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OZ GOLD RUSH; RNC MINERALS ($RNX.TO, $RNKLF) – LARGEST GOLD NUGGET EVER MINED

I have written on miners several times in the past for ibankcoin from the peanut gallery, but from inception no event has been as profound, so glorious, as the “Fathers Day Vein” find by Canada’s Royal Nickel Corp., dba RNC Minerals (RNX.TO, RNKLF otc/pink sheets) at their 100% owned (via sub lease) “Beta Hunt” mine in Western Australia, at Kambalda, 560km (320 miles) from Perth.

RNC Mineral have mined specimen rocks, from a single cut, with visible gold this month from their Beta Hunt mine grading in excess of 2200 g (68.4 oz.)/t (no typo). The largest specimen rock at 95kg. had 69kg. of total gold (quartz making up the bulk of the rest) and required no further processing, being sent directly to the Perth Mint. The scale of this discovery should not be discounted. The nugget sample is the 2nd largest ever mined by man and the grouping  of high grade nuggets ranks in the top 10 ever found (107 billion humans have lived on Earth since existence, 7 billion currently present and accounted for). Profile picture with the larger “Fathers Day Vein” specimen rocks features from left to right; SLM Geologist, Lachlan Kenna, Air-leg miner credited with the find Henry Dole, Beta Hunt mine foreman Warren Edwards and Snr. Geologist Zaf Thanos. Happy lads all.

Strike length continues to be refined (2x original now) and an addition 2 km of potential lies ahead. The gold find, from a space basically the size of a large living room, is 24,000 ounces (worth US$29mm, C$38mm). This leads all to think house, football field, airport runway, Newark, NJ., hence the buzz. Given the richness of the find, margins have been estimated at 90%. The specimen stones will likely be sold at auction for a premium as high as 30% to the gold content (15% offered already by yet unnamed museums). The interweb is loaded with coverage on the story as one might expect. In the age of social media issues of continuous disclosure are sure to arise, but the team at RNC Minerals seem up to the task at hand.

Press release related to the “Fathers Day Vein” discovery by RNC Minerals at their Beta Hunt mine is available on their website; http://www.rncminerals.com/2018-09-20-Fathers-Day-Vein-Yields-24-000-Ounces-of-Gold-Worth-38-million There is an informative Webcast of their 11-Sept.-2018 press release which is worthwhile also. For further information: Rob Buchanan, Director, Investor Relations, T: (416) 363-0649, www.rncminerals.com

 

Note: The other visible metal in the sample is quartz (fly is for scale I assume).

Mining has become expensive, the easy stuff has been done …so we thought. Many jurisdictions are difficult to operate in, subject to government overreach and/or outright nationalization. Spectacular gold grades are largely a thing of the past, trending to 2-3 g/t (5g/t was thought to be economically viable at historic gold prices). . Pretium, $PVG, another Canadian miner, was putting up (modern day) staggering numbers of 14.1 g/t from their Brucejack mine in British Columbia, Canada. Recent Milli Vanilli allegations re: sampling abnormalities have compressed PVG’s market cap aspirations, but with a market cap of $1.6bln Pretium is still a full 10x bigger than lowly junior miner RNC Minerals.

https://ibankcoin.com/firehorsecaper/2016/10/19/pvg-pretium-resources-theres-gold-in-them-thar-hills/#sthash.NM4hjYZG.dpbs

 

Many of the biggest finds (individual gold nuggets, of all time) have been Australia domiciled:

Top left in the graphic, Welcome Stranger (mined In The Year Of Our Lord 1869) from Australia netted 2520 troy ounces of gold. The biggest nugget of the “Father Day Vein” netted 2440 ounces for a very close 2nd place, but now takes the record as the largest nugget still in existence.

Largest nuggets still existing (others processed for precious coins and deliverable bullion by various mints):

1.) Canaan nugget, Brazil 1983, 60.8kg. (1682 troy ounces).

2.) The Great Triangle, Russia 1842, 36.2kg. gold assay 91% (32.94 kg gold). (Father’s Day Vein 82.5% 95 kg. gross, 78.4 kg gold).

3.) Hand of Faith, Australia 1980, 27.66kg. (largest ever found via metal detector …. a good day), currently housed at the Golden Nugget in Las Vegas, NV, USA.

4.) Normandy nugget, Australia 1990, 25.5kg. (820 oz. gold … 80-90% purity).

5.) The Kum Tow (aka Kum Fow, Rum Ton), Australia 1871, 22.5kg.

