RNC Minerals was perhaps the turnaround story of 2019. Huet has steadied the ship, brought about a gold focus to the company and got RNC into production. A steady 8,000oz+ per month has changed the company and de-risked the operation, as the team look to move forward, get the share price up and probably restructure the CAD$32M of remaining debt. AISC steadily heading down. We expect to see it get below $1,000 later this year.
Despite a positive year on the production/revenue front, RNC has struggled to get the share price up. It sits at CAD$0.43, with a market cap of c.CAD$260M. Huet explained the market situation clearly: RNC’s 28% “option on nickel” at Dumont has been valued at zero, and he feels the company continues to be undervalued. We were curious as to Huet’s plans would be for 2020, but before you ask, he wasn’t prepared to talk about the royalty arrangement with Maverix Metals just yet as they are mid-discussion. He’s keeping his cards close to his chest. We do however expect to hear something by the end of Q1/20. However, it obvious to all the chess game that is afoot. The Maverix Royalty is a large 6% on Gold and 1.5% on Nickel. Forget the nickel for now. If we were RNC, we would do the bare minimum of mining at Beta Hunt. Why would you if the only company making money if Beta Hunt gets mined is Maverix? Beta Hunt must be 25-30% of Maverix income. But not if RNC reduces production, which, reading between the lines, seems to be what RNC is doing. The two need to agree, and agree quickly. Shareholders on both sides will benefit. Morgan Stanley, seem to have been pragmatic. Will Maverix be as pragmatic. Our interview with them, they talked that language.
Huet has been on a roadshow to both institutional and retail investors. RNC recently issued a 2020 guidance: 90-95,000oz per annum, excluding the often discussed coarse gold. This figure is also without taking into account an ore sorter, and possible plant engineering modifications to increase efficiency. Huet is running a tight ship, and we would expect these numbers to be almost guaranteed for 2020.
RNC will fund exploration out of cash flow. The debt is due in June, but can be delayed, or restructured on more favourable terms, given RNC’s current position in comparison to where it was 7 months ago. RNC will be looking at a c. CA$50M standby facility.
A gravity survey has revealed interesting anomalies at RNC’s two new exploration discoveries: Higginsville and Baloo. A recent high-density gravity survey has delineated a new geological structure at Higginsville: a 5km strike zone. The Paleo channel potential will be explored (these typically can result in slurry pumping to by-pass front end ore-sorting and crushing and go straight into the back-end of the plant). Potentially an additional transformative item. Long way to go though. Permitting at Baloo is reaching a more advanced stage.
There has been discussion about an ASX listing and roll-backs in the chat rooms and on social media, but Huet remains tight-lipped. RNC is getting more and more access to institutional shareholders, and that can only be a good thing.
They did what they said. There is a clear plan. Sit tight and watch this unfold.
Paul Huet: Hey Matt, how are you?
Matthew Gordon: Good. You have been on a roadshow.
Paul Huet: We have, we have been hitting up several places actually, 4 countries and 6 cities in the past couple of days in the last 2 weeks, so it has been very exciting.
We went to Canada first and then we went to the US, then Indaba, and finishing up in London. The purpose is really to just get out there and show people some of the changes we have done. You know, it has been 7 months now. I have been here for 7 months and we have managed to make a lot of changes: from shareholders to the board of directors, the executive team. We are now in production, we sustained about 8,000 oz per month for the first 6-months.. We are actually doing what we said we would do. We are keeping it simple and doing what we said we would do.
Matthew Gordon: It is probably one of the turnaround stories of last year. You recently issued some guidance.
Paul Huet: 90,000 to 95,000 oz at 8,000 oz a month, it excludes our coarse Gold. And that’s something people should consider. It is our first year of total production and we are still fine tuning everything, if you want to call it that. We are still evaluating and assessing ore-sorters, that has certainly not gotten behind us. We are certainly evaluating engineering changes to the plant. We are looking at several things to upgrade, and how we can even increase throughputs, so there are opportunities there. But that range that we are putting in front of ourselves, it does exclude that coarse Gold.So don’t lose sight of that.
Matthew Gordon: You have also been producing cash.
You did raise a bit of cash to allow you to put things in place, but you are also still producing your positive cash flow. Can you talk to us about what are your priorities with regards to how you are going to spend that cash.
Paul Huet: As we announced, we ended the year with USD$35M in cash, so a huge, huge change. A huge shift. We used USD$3M of the USD$35M to pay down some of our debt, which was really important. That saved us almost USD$100,000 in the first quarter just in interest, so that’s important for us and for our shareholders.
