Can Rubicon’s Phoenix 
rise from the ashes?

The demise of Rubicon Minerals’ (TSX: RMX; US-OTC: RBYCD) Phoenix gold mine in Ontario’s Red Lake camp stunned the industry. Trial mining of the project’s F2 gold deposit was called off in late 2015, when the company realized the geology was more complex than it had thought, and a new resource estimate revealed that contained gold ounces in the indicated resource category had plunged 91% from a 2013 resource estimate, while contained gold ounces in the inferred category had fallen 86%. The company halted all work and spent the rest of the year and much of 2016 in restructuring mode to stave off bankruptcy.

Today, Rubicon’s prospects look brighter. The company has emerged out of a restructuring with a new CEO who has a reputation for turning around companies and having expertise in high-grade, narrow vein gold deposits like F2. George Ogilvie — a mining engineer who began his career in 1989 with AngloGold in South Africa working in the ultra-deep, high-grade gold mines in the Witwatersand basin — stepped into the breach at Rubicon in July 2016, and orchestrated a restructuring with the company’s creditors that culminated in Rubicon raising $45 million to guide exploration over the next 18 to 24 months.

Before joining Rubicon, Ogilvie was the CEO of Kirkland Lake Gold (TSX: KLG; US-OTC: KLGDF) from 2013 to 2016, where his management team improved operations at the company’s Macassa mine and guided its acquisition of St Andrew Goldfields. Before joining Kirkland, Ogilvie was the CEO of Rambler Metals and Mining (TSXV: RAB; LON: RMM), where for over seven years he and his team guided the company from grassroots exploration to a profitable junior producer.

He sat down with The Northern Miner in the second week of February to discuss his plans for the company. In the third week of February, the company announced that it had raised another $8.5 million for exploration in a bought-deal financing that could close on March 3.

The Northern Miner: You are taking on a huge challenge. What were your thoughts when Rubicon approached you in mid-2016?

George Ogilvie: I did four months of due diligence myself. The company had been running a strategic process, including the sale of the company, since January 2016, which was being led by BMO and TD bank. They had an extensive data room, which I signed a confidentiality agreement and got access to. In September I went up to site and spent a couple of days there underground, looking around the property and speaking to the small management team that we have remaining there. We only have eight employees there, so I spoke to them about what transpired and tried to get a handle on how to get this project moving in the right direction again.

There were certainly mistakes made. And it’s not to be critical of the former management. Hindsight is a wonderful thing and we’re not trying to be critical. Taking a project from early stage all the way through to production on a preliminary economic assessment (PEA) is one of the fundamental [things] missing, and trying to think that there is an economically viable mine there, on resources, as opposed to mineable reserves. When we publish resource statements there is language that lawyers tell us to put in that states that resources are not mineable reserves and may not be economically viable. The warning signs were there.

From a geological structural perspective, the deposit obviously is complex. It’s a lot more complex than what we thought in 2013, and that was obviously when there was a National Instrument 43-101 resource conducted, which had globally 3.3 million oz. of 9 grams gold per tonne. It was a mechanized mining method with long-hole, 7.8-metre stoping widths and bulk-tonnage mining, and I’m not necessarily convinced that’s the appropriate mining method for this deposit now, which seems to be high grade in areas, but quite nuggety. Maybe a more selective mining method would be the way to go. That’s what should be initially considered.

TNM: For example?

GO: Sort of a cut-and-fill mining method — underhand or overhand. We have a paste-fill plant in the mill. That’s exactly the style of mining that was predominantly used at Kirkland Lake Gold, when we got that moving in the right direction. Shrinkage mining is another style we could deploy here. I do think there will be areas — if there is a mine there — where the deposit is going to be wide enough, contiguous enough, long enough on strike length, where we could put in a bulk-tonnage mining method. But I don’t think that will be the primary mining method. It has to be more selective and look at mining higher grades with less tonnes.

TNM: Without dwelling too much on the mistakes of previous management, why would they have built a mine on just a PEA?

GO: In 2011, when the first two resources were done, we were looking at global resources of 2.8 million ounces. The inferred grade — most of the material was inferred — would have been 17 grams per tonne, undiluted. And back then, what was interesting was that the stoping width was 2 metres. Six or seven years ago when people looked at this initially, they thought of it as low-tonnage, high-grade narrow veins — selective mining. In 2013, when suddenly the tonnes doubled, the grade fell to 9 grams and the stoping width was up to almost 8 metres. Suddenly we were looking at a bulk-tonnage mining method. The real mining method is going to fall somewhere in between, and it’s going to have to be a bit of everything that suits the resource and reserve blocks that are generated. In both scenarios the grades are robust enough to suggest an economically viable mine, and of course it’s Red Lake where one would expect to find more gold ounces.

