Interview with Johnna Muinonen, President of Dumont Nickel (TSX:RNX).
Production-ready, shovel ready, development-ready. Dumont Nickel has been positioned as a free ride for shareholders, but the reality is that Dumont may hit the market at just the right point in this cycle for RNC Minerals shareholders. Completing their upgrade of the PFS means that strategic partners will look at Dumont as a shovel ready project which is fully optimised say Muinonen.
We ask what the brief is from the board. What is the timing? What do you think about what you heard? We also discuss the timing and nickel market forecasts. How relevant is the EV revolution to estimates and at what point Dumont and RNC makes decisions about the timing as to when the company monetises this asset for RNC Minerals shareholders.
Let us know what you think about Johnna Muinonen. Does she make you confident? Does RNC Minerals know what it is doing?
- RNC & Dumont: What is the Situation? Best Way Forwards: How Much Control Have They Got Only Owning 28%, What Will They be Able to do?
- Analysing Dumont: What is There and How Expensive Will it be?
- Market Dynamics, Nickel and Gold Cycles: How Does One Affect the Other?
- Opinions on EV’s
- Value Creation for Shareholders and Dumont Potential
- What Can They Do in This Cycle and How Will it Affect RNC Shareholders? Financing Talks: Why Invest Now and Why are People Hesitant?
- Production Values and Cash Generation Potential
Click here to watch the full interview.
Matthew Gordon: Hi Johnna. You are here in London.
Muinonen: Yes, for LME week.
Matthew Gordon: A lot of Nickel people here for that?
Johnna Muinonen: A lot of nickel people here for that. So, it’s always a good week to come to London because everybody’s here so you get to meet everybody.
Gordon: RNC is moving to be a gold focus business, but it has this very large nickel
play in the shape of Dumont. So, how’s that panning out? Because if I look at
some of your presentations from June, you have about 15-20 pages on Dumont. But
if you look at the presentation today, 4. What’s happening?
Muinonen: With Paul coming in as CEO we are really a gold focus
company. No question about it. However, what I’d like to talk to you about
today is that we own 28% of one of the largest undeveloped sulphide projects in
the world. And we feel that we can add value to RNC shareholders by looking at
various options for Dumont moving forward.
Gordon: That’s 28%. Waterton own the balance. What do they do?
Muinonen: In 2017, we sold 50% of Dumont to Waterton. They’re a
private equity firm. They are now our partners and Dumont. Dumont is fully 100%
owned within the JV. We are now 28% and Waterton is 72%. RNC remains the
operator and manager of the JV. We do all the technical work for Dumont as well
and then work with Waterton in terms of looking at strategically moving the
project forward. Financing and marketing.
Gordon: What does that actually equate to? You mentioned a phrase ‘for
shareholder value creation’, as directive from Paul. Is there a time line on
that? What are the options on the table? What are you thinking about doing
here? You’re only 28% shareholder.
Muinonen: We’re not getting a lot of value for Dumont in our share
price. We do feel that we want to make sure that we maximize that value for our
shareholders. We are looking at strategic options. That was my directive from
Paul on the board when I took on the role as president Dumont Nickel that we
need to look at, what could we possibly do to actually get some value for
Dumont to our shareholders, to RNC. And that could really involve several
different things. We’re looking at options around spin outs, potentially a
sale, potentially we hold it until nickel prices come up a little bit. So,
everything’s on the table.
Gordon: The G&A is quite low. Not a lot of overhead associated with it
Muinonen: So, let me explain a little bit the way the JV is funded. When
we got into the JV with Waterton, Waterton funded our portion of the holding
costs for 5-years. So, they funded a portion of the costs. Currently, all the
work that we have planned that we’ve done to date, we pay 28% from within that
funding. So, currently the work that we have planned for the next, say 18
months to 2-years is currently fully funded within the JV. So, it is a bit of a
free carry for RNC right now.
Gordon: Waterton is dependent on you to inform them as to what to do. They’re a
private equity firm, they’re not miners. They’ve stumbled across mining assets
or they’ve funded mining assets, but they’re not by any means experts. How does
that relationship work?
