manager of Beta Hunt and Cullum Winn as General Manager of the Higginsville complex which includes the mine and the mill. So putting together a strong team right out of the gate is really important. We're already seeing some benefits of the new team members. In fact, I'll give one metric. Before Graeme joined he was actually a consultant for a couple of months. So he started bringing in some people. Our turnover rate in Western Australia was about 86%. It was really a revolving door. People were coming in, they'd come in for one hitch and they'd never come back. It was really problamatic for us. We're putting a lot of money into hiring guys, training them and they were gone real quickly. Since Graeme has come on board and brought in his new team our turnover rate has droped below 19%. That's a huge cost saving for us. It's something that will see flow-in through our AISC over the next couple of quarters here. It's something that is measurable. It's a huge success for us. That's very early on for us. We're very happy about it.
The Higginsville complex again we acquired in June. We closed it in June. What did we pay for it? We paid 50 M AUD for it and what did we get? We got that mill that's behind me here. It was built in 2009. Part of my own due diligence any company that I'm going to become, this part I have to due a huge due diligence. This was no different. I spent a lot of time on the ground there. Speaking to the operators. Speaking to the miners and I spent a lot of time going through the mill. I've had several mills through my career report to me. This is a very good mill. Very good condition. It's not all beat up. 10 years old. It was approximately 100 M$ to build the mill. It would take us at least 3 years to permit and build that and we'd have to require 100 M USD. We got more than just the mill for that 50 M AUD and this is important to us and our shareholders. Along with the mill we actually got the Higginsville complex [...] is 396 km2. Included in that 396 km2 we added 1,9 million ounces of Resource measured, indicated and inferred at an average of about 2 grams. So, we're a company that had Beta Hunt Mine Western Australia. We had about 400,000 ounces. Now we're changing and evolving the company to have a centralized mill and then we have an additional 1,900,000 ounces. How did we view it as the Board? We took the purchase price and we split it about 50-50. We assigned 50 M$ to the mill which was 100 M $ to build 10 years ago. It does need a little love. A little TLC, nothing major. Maybe about 1,2 M$ to get it into condition we want it to be in. Housekeeping needs to improve. It needs a bit of love into it. Then, we assign another 25 M$ to the 1,900,000 ounces. If you just calculate acquisition costs per ounce that's about 13 AUD an ounce. I can't find an ounce of gold, drill an ounce of Gold at 13 AUD. In Nevada it was costing me anywhere from 35-45 USD to drill and discover an ounce. We added 1,900,000 ounces to the 400,000 we already had at the price of 13 AUD an ounce. That's a huge benefit for us and our shareholders. The other things that we got alongside, there's a couple of other things that we get we got with the purchase. Westgold had just previously bought the Baloo open pit [...] we're already mining it. They bought it in 2018 and they paid 9 M AUD for it. They immediately strated permitting it and they put in the infrastructure. They constructed a road to it. When the deal closed it was shovel ready for us. So all we had to do was when we closed the transaction, we started mining that at about 6 feet, 2 meters of overburden. We striped that really quickly. We're mining from that pit today, feeding half of our feed into the mill which is high capacity from there. Average grade is about 2,2 grams per ton. For me that's extremely high. I'm coming from Nevada where we we're mining 0,4-1,0 gram. This is an extremely high grade open pit. The other things we got was a stockpile. we ended up as part of the transaction 100,000 tons of stockpile with an average grade of 1,1 gram material. So, we not only have the two sources of feed into the mill. We have this stockpile. If we have any hiccups, any operational hiccups, we have a stockpile 100,000 tons we can draw from. The value for us and our shareholders is, the revenue in it is about 6,5 M$. If you take away the milling costs of $29 per ton and the transportation costs and apply a recovery we're left with about 3 M$. So, you start chipping away at that 50 M AUD quickly. We paid 50 M AUD. We got the mill. We got the land package We got Baloo, they had just bought for 9 M AUD. We got 3 M$ of net after costs in a stockpile. Then we have about 5 M$ between equipment and warehousing [...] A lot of which we actually took from Higginsville and brought to Beta Hunt. Some of the lighter vehicules. These operations are within 60 km of each other. They're very, very close to each other. There's some tremendous synergies that we can take advantage of, that we are doing. Something that I've done in the past that will work here once again. This is just a map of Higginsville. The 396 km2 that actually shows the plant. You see the lower left hand corner shows the district in Western Australia in Kalgoorlie where we're at. But it really shows the tenement package that we acquired: 396 km2. That included 1,900,000 ounces.
I just want to talk about, before I go on the next slide. The drill program we did at Beta Hunt. We've been pretty fortunate and blessed to have these high grade specimens at Beta Hunt and they're not one-offs. They've occured at least 10 or 11 times throughout the mines history. What's important for us and our shareholders is to demonstrate that we can mine this deposit at the average grade without those specimens. Now everybody is like why would you do that? We're not targeting without them. In fact, we understand the geology a lot more today than we ever did before. We're targeting the geology and we know that those high grade specimens have been contacted or intersected in that same geologic formation. So, we're going to be targeting in those areas. But the new RNC shows that Beta Hunt with the acquisition of the mill is now economic at the average grade that we have. It's really, really important for us and for our shareholders going forward. We just completed close to a 40,000 meter drill program. Around just shy of 38,000. From that drill program we increased our measured and indicated Resource by almost 400%. Remember I was saying we started off at 400,000 ounces. We increased the inferred Resource by another 200%. At Beta Hunt today we now have approximately 1,300,000 ounces total Resource.