TNM: When Rubicon announced that information from drilling and trial stoping had changed its understanding of the gold mineralization’s variable spatial distribution, and the geological information highlighted the complexity of controls on the distribution of the gold mineralization,  grade and continuity, it stated that “the distribution of the higher-grade mineralization is controlled by the intersection between the east- to west-trending D2 structures and the north-trending, high-titanium basalt unit.” Was this interpretation incorrect, and what do you think the correct interpretation of the geology might be?

GO: The interpretation was correct with the information that was available at the time. In 2013 when that resource was produced, most of the drilling conducted on the Phoenix project up to that time would have been drilled from surface east–west, perpendicular to the main F2-mineralized high titanium basalt zone. This would have been appropriate. By the time mid-2015 came around, development out to the mineralized high-titanium basalt zone would have occurred in the form of 4-by-4 metre drafts. Underground drilling would have occurred in east–west drilling for the F2 mineralization.

As the D2 structures were not fully known at this time — and the fact that they run east–west, parallel to the diamond drilling — in a lot of cases they would have been missed. From these main underground drifts, perpendicular sill drifts were developed along strike of the main F2 mineralized zone that would have found the cross-cutting D2 structures. It was only when the 244 mL and 305 mL working areas were fully developed did it become apparent that the D2 structures were more frequent and complex than previously understood. This changed the 2016 resource model when compared to the 2013 resource model.

This is why the initial work programs aim to better understand the D2 structures and how they constrain the gold by re-logging historical core that would have intersected these D2 structures and diamond drilling for the D2 structures to understand their continuity from level to level, orientation, strike, dip, azimuth, et cetera. If they can be better understood, it will help produce a more accurate resource model, compared to what we see in the mine today.

TNM: You’re known in the industry as being something of a turnaround guy. Would you say that’s an accurate description?

GO: My team and I got Rambler up and running from a junior explorer into commercial production over four years. We did an accretive deal in acquiring a mill there for only $5 million and a fully permitted tailings pond … Kirkland Lake has been a tremendous success story over the last three years. It’s been one of the darlings on the street.

Other than the first half of last year, we’ve been in a difficult gold-price environment, and Kirkland Lake has outperformed its peers, so yes, I think I have a little bit of a reputation like that. But rest assured, it’s been a real team effort. It’s something bigger in that I’m here to create value for the shareholders, and whether that’s running just a regular mining company that’s in production and is looking for accretive deals, or looking to grow production, or cash flow, or free cash flow or profits, I think I can bring all of that to the table.

TNM: You’re also known as an expert on deep, high-grade, narrow vein gold mines. Can you tell me a little bit more about how your experience will fit with your new role?

GO: My experience tells me that the deposit at Phoenix is quite complex from a structural geological perspective. As I said, the historical trial mining method of bulk-tonnage mining wasn’t appropriate for this mineralized zone with the new interpretation. We’ve got to go back to all the historical information and take a fresh look. One of the key elements of the work program is to go back and take out historical core that would have intersected these D2 structures and dikes that have come through as a secondary event. And that’s what gives us the structural complexity within the mineralized zone to look back from a geological perspective and detail re-log that core — and then there’s a 3,500-metre drill program that will drill parallel to the mineralized zone, but perpendicular to the D2 structures … to get more information on these D2 structures, so we can better model them within our understanding of the new resource model.

Twenty thousand metres of infill drilling will take place. If in 18–24 months we have a large enough resource with good enough grade, we want to move into a feasibility study with mineable reserves in the proven and probable category. The only way we can do that is to ensure the resource has measured and indicated. Inferred material is not going to help us here. That’s the reason why we want to drill on 25-metre centres, so that we can at least get as much material as possible into the indicated category, which, in the mineable reserve, would be in the probable category.

TNM: What were your thoughts when you went underground for the first time?

GO: The mine is a dry mine, although it’s been on care and maintenance for 15 months. Everything underground is in perfect, excellent condition. The company kept on some of the capital leased equipment from Atlas Copco and had continued to pay those monthly leases, so we have an equipment fleet that allows this advanced exploration campaign and a move towards production, if that decision was ever given the green light, in two years’ time. I was happy with the conditions I saw underground and the general infrastructure.

