- TSX: RNX
- Shares Outstanding: 608.3M
- Share price C$0.50 (13.05.2020)
- Market Cap: C$304M
One of our favourite turnaround stories of recent times is RNC Minerals (TSX: RNX): Royal Nickel Corporation. in the last few days, we interviewed CEO, Paul Huet, to ask him about some of the latest developments. RNC Minerals no more?
Huet turned a floundering, unfocussed nickel developer into a consistent gold producer in less than a year. Huet has wiped the strategic slate clean and put the highly prospective Dumont nickel project, and the nickel held within RNC Minerals’ Australian projects, on the back burner, turning the company’s focus towards cash-generative, highly-economic gold ventures.
RNC Minerals has been producing an awful lot of cash, especially with such a favourable gold price (+US$1,700/oz), and this has given the company lots of options. RNC Minerals had already reduced Morgan Stanley’s royalty on Higginsville Gold Operation down to 2% from 7%, and this was announced in December 2019.
The cash flow has also given RNC Minerals the ability to drill big exploration targets, locating five targets that Huet believes have the potential to excite the market enormously. It has also freed up the company to consider M&A. RNC Minerals has recently acquired a new property: Spargos Reward in Australia.
RNC Minerals has just signed a “definitive agreement” on Spargos Reward. What are the headline stats?
- The definitive agreement gives RNC Minerals 90 days of exclusivity within which to conduct its final due diligence.
- Spargos is just 45km from RNC’s processing plant. This proximity appears to be a real gamechanger.
- The gold veins in Spargos Reward are over a higher grade than RNC’s underground gold mine at Beta Hunt (excluding coarse gold).
- There are over 130,000oz of gold in Spargos Reward at a grade over 4g/t.
- The average grade of Spargos is 3g/t gold in an OPEN-PIT operation, suggesting a low cost.
- The acquisition of Spargos Reward, just like the royalty restructuring on HGO, could make RNC Minerals less reliant on Beta Hunt. Are you watching, Maverix Metals?
When you combine all of this together, Spargos Reward looks like it could have a transformative impact on RNC Minerals’ economics.
It definitely looks like a reason for gold investors to be excited. In terms of getting a final deal over the line, Huet has set an aggressive timescale of Q4/20, but a realistic timescale of Q1/21.
It’s what the numbers don’t say that is the most interesting. Read between the lines and it is clearly a case of throwing the gauntlet down as far as the Maverix negotiations are concerned. It says: ‘we don’t need the ore at Beta Hunt, and we can play this game for as long as you like.’ This open pit acquisition, together with the existing HGO ore and the new exploration targets demonstrates that they can continue to feed the mill and hit guidance for years.
The question is, how long will Maverix shareholders continue to back the current management’s strategy of holding out? Huet has shown that he is open to negotiating a good outcome for both parties: just ask Morgan Stanley who today agreed to terminate the remaining NSR royalty interests they held over a number of tenements at RNC’s Higginsville Gold Operations (HGO) for a purchase price of US$9 million. This transaction, once completed, will eliminate all remaining NSR royalty obligations.
Smart for both parties. Morgan Stanley gets cash today. RNC now mines property 100% free of royalty for the first time in 20-years. Very good for RNC shareholders.
RNC Minerals has had some legacy issues since Huet took the helm. Its prior focus on nickel appeared everywhere, including its very name: Royal Nickel Corp.
The market has a long memory, and great portions of it appear unaware that RNC Minerals is now a gold producer and explorer, especially the big funds. Huet has decided it is time to once and for all decisively wipe the slate clean, separating the new gold-laden RNC Minerals from its nickel-focussed heritage.
Transitioning towards more precise, effective marketing has been on the cards for a while; many shareholders see this renaming event as overdue. What name is Huet considering? Karora Resources (TSX: KRR), subject to shareholder approval.
So what does it mean? A quick search on Google says to the Aboriginal people of Northern Australia, Karora is a bandicoot ancestral deity. According to one legend, during the Dreamtime, Karora lay sleeping in the earth when from his head rose a tall pole called a tnatantja. So, the name at least has some provenance.
We’ve already seen quite a lot of feedback online about this name change, not all of it positive. We like it. It’s a good move and a more-than-adequate name. While Karora in itself does not overtly indicate gold, calling the company Karora Gold Resources would neglect to paint a full picture of RNC Minerals, which still has an enormous amount of nickel in its assets. Nickel might not be the focus right now, but it will always remain an option, and neglecting it entirely would only result in further confusion should the gold market turn and nickel become more economic.
Karora Resources is a clear step away from RNC Minerals, and we’re sure it’s one shareholders will not only feel comfortable with but will embrace with open arms. Will this finally extirpate RNC’s legacy issues?
Now, it’s time for Huet to make Karora Resources into the roaring success it has always had the potential to be. We hope he can deliver. RNC Minerals shareholders have been very patient. However, if his achievements so far are anything to go by, investors will perhaps feel a little more confident about the future.
Company Website: http://www.rncminerals.com/
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