We are going to spend USD$9M to USD$10M this year on Exploration this year. We have already started some of it. We have got a good detailed plan. We have just unlocked an area at Higginsville that has 1,800 Square kms. We just announced the Fairplay open pit; that’s a brand-new area for is. It is 1km from our plant. We have pre-stripped that, we are actually starting to mine on that. That thing is only constrained by drilling. There’s no drilling around there. We did the original drilling here. So the initial grades from that pit looked to be as good as open pit at Baloo. We just got stage II permitted at Baloo. That second stage at Baloo was all drilling that we did ourselves as well. There were areas that we had discovered, that we discovered that geophysics had that gravity survey.
What people have to remember is that this area hasn’t been explored in almost 2 decades. There has been some drilling; don’t get me wrong, but whenever there is a Royalty of 7% sitting on a project, that’s a huge burden for anybody so previous owners recognised that. Not a lot of people were willing to spend any money or effort in those areas, whereas after we had negotiated that Royalty, we’ve unlocked a huge jurisdiction. We have opened up an area that was really gridlocked, it was landlocked for a long time under that Royalty. So, tremendous amount of upside for us to be drilling in those areas and that gravity survey just discovered a 5kms strike zone which is just north of our plant.
Matthew Gordon: I want to deal with the debt component. You have positive cash flowing, plus you have money some in the bank; USD$37M at the end of the year. You pay down USD$3M, saves you USD$100,000-ish per quarter, it was a lot of money. What was the balance off there between saying, let’s reduce that debt position or let’s get out there and drill?
Paul Huet: Yes sometimes. In our case, it made much more sense to pay off our debt. There’re often times that I’ve seen, even I’ve done actually, paid off debt with equity. We don’t want to do that to our shareholders in this case. We can repay our debt while we still have an aggressive drill campaign. We announced USD$10M, that’s the first USD$10M in this district in a very long time. That’s going to give us a lot of opportunity and our drill bit will drive our priorities. The next drilling will come from this. If we feel like we need more money for drilling, we will add money…
Matthew Gordon: What do you mean, you will add money?
Paul Huet: We will add money from our cashflow. Paying down our debt is really important. It is really something. We are looking at restructuring it as well.
Matthew Gordon: So let’s talk about the debt component. You have got your USD$37M, you have paid off USD$3M, you have got USD$34M left to pay. So most companies would look at that and say we can restructure this and pay a little bit less over a longer period of time, or we can pay it off or we can pay it down. What are the options that you are looking at for dealing with that debt? What’s the timeline?
Paul Huet: Yes, for us, our debt is due in June. We have an opportunity to extend that debt by 6 months, just by signing paperwork, or we have an opportunity to restructure that debt, which is something that we are strongly considering and something that we are working on. In fact, we have had a lot of interest from groups who I have worked with in the past who have serious interest in restructuring this debt at improved terms. Don’t be surprised if we pay down some more debt this quarter. It wouldn’t surprise me that we paid down some more. Everything has to be considered: as you talked about, we have to consider drilling, we have to consider everything and make sure we have that pipeline in front of ourselves and the amount of cash.
Matthew Gordon: Some companies would also look at things like standby facilities, because you mentioned something there that was quite an interesting point which people may have missed which was that you may be able to restructure your debt on better terms. Presumably, because the company is in a better financial position?
Paul Huet: And also, because we have had consistent, sustainable production. And another thing: a 2P reserve. That 2P reserve that we put out at Beta Hunt is very critical for lenders. So one of the things we are going to be doing is, when we restructure this debt, we will be looking at standby facilities. I have had standby facilities in my life in my past, but putting together a USD$20M standby facility when you don’t need it, it’s the best way to get it. When you need it and your back’s up against the wall, you won’t get as good terms. For us, we will be looking at, potentially, a USD$50M facility where we take USD$30M and we restructure it. We have that. Whatever group comes with us comes across the finish line with us. Put in another USD$20M standby facility that we can use at our discretion, when it’s needed, that we can use for some consolidation, maybe for drilling. Whatever we need it for, it’s in place when we don’t need it.
Matthew Gordon: Yes, I think the truism in banking, when the sun is shining, the banks offer you umbrellas.
Paul Huet: Yes, exactly. We’ve all been through it.
Matthew Gordon: Can we just talk about Morgan Stanley? You renegotiated that Royalty with them. It has freed up this, this very large land package for you to go and Explore. What are your plans, because it is a big piece of land?
Paul Huet: Look, it’s a very large piece of land and we’ve actually started with our plan by the drilling from Fairplay. That was our number one priority.
