- TSE: RNX
- Shares Outstanding: 606.32M
- Share price CA$0.47 (15.01.2020)
- Market Cap: CA$284.970M
What a year 2019 was for Paul Huet and RNC Minerals. The implementation of a robust gold-focussed business plan delivering consistent production numbers and reducing costs has resulted in perhaps our turnaround story of the year. And just when the market needed to hear it.
RNC Minerals today bears little resemblance to the vehicle that Huet walked in to as the CEO at the end of May last year. That’s not to say Huet hasn’t benefited from a good year for the gold price, he has. However, at the beginning of his reign RNC Minerals had just $1.3M in the bank. It ended the year with $37M, of which RNC paid down $3M of their debt to reduce interest payments.
This turnaround hasn’t been because of luck. As far as we have heard in our various interviews with Huet, this has been about giving clear direction to the market and restructuring the company to allow RNC to deliver his vision; now entirely focussed on gold (the fully-funded Dumont nickel project patiently waiting for more signs of recovery in the Nickel market); reducing expenditure in the right areas, but not to the detriment of long-term productivity (always a cheap and quick win that has long-term negative consequences); and better communication, both internally and to shareholders. “That wasn’t so hard, was it?” you can almost hear relieved shareholders saying.
RNC is producing gold and is, therefore, producing cash. They hit a record monthly consolidated gold production of 9,620 ounces for December 2019, undoubtedly aided by their acquisition of the HGO mine and mill. For Q4/19, production was an impressive 26,874 ounces. A complex, detailed overhaul of RNC’s production processes has likely been the primary driver behind this performance. The grade is a consistent 3g/t and occasional large coarse gold finds will always bring a sprinkle of magic the market so craves. Huet is playing down the ‘magic’ and is keeping employees and shareholders grounded and focused on doing the basic things well. This has been an encouraging start to the Huet era, but there is always more to be done. He needs to drive down the AISC, currently sitting around the $1,150 mark, further towards $1,000. If he can deliver this, we believe the market will react positively. In the meantime, the building up of cash reserves is a very welcome distraction.
RNC exceeded 2019 expectations only because of a late charge for the line. In the second half of 2019, gold production reached a total of 51,090oz, exceeding the top end of RNC’s own production guidance (42,000 – 49,000oz). While there have been ‘minor disruptions’ caused by Australia’s bushfires in December, the consequent regional road closures have had little impact on operations, because stockpiles and Baloo ore were processed during the road closure period. No impact is expected to Q1/20 results. RNC’s supply from Beta Hunt and the delivery of reagents to the mill has now been restored. In addition, its HGO mill is operating at full capacity with feed coming in from both Beta Hunt and HGO. Keeping the mill filled with its own ore is the number one priority. Talk of adding an ore sorter fills the chat rooms and we for one would welcome any news from the company on this front. Productivity can be greatly increased, and costs come down; it is typically a $2M-$5M outlay and is something that pays for itself in 6-12 months (that’s what we read). Let’s wait.
It really is all change at RNC, and this change is particularly evident at the top. There has been a key addition to the board, with the appointment of Chad Williams. Williams is Chairman of RedCloud Securities and presumably brings access to more institutional investors. This clearly suggests the company’s continued move to consolidate more shares into the hands of large institutional investors. Personally, we think this makes sense and will help bring more stability to what has been a very volatile stock, indeed, one that continues to be shorted, something else an increased institutional register can help with.
In light of this change, it would seem opportune moment for Huet to tell us what the remainder of RNC’s Board is bringing to the table.
RNC has been clear, including our recent interview, they will not be going to market to raise capital this year, it is completely off the agenda. There is no ambiguity here as far as we are concerned. There was the stumble on the investor call last year on this topic, so there are those who will keep bringing it up. My take at the time was that the money was needed and it would create financial freedom for RNC Minerals to make the fundamental changes to the infrastructure, people and simply pay suppliers. We haven’t changed our minds since then. It was important. The company was running on vapour.
It’s important to talk about Dumont. It remains on the books as a potentially huge upside given the right market conditions. The JV with Waterton has $3M and covers the overhead costs. How and when it is monetised is down to Johnna Muinenon. She is clearly bright, and they have done a lot of work, but it is the nickel market opening up that will inform her. We can’t see anything happening until 2H/19.
I look forward to the release of the 2020 guidance within the next few weeks, which Huet himself has said will include guidance and production targets (unlikely to include coarse gold targets), costs & savings, AISC target and hopefully talk of more renegotiated royalties. I guess we’ll just have to wait on that one!
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