RNC Minerals (RNX) – Share Rollback Clearly Good for Retail Shareholders

RNC Minerals
  • TSX: RNX
  • Shares Outstanding: 608M
  • Share price C$0.57 (23.05.2020)
  • Market Cap: C$347M

Matthew Gordon Interviews Paul Huet of RNC Minerals, 14 May 2020

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.

Exciting Moves

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.

Spargos Acquisition

A group of four mining workers stand proudly in front of a huge hunk of gold ore.
Beta Hunt Coarse Gold

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.

Karora Resources

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.

Share Consolidation

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:

  1. Improved per share metrics – greater analysis accuracy, better financing pricing, lower commissions for those charged on a share basis
  2. Institutional / Banker / Broker support – these guys want a rollback so they can support the stock
  3. Increased institutional investment eligibility – gets company out of the penny stock territory and into significantly increased liquidity
  4. Increased institutional investors should reduce shorting
  5. 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.

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10 Replies to “RNC Minerals (RNX) – Share Rollback Clearly Good for Retail Shareholders”

  1. Wonderful for all concerned , except perhaps the small retail investor who will see their total shares decimated to 90 shares for every 1000 shares held. Hopefully, they will still have sufficient shares remaining to have meaningful investment potential. At that point Huet’s implied reassurances and his November16, 2019, statement of not being aware of any “share dilution in their plans” will ring hollow. [See Video “Let’s Get to It. Maximum Effort Everyone”. tape time at 26:44].

    As Stephen Rudofsky and others have counseled, If one can’t trust management walk away.

    1. Not quite sure what you mean? The Reverse Stock Split affects all stockholders and warrant holders UNIFORMLY and WILL NOT ALTER ANY STOCKHOLDER’S PERCENTAGE INTEREST in the Common Stock or any warrant holder’s percentage interest in the Warrants, except for adjustments that may result from the treatment of fractional shares and fractional warrants.

      1. basically meaning you own the same % of stock and value before the split happens and after what they arent saying is r/s done next step bring in big guys to fix bottle neck and dilute your shares after r/s done to get them in

        1. Thank you for your thoughts on the rollback and for making the effort to respond Geoffrey. Can’t say we agree with your read on the situation, but all opinions are welcome here without fear of criticism or rebuke. We’ve spent a lot of time analysing RNX and will be producing a CRUX Report (no, it is not paid for) soon. It may shed some light for those new to the company and an open mind. Will let you know when it is ready.

  2. All nice and good but as i see the history of what huet has done and been apart of since he took over as acting ceo and beforehand has that been made permanent yet? dont recall seeing it go perm yet. However you got his botched bought deal he himself was buying in caused warrants to need be added, history of bring in institutional investors through bd’s or pp’s so to think it wont be happening after the r/s to me is a joke. this will hurt retail no matter the spin anyone puts on it

  3. Matt,
    Thank you for your reply to my comment of May 24th.
    You are absolutely correct in what you state. My point is that the economics change in that the cost of selling those shares, as well. That is, the commissions and fees are spread over a smaller number of shares. This may be a consideration in future partial sales.
    An antidotal example, is where Energy Fuels, a number of years ago, had a 50 to 1 consolidation authorization. The consolidation allowed for subsequent dilutions over the years which drove the stock price down. As a new investor entering the market and hesitant to dive right in, trades of a thousand shares per company were made prior to these events. The consolidation so reduced the position to such a minimal number, and the dilutions so oppressed the share price, that it essentially made it unprofitable to sell the remaining shares, the expense of brokerage commissions and fees being higher than the shares’ selling price.
    In addition, in a reverse split an investor with a small number of shares could feasibly lose share by not having a sufficient number to consolidate to whole shares, especially if held in different accounts.
    I assume, based on his background and past performance, that Huet will not follow this consolidation with stock dilutions.

    1. Hi Art, again I am probably missing your point here, so apologies if that is the case, but equity raises happen regardless of share price/count. Talking about dilution is relevant if you’re not considering use of proceeds being accretive on a per share basis. In that case you need to be sure that the management team will make good use of the money. Each dollar raise creates x3 / x5 the value for the company. If you don’t think the company is capable of doing that then sell your shares.
      We look at the peer analysis (as listed in the article) and came up with a group of companies that have all benefited from a roll back (percentages listed in the article).
      Art it comes down to your faith in the management team and if you agree with and like the decisions that they have made in the last 9-months. If yes, trust them to make the right decisions, one of which is the rollback. If you don’t, then I always vote with my feet.
      I wasn’t sure if you were theorising about a low share count, or if you were in that position yourself, so won’t comment, as i don’t follow the logic.
      The company has no plans to dilute. It is producing free cash flow. The roll back is in many ways a distraction and not the thing to be focused on. The focus must be on what does the company do with all this money it is creating each month. That’s the big question that I want to focus on.

  4. Matt,
    Thanks again for your time, and obviously well thought out points. They are well taken and
    will provide a basis for my review of the company.

    1. It is easier to take a 60 cents stock and take it to 2 hours and 40 cents That’s a 400% but if you take a $10 stock it has to go to $40 or $50 so a big difference in how quickly you can double and triple your money

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