Miner’s stock plunge offers lesson
Suspension of gold project hits Rubicon hard
The meltdown at Rubicon Minerals Corp. highlights the risk of building a gold mine without getting to know the deposit as well as possible.
The Toronto- based miner’s shares plunged as much as 68 per cent on Tuesday after it halted underground development of the Phoenix gold project in Ontario. Rubicon said it needs to do further work to understand the deposit to mine it most effectively.
“We believe there is considerable room for improvement in the development of the Phoenix gold project,” interim chief executive Michael Winship said on a conference call. He added that it is a complex, narrow- vein deposit that is more difficult to mine than surface drilling suggested. The company is now studying a mix of possible mining methods.
The problem, experts said, is Rubicon may have identified these problems much sooner if it hadn’t moved so quickly.
There is considerable room for improvement in the development of the Phoenix gold project
Rubicon never did any sort of feasibility or pre- feasibility study on the US$ 342- million Phoenix project, which is in Ontario’s Red Lake camp. These are important studies that take a great deal of time and effort and give companies a deep insight into their deposits. It is unusual for a miner to skip the feasibility stage when developing a significant project.
But Rubicon did. The gold market was very hot when the company was trying to raise capital for Phoenix, and it was able to raise hundreds of millions of dollars without a feasibility study. That would be much more difficult today.
Steve Parsons, an analyst at National Bank, said Rubicon would “absolutely” have a better understanding of Phoenix’s challenges if it did a feasibility study. The complexity of the deposit was a longstanding concern for many people in the investment community.
“There are lessons learned here for a lot of people,” Parsons said.
The stock meltdown on Tuesday caps off an incredibly turbulent period for the company. In June, Rubicon’s head of operations retired just weeks before Phoenix poured its first gold. And in early October, CEO Michael Lalonde was replaced with no explanation. The company also had to temporarily shut its mill because of environmental problems.
Rubicon expects to finalize a new development plan for Phoenix in the second quarter of 2016. But in the meantime, the balance sheet has become a concern.
The company has $ 23 million of cash, but expects to burn through $ 2.6 million a month. And once the new development plan is complete, Rubicon warned it will need more money to implement it. Given the weakness in stock price, raising capital could be very difficult.
Rubicon is now in cost- cutting mode. The company said it has temporarily laid off about 200 employees and 110 contractors, which amounts to 87 per cent of its workforce.