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
