In a June 25 research note, iA Securities analyst George Topping reported that Rubicon Minerals Corp. (RBY:NYSE.MKT; RMX:TSX) intends to release the preliminary economic assessment (PEA) on its Phoenix gold project in Q3/19.
Topping noted that much of the necessary aboveground infrastructure at the Red Lake, Ontario asset is already there, including offices, the mill, the electric substation and the tailings management facility. Underground, 14,000 meters (14,000m) are already developed along with an operational shaft descending 730 meters below the surface.
"Given all the existing infrastructure, we estimate a low CA$100 million in start-up capex to get to an 88,000 ounces of gold per year, US$860 per ounce all-in sustaining cost operation," wrote Topping. Production expansions would follow. At a gold price of CA$1,875 per ounce, the project would yield a 42% internal rate of return, or CA$2.50 per share target return, annually, according to IA Securities' base case. However, successful exploration efforts could boost that to CA$4.20 per share.
Topping highlighted that while Rubicon continues to derisk Phoenix, the stock price has not responded accordingly but, rather, has dropped. Specifically, it decreased 7% in the past seven days and 36% in the past three months.
The analyst indicated the downward movement began in April when equity holders came off restriction following the company's CA$7 million flow-through financing. Then the rumor that Newmont Goldcorp might sell the Campbell mine in Red Lake added uncertainty. As for other contributors, Topping said, "We postulate with the gold price rising, some holders, institutional and retail, may be selling their smaller cap names to reallocate capital to large caps golds, which typically move first before the junior gold companies."
Topping concluded that at a current share price of about CA$0.79, the downside risks to Rubicon are minimal, and the company has a solid management team with an advanced gold project in an established mining camp. It has capital for its 2019 exploration project, a PEA being released next quarter and the potential to restart Phoenix by late 2020.
As such, iA Securities has a Buy rating and a CA$2.50 per share price target on Rubicon.
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Disclosures from iA Securities, Rubicon Minerals Corp., Research Update, June 25, 2019
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