May 2, 2019 Corporate Update Matthew O’Keefe Associate: Michael Wichterle matthew.o’[email protected][email protected](416) 849-5004 (416) 849-5005 Sales/Trading — Toronto: (416) 363-5757, (866) 442-4485 See disclosure and a description of our recommendation structure at the end of this report. Equity Research Company Profile: RNC is junior gold producer and base metal developer. Its principal assets are the Beta Hunt gold mine in Western Australia and a 28% stake in the world class Dumont Nickel-Cobalt Project located in the Abitibi mining camp in Quebec. RNC MINERALS CORP. Infill and Expansion Drilling Looking Good EVENT RNC announced the latest batch of results from the ongoing 40,000 m drill program at its Beta Hunt Mine in Western Australia. As of April 21, 244 holes have been completed, totaling 27,457m. At Western Flanks, drilling has extended the thick mineralized system over 150 m beyond the northernmost edge of the current resource. Overall Western Flanks appears to be a thick, variably mineralized system containing shear zones grading in the 4-6 g/t range. Results from A-Zone reinforce the strong relationship of bonanza grades with shear-hosted Lunnon Sediment. Highlights include: WFN-071 – 16.8 g/t over 27.8 m incl. 748 g/t over 0.53 m; WFN-015 – 4.5 g/t over 23.75 m and 7.4 g/t over 5.95 m. Highlights from infill drilling include: WFC325-001 – 4.3 g/t over 19.74 m (incl. 8.2 g/t over 6.23 m); AZ14-012 – 10.9 g/t over 8.99 m. BOTTOM LINE Positive: The latest drill results show good potential to increase the size and grade of the resource. At Western Flanks, drilling continues to extend and define the northern extension of mineralization outside the existing resource. At A-Zone, the shear-hosted resource is expanding at depth and to the south. Our Buy rating and $1.20/shr target price remains unchanged. HIGHLIGHTS ▪ Growing Gold Producer: The Beta Hunt Mine produced 74koz of gold in 2018 and is gearing up for over 100koz annually from 2020 with upside from specimen gold discoveries. ▪ High Grade Gold Upside: The 2018 discovery of high grade specimen gold at Beta Hunt delivered ~25koz of gold from just 130t of material. This is driving a new exploration model and we expect more discoveries across the property. ▪ Near-Term Catalysts Include: i) Closing of the Higginsville acquisition, ii) updated Feasibility Study on Dumont Nickel (Q2/19), iii) drill results from Beta Hunt (ongoing) and iv) new resource for Beta Hunt (H2/19). Recommendation: BUY Symbol/Exchange: RNX-TSX Sector: Metals & Mining All dollar values in C$ unless otherwise noted. Current price: $0.44 One-year target: $1.20 Target return: 173% 52-week Range: $0.07 - $1.18 Financial Summary Market Cap ($M) $236.8 Cash on hand ($M) $10.0 Debt ($M) $0 Basic Shares O/S (M) 538.3 Fully Diluted Shares O/S (M) 578.4 Avg. Weekly Volume (k) 900 2018A 2019E 2020E 2021E Gold Produced (koz) 51.6 31.5 98.4 102.6 Cash Cost (US$/oz) $1,081 $779 $722 $757 AISC (US$/oz) $1,341 $992 $769 $795 EPS ($0.02) $0.02 $0.10 $0.09 CFPS ($0.02) $0.02 $0.10 $0.09 Free CFPS ($0.04) ($0.09) $0.09 $0.09 Dividend/shr N/A N/A N/A N/A 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 May/18 Aug/18 Nov/18 Feb/19 May/19 Volume (M) Share Price (C$)
See disclosure and a description of our recommendation structure at the end of this report.
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Company Profile: RNC is junior gold producer and base metal developer. Its principal assets are the Beta Hunt gold mine in Western Australia and a 28% stake in the world class Dumont Nickel-Cobalt Project located in the Abitibi mining camp in Quebec.