Muinonen: It’s been a bit interesting and we’ve been doing it for
almost 3-years now. We’re getting pretty good at it. What it really works is
the JV is structured, it has a board. Waterton has two seats on the board, RNC
has two seats on the board. We have a technical committee below the board,
which is made up of, again, two people from Waterton and two people from RNC.
Essentially, the way it works is we look at the work that we believe needs to
be done. And generally, this is in concert with Waterton. We don’t show up one
day and say, hey, we need this amount of work. We do talk through and we meet
regularly to talk through what work do we think would be value added? The feasibility
was one of them, about probably close to a year and a half ago, we started
talking about, OK, we have a feasibility study from 2012. It’s getting a bit
stale. Costs are getting a bit old. We all believe in the nickel market
eventually starting to rise and we wanted to get ready for it. And so, between
them and us, we discuss what would the scope of it be? How would we run it? Who
would be the engineer? And then once we sort of decide that the budget and the
scope and get that approved through both the technical committee and then into
the board, we then go off and execute.
Gordon: That’s the dynamic between you and Waterton. What about Paul Huet, the
CEO of RNC. He’s a gold guy. You guys have also got to agree about the best way
forward. So, it’s great giving you a directive saying maximize shareholder
value. But, as you say, this is dependent on price of nickel now, when you
believe the next cycle is and what you can do in this cycle, right?
Muinonen: There’s a lot of moving parts. And right now, we’re just
starting to work through that, because the reality is there isn’t a lot of
benchmarks out there about value for development nickel projects, because the
reality is there aren’t a lot of development nickel projects out there. it’s
not like copper or gold where you can go out and benchmark a whole pile of
sales purchases. So, it does become a bit more difficult to sort of really
quantify Dumont’s value.
Gordon: We know it’s a big project. It’s going to require a lot of money. You’ve
got to bring in strategic partners. They’ve got to bring a lot of money, maybe
technical knowhow, but maybe you guys got that covered. Give us an overview.
Muinonen: Dumont is a very large scale, low cost, long life asset. It’s
a billion-ton reserve. It is going to produce in the first phase, which is
seven years above 33,000 tons of nickel annually, expanding in year seven to 50,000
tons of nickel annually and over the 30-year life will produce 39,000 tons of
nickel annually. We are located in the Abitibi region of Quebec in a very
active mining region. We have lots of local support. So, we have all of the
pieces in place to be ready for the next boom. If we look at what work needs to
be done to get us into production, we’re talking about a 30-months to 33-months,
both engineering and construction. So, from financing, the reality is that’s
the lead time. But if you look around the world and you look within sort of low
risk jurisdictions, there isn’t a lot out there of scale. There’s lots of
smaller operations that will produce sort of say 10,000-15,000 tonnes of nickel
a year in Australia, in Brazil, in smaller mines in Canada, in Europe. However,
there’s really when you look at sort of the world landscape of sulphide
deposits, there really isn’t anything or a lot that’s out there in a
development ready, production ready, shovel ready type build like Dumont, which
is what I find exciting about it.
Gordon: Dumont’s got that. There aren’t too many others, or if there are you
can count them on one hand. What are the numbers involved? Because large scale
means large cost.
Muinonen: We are looking at building a 50,000-ton concentrator which
is large, but it is well within the scale of operation in the area. So, we are
right located just outside of Amos Quebec. We’re on an all-weather highway and
we have a powerline that runs 5km north of the project. And within 10km,
there’s two other large open pit mines of similar scale. So, there’s lots of
experience in the region on that sort of scale of operation. But it is a large
project. It is $1Bn initial capital.
Gordon: That’s a lot of money.
Muinonen: Absolutely it is.
Gordon: Is it a normal number?
Muinonen: It is a normal number. When you’re looking at building a 50,000
tons per day mine and mill, you’re looking at $1Bn.
Gordon: So, that must restrict or give you a very good sense of who you can go
and talk to?
Muinonen: Oh absolutely.
Gordon: And what are they thinking? Because they’re looking at ‘can we do
something this cycle?’ Are you guys ready? Or is it next cycle, in which case,
Muinonen: If you had asked me the same question 10 months ago, people
would’ve been like ‘$4 nickel, $5 nickel’, not so sure. I think over the last
sort of 3 or 4 months of interest we’re getting more calls. We’re getting more
calls, getting more inbound interest by various people who do want to talk. And
they’re not small players. They’re people that want to talk about when does it
fit? When are you ready? What does it look like? And the $1Bn is a big price
tag. But when you start to break it down into pieces, you look at there will be
a senior debt facility in that probably to the tune of about $500M. There’ll be
some equipment financing. The equity cheque at the end of the day to pull it
off, take a loan as part of that, maybe a small stream of the precious metals, potentially.
