RCKS Talk

29-Nov-2018

RNC Minerals Corp

Site Visit: Beta Hunt Has High Grade Gold!

Impact: Mildly Positive

We recently had the opportunity to visit Beta Hunt in West Australia and our overall impression was positive, as the company shifts focus to defining higher grade resources (both bulk and selectively mineable). Importantly, the company has a credible thesis as to why higher grades zones of both types occur and where they should occur, so the next step is drilling to prove it out.  With the balance sheet repaired, we expect ongoing exploration and development work to be the key catalysts for demonstrating the potential that we see at Beta Hunt.
  • Highlights: 
    • More specimens to come; working thesis points to a likely repeat. The company has identified a combination of factors that have late porphyry mineralization in the main shear plus the sedimentary unit intersecting tensional veins that lead to specimen gold (Figure 5).  
    • Bulk mining resource expected to underpin the operation. Historically, Beta Hunt’s bulk mining targets have delivered grades between 2.5-3.5 g/t Au; however, recent operating results and development work, point to bulk mining grades materially improving. In our view, an improvement to +4 g/t (very possible) would make this a profitable mine, especially if “specimen zones” can be added into the mix.  
    • Taking the “Time” and having the “Money” to figure it out. The gold mine at Beta Hunt has never had the proper time and money put into it to prove out and develop its potential. With +C$18M in cash in hand and management’s decision to temporarily cease bulk mining, this company is well positioned to demonstrate this potential. 
    Valuation:
    We believe RNC’s shares should be worth C$0.94/sh. Our fair value estimate is based on our probability-based valuation method for Beta Hunt (C$0.89/sh), plus the company’s other assets (C$0.05/sh). In our view, the key re-rating catalysts, relate to ongoing exploration and development work at Beta Hunt, demonstrating the potential for additional “specimen zones” and its potential to be a +100k oz/year mine, with decent mine-life.  Upcoming catalysts include: 1) Drilling and development results from Beta Hunt and 2) Balance sheet update.



24-Oct-2018

RNC Minerals Corp.

Gold Discovery Delivers Record Q3

Impact: Positive

RNC has announced record gold production from Beta Hunt. Production increased 135% QoQ and 199% YoY to 31.4koz Au. As expected, Q3 production materially benefited from the specimen grade gold processed in September. The company’s Father’s Day Vein discovery has resulted in a transformation of its balance sheet, enabling it to properly explore and develop Beta Hunt to demonstrate the potential of the pyritic sediment structures to host high-grade coarse gold. If the company is successful in demonstrating a repeat of this structure, we believe it could provide the next leg up on the stock. 

Highlights: 
  • Father’s Day vein behind higher Q3 gold production. Production from the first nine months of 2018 totalled 58,460 oz, a robust increase from the first three quarters of 2017 which produced 24,305 oz (Figure 1). As expected, higher grades and gold production this past quarter are a result of specimen grade material found in September from the Father’s Day vein.
  • Aggressive exploration still underway. Crews at Beta hunt are mobilizing the company’s diamond drill rig underground in an effort to better understanding of the depositional model and test the 540m of identified pyritic sediment structures responsible for generating the high-grade coarse gold. Management has indicated that it expects to regularly produce coarse gold (Figure 2) and intends to pursue measures to better estimate resulting gold production and cash flow.
  • World class specimens. Results to date point to something special. Based on the structure defined to date, we continue to believe that these high-grade structure shoots could yield significant deposits. More drilling and development work, particularly on grade continuity is needed to define the project’s potential. We expect drilling results to start coming in 8-10 weeks.
Valuation:
The market is currently pricing in a deposit of ~1.8M oz. Our rough estimates suggest the deposit could be materially larger than what the market is pricing in. With additional information on size and grade continuity RNC’s share price could continue to move higher.
Upcoming catalysts include: 1) Drilling and development results from Beta Hunt and 2) Balance sheet update.

