RNC Minerals: Nickel Pure-Play in the Making

RNC Minerals’ fully-permitted, shovel-ready, mammoth 9.75 Billion lb. Dumont Nickel Project (Projected AAP = 90 Mlbs) is one of our favorites and we have been taking advantage of market weakness to accumulate shares. We think the assumptions utilized in the development of the Project’s PFS are sufficiently conservative for a mine with a projected lifespan > 30 yrs. Let’s move on to the numbers…

Flagship Property: Dumont = 50% Ownership (JV with Waterton Global Resource Management) … -1 Point

Resource Base = 9.75 Billion lbs. Ni … 1 Point

Nickel Price at the Time of Writing  = $6.92/lb. … Unrated

Long-term Nickel Price = $9/lb. … Unrated

Recent Stock Price = US $0.1059 … Unrated

F/D Share Structure = 487,800,000 … -1 Point

F/D Market Cap = US $51,658,020 … Unrated

After-tax IRR = 15.2% (6.1 yr payback period; as it is a long-life mine, this is acceptable, but low IRR will still be penalized) … -1 Point

NPV/CapEx = 103% … 1 Point

Cost Structure = 45% … 1 Point

F/D Market Cap per Resource Lb. = US $.005 … 1 Point

In other words, each lb. in the ground is valued at 5 thousandths of a lb. by market cap.

Share Price Valuation by Resources in the Ground = 20 lbs. … Unrated

In other words, each share is worth 20 lbs. of resources, or US $138 of Nickel in the ground @ $6.92/lb Ni.

Resource Valuation as a Percentage of Market Cap = .15% … Unrated

With resources valued US $33,735,000,000, RNC’s market cap is valued at a ~2 tenths of a percent of the resources in the ground. This is extremely low and there is significant room for market cap growth.

Very Quick & Very Dirty Market Cap Valuation = US $10.1 Billion (RNC’s 50% interest = $5,050,000,000) … Unrated

Near-Future Cash Flow @ $6.92/lb. = $125,550,000 … Unrated

Future Cash Flow Multiple = 0.4x … 1 Point

RNC Minerals’ present market cap is ~0.4x projected near-term cash flow. In other words, no future cash flows have been factored into RNC’s price. Until Nickel prices rise above $8/lb., the Invisible Hand is unlikely to revalue shares upward.

Future Cash Flow @ $9/lb. = US $219,150,000 … Unrated

Debt Coverage = 1,256% … 1 Point

Projected Future Market Cap @ $9/lb. = US $4,387,500,000 … Unrated

Projected Future Market Cap Growth Percentage = 8,393% … 1 Point

Location: Abitibi Region … 1 Point

Conclusion

RNC Minerals warrants the deployment of speculative capital into the stock. But why isn’t it investment grade? The 50/50 JV with Waterton Global Resource Management effectively cuts the Project valuations in half. The 15.2% IRR is low, as well. We are hard on RNC Minerals because we think the world-class deposit would have had a brighter future, sooner, in the hands of shrewder management, which isn’t to suggest that Mark Selby and Co. cannot consolidate operations and successfully execute. In fact, we’re quite certain they can and will. We have a long-term price target of $8.99 a share (Fahy Capital Management is long from US $0.14 a share). This target assumes:

  • Higher long-term Nickel prices averaging $9/lb.
  • Sale of Beta Hunt and Reed Mines

Score

4/11


Key

Flagship Project: 100% Ownership … 1 Point

After-tax IRR = > 20% … 1 Point

NPV/CapEx = > 1 … 1 Point

EV/Resources = < 1 … 1 Point

Cost Structure = < 50% … 1 Point

Resource Base = > 80 Mlbs. U308 … 1 Point

Future Cash Flow = Unrated

Future Cash Flow Multiple = > 5x … 1 Point

Share Structure = < 200 M … 1 Point

Debt Coverage = > 50% (or No Debt) … 1 Point

Projected Future Market Cap = Unrated

Projected Future Market Cap Growth Percentage = > 500% … 1 Point

Location: Friendly = 1 Point

Balmoral Resources: Grasset Nickel Deposit — No PEA? No problem.

