- TSX: RNX
- Shares Outstanding: 608M
- Share price C$0.57 (23.05.2020)
- Market Cap: C$347M
It has all been enabled by solid gold production numbers and the resulting cash. And it hasn’t happened by accident, or just because the price of gold has risen $500 in the last 8-months. This turnaround story, led by CEO, Paul Huet, has happened by design and rigorous planning.
The recent news flow is also by design and rigorous planning. Some exciting moves by the company; buying back of the entire Morgan Stanley Royalty; the acquisition of Spargos Reward; a name change; and a rollback. Shareholders are being asked to vote on these in June as they require shareholder approval.
Not that we can imagine why shareholders would want to contradict the companies recommendations, we thought we should look at the moving parts again.
Morgan Stanley Royalty
RNC Minerals has managed to eliminate the Morgan Stanley royalty that has stood for decades. This move is worth tens of millions to the bottomline, and this should have a truly transformative impact on the company’s ability to profitably fill the Higginsville Mill, which is the name of the game.
The Spargos acquisition is super smart. It adds higher-grade ounces to the RNC feed for their mill. It also signals to Maverix that the negotiation on their Beta Hunt royalty just got serious. RNC Minerals has all the feed it needs for several years and is happy to play the waiting game. Beta Hunt is a significant proportion of the Maverix revenue. And it hard to see how RNC Minerals makes money mining their under the current royalty agreement with Maverix Metals. Maverix needs to come to the table with a reasonable offer or be prepared to write down its revenue forecasts from Beta Hunt for the foreseeable future. Tough play by Huet, but absolutely in the interests of the company and shareholders as always.
The name change is a no-brainer. Institutions and gold funds still think of RNC Minerals as the Royal Nickel Company. Why, I don’t know, but they do. We’ve had those conversations ourselves. I don’t care what the new name is and to focus on it is to miss the point. Huet has instigated wholesale change in the company. It is producing gold; it has a mill; it has c.$40M cash; it has removed a large royalty component to costs; it has replaced the operational team; reduced costs; reduced AISC; consistently delivered ounces through fires, floods and COVID-19; it has made cheap accretive acquisitions; I can go on and on. The point is it has been all-change throughout the company, and it’s time for Huet to put his stamp on the things. I’ll give him this one without missing a beat.
In addition, a share rollback is what investors have been waiting for. For savvy investors this isn’t a case of why, but why haven’t they done this sooner. This move, if voted through transforms the company from junior to mid-tier territory. It is especially good for long suffering retail investors. Why?
US Generalist Funds cannot invest in penny stocks. The roll back removes this barrier and opens RNC Minerals up to significant global trading accounts. Finally! And as a +100,000 oz producer, it gives the company a capital structure in line with the piers it aspires to compete with. Perhaps this next reason is a little forward looking, but not out of line with current aspirations for the company, should the company be in a position to look at M&A in the US, and potentially a listing in the US at some point in the future, it takes them past the required $3 barrier. But perhaps the biggest component which is often forgotten, by retail investors in particular, is the ability to use margin.
Prior producer consolidations have all been well received. Companies who have successfully consolidated: Americas Gold & Silver, Endeavour, Eldorado, Equinox, Golden Star, Leagold, Teranga, TorexGold. Verus Peers the average performance metrics look good:
+26% 6-month; +44% 12-month; +32% 24-month
Other important factors to consider in another article are:
- Improved per share metrics – greater analysis accuracy, better financing pricing, lower commissions for those charged on a share basis
- Institutional / Banker / Broker support – these guys want a rollback so they can support the stock
- Increased institutional investment eligibility – gets company out of the penny stock territory and into significantly increased liquidity
- Increased institutional investors should reduce shorting
- Current gold bull environment is positive
If you are a shareholder, first of all congratulations, this company is finally going places. And secondly, my take on the shareholder vote is show confidence in the CEO who has turned this ship around and vote with the company and its recommendations and look the future because it is bright.
Company Website: http://www.rncminerals.com/
If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.
Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.