Royal Nickel Corp. RNKLF

Red Cloud: RNX Starting 2020 Strong

[pierreg]

Red Cloud: RNC Minerals Corp. (TSX:RNX) – Starting 2020 Strong; Q4 Production Beats Estimate & Guidance. Jan 9th '20.
https://www.redcloudfs.com/wp-content/uploads/2020/01/20200109-RNX-Update.pdf

« Impact: Positive
RNC Minerals announced higher than expected Q4/19 production resulting in RNC beating H2/19 guidance and our estimates. Additionally, the company added C$9M in cash to its balance sheet in Q4, net of a C$3M debt repayment. We believe that this is another in a series of catalysts, that should demonstrate RNC’s transition to profitability and rerate of the stock towards our fair value estimate of C$0.90/sh.

Highlights:
• Production results beat our expectations and guidance. The company reported Q4/19 and H2/19 production results of 26,874 oz Au and 51,090oz Au, respectively (+4% and +2% versus our estimates, respectively). The company also beat its H2 2019 guidance of 42-49k oz. We highlight that guidance was based on traditional production, and consequently the beat is likely the result of some of the coarse gold mined in H2/19 being sold. 

• RNC adds cash to its balance sheet. The company delivered C$11.8M in FCF (CFO+CFI), about C$1.3M ahead of our estimates. This allowed the company to reduce its debt by C$3M (now C$32M). This is another clear sign that RNC has transitioned to profitability. This is the second consecutive positive operating cash flow quarter and as with all turnarounds, we expect the stock to re-rate progressively as it delivers consistent results. 

• RNC has significant momentum going into 2020; guidance is next. Since the acquisition of Higginsville, the company has delivered on a series of catalysts which are transforming the company and there is still more to come. The next catalyst is likely to be 2020 guidance. We are modelling 106koz at US$773/oz for 2020; however, we expect the company’s guidance to be lower production and slightly higher cost than our estimates as we include coarse gold production (12.5k oz in 2020E) in our estimates which we do not expect to be included in the company’s guidance. Additionally, the company is stoping the area around the Father’s Day Vein this quarter, which we expect to help deliver a strong quarter and demonstrate the potential of the “High Grade Contact Zone”.

Valuation: 

Another step towards reaching our fair value forecast. We are maintaining our fair value estimate of C$0.90/sh (unchanged), which is based on 6.0x our one-year forward NTM EBITDA estimate of C$92.6M (unchanged). RNC continues to trade at a discount to peers at 3.4x 2020E EBTIDA and 0.42x NAV (peers 6.6x and 1.08x, respectively). We believe that as the company continues to execute, the stock should re-rate towards our $0.90/sh fair value estimate. Upcoming Catalysts include: 1) 2020 guidance (Q1/20), 2) Updated Higginsville Resource (H1/20) and 3) Q4 financial results (Q1/20).  »