6.) Ironstone, “Crown Jewel”, 1992, California, USA 16.4kg.

RNC Valuation:

As with many mining juniors, RNC has has its ups and downs, on balance, more downs of late. As you might expect from their name, Royal Nickel Corp. (dba RNC Minerals) is primarily a nickel miner. Their key asset is their 28% stake (JV with Waterton) in the Dumont Nickel-Cobalt Project in Quebec, Canada. The project contains the world’s biggest reserve of both cobalt and nickel (demand coming largely from the growing electrical vehicle market). The value of Dumont alone was enough to justify the C$0.44 (US$117mm market cap) price once you take insolvency off the table, which is what the Beta Hunt gold find has done. Money was tight and RNC was in the midst of selling “non core” Beta Hunt to fund their portion of the development plan at Dumont (C$1bln total cost). Dumont has a mine life of 33 years and 1.18 billion tonne reserve (proven & probable), containing 3.15mm tonnes of nickel and 126k tonnes of cobalt. The Father Day Vein find of 24,000 oz. of gold at the working Beta Hunt mine in Oz has clearly taken sale off the table (potential suitor likely steamed at the timing). Assuming the current valuation is largely for Dumont (Ni-Co), the Beta Hunt gold call option is hard to value until further exploration work is done to define the potential scope. What we do know is 12mm ounces of gold have come out of the region of which Beta Hunt is a part of. RNC Minerals are the first to explore the Lunnon Basalt at this depth (500 meters), level #15 (of 6 levels total being mined). Gold Fields Limited have rights to the first 200m as I understand it, with RNC mining below that depth threshold.

Eric Sprott, a self-made Canadian billionaire likes the RNC Mineral story, a lot. This week in a regulatory filing Mr. Sprott announced he had purchased 561,000 shares of $RNX.TO on the open market at an average price of C$0.4284, taking his ownership % > 10%. The bulk of Eric’s holding are from a 2016 bough deal financing which came with warrants (9.265mm exercised this week at C$0.43). Current shareholding 40.2mm shares of common. The current float is 390.3mm shares (fully diluted 477mm). Eric does a weekly for Sprott Money and has never seen anything like the specimen stones mined at Beta Hunt.

The majors will be all over developments at Beta Hunt. There has not been a find of this magnitude in a long, long time. RNC Minerals owns 100% of Salt Lake Mining (SLM) who purchased Beta Hunt in 2013 for A$10mm, mining rights secured from Gold Fields Limited ($GFI).

RNX.TO shares went from lower left to upper right all day Friday (yesterday 21-Sept-2018) closing up 31.7% at C$0.56 on 27.99mm share volume. The US dollar RNKLF (oto, pink sheets) closed at $0.4389, up 30.9% on 2.29mm shares.

Conjecture on the potential share price is premature until further mining is undertaken by SLM at Beta Hunt. Any indication of repeat occurence or continuity of the current seam will be well received given the richness of the recent grades. The geography has shown itself to be condusive (gold in quartz touching sediment), but coarse gold finds (>10g/t) typically do not have the consistency of lower grade gold mines. SLM previously had a plan of mining 60,000 ounces of gold per annum from Beta Hunt. How much there Beta Hunt numbers go up will take time to discern, the good news is they will have the money to get on it with a much quicker timetable than their budget previously allowed (114 employees; mgmt, tech srv and operations). While a micro cap at present (<$300mm), this is not a low float stock with almost 400mm shares outstanding. Real movement will only come with real results, but anchor investor like Eric Sprott help to provide a floor pending further clarity. This is a story and a ticker to monitor. In Q4 2010 RNC Minerals stock traded at just over C$2.50, as a point of reference.

Mark Selby, President & CEO of RNC Minerals takes the floor at the Denver Gold Forum Monday next at 4:30pm and you can bet RNC and Beta Hunt will be the belle of the ball. I will be watching developments closely.

Safe trading.

Follow me on Twitter @firehorsecaper

Regards, Caleb Gibbons, CFA

USD/CAD 1.2912

Disclosure: Long RNX.TO from open 21-Sept-2018 at C$0.44. On position sizing, I have a rule of thumb that has served me well in terms of sleeping at night on idiosyncratic single name exposure; never invest more in a single stock that you would pay for a car. I bought 100,000 shares.

