Rubicon’s Phoenix unlikely to rise again

Rubicon Minerals (TSX: RMX; US-OTC: RBYCF) says there is “significant doubt” that it can continue as a going concern.

The junior has breached a technical covenant on a US$50-million secured loan facility from the Canada Pension Plan Investment Board (CPPIB).

Under the May 2015 financing agreement with CPPIB, Rubicon’s Phoenix gold mine was to have reached 60 consecutive days of commercial production by Feb. 12, 2016, — a deadline that came and went.

Rubicon built the Phoenix mine in Ontario’s Red Lake district without a feasibility study. Trial mining at the F2 deposit was called off late last year when the company realized that the geology was more complex than it had thought.

In January, Rubicon told the market that contained indicated gold ounces at F2 were 91% less than a 2013 National-Instrument 43-101 compliant resource estimate by SRK Consulting, while contained gold ounces in the inferred category had fallen 86%, compared with the earlier estimate.

In its latest press release Rubicon said it was in discussions with CPPIB, but noted there “can be no assurance that CPPIB will not exercise any rights or remedies in relation to the event of default, as outlined in the loan facility agreement.”

Dan Madge, CPPIB’s senior manager of media relations, said in an email to The Northern Miner that the board had no comment and could not provide a spokesperson.

The junior also released financial results for the year ended Dec. 31, 2015, noting that its cash and equivalents of $22.3 million were dwarfed by negative working capital of $179.9 million. (Working capital can be negative if current assets are less than current liabilities.)

Rubicon also posted a 2015 impairment loss of $203.5 million related to property, plant, equipment and inventories.

On top of that, the company said it has reclassified its loan facility, gold-stream facility and finance lease obligations, with balances of $69.9 million, $103.6 million and $11.5 million from non-current liabilities to current liabilities effective Dec. 31, 2015.

In February 2014, Royal Gold (TSX: RGL; NASDAQ: RGLD) entered into a $75-million gold stream with Rubicon. Karli Anderson, Royal Gold’s vice-president of investor relations, did not return an email requesting comment before press time.

In a press release earlier this month announcing its fiscal second-quarter results, Royal Gold said it “anticipates that it will conclude its technical evaluation of the revised geologic model and mineralized material statement prior to the release of financial results for the period ended March 31, 2016.

“Upon completion of our evaluation and upon consideration of any strategic developments with Rubicon or the Phoenix gold project, the company could determine that an impairment of its carrying value of the Phoenix gold project comprised 2.5% of the company’s total royalty and stream interests.”

Rubicon has said that “more exploration is required at depth and along strike to potentially develop an economic mining operation at Phoenix,” but that “other than conducting desktop studies and preparing future exploration plans, Rubicon does not have any intentions to proceed with an exploration program in the immediate future. An exploration program would require the company to secure additional funding.”

Tim Oliver, an environmental engineer and independent consultant in Tucson, Ariz., says it’s unusual for a company to build a mine without a feasibility study.

“I’m not a geologist and I never looked at their resources, reserves or any drilling,” he says. “But someone asked me what I thought about the project, and when I took a quick glance and saw that they had only completed a preliminary economic assessment and built a mine anyway, I said, ‘Wow, are you kidding? That’s dangerous, you can’t do that.’”

At press time, Rubicon’s shares had dropped 41% to 6.5¢ on 10.7-million shares traded.

At its 2010 peak, Rubicon’s shares changed hands at $6 apiece.