RNC Minerals (RNX-TSX; US-OTC: RNKLF) Chairman and CEO Paul Huet is like the hockey coach who takes over midseason because the team is underperforming.
The Toronto-based company brought Huet in as chairman of the board in February to try to turnaround RNC’s high-cost operations at its Beta hunt nickel mine in Australia, and better pinpoint the extensions of the mine’s high-grade gold mineralization. He was also tasked with trying to reduce or eliminate a number of the mine’s punishing royalties.
It wouldn’t be the first time Huet went behind the bench. When he joined Klondex Mines in 2012, the company had negative working capital and a single exploration asset: the Fire Creek gold project, 100 km southwest of Elko, Nevada. Within six years Klondex sold Fire Creek to Hecla Mining (NYSE: HL) for US$462 million in a cash and shares deal.
His first big move at Klondex was to raise more than $100 million to buy the Midas mine and mill for $83 million—more than Klondex’s market cap at the time. With the remaining cash, he cleared some debt, drilled off more high-grade gold, and boosted production at lower costs.
Now at RNC, Huet is calling the shots from a similar playbook.
On June 11, the company announced that it had bought the Higginsville mill and gold operations from Westgold Resources (ASX: WGX) for A$25 million (US$16.84 million) in cash and 56.9 million shares, which were worth about C$28.4 million (US$21.4 million) at the time. The mill was built in 2009 for roughly A$100 million (US$67.40 million).
The cash portion of the deal was funded via a new 12-month senior secured $35-million debt facility (the loan can be extended an extra six months).
The 3,800-tonne-per-day Higginsville mill, about 50 km from Beta Hunt, is where RNC had been toll-milling ore at a cost of A$45-50 (US$30.30-$33.68) per tonne.
Since the acquisition, Beta Hunt’s cost per tonne has dropped to A$29 (US$19.53), and speaking at a recent Red Cloud Securities conference in Toronto, Huet said he hopes he can get that down to A$25 (US$16.84) per tonne.
Huet said the plan is to further reduce costs by teaming up with other mining companies to buy in bulk from vendors, limit turnover in mining personnel and reduce or eliminate royalties.
Currently Maverix Metals (MMX-TSXV) owns two legacy net smelter return royalties (NSR) on Beta Hunt’s gold totalling 7.5%. The Western Australia state government also has a 2.5% royalty on recovered gold from the mine.
At the Higginsville assets, which include the Baloo open-pit mine, Morgan Stanley owns a 1.75% NSR. Huet said he’s “opened discussions” with Morgan Stanley about doing away with the royalty.
Huet said among his goals are to cut all-in sustaining costs at Beta Hunt from US$1,286 per oz. during the first half of 2019, to below US$1,000 per oz.
He’s also focusing his efforts on exploration at Beta Hunt, where more than 40,000 metres of drilling this year has largely failed to find the extensions of the high-grade gold mineralization. Beta Hunt currently has measured and indicated resources of 944,000 oz. gold at an average grade of 2.9 grams gold per tonne.
RNC reported yet another high-grade “jewelry box” of coarse gold at Beta Hunt in late September. About 1,750 oz. gold in roughly 0.5 tonnes was recovered from 160 meters south and 25 meters below the company’s famous Father’s Day vein discovery in the third quarter of 2018.
The Father’s Day discovery was made on level 15 and one 167-tonne cut contained a mind-boggling 5,000 grams gold per tonne.
About 30,000 ounces have been mined from the Father’s Day vein since. Those ounces allowed RNC to pay off its debts at the time, including money owing to Pala Investments, run by Russian oligarch Vladimir Iorich.
Much of that cash came from selling to collectors the gold-bearing rock specimens, something Huet also did at Klondex on at least eight occasions with specimens from Fire Creek. Huet said the practice will likely stop now that RNC is no longer toll milling.
Beta Hunt is in the central portion of the Norseman-Wiluna greenstone belt in a sequence of mafic-ultramafic and felsic rocks on the southwest flank of the Kambalda Dome. Gold mineralization occurs mainly in the Lunnon basalt, which is the footwall to the nickel-bearing ultramafics, and is characterized by intense albite, carbonate and chlorite alteration.
