- TSX: RNX
- Shares Outstanding: 608M
- Share price C$0.31 (31.03.2020)
- Market Cap: C$185M
Last week, Crux Investor explored the numbers behind gold-producer RNC Minerals’ encouraging Q4/19 results.
Now, fresh from an uplifting interview a few weeks ago with RNC Minerals’ CEO (TSX: RNX), Paul Huet, Crux Investor interviewed Johnna Muinonen, the President of Dumont Nickel (a subsidiary of RNC Minerals).
We were curious about how RNC Minerals’ former flagship project will be developed to add value for shareholders. RNC Minerals investors have been focussing on the company’s strong, stable gold-production, but have they been overlooking one of the most exciting elements of the story?
If RNC Minerals is a company that takes your interest, you may well want to check out our previous update from Huet. We’ve covered RNC Minerals with detailed investigative articles for much of the last year. Make sure you check them out.
Nickel, Nickel, Nickel
Muinonen is a nickel lifer. Her experience, expertise and enthusiasm was tangible during our interview. She has a similar level of passion and drive as her CEO, Paul Huet. That can only be a good thing.
RNC Minerals was originally known for its large nickel project, Dumont; it has the potential to be the 4th largest nickel sulfide project in the world (once ramped-up in a year 7 Phase II expansion). However, after RNC made its major gold discovery at Beta Hunt, the company moved its focus away from nickel towards consistent, cash generative gold. 51,090oz for 2H/19 at an AISC of US$1,144/oz is evidence this plan was prudent. While these results are strong, investors seem to have forgotten that RNC Minerals’ option on nickel at Dumont could potentially be a sizeable future value-generating event.
What are the key stats?
Potentially the 4th largest nickel sulfide project in the world, with a 30+ year Life-of-Mine
Scale is undeniably important, especially when it comes to Nickel investment
Nickel is the most important metal by mass in lithium-ion battery cathodes, which are commonly used by EV manufacturers. At present, nickel comprises a third of Nickel Manganese Cobalt (NMC) cathodes and 80% of Nickel Cobalt Aluminum (NCA) cathodes.
If the EV revolution is, indeed, to be a ‘revolution,’ the entire global automotive infrastructure will have to transform. This will require great change and great nickel demand, and this will only be satisfied by big projects. With the large scale of Dumont, RNC is priming itself to take advantage of nickel demand in the near future. In RNC Minerals’ Feasibility Study, released last year, initial nickel production in concentrate is projected to be 33ktpa ramping up to 50ktpa after the Phase II expansion. The estimated annual EBITDA ramps up from US$303M in Phase I to US$425M in Phase II: an average of US$340M.
Muinonen is very confident that RNC Minerals is well-positioned for when large strategic partners and operators come knocking on the door, as the +30-year LOM means that this project will produce through multiple nickel cycles.
Multiple EV Commodities In An Established Jurisdiction
The Feasibility Study states Dumont is the 2nd largest nickel reserve in the world, with 2.8Mt (6.1Blbs) contained nickel, and is the 9th largest cobalt reserve with 110,000t (243Mlbs) contained cobalt.
These are 2 EV-related commodities that have similar macro stories and fit into a coherent narrative. This makes the project easier to package and market. This diversification appears to de-risk the project, helping to avoid a reliance on a single commodity’s market conditions.
The project is located in the Abitibi region of Quebec, one of the world’s most reputable jurisdictions. This, again, de-risks the project.
Low-Cost Nickel Sulphide
Looking at the metallurgy of Dumont’s ore body, it is comprised of nickel sulphide, rather than nickel laterite.
Laterite ores require complex and extensive treatment: an extremely expensive HPAL process, whereas nickel can be extracted from sulfide ore by simple, cheap techniques, namely: pyrometallurgy.
Conversely, it should be noted that sulphide deposits are more expensive to find in comparison to nickel laterite deposits, because nickel sulphides are found deep in the earth’s crust. However, in the case of Dumont, this shouldn’t be a problem. Construction and operation of the mine and processing facilities could be made easier by the existence of excellent infrastructure, including roads, rail and access to low-cost power. It looks like a great setup economically.
The Feasibility Study places the initial CAPEX at US$1.0 billion. This no small figure, but for a project of this scale, it looks reasonable. In fact, the Dumont Nickel Sulfide project is in the low 2nd quartile of the cash cost curve.
Fully Funded Out Of Existing Cash Flow And JVs
RNC Minerals is currently churning out the cash, courtesy of its successful gold mining operations.
Adjusted earnings of US$13.7M for Q4/19 show just how far the company has come in record time. RNC Minerals has the cash to make things happen. We’ve already seen what having cash has allowed them to do. Expect more aggressive news soon.
In addition to the growing robustness of the company’s own cash situation, RNC Minerals is fully-funded at Dumont through to a DFS, FID, and construction, thanks to a JV with Waterton.
The Dumont Nickel Sulphide Project is ‘fully permitted’ and ‘construction ready’ courtesy of existing investment into the project. The Impacts and Benefits Agreement has been successfully negotiated with the local First Nation, and RNC Minerals appears to have avoided any of the typical hurdles mining companies have to face. This helps with costs and timing.
There are several additional optimisations that further transform the economics of Dumont for the better:
- Implementation of an autonomous truck fleet – This could increase efficiency and cut costs to a sizeable degree.
- Larger-scale initial project phase of 75ktpd – If RNC Minerals scales up this project from day 1, this will undoubtedly generate even more intrigue from nickel investors.
- Sale of magnetite by-product – Just like cobalt provides commodity diversification, magnetite does too. Magnetite has robust demand and monetising this by-product could make every metre of drilling much more profitable.
The last fact to remember, and this is perhaps the most important, is that the Dumont Nickel Sulphide Project is not even the primary focus of RNC Minerals anymore. The enormous potential upside is an undervalued and unappreciated nickel option that has yet to see any reflection in RNC Minerals’ share price. Should they consider spinning out the JV to get the market to recognise the value?
If retail investors are looking for exposure to the upside of the EV & battery revolution, RNC Minerals is definitely worthy of some attention.
Company Website: http://www.rncminerals.com/
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