If we have a slightly different approach to the mining method, and our understanding of the resource, we can get this moving towards becoming a mine again. For example, the waste-pass system within the existing mine was never commissioned. The mineralized material and waste went through the ore-pass system. And in my 27 years of experience, it’s easy to comingle mineralized material and waste, dilute yourself down and send that through the ore-pass system. One of the first things we have to do is get the waste-pass system commissioned, and we can do that for less than a million dollars. We have that in our budget. Before we would do any mining, now we’ve got two separate ore- and waste-pass systems that can keep the mineralized material and waste segregated.

The other thing I saw happening was that maybe there was a mentality that “there was a mine there, there was a mine there,” and we had such belief in the 2013 resource that when we hit the contact of the mineralized zone, if that resource showed us 200 feet ahead there was continuous ore — there was a propensity where we actually took those rounds — we were putting the muck in the ore re-muck, and it would have been going into the ore pass. But if you look at the resource now, of what we have in 2016 and 2017, as the orebody is a lot more broken up, some of the rounds that we would have taken there would not have been mineralized material, and would not have been economically viable. But it was still going into the ore re-muck and into the ore pass and mill, so that would have been dilutive. That is one of the reasons why we weren’t able to reconcile our grades, tonnes or ounces to the 2013 resource — because it wasn’t accurate.

The 2013 resource was probably over-optimistic, but by the same token the 2016 resource is probably too conservative. They were taking chips and mucks and samples of that broken muck, but in more cases than not, it was taking three to four days before we got the assays back, and by then it’s too late, because that muck pile has moved and it’s off in a storage area, and nobody was keeping track of it. You’ve got to do that every shift. And that was one of the issues and challenges we had at Kirkland Lake. We got that resolved. Within three months of implementing new plans at Kirkland Lake, we saw the grade rise from under 10 grams to 14 grams, which is a 40% uplift, and it made a huge difference to that operation. We need the same thought process here, with strict controls on managing mineralized material, waste and mining.

TNM: When you took this job, what did your friends and family think? Did they think you were crazy?

GO: My wife was happy that I was coming to work, because I was getting in and around her feet. It had been three months and it was time that I get back to work! So she was happy. But colleagues within the industry who knew Rubicon thought that maybe this may not have been the wisest choice. After sitting down with them and explaining what I had seen and what I thought we could do, they got it. And the market and the street gets that as well to an extent, because we have raised $45 million for this company in a financing. The book was oversubscribed. We could have taken more had we wanted to, but we decided that $45 million was the right amount. It funds our two-year campaign. We paid some of that money to the Canada Pension Plan Investment Board as part of the renegotiation of their debt, but the company now has $27 million in the bank, it funds our next 18 months of this advanced exploration program and we’ve seen the share price rise quite dramatically since we did that offer at $1.33. As of Feb. 9, we were at $2.27 — that’s almost a 70% uplift in six weeks.

TNM: Did the company arrange the financing before or after you joined?

GO:  I joined as a consultant. If you are an officer or a director of a company that’s in the Companies’ Creditor Arrangement Act (CCAA), when it comes to the reporting requirements — such as the personal information form — the reporting requirements increase substantially for the next 10 years, so generally people in the industry don’t like to be associated with bankruptcies. I joined as a consultant, I wasn’t an employee. We raised the money on that basis. But if the company came out of CCAA, it was agreed that I would come on as a full-time employee — as president and CEO.

TNM: Because you agreed to join the company as CEO, Rubicon was able to raise that kind of money.

GO: It would be fair to say that yes, the money got put into the company on George Ogilvie’s reputation, and what we had achieved at Kirkland Lake and at Rambler. But it was a really good fit for the company, because Rubicon had formulated this restructuring plan, it seemed quite credible and doable, but it required a new leader with that reputation to raise the monies. This is going to be a win-win, and for me as one door closed, another door opened.

TNM: There is a view that, while the task you’ve taken on at Rubicon is stressful, it won’t reflect badly on you if Phoenix doesn’t succeed, because you inherited such a mess to begin with. Would you agree?

GO: Certainly we’re keeping expectations low, and that’s how we’ve marketed the company up until now. Nobody can categorically say there is a mine there today without going through this 18-month program. But at the end of 18 to 24 months, we will know whether there is an economically viable mine. We are trying to keep the expectations as low as possible. Investors have put their money into the company, and I’d be disappointed in myself if I didn’t create value for them.