RNC MINERALS CORP. Infill and Expansion Drilling Looking Good
EVENT
RNC announced the latest batch of results from the ongoing 40,000 m drill program at its Beta Hunt Mine in Western Australia. As of April 21, 244 holes have been completed, totaling 27,457m. At Western Flanks, drilling has extended the thick mineralized system over 150 m beyond the northernmost edge of the current resource. Overall Western Flanks appears to be a thick, variably mineralized system containing shear zones grading in the 4-6 g/t range. Results from A-Zone reinforce the strong relationship of bonanza grades with shear-hosted Lunnon Sediment. Highlights include:
WFN-071 – 16.8 g/t over 27.8 m incl. 748 g/t over 0.53 m;
WFN-015 – 4.5 g/t over 23.75 m and 7.4 g/t over 5.95 m.
Highlights from infill drilling include:
WFC325-001 – 4.3 g/t over 19.74 m (incl. 8.2 g/t over 6.23 m);
AZ14-012 – 10.9 g/t over 8.99 m.
BOTTOM LINE
Positive: The latest drill results show good potential to increase the size and grade of the resource. At Western Flanks, drilling continues to extend and define the northern extension of mineralization outside the existing resource. At A-Zone, the shear-hosted resource is expanding at depth and to the south. Our Buy rating and $1.20/shr target price remains unchanged.
HIGHLIGHTS
▪ Growing Gold Producer: The Beta Hunt Mine produced 74koz of gold in 2018 and is gearing up for over 100koz annually from 2020 with upside from specimen gold discoveries.
▪ High Grade Gold Upside: The 2018 discovery of high grade specimen gold at Beta Hunt delivered ~25koz of gold from just 130t of material. This is driving a new exploration model and we expect more discoveries across the property.
▪ Near-Term Catalysts Include: i) Closing of the Higginsville acquisition, ii) updated Feasibility Study on Dumont Nickel (Q2/19), iii) drill results from Beta Hunt (ongoing) and iv) new resource for Beta Hunt (H2/19).
Recommendation: BUYSymbol/Exchange: RNX-TSXSector: Metals & MiningAll dollar values in C$ unless otherwise noted.Current price: $0.44
One-year target: $1.20
Target return: 173%52-week Range: $0.07 - $1.18
Financial SummaryMarket Cap ($M) $236.8Cash on hand ($M) $10.0Debt ($M) $0Basic Shares O/S (M) 538.3Fully Diluted Shares O/S (M) 578.4Avg. Weekly Volume (k) 900
RNC released the latest batch of results from its ongoing drill program at its Beta Hunt Mine in Western Australia. As of April 21, 244 holes have been completed, totaling 27,457 m of the planned 40,000 m program. Drilling at the northernmost edge of Western Flanks has extended the thick mineralized system over 150 m beyond the edge of the current resource while infill drilling has shown the Western Flanks as a thick, variably mineralized system containing shear zones grading in the 4-6 g/t range. At A Zone, the shear-hosted resource is expanding at depth and to the south.
Exhibit 1: Plan View of Beta Hunt Ground and Focus Drill Areas
Source: RNC Minerals
Western Flanks Extended: A total of 109 holes totaling 13,347 m have now been completed at Western Flanks. Recent drilling focused primarily on areas to the north of and outside the existing Western Flanks resource model with the goal of extending and upgrading the existing resource. Results appear successful with drill holes like WFN-049 and WFN-040 that occur at the northernmost edge having extended the thick mineralized system over 150 m beyond the edge of the current resource (Exhibit 2). Highlights include:
RNC Minerals Corp. May 2, 2019
Matthew O’Keefe, (416) 849-5004 3 of 9
WFN-049 – 3.04 g/t over 16.42 m (including 17.8 g/t over 0.93 m) and 2.5 g/t over 16.42 m (including 3.6 g/t over 5.74 m and 6.7 g/t over 2.54 m);
WFN-040 – 4.7 g/t over 17.06 m (including 29.6 g/t over 0.54 m and 21.0 g/t over 0.78 m) and 4.5 g/t over 11.00 m (including 10.7 g/t over 2.34 m);
WFN-071 – 16.8 g/t over 27.8 m including 748 g/t over 0.53 m;
WFN-015 – 4.5 g/t over 23.75 m and 7.4 g/t over 5.95 m;
WFN-022 – 3.1 g/t over 37.70 m (including 6.7 g/t over 6.96 m and 7.1 g/t over 3.05 m) and 3.1 g/t over 19.91 m;
WFN-049 – 3.04 g/t over 16.42 m and 2.5 g/t over 16.42 m.