Followed by the geophysics – the gravity study we did. We did not know that the gravity survey would unlock or show us that 5kms.
Matthew Gordon: What is a gravity survey, for the uninitiated?
Paul Huet: It’s a great Exploration tool for us. It’s an Exploration tool that allows us, targets us for drilling. That’s exactly what it does. It gives us some indications on where to drill. The thing that is exciting about this 5kms, from what we can see, and all of the historical information that we have, there are no drill holes in this thing. This thing just lit up in a gravity survey and there is not one drill hole in a structure that is quite similar to the structure that the mill was built for. The mill was built for the Trident mine. The Trident mine is just at the mill. That thing - we own it, that Trident mine is part of our land package now. Just north of it is where this 5kms strike is. And look, as a reminder; Beta Hunt is 4.5kms today, and Beta Hunt is constrained by land, not necessarily by geology.
Matthew Gordon: And you are going to throw how much money at that in 2020?
Paul Huet: We had other priorities that were much more advanced than this structure in 2020. And we are going to follow through with our plan.
But one thing I’m forcing our guys to do is follow through with our plan. This obviously changes things where we might require, we might introduce some holes into this, this year and change up this plan. Our goal has always been, from day 1 since I took over, to put 24 months of feed between Beta Hunt and Higginsville. We have stuck to that. We are going to stick to that and we had a different set of pipelines, Fairplay being one of them, the extension of Baloo being another one. So right now, we have the extension of Baloo that pushes us to the end of 2020 now. We’ve got Fairplay coming in. We will be drilling around Fairplay. There are other open pits that are more advanced, satellite targets that are more advanced than this unidentified 5kms strike. We haven’t even given it a name; it is so early – so you are right in saying that it is early stages.
Matthew Gordon: You have talked about getting 24-months of ore there to into the mill. That’s not something that exists today but you are building up towards this.
Paul Huet: That’s absolutely correct. And from both, so I am talking, about a series of open pits in front of us and from our Beta Hunt mine. The Beta Hunt mine is going to need some more waste development which we have planned this year. I think in dollars, top of my head, it’s about USD$6M in waste development. It’s all part of our budget. It’s all funded from the operations, right. It’s not coming out of treasury. In fact, treasury this year will continue to build up despite us having a very aggressive year in Exploration and waste development, some equipment purchases, some upgrades to the mill, looking at ore-sorters, we will continue to build up treasury.
Matthew Gordon: Do you keep Gold back on good months and then run it over into the next month if you need to, or does it all go into the mill straightaway?
Paul Huet: Yes. Our mine plan is what dictates it.
It’s not about hoarding the Gold, it’s about how we sequence the mine. It’s all about cross cuts during the retreat. Open pit: you end up mining where you are mining, so it’s all about our mine planning. We are trying to build up our mine plans to reflect what we have put out in the guidance. Our mine plans are a reflection of our guidance. We are doing our best to remain consistent. Consistency is good for us as well, right? It’s a lot better for us.
Matthew Gordon: And when you are having conversations about money?
Paul Huet: Yes.
Matthew Gordon: Have you had to spend any more money on the mill than you imagined? Do you still consider it to be a good purchase?
Paul Huet: Oh look, the mill was a steal. Hands down. I’ve had what, 13 mills approximately reported to me in the last two decades? You know, I built one almost from scratch, Esmeralda, it was this small thing that we had to almost rebuild. This thing here, this Higginsville plant, we have spent so far, probably about AUD$1.3M, AUD$1.4M on it. A very, very small amount to make some major upgrades for ourselves and our mill has gone from a mill availability from about 86%, all the way up to about a 95%, and this is a real reflection on Graham and the team there. These guys are doing are doing PMs to the mill now, we are spending the right money on the mill. We are making sure everything gets properly treated in the plant and it is not neglected. The plant is not neglected. This is the artery and the heart and soul of our company. We’ve got two open pits and an underground mine feeding this plant and Doré coming out of it. We need to make sure it comes out on a weekly basis.
Matthew Gordon: And one of the reasons why you bought it was because you hoped you could reduce the AISC, I know you haven’t finished last year’s numbers and you are due to announce those towards the end of this quarter, but broadly, have you been able to do what you said, which was to drive the AISC down towards that $1,000 number.