10-Oct-2018

RNC Minerals

Another Large Specimen from Beta Hunt

Impact: Mildly Positive

RNC Minerals announced another impressive gold specimen stone (90kg or ~1000oz Au) from the Father’s Day Vein at Beta Hunt, supporting the company’s forecast to extract a total of 30-35k oz Au from the initial discovery area. While this news is directionally positive, the key to demonstrating the potential of Beta Hunt should be ongoing exploration development work. With the balance sheet repaired, we expect ongoing exploration and development work that demonstrates the potential of these ultra-high-grade shoots as the key catalysts for the stock.

Highlights: 
    • 90kg slab specimen stone (Figure 1) supports 30-35k oz of production from initial discovery zone. The continued extraction of large-scale ultra-high-grade specimens supports the company’s forecast to generate C$46-54M from this area. This should fund the company’s exploration and development efforts at Beta Hunt. 
    • Results to date point to something large. Based on the structure defined to date, we continue to believe that these high-grade structure shoots could yield significant deposits (Figure 2). More drilling and development work, particularly on grade continuity is needed to define the project’s potential. 
    • “Proof of the Pudding is in the Eating” - work underway. With the Father Day Vein being converted to cash, the company is ramping up exploration and development, on the A-Zone shear and next closets Western Flanks shear (Figure 3). It will likely take A$10-15 million to properly define each shear zone with drifting and drilling. We expect work to ramp-up in Q4/18 and a steady stream of results from the end of this year and into next. 
    Valuation:
    The market is currently pricing in a deposit of ~2.2M oz. Our rough estimates (Figure 2) suggest the deposit could be materially larger, suggesting that with additional information that demonstrates, size and grade continuity RNC’s share price could continue to move higher.  Upcoming catalysts include: 1) Drilling and development results from Beta Hunt and 2) Balance sheet update. 
03-Oct-2018

RNC Minerals Corp

How Big Could it Be? RNC has the Balance Sheet to Find Out; Here is our Best Guess

Impact: Positive

Following the initial announcement of a 9,000oz Au discovery at RNC Minerals Beta Hunt Mine in Australia, the company expects the original discovery area to yield 30-35koz Au and has continued to extend the high-grade coarse gold structures of the “Father’s Day Vein” to a total of 540m ( Figure 1). RNC is gaining a better understanding of the controls in place and as such, we believe that there is a distinct potential for the controls to repeat and extend.  In this note, we examine the impact on exploration, the potential size of the deposit and ultimately the impact on RNC’s valuation.

  • The gift that keeps on giving. Since the initial “Father’s Day Vein” discovery of an estimated 9,000oz Au, the company has recovered a total of 27,000oz from a 60 m3 cut (167 tonnes) on 15 Level at the Beta Hunt Mine, which has yielded an average grade of over 161 oz/tonne (5,000 g/tonne). The company expects further production from this small area should result in total recovered gold of 30-35koz Au.
  • How big could this be and is there more? We believe that the confluence of conditions that are leading to the bonanza grades found to date at the Father’s Day Vein are conducive to shallow plunging shear zones. The big question is how long do they extend, how many are there and is the grade going to be the same? We examine the potential deposit size per shear zone in Figure 2 and currently believe that if the company is successful in defining a plunge length of 500 m, we could be looking at a resource target of over 10 million ounces of gold per shear zone. There are four known shear zones so there could be more. It will likely take $10-15 million to define each shear zone but would be well worth the effort.
  • We believe the market is pricing in approximately 3M oz discovery. Based on an EV/oz valuation of C$100/oz (producing high-grade deposits attract premium valuations), the market is pricing in a 3Moz Au discovery at Beta Hunt. 
The market is currently pricing in a deposit of 3M oz. RN C Minerals has excited the market with its discovery as the stock is up over 900% and now has a market cap of C$344M. Based on last reported cash of C$6.8M, debt of C$22.8M, C$38M revenue from Fathers Day Vein to date and C$8.4M from warrant proceeds, we see an EV of C$313 for RNC. Based on existing interests in Orford Mining (35% of equity), the Dumont Project (28% ownership) and the Reed Mine (27% ownership), we estimate the market is valuing Beta Hunt at ~C$287M. Based on an EV/oz valuation of C$100/oz (producing high-grade deposits attract premium valuations), the market is pricing in a ~3Moz Au discovery at Beta Hunt.

 

01-Jan-2018

RNC Minerals Corp. (TSX:RNX)

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