Exhibit 2: Long Section Across Western Flanks with Drill Results
Source: Westgold Resources
Western Flanks Infill: Infill and extension drilling at Western Flanks also highlights that gold mineralization can extend considerable distances across the shear system between what has previously been considered as mineralized shear domains (Exhibit 3). These results illustrate the nature of the Western Flanks as a thick, variably mineralized system containing shear zones grading in the 4-6 g/t range with mineralization between these shear zones often grading in the 0.5-2 g/t range. The extension of mineralization at lower grades outside what was previously modeled as mineralized domains also provides good potential for significant additions to the resource. Highlights include:
RNC Minerals Corp. May 2, 2019
Matthew O’Keefe, (416) 849-5004 4 of 9
WFN-071 – 16.8 g/t over 27.8 m (including 3.1g/t over 7.32 m and 51.9 g/t over 8.55 m including 748 g/t over 0.53 m);
WFN-015 – 4.5 g/t over 23.75 m (including 13.8 g/t over 2.23 m and 10.4 g/t over 3.35 m) and 7.4 g/t over 5.95 m (including 42.3 g/t over 0.79 m);
WFN-022 – 3.1 g/t over 37.70 m (including 6.7 g/t over 6.96 m and 7.1 g/t over 3.05 m) and 3.1 g/t over 19.91 m.
Exhibit 3: Western Flanks Cross Section looking North
Source: Westgold Resources
A-Zone: A total of 135 holes totalling 14,110 m have now been drilled along the A-Zone shear. Drilling has infilled around the Father's Day Vein and the northern, southern and down-dip limits of the A-Zone (see Exhibit 4). Highest grade results were achieved from drilling the northern central section of the shear zone where drilling tested for mineralization along and below the interpreted shear/Lunnon Sediment contact. Results showed strong grades and thicknesses in excess of the existing resource with the best intersections associated with narrow bands of pyritic sediment within sheared basalt. This result reinforces the strong relationship of bonanza grades with shear-hosted Lunnon Sediment. Drilling continues to be focused on extending and upgrading the northern, southern and down-dip margins of the existing resource. Multiple holes define the continuity of mineralization to the south and down-dip on the A-Zone shear
RNC Minerals Corp. May 2, 2019
Matthew O’Keefe, (416) 849-5004 5 of 9
with infill drilling often yielding grades and widths in excess of the existing resource model. Highlights include:
AZ14-012 – 10.9 g/t over 8.99 m (including 157.0 g/t over 0.44 m);
AZ13-107 – 6.8 g/t over 7.17 m (including 26.6 g/t over 1.16 m);
AZ13-125 – 3.3 g/t over 12.57 m.
Exhibit 4: A-Zone Shear Zone Long Section
Source: RNC Minerals
Next Steps: The current phase of resource drilling is largely complete and will be the basis of a resource update expected to be published by the end of the second quarter. The drill program now enters into an exciting phase as the focus turns to exploration targets including the Fletcher Trend and northern strike extension of the A-Zone as the Company tests the broader exploration potential of the four shears on the property, at depth and along the 4+ km of strike of the Beta Hunt system.
RNC MINERALS MINING OVERVIEW
Higginsville Option Agreement: As outlined in our April 22 note, RNC has entered into a purchase option agreement for Westgold Resources’ (WGX-ASX, not covered) Higginsville Mill and Mining operations for a total consideration of A$50M. This will make RNC a lower cost and more diversified gold producer. The transaction will bring a much needed in-house milling solution with the 3,500tpd Higginsville Mill, an existing toll milling business and 1.9 Moz of additional gold resource that can provide supplemental feed to the mill. While formal guidance has yet to be released, we expect the bulk of mill feed (up to
2,000 tpd) to be from the Beta Hunt Mine with supplementary ore to come from Higginsville pits and existing tolling contracts. For attributable gold (Beta Hunt and Higginsville), RNC should see run-of-mine production move towards 100,000 oz per year with additional high grade specimen gold bringing production towards 120,000 oz annually with AISC expected to come down below US$970/oz (Exhibit 5).