We're about to put out a Reserve. Again, [...] we've never done it before. This is something new for this company. Huge change. It'll come out here in the next month. Followed by guidance. All a very a very disciplined approach to make sure that we are in control of this and we know what we are doing. Following a plan and we've got a good strategy.
Like everyone else we have a huge cost cutting initiative. We're targeting below 1,000 USD. We certainly believe we can get there. With the acquisition and the addition of the mill we have a direct impact on our unit cost, our milling cost of $16 per ton saving directly. So, we were paying $45 a ton. We're now paying $29 a ton. We also get the benefit and the joy of improved recoveries. Our recoveries have recovered around 91% while toll milling and again, that displacement is the hardest thing, anytime. Anytime something happens to another company that's good or bad or metal prices change or they find more ore. We become the victim. They tell us, we have to push your ore out 2-3 months. We no longer have that. We're not crippled by that anymore. So, improved unit cost. Improved recovery. What else are we doing to get to that ASIC of 1000 USD an ouce that we firmly believe we can get there? There's 4 items there that we're attacking vigorously. One of them is vendors. This is something I've done 4 times in my career. In fact, I remember doing this in 2001 at Midas Mine for Newmont when Gold was trading 264 USD an ounce. That wasn't so pleasant back then. But we were on this huge campaign to drive down costs. We met with the top 20 vendors. We're doing that today at RNC. Graeme is meeting with the top 20 vendors in Australia which represents 90% of all our overall costs. We're capturing 90% of all our costs with meeting those 20 vendors and we're negotiating more in bulk with them. We now have a strong healthy balance sheet. A strong team. We're demonstrating to them we would like to be a long-term partner. If you want to be part of this relationship how can you reduce some your costs. This is proven to be very effective in the past. I'm very confident we'll be effective again here. Personnel I talk about Graeme his team, myself, Warwick on the Board it's something we can continue to look at. With the addition of the new personnel we're already seeing turnover rates improve. We're seeing an increase in productivity rates for underground miners by about 30% already. So, again that's a function of less turnover. One of the elephants in the room for us is royalties. We have some high royalties at both assets. We're in a position to speak to those royalty holders and negotiate different terms. The Baloo open pit was strategically bought by Westgold. It has no royalties. It's outside of the royalty package. We'll be looking at alternatives to mine outside of the royalty packages. We'll be looking at hardness, grade, distance from mill for our pipeline to feed the Higginsville mill because we intend to continue feeding it from Higginsville and Beta Hunt. But we're going to be speaking to the royalty holders at each site. At Beta Hunt, it's Maverix and at Higginsville it's Morgan Stanley. So, I'm happy to say they've both been good to speak to early on. Again, 52 days here. We're going to welcome future meetings with them so we can aggressively fight for our shareholders to reduce costs. One of the other ones G&A. I've had an opportunity to look at it during my own due diligence. We're going to be reevaluating G&A. I think it's low hanging fruit for us and I call it the Nike deal, Just Do It. We really need to just do it and start reducing our costs in G&A. These are some of the comparable slides that Haywood put together for us and I know most of you see these a thousand times. But the value of showing this now it's demonstrating, a snapshot in time at todays RNC without any hidden costs, saving measures, without inclusion of the mill. So, we're trading at about 0,41 times our P/NAV while other North Americans are trading at about 0,5 and in Australia they enjoy an even better multiple of about a 0,8 times their P/NAV. There's a variety of reasons for that depending on who you ask. Metal prices, the FX is surely helping that. But truthfully I thin the Australians have actually delivered on what they said and that's helped them and there case a lot. So, we need to just follow through and just deliver on what we're about to put out here in the next month.
I got about a couple seconds left here. In closing, I just want to explain how the company is. There's been a reset on RNC. The focus is different. We now have a focus on Gold. We're happy with our Nickel asset. We're happy that the price is moving in the right direction. We will explore and evaluate all alternatives to make sure we create the best value out of our Nickel asset in Quebec. But our focus again is and our strategy is on the Gold now going forward. Huge change. Huge shift for this company. Two assets, a centralized mill I know I said it before. But in closing I just want to repeat it. Strong healthy balance sheet today. Strong Management team. The payback on the mill using the whole purchase price, not just 25% or 50% like I said the Board did, 25 M AUD & 25 M AUD. If you assign the whole value the 50 M AUD. Just using the tons per year 1.4 Million Tons Per Year, that payback is 2.3 years. It's a very swift payback and once again. We don't have to worry about being displaced [...] We currently have 3 companies covering us. We have a lot of outstanding shares. About 550 M outstanding shares. Now we have some really strong institutional shareholders into our shareholder base. We're excited. It's a different future for us. This is not the first time I do it. This is something that we're going to repeat. We're going to take a very disciplined approach going forward.