The equity portion of that is probably in the $300M range. So, when you start
to break it down like that, it’s not we’re going to go out and build $1Bn…
We’ve got to go raise that.
Gordon: And you’re 28% of that?
Muinonen: And we’re 28% of
Gordon: And so, again, it depends on what’s happening in the rest of RNC that
will determine what the cost of that money is and where indeed where you put it
in, project level, presumably. How do you go about having those discussions
with people about the cost of that money and how do you retain as much as
possible, because your brief is’ shareholder value’, right?
Muinonen: Yeah, absolutely. Absolutely.
Gordon: You’re 28%, so you’ve got to create some shareholder value, more than
it is today.
Muinonen: Which is arguably not much, I’ll admit that.
Gordon: I certainly think you’re not getting much credit for it and I think
it’s partly the company has said, ‘Oh, and you get Dumont for free’, that kind
of strapline, which is a little bit disingenuous’.
Muinonen: Yeah. No, no, I mean it really is. I have heard that said ‘oh
and you get Dumont for free’. Well I mean if you look at it, if we look at even
the two commodities, I realize we are a gold focused company, and our real
focus is on the gold assets in Australia. No question about that. But in a rising
nickel price environment, where you’re starting to get interest and excitement
around people realizing the world’s going to need a lot of nickel in about five
years’ time. Where are we getting that from? Dumont has the real potential to
add value to RNC.
Gordon: Is that part of your equation then? It’s like maybe we’re be better
waiting for five years?
Muinonen: We’ve talked about it. Absolutely. Because Dumont is funded
within the JV. And I think that’s where we get that whole ‘oh, we get it for
free’. You know, the fact is, is that we are funded for several years within
the JV. And so, it is a bit of a free carry. So, it is a bit of nickel
exposure, future opportunity. However, in the short-term, looking at our
shareholders, looking at the focus of the company, we may want to do something
sooner rather than later. And like I said, we’re not about to put up for file,
so we’re not in a rush. We have cash in the bank.
Gordon: You’ve got cash in the bank. The costs of running this thing for
another 5-years is negligible in the scheme of things. Not negligible in terms
of dollars. You’ve got salaries, permits to maintain all of that kind of thing.
But you’ll do the math and work out whether you just deal with it now, focus on
gold or you wait 5-years because the upside could be because of demand story.
It’s going to be better for shareholders.
Muinonen: And it’s hard because you can’t predict the future. And so,
if you look at today and you say, well, maybe the best option for shareholders,
do something now, to clarify the structure, be a pure gold company. Maybe that
has more value now than having two assets. And being, personally, I know people
say it’s confusing. Are we gold or are we nickel? What are we? So, maybe there
is value, but it is a bit of a…nobody has a crystal ball. So, you can’t really
say, well, in 5-years’ time…
Gordon: It’s not distracting you financially or otherwise?
Muinonen: We have a team in Australia that’s fully dedicated to the
gold. That is their focus. We have a smaller team within Canada that works on
the Dumont story.
Gordon: How does RNC make the decision about timing? Because obviously the gold
part of the business is moving along. It’s normalizing relationships in the
marketplace as people understand the business plan. Is there any pressure from
what’s happening in the gold side business, which affects your decision making
on the nickel side?
Muinonen: I think the gold side is ramping up. We’re coming along
there, the gold side. Like you say, it’s normalizing. We’ve seen a lot of
success recently. We’ve hit a couple more pockets of the higher-grade gold. So,
that is moving forward. And really, with Graham in Australia and Paul, they
really have that managed. Because Dumont is funded within the JV for RNC’s
portion, there’s no real immediate need for us to take cash from profits in
Australia and funnel it towards the nickel. So, at the moment we are under no
immediate pressure to do anything about it. However, we are in an interesting
nickel market right now, very much more so than when we completed. So, when
completed the fees back in June, nickel was $5.50 a pound. Nickel is now
hovering between 7.50 and 8 dollars a pound. The stocks on the LME are almost
at an all-time low. So, we’re in a very different place. So, we want to make
sure that we do look right now at taking advantage of this current nickel price
to see if there’s that appetite. But at the end of the day, we’re not going to
fire sale Dumont.