Exhibit 5: RNC Combined Gold Unit
Source: Cantor Fitzgerald
Working Towards a Better Beta Hunt: Recall that RNC limited production in the first half of 2019 to focus on exploration and prepare for a new stage of growth. Production has since restarted at a reduced rate but with the exploration program continuing with the goal of i) increasing and upgrading the resource at Beta Hunt and ii) following the Company’s newly defined geological model to delineate more specimen gold zones. We maintain that the ongoing +40,000m drill program should grow the base resource by several million tonnes allowing mining at an average grade of just under 4 g/t from the main shears with additional gold from high grade, specimen gold zones adding ~20koz annually. As shown in Exhibit 6 below, this sees the production stepping up from 74koz in 2018 to over 100koz per year from 2020. The additional high-grade, low-cost ounces should drive AISC down below US$800/oz of gold produced at Beta Hunt.
We see the following catalysts over the next 6-months that should drive the stock higher towards our target price:
Beta Hunt Exploration Results - ongoing: The Company is engaged in a +40,000m drill program at Beta Hunt to expand and improve the current resource as well as further target ultra high grade specimen gold zones.
Dumont Project Feasibility - Q2/19: The Company continues to look at optimization opportunities for the world class nickel project and is expected to release an updated feasibility study in Q2/19.
Closing of Higginsville Acquisition – Q2/19: RNC is expected to close the acquisition of the Higginsville Gold Operation on or around June 4th providing a lower cost milling operation for Beta Hunt and a second gold mining asset.
Beta Hunt Resource Update - Q4/19: Following the drill program RNC will compile and release an updated resource which we expect will be see a significant increase in size and average grade.
Source: Consensus data - Factset, Historical Data – Company Filings, Forecasts/estimates – Cantor Fitzgerald Canada
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RNC Minerals Corp. May 2, 2019
Matthew O’Keefe, (416) 849-5004 9 of 9
Disclaimers
The opinions, estimates and projections contained in this report are those of Cantor Fitzgerald Canada Corporation. (“CFCC”) as of the date hereof and are subject to change without notice. Cantor makes every effort to ensure that the contents have been compiled or derived from sources believed to be reliable and that contain information and opinions that are accurate and complete; however, Cantor makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions which may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this report or its contents. Information may be available to Cantor that is not herein.
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Potential conflicts of interest
The author of this report is compensated based in part on the overall revenues of Cantor, a portion of which are generated by investment banking activities. Cantor may have had, or seek to have, an investment banking relationship with companies mentioned in this report. Cantor and/or its officers, directors and employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. Although Cantor makes every effort possible to avoid conflicts of interest, readers should assume that a conflict might exist, and therefore not rely solely on this report when evaluating whether or not to buy or sell the securities of subject companies.
Disclosures as of May 2, 2019
Cantor has provided investment banking services or received investment banking related compensation from RNC Minerals Corp. within the past 12 months.
The analysts responsible for this research report do not have, either directly or indirectly, a long or short position in the shares or options of RNC Minerals Corp.
The analyst responsible for this report has not visited the material operations of RNC Minerals Corp. No payment or reimbursement was received for related travel costs. .
Analyst certification
The research analyst whose name appears on this report hereby certifies that the opinions and recommendations expressed herein accurately reflect his personal views about the securities, issuers or industries discussed herein.
Definitions of recommendations
BUY: The stock is attractively priced relative to the company’s fundamentals and we expect it to appreciate significantly from the current price over the next 6 to 12 months.
BUY (Speculative): The stock is attractively priced relative to the company’s fundamentals, however investment in the security carries a higher degree of risk.
HOLD: The stock is fairly valued, lacks a near term catalyst, or its execution risk is such that we expect it to trade within a narrow range of the current price in the next 6 to 12 months. The longer term fundamental value of the company may be materially higher, but certain milestones/catalysts have yet to be fully realized.
SELL: The stock is overpriced relative to the company’s fundamentals, and we expect it to decline from the current price over the next 6 to 12 months.
TENDER: We believe the offer price by the acquirer is fair and thus recommend investors tender their shares to the offer.
UNDER REVIEW: We are temporarily placing our recommendation under review until further information is disclosed.
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