Balmoral Resources has an exciting portfolio of highly prospective exploration properties in the Abitibi region, but when we made our initial investment in the company, it was to gain exposure to Balmoral’s Grasset Deposit.

In March of 2016, Balmoral Resources published the initial resource estimate for Grasset: Contained NiEq (lbs) = 136,270,000

Now I want to play a game called, “What’s the rock worth?”

Critical Data

F/D Share Structure = 147,035,026

Fully-Diluted Market Cap = 23,525,604

Nickel Price at Time of Writing = $6.94/lb.

Theoretical Projected Annual Ni Production = 5,492,333 lbs.

Market Cap Valuation per Resource Lb.

= 17 Cents Market Cap Value per Lb.

In other words, each lb. in the ground is valued at 17 cents by Market Cap.

Share Price Valuation by Resources in the Ground

Each share represents .93 lbs. Ni. Hence, each share is worth $6.43 of Ni in the ground.

Market Cap as a Percentage of Resources in the Ground

= 2%

Value of Resources = US $945,713,800

The Market Cap of Balmoral Resources is valued at ~2% of the resources in the ground at Grasset. This is low, even at today’s depressed Ni prices. There is room for significant Market Cap appreciation at higher Nickel prices.

Nickel-Based Market Cap Valuation

= US $141,857,070

The current valuation of Balmoral Resources is low, even at $6.94 Ni. Someday, the Invisible Hand will take notice and revalue its shares.

Next Steps…

Balmoral Resources hasn’t released a PEA for Grasset, so we are going to utilize a conservative AISC of $5/lb. to calculate its near-future Cash Flow Multiple and Future Cash Flow @ $8.75/lb. Ni and theoretical projected annual production of 5,492,333 lbs.

Near-Future Cash Flow Multiple

= 2.2% (Near-Future Cash Flow @ $6.94/lb. = US $10,655,126)

Future Cash Flow @ $8.75/lb.

= US $20,596,248

Future Market Cap Growth

Future Market Cap = US $119,236,250

Future Market Cap Growth Percentage = 407%

Conclusion

Taking only Grasset into consideration, Balmoral Resources has a medium-term upside of ~400%. We have a target of US $0.85 a share.

 

RNC Minerals — OTCQX: RNKLF

Dumont Nickel-Cobalt Project — A Robust, Long-Life Nickel-Cobalt Sulphide Project

The Dumont Nickel-Cobalt Project is the 3rd largest nickel reserve in the world, the 5th largest nickel sulphide discovery ever (largest since 1960), and one of the largest cobalt resources outside of Africa. Additionally, the project is structurally low-cost, large-scale, shovel-ready, and once in production, will be the largest cobalt operation in North America.

The jurisdictionally advantaged, fully-permitted and community-supported project will have a mine life of approximately 33 years with an initial production of 73 million pounds of nickel and 2.3 million pounds of cobalt contained in concentrate annually, with an expansion in year 5 to 113 million pounds of nickel and 4.3 million pounds of cobalt annually.

Cobalt Potential

Dumont - World Class Cobalt Potential

 

1 Billion Tonne Reserve + Upside Potential

 

1 Billion Tonne Reserve + Upside Potential

 

RNC Mineral’s Nickel Roasting Approach: A Significant Breakthrough

RNC’s strategic alliance with Tsingshan led to the development of the first integrated nickel pig iron (“NPI”) plant to directly utilize nickel sulphide concentrate as part of the stainless steel production process through concentrate roasting. Roasted nickel concentrate is effectively a very high grade laterite ore feed which effectively creates a new source of demand for nickel sulphide concentrate, notably at a time when many NPI and ferronickel producers face feed shortages as a result of Indonesia’s nickel ore export ban.

RNC Minerals: End Notes

The Dumont Project is a 50/50 joint venture limited partnership with Waterton Global Resource Management, funded with US$35M in capital commitments to develop Dumont and acquire additional nickel assets, and backed by Waterton’s two largest funds with a total of US$1.725B in committed capital.

The joint venture’s objective is to establish a pure-play nickel company with multiple projects operating in stable jurisdictions.