Paul Huet: Yes. There’s no reason to doubt it’s not happening in 2020 and there’s no maybe – we will get there. We saw, when our first original numbers in the first half of the year were close to USD$1,300 per oz, Matt, AISC, Q3 was USD$1,183, so call it close to USD$1,200, so USD$100 reduction per oz. Q4 numbers aren’t out yet, finances are coming out soon, but that trend is currently continuing like we saw between the first half in Q3. So you will see, it’s certainly trending down again in Q4, as we expect it to. There’ll be no surprises, people will I think, we were happy, I think, once everything is finalised, we are not quite finalised. Things are trending in the right direction where they should be.
Matthew Gordon: So that says to me that you are going through this cost-cutting exercise across the organisation. I think you talked about Graham overhauling the operational side of things, and you have been elsewhere. Have you come across any major headaches that you have had to account for?
Paul Huet: No, no. Listen, this is mining, we are always going to have headaches, Matt, and there’s always surprises. The advantage we have between all our experiences, one way or another, we are going to overcome them. And because it is mining, sometimes you can drill and blast them and you can get through them. So we will go around it, above it, underneath it: we will get through the obstacles we have had to. There’s been nothing that’s been so bad that we didn’t anticipate it. We have had…we are very thorough in our risk register and we mitigate quite a few of the risks.
Matthew Gordon: There have been a couple of reports about you guys being looked at as a takeover target.
Paul Huet: I think I would be very naïve to think that we are not in some people’s, or bankers’ slide decks. Anybody who is doing what we are doing and has a centralised jurisdiction, and unlocks so much value, I would be naïve to think that we are not going to be a take-up target. We’re not putting ourselves up for sale.
Matthew Gordon: That’s the next question.
Paul Huet: We are certainly not saying, ‘Hey look – we are up for sale.’ We believe we are going to drive value up for our shareholders and we give us another 6 months to a year, because we will create value in that share price for our shareholders. All we’ve got to do is to continue doing what we said we would do and continue to deliver.
Matthew Gordon: RNC has been looked at several over the last three to four years. Australian Gold miners, who are sitting on a lot of cash at the moment, because it’s been a good time for Australian Gold mines. Do you feel like RNC is a more of an attractive target should those conversations come round?
Paul Huet: There’s no doubt we are more of an attractive target. We have cash on our balance sheet now. We continue to reduce our debt. We are sustaining production consistently. There’s no doubt; we are much more attractive than we have ever been. We have, simply put, we have de-risked this thing.
Whereas, someone would have come in before and they would have said, ‘There’s so much risk in here: operationally, geology’. We have demonstrated through that 2P reserve, through renegotiation of the Royalty, through the consistent mill throughput, we have consistently de-risked this thing significantly.
Matthew Gordon: Can I just ask you about this 1,800 square kms of land package. Almost too hard to comprehend how big an area this is. But you’ve got lots of options in there. You have now got the availability of cash and you are producing free cashflow as well. Are you targeting any specific areas in there? And I ask this because you’ve got so many options elsewhere in the organisation. You’ve got to get focussed and you’ve got to help us understand what you think is important.
Paul Huet: Sure. So we have Baloo – we’ve just got the second permit to extend to Phase II that we talked about. We just did some recent drilling at Fairplay. We just did the pre-stripping; that’s very fresh and new.
If you look close to the plant, we have the Two Boys target there. We have the Poseidon South. We have the Graveyard, the Mitchell…Afratai, Challenger, and then more Paeleo channels. So look, on top of the 5kms, we have a series of areas that we are going to be targeting, and predominantly in 2020, we are going to be mining Baloo and Fairplay. plus the Beta Hunt, obviously.
You can see, and this is constrained too, so that 5kms strike that is directly North of us, will likely get holes in it. We have larger priorities. We have unlocked so much potential here.
Matthew Gordon: Everything is going great with the Gold side of the business. Dumont nickel. Any news?
Paul Huet: No update from the last one. We are still working alongside, with our partner, Waterton, to find the best strategy for us and for them. Look, the way I see it, for our RNC shareholders, we really have an option in Nickel. I firmly believe that. Nickel prices go up. I think it goes without saying, Matt, I think anyone will likely agree with me that presently, there’s no value in our share price on our Nickel asset. And that’s a positive thing. So whatever we can get done this year. Whatever synergies or strategy that we can come up with, with Waterton that makes sense, will create more value. There’s none right now so anything we can do will improve that share price.
We own 28%, Waterford own 72%. They are really driving the bus on this one. But the EV excitement is certainly not slowing down. Nickel had a really decent year in 2019, if it has a really decent year in 2020, there will be interest in our project. There’s no doubt about it.
Matthew Gordon: Thanks for coming through London and going out of your way to make time for us.
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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 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.