But you know the street. We have to be careful here when we put out results. I could put drills underground in this deposit, drill some areas and hit nice intersections. But if I put those out into the market and don’t understand the materiality of those holes on the National Instrument 43-101, it would be easy with the right external environment and positive momentum in the gold price for people to put one and one together and end up with five, and suddenly think that there’s a mine there tomorrow.

We have incredibly good holes drilled historically, yet if you believe the 2016 global resource, there are only 400,000 ounces. I’ve been explaining that to shareholders, because they ask me, ‘What about news flow?’ And I walk them through the news flow, but what I’m saying to them is this: ‘Yes, there will be constant news flow, but it’s going to be rather boring and mundane, because I can’t put out super sexy holes until I understand the materiality of those holes, with respect to that resource.’ If I just put them out I’m setting myself and the company up, probably for failure — raising those expectations without understanding whether we can deliver. A prudent approach is required.

TNM: Is there anything that keeps you up at night?

GO: No, not really from being worried. I’m super excited. The excitement is what keeps my energy levels high. You’ve got a company now that has an asset where there’s $770 million of sunk costs. Now, $200-plus million of that would have been in the drill bit. But there’s $300 million to $350 million there today in hard, tangible assets, so you’ve got a 720-metre-deep shaft, a hoisting system and a mill capable of 1,800 metric tonnes per day, but it’s permitted only for 1,250 tonnes per day, at present. You’ve got a tailings impoundment area, 9,000 metres of underground development and a mine. There are several stopes where the holes are actually drilled — they’re waiting to be loaded with explosives. But until we understand whether they are in the right areas and if this is the appropriate mining method, it doesn’t help to blast rock for the sake of blasting rock, because we could be throwing money away. Every tonne of waste you bring to surface costs as much as a tonne of ore rock, right? But this is a wonderful opportunity.

We also have a company now that has a clean balance sheet, only 53 million shares issued and 3 million stock options. So 56–57 million issued, fully diluted; $27 million cash in the bank; and $12 million of long-term debt. But that only needs to be repaid in December 2020. We can pay it back early with no penalty. There is a 5% associated interest rate, but again, that only has to be repaid in four years’ time, when we repay the principal. It’s a wonderful opportunity, and you have a company here now that essentially is a 95%-built mine that is lacking the orebody.

I’ve always dreamt of going into a company with a blank page and developing the culture, policy and procedures the way I’ve always wanted. When you go into companies that have been around for 10, 50 or 80 years, if you want things to move, you’ve got to try to change the culture. And it’s a hell of a lot more intense. Now you have a company where you’re starting with a blank page, almost. When I joined, including myself, we were five people here at head office. We had only eight people on-site, and we’ll bring that up to a peak labour force — including head office — of 40 people this September. Hopefully as we move into 2018, as we see success with the project, we can expand and give this the green light.

TNM: The fact that you invested $500,000 of your own money into Rubicon for a 0.7% equity stake should also reassure investors, right? What did your wife say?

GO: [Laughs.] My wife trusts me as a businessman.

TNM: But it’s a good sign.

GO: Exactly. That’s a good sign for shareholders within the company and people looking to invest — when a CEO really has some skin in the game.

TNM: Given the experience you’ve had working in some of the deepest mines in South Africa and your expertise in high-grade, narrow vein systems, have you seen anything that helped you at Kirkland Lake or will help you here?

GO: Yes, absolutely. That was one of the reasons why Harry Dobson asked me to join Kirkland Lake. The mines in South Africa are typically deep — they are hot mines. They have a lot of seismicity, the gold mines are labour-intensive. It’s narrow vein, jack leg, stopers and cut-and-fill mining in some areas, so very, very similar to what was happening at Kirkland Lake four years ago. A lot of the experience I had from my eight years in South Africa stood me in good stead for Kirkland Lake, and it’s going to help me here with Rubicon and the Phoenix project.

TNM: Can you summarize the things you accomplished at Kirkland Lake to turn the Macassa mine around?

GO: We really wanted to focus on quality over quantity — focus more on mining at the reserve grade as much as possible, as opposed to just filling the mill with tonnes. This allowed us over three years to see 400 people leave the labour force, because we weren’t pushing so much for tonnes. And we all know in Canada that labour is your largest operating cost, so your average miner in Canada will cost you $100,000 a year in salary with payroll burdens. If you’re losing 400 people, there’s 40 million dollars a year you’re taking out of wages and salaries. And then we took a look at restructuring the bonus system so that the miners’ bonus and the frontline supervisors, their key performance indicators, were more aligned with corporate objectives. You get everybody pulling in the same direction — moving together as a team — because  you all have common objectives. That’s not always the case in mines. In most cases, miners are paid on tonnes and footage, which isn’t necessarily related to ounces and costs. So you need a holistic bonus system where tonnes and footage are important, but there must also be ounces and costs, and of course, safety.

