Spinning bad news as good news, as usualIn this post I am looking only at the reported 'increase' in inferred resources at Mansounia. The question of RBX's ability to survive and build a new mine will be a topic for another day.
Summary: After an intensive and costly drilling campaign at Mansounia, they have failed to even come out with the "historical" estimate of inferred gold resources. And as expected, the grade remains very low, and therefore of very doubtful feasibility to build a mine on.
The details:
- RBX's September presentation, page 19, cites Mansounia as a priority target, with 1.4Moz of "historical" inferred resource. However, at 200m x 200m spacing, this number is rightly considered as invalid. But we suppose that they thought they could do as well or better with more drilling.
- So what did the drills and the modelling come up with? 896Koz of inferred resources @ 0.95g/t. So the imagined ore body turns out to contain a lot of empty rock. (It's a good thing those regulations are in place to prevent companies from reporting imaginary resources.)
- Remember that inferred resources are the lowest quality and certainty of resources. On the same slide, RBX boasts of its historical conversion ratios of 50% inferred to M&I; and 60% M&I to reserves. This translates to an overall conversion rate of 30% from inferred to reserves. Based on these ratios, we can estimate that the 896Koz of inferred resources might potentially yield 269Koz of the lowest grade ore. Even if proven (which would take more drilling and more money), this would barely move the needle in terms of project viability or NPV.
- However, RBX doesn't miss the opportunity to use the incorporation of Mansounia as one more excuse to delay the overall project schedule (the main reason, unstated, is that the company is broke and out of borrowing room). If they do manage to complete a FS update, we won't know until at least Q2 whether Mansounia makes any material difference to the project economics. And this was their highest priority for drilling.
- So until proven otherwise, the economics of the project remain very poor, and do not even justify today's reduced market cap of $223 million. And that is without considering the impact of dilution if by chance they succeed in raising equity.