RNC Minerals (TSX: RNX; US-OTC: RNKLF) — formerly Royal Nickel Corp. — has gone from a single-asset firm to a gold, nickel and copper producer, by taking advantage of the market downturn earlier this year to buy two producing assets.
RNC picked up a 100% interest in the Beta Hunt gold-nickel mine in Western Australia’s Kambalda district by acquiring private firm Salt Lake Mining in two transactions, completed in March and May.
“It’s a 40-year-old nickel mine, but a brand-new gold mine. There are few opportunities that you’d come across, where the first public news release on an asset is that it’s in production,” Mark Selby, RNC’s president and CEO, said in a webcast from the Precious Metals Summit in Beaver Creek, Colorado.
RNC paid $17 million in cash and shares for Beta Hunt. It inherited a 5 km ramp system, 20 metres from the largely untouched gold resource, along with 675,000 metres of drilling.
While drilling targeted the nickel mineralization in the ultramafic rocks, it also intersected gold mineralization in basalts. “We literally have hundreds of gold intersections from nickel drilling that clearly outline where the gold structure sits,” the executive says.
Beta Hunt has a global gold resource of 400,000 oz., which RNC says it could increase to over 1 million oz. through infill drilling.
The gold resource sits at 250 to 500 metres below surface, Rob Buchanan, the company’s director of investor relations, said in an email. A resource update should be out in early 2017.
Beta Hunt resumed gold production in late 2015 and is ramping up to a run rate of 60,000 oz. gold annually by the end of 2016, at all-in sustaining costs of under US$1,000 per oz., Selby says. It will also produce nickel, depending on market conditions.
An aerial shot of RNC’s 30%-held Reed copper operation in Manitoba. Credit: RNC.
In late April, RNC bought private firm VMS Ventures for $5.5 million in cash and shares. Its main asset was a 30% interest in the Reed copper mine near Flin Flon, Manitoba. Hudbay Minerals (TSX: HBM; NYSE: HBM) holds the rest of the producing Reed mine.
“For that $5.5-million investment, we expect to realize at least seven quarters of $2 to $3 million of cash flow per quarter,” Selby says, adding that would start after RNC finishes repaying the contribution and bridge loans VMS owed Hudbay. At the end of July, the balance was $8.6 million. RNC aims to repay that by the third quarter of 2017.
While Reed is a small-scale, short-life mine, Selby points out it is one of the few copper mines generating free cash flow at today’s copper prices, with an estimated $4.4 million generated during the second quarter, and another $1.4 million in July, on a 30% basis.
For 2016, RNC anticipates Beta Hunt (on a 100% basis) and Reed (on a 30% basis) will deliver a total 3,500 to 4,500 tonnes nickel, 4,000 to 4,500 tonnes copper and 35,000 to 45,000 oz. gold.
Along with these two producing assets, RNC owns the Dumont nickel project in Quebec’s established Abitibi mining camp. Dumont has nickel reserves of 6.9 billion lb. (1.2 billion tonnes at 0.3% nickel) and measured and indicated resources of 9.8 billion pounds (1.6 billion tonnes at 0.3% nickel).
Once online, Dumont should rank as the world’s fifth-largest nickel sulphide operation by annual production, behind Canada’s Sudbury and Voisey’s Bay operations, which are the third- and fourth-largest nickel operations.
The miner intends to finish an updated feasibility study for the project when market conditions improve, noting it is in no hurry to develop Dumont in the current nickel price environment. It points out that nickel prices hit a “16-year low” in the first half of 2016.
“We will bring it to market when the market is ready,” Selby says. “If we can’t do it in a way that makes sense for our shareholders, we will just sell it to someone else who has the balance sheet that does.”
On the exploration front, RNC holds a 68% interest in the private company True North Nickel (TNN), whose main assets are a 100% interest in the West Raglan nickel sulphide project and the Qiqavik gold project in the Cape Smith belt in northern Quebec.
The belt hosts several high-grade nickel sulphide deposits, including two producing mines: Glencore’s Raglan and Jilin Jien Nickel’s Nunavik.
On Sept. 19, RNC reported that TNN found two high-grade gold zones at Qiqavik, as part of its $3-million exploration program. The discoveries have extended the mineralized trend at Qiqavik to over 40 km. This is more than double the trend’s known extension. Multiple surface-grab samples from the Aurora and Esperance zones returned between 5 and 189 grams gold per tonne and up to 10% copper.
To help fund future exploration programs at Qiqavik, RNC plans to joint venture or spin out the asset by year-end.
As the firm focuses on generating free cash flow from its producing assets, it has attracted the interest of investor Eric Sprott.
Sprott participated in the previously announced bought-deal private placement, which RNC increased to $9.2 million, including the full exercise of the over-allotment option. The proceeds will go largely towards funding ramp up and development at the Beta Hunt mine.
Under the upsized offering, a syndicate of underwriters led by Haywood Securities bought 27 million units of RNC at 34¢ each. Each unit consisted of one share and a half warrant. Holders of a full warrant could buy one share at 50¢ for 24 months.
Sprott bought 18.5 million units of RNC in the placement through his holding company, and in another transaction acquired 9 million RNC shares. In total, his holding company has 27.5 million shares and 9.27 million warrants, or 10% of RNC and 13% on a partly diluted basis. Both transactions closed on Sept. 23.
Asked when RNC should produce a quarterly profit, Buchanan writes that the company should generate a profit after it reaches Beta Hunt’s targeted annualized production rate of 60,000 oz. gold, expected by year-end.
RNC shares closed Sept. 21 at 38.5¢, up 103% year-to-date.
sounds good jim