Gordon: Sure. But neither are you going to decide rashly, because nickel is
famously volatile, right? You’ve been through various super cycles of nickel
and they last a long time. And I think we talked about it, bits of scrap metal
getting to the market if the prices stay high for long enough. And that’s going
to again, give us a false impression of supply for a while.
Muinonen: Absolutely. I agree. If we look at right now, this recent
price action is really somewhat artificially generated by Indonesia exclusively.
Where Indonesia has restricted the export of ore into China to make NPI. So, originally,
they had restricted as of the end of the year, but then people were starting to
massively export ore above and beyond their current permits. So as of Monday,
they announced that it was shut down completely. Whether or not that’s going to
be permanent or going to be for a few weeks until they figure out what’s going
on, we don’t know. However, it’s definitely a supply control versus demand.
With this rising nickel price environment, it is going to draw out stockpiles
of stainless-steel scrap of ferro nickel that has been sitting in people’s
backyards waiting for nickel to go above five or six dollars.
Gordon: I think we know which backyards.
Muinonen: Yes, we do. So, we will need to chew through that as an
Gordon: How long?
Muinonen: Probably, next year into Q1, Q2. It’s not a huge amount.
However, there is some. And stainless is still pretty soft in terms of the
demand side of things.
Matthew Gordon: And that’s going to affect prices?
Muinonen: It will. Absolutely.
Gordon: But it will bounce back up?
Muinonen: I mean long term, we have seen year on year deficits in
nickel production into the industry. We’re on our third year of deficits. I
believe next year the International Study Group is predicting another small
deficit. We are seeing these deficits. We do need new nickel to come online at
some point in time. And that’s really just the stainless-steel story, you start
to overlap the EV’s story on top of that. I think the challenge with EV’s is
nobody’s quite sure how fast, how much and when. But it is definitely out
there. EV’s especially within China, within Europe, all of the large major auto
companies are now announcing major plans for EV cars to come out, various
models. But it’s a bit uncertain about timing. And I 100% believe it’s coming.
I personally drive an EV. I think that once you drive them you realize exactly
why people love their EVs. But it is coming. I do think it will probably be
slower and I think if you really look at the industry on the OEM side of
things, specially within the historical the OEMs, they have so much
infrastructure built into building internal combustion engine cars. That is going
to be a very hard tide to change quickly. They have billions of dollars
invested in plants and invested in manufacturing lines. Plus, you just need to
ramp up the battery and cathode supply side. There’s a huge amount of capital
that will need to be spent to actually make all these batteries. It’s not just
tomorrow. So, when we look at Dumont, the one thing I’m very excited about is
if you look at the world of nickel and you look at nickel sulphide deposits the
reality is there just aren’t that many or any nickel sulphide deposits that are
currently permitted in a low risk jurisdiction that can produce something in
the order of 30,000 to 50,000 tons of nickel annually for 30 years. And that’s
where I think Dumont’s value really is.
Gordon: How long did the last cycle last?
Muinonen: Oh, I mean, the down cycle, the reality is that we haven’t
seen a true nickel bull market since 2007/2008 really. I mean, there was a bit
of a bull market 2010 when RNC first IPO’d. We sort of lucked into a window
there back in 2010, but otherwise it ran up a little bit 2013. But we haven’t
been in a true bull market for a while.
Gordon: We’ve seen some pretty big numbers forecast. What are the conversations
internally with Waterton.
Johnna Muinonen: There’s
sort of two conversations. One is how do we maximize value for RNC shareholders?
And then how do we maximize value for Dumont within the JV? And what does the
structure of the JV… It’s a JV between two partners.
Gordon: Why are those two separate things?
Muinonen: Not necessarily. Maybe they get cleared up in one step.