“Everything [at Beta Hunt] is locally faulted, so trying to drill this off and see where the intersection is between a 1-metre thick horizon and another 1-metre thick fault structure is not so easy,” newsletter writer John Kaiser told The Northern Miner in a phone interview in early October.
In a note dated September 25 from Red Cloud Securities mining analyst Derek Macpherson wrote: “We believe that Beta Hunt is likely to continue yielding similar spectacular high-grade zones; however, RNC must demonstrate it can be a profitable producer based on the current resource (excluding these higher grade “jewelry boxes”) before the market will reward them for the additional upside.”
Huet agrees. “The plan is squarely focused on making sure that we can mine [Beta Hunt] economically at the average grade,” Huet said during his presentation at the recent Red Cloud conference. “This is critical.”
Huet made some promises, too. RNC will conduct further drilling to convert current resources to proven and probable reserves, with the first numbers expected in the fourth quarter of this year.
The company will also provide the market with production guidance numbers beginning in 2020 and it will put two years’ worth of mill feed on site at the Higginsville mill.
In July, Huet replaced the company’s CEO, Mark Selby, who resigned. Selby did not return requests for comment.
So far Beta Hunt seems to be operating well. Production reached 7,800 oz. gold in July, 8,100 oz. in August and 8,239 oz. in September for a total of 24,139 oz. gold, a significant increase from the 14,000 oz. gold the mine produced in the first half of the year.
At the same time, small quantities of nickel are being mined and work has commenced on a review of the mine’s existing nickel resources and potential targets with the objective of providing additional by-product revenue, the company says. In mid-September, the company issued a press release in which it said it had identified high-grade nickel mineralization from historic drilling above the Western Flanks gold mineral resource.
In other news, RNC announced in mid-August that mining is underway at its Baloo Stage 1 pit. The fully funded and permitted stage 1 pit is expected to provide material to supply the Higginsville mill with about 30,000 tonnes per month until the end of 2019. The stage 1 pit is the first of a series of pits RNC wants to put into production at Baloo and is in the process of permitting the Stage 2 permit.
In addition to Beta Hunt, RNC also owns the development-stage Dumont nickel-cobalt project in the western Abitibi region of Quebec. A recent updated feasibility study says that Dumont has an after-tax net present value of US$920 million.
The first phase of development would see a nickel in concentrate produced at a rate of 33,000 tonnes annually, ramping up to 50,000 tonnes in the second phase. Total production is expected to be 2.6 billion lb. nickel over 30 years at life-of-mine cash costs of $3.22 per lb, and AISC of $3.80 per lb.
“We think (Dumont) is a great asset and nickel has had a good run,” Huet said during the Red Cloud event. “We’re quite excited about it but there is no urgency for us to sell off Dumont. We should take our time and do what’s best for shareholders…We don’t control that asset.”
RNC, as manager, owns 28% of Dumont through a joint venture with Arpent Inc., a subsidiary of Waterton Precious Metals Fund II Cayman LP and Waterton Mining Parallel Fund Offshore Master LP.
RNC has had to raise money recently. In March it raised $12 million in a bought-deal financing and went back to the market again in August to raise another $18.5 million in a bought-deal.
The company now has 605.9 million shares outstanding—and some shareholders questioned the amount of dilution.
“Nobody likes any dilution; not me either. I participated in the financing. I take a lot of my personal net worth into this company in shares,” Huet told a shareholder at the conference. “In this case I believe the dilution was necessary and accretive.”
Some of the more noteworthy RNC shareholders include Eric Sprott with 8.8%; Van Eck Associates with 5% and Westgold Resources, 10%.
In a conversation following the Red Cloud event, The Northern Miner asked Huet if he is going repeat the success he had with Klondex Mines. He quickly replied: “I better.”
Spoken just like a hockey coach.
RNC trades in a 52-week range of $0.33-$0.91 per share and at presstime was trading at $0.35.
Pierre Vaillancourt, an analyst who covers RNC for Haywood Securities, has a 12-month target price of $0.80 per share.