Agnico-Eagle invests $70M in Rubicon

Agnico-Eagle Mines (AEM-T, AEM-N) is making a $70-million strategic investment in Rubicon Minerals (RMX-T, RBY-X) to secure 9.2% of the company’s outstanding shares.

The news sent shares of Rubicon Minerals up 28.8%, or 88¢, to close at $3.94 per share with 6.6 million shares changing hands. 

Under the private placement, Agnico-Eagle is purchasing 21.67 million Rubicon shares at $3.23 per share. The proceeds will be used for drilling, studies, testing and other development work at the F2 Gold System of Rubicon’s Phoenix gold project in Red Lake, Ont.

The companies have also agreed to negotiate a technical services agreement that will give Rubicon access to Agnico-Eagle’s geological and engineering mining team.

“We see it as a huge validation of the project, so we’re very happy,” David Adamson, Rubicon’s president and chief executive, told The Northern Miner during a break between meetings. “It’s something we’ve been targeting as a strategic objective for some time. We were looking for a group with expertise in this type of deposit, and Agnico was a perfect fit. They’ve got a very strong reputation in operating and managing underground deposits in Canada and elsewhere. So access to their cash and their expertise is very important to us.”

Sean Boyd, Agnico Eagle’s chief executive officer, noted that the Rubicon deal was consistent in structure with the type of deals the gold major has done over its long history. “It’s a strategy where we try to use our technical skills . . . and leverage those skills and be of big help,” he explained in a telephone interview. 

Boyd also noted that Agnico-Eagle’s president and chief operating officer, Ebe Scherkus, had spent the early part of his career in Red Lake and “has a pretty good feel for the potential of deposits in that district, and we certainly used his experience. He’s always liked the area and we do have a lot of ground up there that we’ve staked, so it’s a strategic investment in a camp that we like.” 

In terms of the deposit itself, Boyd noted, “it is a high-grade deposit that has still got a lot of exploration upside.”

“It’s a great opportunity for Agnico-Eagle to get involved in a camp that has very good potential, and it’s good for Rubicon to get credibility behind its name again,” comments a Toronto-based mining analyst who requested anonymity. “It’s a validation of what Rubicon has been saying regarding the feasibility and exploration potential of the project, and to have Agnico come in and say we agree, and we want to buy a bunch of it, gives it a lot of credibility.”

Earlier this month, Rubicon released a preliminary economic assessment (PEA) of its 100%-owned project in Ontario’s Red Lake district. 

The PEA outlined a throughput rate of 1,250 tonnes per day for 180,000 oz. gold production a year, at an average cash cost of US$214 per tonne and a 12-year mine life.

At a base case gold price of US$1,100 per oz., F2’s pre-tax internal rate of return works out to 28%, while the pre-tax net present value, at a 5% discount rate, is calculated at US$433 million. Initial capital expenditure comes in at US$214 million, including a 30% contingency, or US$50 million, with payback from the start
of production forecast at three years.

Average mined gold grade is anticipated at 13.87 grams gold per tonne, with a 92.5% metallurgical recovery.

The study was based on an updated resource estimate, with F2’s indicated resources reaching 1.03 million tonnes grading 14.5 grams gold per tonne for 477,000 oz. contained gold, and inferred resources of 4.23 million tonnes at 17.0 grams gold for 2.32 million oz. contained gold.

Rubicon has 214.4 million shares outstanding. Over the last year, the company has traded in a range of $3.05 per share and $6.50 per share.