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Sunday, August 13, 2017 Derek Macpherson

Site Visit: RNX Setting off on the Right Path at Beta Hunt


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Last week we visited RNC Minerals Corp.’s (TSX:RNX) Beta Hunt mine in Western Australia. Our visit taught us a lot about this unique mine. A key takeaway for us was that the significant infrastructure in place, along with a substantial amount of drilling was designed around the flat lying nickel deposit, not the gold deposit. While this infrastructure and drilling provides some benefit (and reduces development costs) for the steeply dipping gold deposit, it is not ideal. The company is taking the right steps to develop new gold levels in an effort to both access the gold orebody, but also provide drill bays to better define the orebody. While Beta Hunt has a long history as a nickel mine, the gold mine is significantly younger with limited exploitation over the last ~20 years, because of split ownership of the gold and nickel rights. While this presents some challenges, it is also an opportunity as there appears to be significant exploration upside and room for potential expansion at the mine. Our visit was highlighted by the mines potential, and that RNC is taking the right steps to first stabilize operations before tapping into the upside. In the near-term investors are likely to remain focused on quarterly financial and operating results as the mine ramps up.


Lots of infrastructure, just not all in the right place. The Beta Hunt gold mine benefits from an incredible amount of underground infrastructure, historical drilling, site services, etc. However, much of this was designed around the high-grade flat-lying nickel orebody that was the focus of operations during the early part of the mines life. With the infrastructure essentially on top of the gold orebody, (Figure 1) this presents a minor development challenge and more importantly does not provide the best angle to drill from. This explains the current small resource and the companies focus on level development versus stoping.


Development likely to drive resource growth and production improvements. Importantly, the company is taking the right steps to address the current challenges with development and drilling. Development is focused on both developing new mining levels and to provide drill bays to offer better angles. Exploration efforts are currently focused on infilling and defining resources for near-term mining (~3,200m/month). However, we expect that as the access for drilling improves, exploration is likely to increase. As well, in an effort to build a long-term sustainable operation, the company is in the process of assembling a quality team, along with implementing best practices/procedures.

Significant upside, once the operation stabilizes. The company has identified three separate gold trends that appear to strike all 4km of the existing infrastructure and are open at depth (Figure 2). For the reasons discussed above, expanding these zones has not been a focus of the company as they work to ramp up operations. Based on our review of the existing data, it appears that there is sufficient resource expansion potential to support the company’s medium-term plans to become a plus 100k ounce per year producer and may have upside beyond that scale. We note the company is unlikely to see this potential upside reflected in its share prices until operations have stabilized. To that end, the main near-term catalysts are likely quarterly operating and financial results, where investors will be able to measure the company’s ramp-up of the Beta Hunt gold mine.


 
Derek Macpherson | VP Mining Analysis
Victoria Ellis Hayes | Associate
 
Red Cloud Klondike Strike Inc.
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All values in USD unless otherwise noted

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RNC Minerals Corp. - TSX:RNX - 1,2,3,4

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