Those were the elements that we introduced, and I would see ourselves doing something very, very similar, certainly with the grade, and eventually with the incentive systems, here at Rubicon. But I’m starting with a blank page, so I get the opportunity to bring those in at the appropriate time as we evolve as a business.

TNM: Are you putting in a lot of overtime?

GO: I was before Christmas. But I’ve got a very good team here. No one person can get all these issues resolved, so I have to rely on the people around me and put my trust in them, which I’ve done in the past, and that’s why I’ve been successful. I’ve always got great people working for me.

TNM: Does mining run in your family?

GO: I’m originally from Scotland and all my forefathers were coal miners in the Scottish coal fields — underground coal miners. My father was the first Ogilvie in the family who was more of a white collar worker. He went to college and got a diploma in metallurgy, and that’s where I maybe got a bit of engineering in my blood.

TNM: So it was preordained?

GO: Well, I don’t know about that, but mining has been a fantastic career choice for me. I’ve been blessed to travel the world and meet fantastic people throughout my career, and I’m happy to be in mining. Hopefully I’ll continue to get the opportunity for a few years more.

TNM: Often success can come from getting the timing right.

GO: I have always believed that in business, timing is everything, and you also need a bit of luck. Take housing in Red Lake as an example. When we tried to start the project in Red Lake, obviously the shaft sinking was going on in 2013, and we were manning up — housing was just not available. We had to put in a 200-man camp, and most of our labour force that we had was fly-in, fly-out, probably as much as 80%. It’s expensive and we’re not in the hotel business, and I’m not a restaurateur. And I have always found that with the miners that come from the community, there’s maybe more commitment there. And any money they make, any disposable income, goes into the local economy, whereas the fly-in and fly-out miners take their money to wherever their families are based and spend their money there.

If we could get this project back on track and are still in a labour market like this, it might mean that we could hire more local miners, or miners we hire could come to Red Lake and actually have housing, so that more of the core nucleus of our future labour force is Red Lake-based. I’ve met with the mayor and the councillors, and that’s one thing I’ve expressed to them, that if we get the opportunity to hire locally, we absolutely will. Goldcorp had a few layoffs there late last year. They downsized by 20 or so people, and I think their mills have a bit of excess capacity at the moment, so economically that affects the town. It’s a mining town.

TNM: You’re certainly in a good part of the world.

GO: It’s a great jurisdiction to have a mine. Red Lake is known for being a prestigious, premier gold-mining camp, not just in Canada, but in the world, with the number of ounces that have come out of that camp and discovered there, and I’m quite sure there’s more gold to find.

TNM: You’ve also got a large land position, in addition to the F2 deposit.

GO: That is the nice thing as well. A lot of people forget that we have 280 sq. km of prime real estate in Red Lake. In 2018, if the company is moving in the right direction, I can see ourselves putting diamond drills on some of our regional property. We have the second-largest land package in Red Lake — second only behind Goldcorp — and the company has been very, very, very focused on getting Phoenix into production. Which is fine. But the danger is that if things don’t work out with a single-asset company, things can go bad. Let’s assume that we can get the green light to put this into production and we have a producing mine there in three or four years’ time. That would be fantastic, but it would be nice to have another project in the pipeline, too.

TNM: Do you have any targets on the property?

GO: Absolutely. There has been drilling done out there. Samples have been taken and we’ve got highly prospective areas with good mineralization. They need follow up. But proceeds that I raised from the financing is all for Phoenix. At the moment, with maybe the company having a black eye, if that’s the right phrase, if I was to go and do something regionally, maybe with some of the scepticism and negativity around the company, people might jump on that and say, ‘Oh, George already knows there’s nothing there at Phoenix and he’s already trying to mount his next horse,’ so to speak, which isn’t the case.

Let’s spend the time, get Phoenix moving the right way in 2017, and if that continues in 2018, and we’ve got the constant news flow going out to the market, it becomes a wonderful opportunity in 2018 to do something with the regional ground, in conjunction with getting Phoenix moving back, hopefully, to a positive production decision.

TNM: With commodity prices improving, it’s not a bad time to be doing what you’re doing.

GO: Absolutely — it’s not a bad time. And every year, with those regional lands, any monies we would look to raise for a small drill program … that would be flow-through eligible, and usually there are monies available for flow-through for investors.