Well, in terms of ownership, in terms of how Dumont is owned. And maybe there’s
options around things like potentially… to get to your point of you can’t predict
the future, looking at an alternative for Dumont that separates it in some form
from RNC, but potentially RNC retains an interest of some sort of upside
potential. I don’t know exactly what that looks like. But maybe there’s
something there where you kind of look at doing the best of both worlds. You
create a clean gold company, a clean nickel company but RNC at some level
retains some sort of upside interests. We are talking about that, looking at
that, what does it look like? Adding a new NSR onto Dumont’s probably not doable
but revamping something around that or something. But there are options that
we’re looking at because that really for RNC shareholders, that would start to
reduce some of these short-term risks of just selling it. It removes the
management in Operation and Distraction.
Gordon: So, these are not unusual considerations in the mining space and those
conversations have happened before. But if I’m a long-time, long-suffering
shareholder, I am asking the question, ‘how long do you guys need to monetize
Muinonen: I’ve been there almost 10 years now.
Gordon: 10 years. Mines can take 10 years to get into operation. So, this has
had, because of the nature of the nickel market… I must explain here. It’s not
like gold. It’s not like copper. So, you can go in fits and bursts, but people are
saying, ‘just get it over and done with. I need to see something now’. What do
you think it could do for RNC if you did do something this cycle?
Muinonen: If we did do something this cycle, first of all, in the
short-term, there might be a potential to offer RNC some sort of initial
consideration. RNC has some debt outstanding. There’re opportunities for
capital spend in Australia as well, potentially. If we could monetize Dumont in
some way, some short-term value. I think longer term having or retaining some
sort of upside consideration is really where that’s where you get exposure to the
nickel prices. The last time nickel ran, we went from $1.98 up to $25 a 1lbs.
Nickel is the most volatile of the base metals, it goes the highest and it goes
the lowest and it dives the lowest. So, having some exposure to that long-term,
I think that that’s how we go about adding value.
Gordon: What do you think you need to deliver for this cycle to be able to put
you in the position, to give you the opportunity to have those conversations?
Johnna Muinonen: We’re completing the updated feasibility study. We had to do that just because if we had not done that, we would be trying to market Dumont with an outdated study. So, that was done. The next stages: one is off the back of that study. We need to make sure that our stakeholders, which include the government, including the local communities, are all updated on the study, as well as updating things like closure plans, updating looking at our CFA’s, making sure that we don’t need to do anything there or if we do, start to take care of that. Because what we want to make sure is we build Dumont as a shovel ready project, which essentially means what is shovel ready? Shovel ready means that you have your permits in place. You have your land ownership. You have your surface options. You have your mining lease. You have your closure plans. You have your technical study up to date. So, making sure all of those things are maintained because updating your Feasibility Study. That Feasibility Study forms the basis for all of those sorts of feed forward information flow to the government as well. So, the next in the short-term, making sure that we have all of that, maintaining our shovel ready status, that is very important. A couple of things, some of the more optional ones, are really around looking at some of the value-added opportunities that we saw come out of Feasibility Study. So, in the feasibility study, we saw some opportunities around automation, truck automation, just like the EV story, just like all of the things, haul truck automation is coming along faster than… so, by the time Dumont gets into production trucks of that scale will almost all be automated. So, we want to look at that because that adds significant value. We want to look at potentially magnetite off-take. We want to look at some technical equipment choices. So, there are a few things we’d like to look at over the next sort of 6-months to look at how is there an opportunity to add more value to Dumont? Because that really speaks to investors who want to come in to say, what are my upsides? Here’s the project, what else could I get?
But you can have these conversations now because you’ve got to leave something
on the table for them because they can go, well, maybe we automate this.
There’s an opportunity margin for them, right? Are you having conversations
Muinonen: We’ve had ongoing conversations with people over the last
three to four years.
Muinonen: The major mining companies, nickel companies. We’re talking
with downstream OEMs. Battery companies, as well as trading firms.
But some of those are more realistic like those OEMs, EV revolution, a couple
years out, mining companies, they know who you are and you’re one of a handful
of big, large scale operations for nickel. So, why aren’t they knocking at your
Muinonen: I think they’re keeping they’re in a bit of a wait and see
approach right now.
Gordon: What are they waiting for?