 

 

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FRANCO-NEVADA CORPORATION – A GOLD ROYALTY PLAY TO PONDER

Franco-Nevada Corporation (FNV)

Gold has kicked off 2016 with the strongest rally in 25+ years,

Franco-Nevada, has a market cap of > $10bln and is up 45% in the last quarter (56% of Barrick’s $18bln market cap and 72% of Goldcorp Inc.’s $13.75bln) . Those looking to basis trade in the gold space, or those vetting new exposure to the precious metals space should dig deep into the 26 page slide deck by Pierre Lassonde, Franco-Nevada’s Chairman, which was just presented at the most recent Grant’s Spring (April) Conference in New York. Much of the information contained was in their March 2016 Corporate presentation, but the manner in which all naysayers are neutered via this enlightening presentation is impressive indeed. For one, few will be aware the degree of demand emanating from Europe, now the largest bar and coin market in the world. China and India are typically all that anyone hears in terms of the demand equation.

The case for FNV versus ETF’s like GLD are perhaps most compelling where a running ETF fee of 0.40% (40bp) is upgraded to an instrument with a dividend of > 1.2%. Like the GLD ETF, FNV investment protects investors from the risk of operating companies as Franco-Nevada achieve their exposure to the space via securing royalty streams. In terms of focus FNV is 95% precious metals (73% gold and 16% silver) and would not likely deviate much from this level to retain “pure play” status. Geographically 84% of their royalty income if from the America’s, lessening the risks inherent in frontier markets. FNV currently carries no debt and when they opportunistically do take on leverage, like the most recent $500mm Precious Metals Stream purchased from Glencore (Antapaccay, Peru gold mine output underlying), it is typically paid back promptly from free cash flow. A total of $1.2bln in facilities are at their avail which allows FNV to scout for the best opportunities in terms of both price and fit with their broad existing portfolio.

Lassonde, Pierre Spring 2016 (1)

As discussed in prior post, the merits of precious metals as a component to a diversified investment portfolio can be argued, but are compelling overall. Personally, I tend to trade in the asset class on a tactical basis, rather than as a core holding. A 10% allocation (via Fidelity Select Gold, FSAGX) in one of my larger accounts allowed other equity beta risk to be retained through a rough Q1 resulting in a 6.45% ytd return (versus 1.9% for the S&P through Friday).

The gold, gold miners, and gold royalty trajectory has been near straight up for a quarter, hence caution is warranted on allocating fresh monies. Both GDX and FNV are up 46% ytd including dividends. FNV is within 4.34% of its all-time high. Even a modest retracement of the recent USD weakness could see gold trade down to sub $1,200 an ounce, which could create an entry point. FNV’s Exodus hybrid score is a neutral 2.32 at present. When the time is right to re-enter, I think I have found my instrument of choice. JCG

Note: Other players in the gold royalty space include Royal Gold Inc. (RGLD) which is about one third the size of FNV and has a matching Exodus hybrid score of 2.36. Osisko Gold Royalty (OR.TO) trades on the TSX (trades in Canadian Dollars) and has a market cap of about US$1.2bln. FNV trades on both the NYSE and the TSX, but with more volume of the USD denominated NYSE counter.

 

 

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INDIA BUDGET – GOOD AS GOLD

This week brought the highly anticipated Union Cabinet budget 2016 in India. Most were pleased, as India’s Finance Minister, Arun Jaitley largely kept to the fiscal deficit reduction roadmap previously outlined to the market.

fiscal-graph

Note: Trending in the right direction

In India, the government financial year runs from 1 April to 31 March (like Japan). Increased spending plans include agriculture reforms, infrastructure spending, healthcare reform and rural development. Government workers got some love with a much overdue pay raise slated in the most recent budget, after a decade of flat pay. Corporate taxes were cut by 5% to 25% in the latest budget. Little coverage has been dedicated on this point, but defence spending was up 13% in the budget, with India already the 5th largest defence budget globally. India was the largest importer of arms over the 2011-15 period as outlined graphically below.

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USD/INR (US Dollar to India Rupee) stands at 67.69 at present. The SENSEX is up nearly 2% today, but remains down almost 12% year to date in 2016. 10 year bond yield have rallied smartly this week on the fiscally restrained budget.

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India’s primary imports are crude oil, cooking oil and gold. The drop in oil prices provides a sizeable lift to India which already is growing at a near world leading 7.6% (2015/16). Gold imports have proven to be a tough one to manage for India. The populace has a near unsatiable demand for gold (42% jewelry demand, 50% investment driven and 8% industrial), consistently importing 1/4 of global production (>$50bln per annum). China and India have similar demand profiles, but China is also a major gold producer, hence the effect on their current account is less troublesome (along with the 5X+ bigger GDP thing). India would not be as concerned with running a current account deficit if it were from foreign direct investment, but gold (a non-essential) importation is something they have limited patience for and have shown little success in curtailing.

