I’m getting a lot of hits on the recent IKN post “Brent Cook’s analysis of Rubicon Minerals (RMX.to) (RBY)”, which isn’t a surprise considering how the Brent dude nailed this story cold. Excerpt:
Costs and Valuation
The SRK 2014 PEA estimates underground mine costs will be
C$89.60/tonne, process costs of C$28.12/tonne, and G&A of $32.22/tonne, for
a total on-site operating cost per tonne milled of C$149.94.
I don’t buy it.
Goldcorp reports mining costs of C$233.36/tonne and process
costs of C$47.37/tonne from its nearby Red Lake deposit. Red Lake has been
operating for over a decade, is a somewhat simpler deposit, and has a skilled
workforce that knows the deposit well. Rubicon is starting from ground zero on
a PEA-level study, and has not even determined what mining method will work
best on this complex deposit.
The 2014 PEA estimates a base case ($1,385 gold at a
C$1/US$1.05 exchange rate) post-tax NPV5% of C$531 million and IRR of 27%. At a
$1,108 gold price, the NPV drops to C$206 million. Rubicon states the PEA is
conservative, as it employs a low diluted grade, low sustaining capex, and low
recovery, plus a high C$ exchange rate; and therefore the project is deemed
“low risk”. Rubicon has sunk in excess of C$600 million into the deposit, has a
market cap of ~C$270 million, and ~C$59 million in debt.
Summary
If the resource is wrong and the costs wrong, then the
valuation presented in the PEA must be wrong. Cash flow problems, debt
problems, and production problems on a deposit of dubious resources,
questionable costs, plus a new guy in charge don’t add up to a screaming buy.
Go read it all (again). Worth your time to see the difference between his work and that of clowns like Allan Barry or Louis Lobito Little Wolf James.