Muinonen: I think they’re waiting for a couple of things. I think that
they’re waiting for the nickel demand side of the story to become much
Gordon: They’ve got to have a view on this, because they must be looking at
nickel, reading the same reports I’m reading going, it’s all good, right? So, why
not come in now? What’s stopping them?
Muinonen: A history of greenfield nickel projects that have not been
successful. Now they’re much more complicated than ours. They’re very much
higher risk jurisdictions, much more complicated flow sheets. Dumont is a very
standard mine and mill, as opposed to some of the very complicated HPALs or a
laterite projects that have been blown out the water.
Gordon: By complicated, do you mean more expensive?
Muinonen: Technically complicated, which then leads to more expensive,
significantly more expensive. We are a mine and a mill. On a scale of simple, people
know how to build mines and mills.
Gordon: People should be attracted to that. You’re saying people still just
aren’t committing because the nickel price is doing what they think it should
Muinonen: I think that they’re still in a wait and see mode. Absolutely
they have forecasts. I mean, absolutely. They think that the future of nickel is,
‘we are about to enter a bull market over the next 12-months to 18-months’. They’re
keeping in touch. They’re making sure, knowing what’s up, knowing what’s
happening. But I think people are waiting to see the demand side start to get a
little bit stronger. I just think that with the supply restraint in Indonesia…We
were at $5 a pound 3-months ago. I just think most people haven’t quite caught
up and there’s still there’s a bit of a disbelief that now we’re between $7.50
and $8, let’s just have a wait and see for a bit.
Gordon: They want some consistency.
Muinonen: Do we make it through
this next quarter? Do we see the price fall back? And if so, how much does it
fall back? How much scrap is really out there that’s going to come into the
Gordon: That’s a question of pricing. How much they are going to pay. Not a
question of if, it’s a question of what’s the optimal timing for us to work out
how much this is going to cost us? Is that what you’re saying?
Muinonen: I think in some ways. I do think that whole EV story… I do
believe in the EV story. But I do think the question on speed that it’s going
to advance and the timing. I think that most people are still somewhat bearish
on some of those estimates. And so, people are still taking that wait and see.
Everybody believes that the EVs are coming and that batteries are going to be a
significant consumer of nickel moving forward. But timing! Is it really 2023 or
is it 2025? What are we really going to need this nickel to come on board? And then
with the run up that’s been so sudden and somewhat unexpected, I think people
are just sort of wait and see. So, keeping in touch and making sure they know
what the updates are, what’s happening.
Gordon: If someone puts a $1Bn, gets this thing built out for you. What do they
expect to make?
Muinonen: If you look at the free cash flow of the project over the
life of the deposit, somewhere, EBITDA $200M annually. It’s a large cash
generating project. It is a low cost. Overall our C1 cash costs over the life
of mine (LOM) are just over $3 – $3.22 are all in sustaining cash (AISC) per
pound on a U.S. dollar basis is just under $4 at about $3.90. So, when you’re
looking at projects to invest, because the thing about nickel, I talked about
it before, nickel is the most volatile of the base metals, it jumps the highest
and it falls the lowest. If you’re going to invest $1Bn in the project, you
need to make sure that that $1Bn is going to be paid back. You have to make
Gordon: And there’s a cost to it.
Muinonen: And there’s a cost to it. There’s interest there. There’s a
cost to that to everybody. The reason why I believe in Dumont, one of the
reasons, is just because of its scale. So, we have a 30-year life project. That
30-year life allows you to take advantage of those peaks and valleys of the
nickel cycle. And because it’s such a large scale, low-cost project, you are
profitable along that that entire time. Any investor that comes in has that
time on their side to be able to get back their investment. Because nickel,
unlike copper, it does really go up and down. When you look at some other
projects that are $300M – $500M to invest, but only are 10-years, you can
really easily miss the price cycle.
Matthew Gordon: The cost of building the plant, aggregated at over 10 years versus 30 years. We understand that. Johnna thanks very much for coming in. Brilliant to catch up with you. We understand your brief. Monetise this for shareholders. That’s what they want to hear from you in the next few months. How you going to do it, what are those discussions are developing and what it’s going to mean for them.
Johnna Muinonen: Our focus is shareholder value. And the board and Paul have given me very clear direction around looking at what we can do with Dumont to maximise shareholder value.
Company page: http://www.rncminerals.com/
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