Duties and taxes have been the abatement weapons of choice. The import duty on refined product with purity > 0.995 is 10% and 8% for dore (unrefined) bars. Some expected India to cut import taxes on gold in this year’s budget, but they did the opposite, much to the chagrin of the many Indians. The tax on dore bars goes to 8.75%, lessening the tax arb with refined at 10% and a 1% tax on all gold sold in India was instituted (last removed 4 years back).

A lot of work goes into avoiding these taxes, as one might imagine. One alleged means is to import lower purity gold (i.e. 0.994) free of duty and refine it onshore back to 0.995 (good delivery standard). The India government has a Gold Monetization Scheme (GMS) and a Sovereign Gold Bond program where they are attempting to have greater numbers of retail holders and rich temples surrender their physical gold in exchange for gold-backed interest bearing investments. What one pledges get melted, hence not ideal for treasured heirlooms. As noted, a big segment of the gold market is held in jewelry form.

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Note: Looks like about 600 grams or so

Prime Minister Modi also announced in November 2015 the intention of launching an Indian Gold Coin (and Indian bullion). The 24 karat purity (0.999 fineness) coin has the national symbol Ashok Chakra on one side and Mahatma Gandhi on the reverse.

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As a point of reference, the American Eagle (USA) and Krugerrand (South Africa) are both 22 karat purity (0.9167 fineness) whereas the Panda (China) is 24 karat (0.999 fineness), with a new coin design on a annual basis since 1982 and the Maple Leaf (Canada) is also 24 carat with “quad 9”, 0.9999 fineness. Conjecture will begin on when Trump might “Make the Eagle Great Again” and move to 24 karat as well. In it’s current form the American Eagle gold coin is 91.67% gold, 3% silver and 5.33% copper.

After all, “Life is too short for 22 karat”. JCG

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USD/JPY 100 – KATY BAR THE DOOR

As a barometer for “risk off”, a rally in the Japanese Yen is spot on.

From the 121.70 USD/JPY euphoria level achieved post rate cut, we elevator shafted through 111 and even got into the 110’s before bouncing to the current 112.35. While 10 big figure moves in the world’s 3rd largest economy should be alarming to all, there is a good chance we get more. Barclay’s today forecast a further rally to 100 by the end of Q1 2016 and 95.00 by year end 2016 (prior YE 2016 estimate 120).

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Central banks have officially run out of runway.

Bank-of-Japan

The Fed, EBC, BoJ, ECB, Riksbank (Sweden cut to -0.50 yesterday, submerged by 5bp more than the market expected and expanded QE purchases through reinvesting monies from maturities and coupon payments) & SNB’s goal of achieving 2.0% inflation in unison is not going to happen.

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Gold has something different to infer from these moves it would appear. My modest allocation to gold miners will be tweaked (higher weighting) and DXJ (currency hedged Japan) jettisoned as wrong-footed folly. You have to trade what you see, not what you know (think you know).

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Japan Topix financials were down 24% since the very recent rate cut in Japan (the market is further dissolving today as they return back from vacation). Mitsubishi UFJ entered the jaws of today’s market trading at 49% of tangible book, Mizuho 66%, Sumitomo Mitsui 52%. For reference Bank of America trades  at 80% of tangible book. What is the liquidation value of a Japanese bank? Where does that bid come from? Not even Citi could make a go of it and sold their Japan franchise for less than $1bln. Even Ford is packing up their Japan tent and going home.

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The reasons for such apparent “distressed” bank valuations is clear, the lifeline of higher rates is further beyond the grasp of banks globally. Yellen, Gundlach, Bass, JP Morgan, etc. talk about and research negative rates as if it is a “normal” conversation to be having.

There is an ebb and flow to the relative valuation of financials, but historically the equity markets struggle without the participation of financials. Going forward, bank balance sheets will more fortress like, less levered, and more conservative in their make up. CoCos (Contingent Convertibles) will make up a bigger proportion of the capital structure as there will be no “put” to their respective governments. Credit ratings will be lower, as no “lift” from implicit government support should be implied or expected.

Coming back to the car analogy, gone are the days of the V8, 4 cylinders, hybrids and full on electric are in vogue. Adjust your return expectations accordingly. JCG

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