MOTHERLODE OF GOLD OR FLUKE?
Once-failing miner casts aside doubters as it embarks on ambitious drill program
Kevin Small knew something was up, which was why he was driving a pickup truck into the dark abyss of an Australian underground mine, occasionally swerving into turnouts to dodge 55-tonne trucks hauling giant loads of rock.
A team of his senior colleagues had summoned Small, head of Toronto-based RNC Minerals Corp.’s Beta Hunt Mine, for reasons they declined to share over the radio system that everyone in the mine used.
After 15 minutes, he arrived at his destination, about 500 metres below the surface. Three colleagues stood marvelling at a rock face that had been blasted open. Huge ribbons of gold streaked the surface and there was more gold lying on the floor than the entire mine had produced in months.
Small saw a wedge of gold leaf nearly an inch thick, dangling from the rock face and yanked on it. “At first, it wouldn’t budge, but slowly you start to bend it and it came off in my hand,” he said. “It was like a plate of gold. I couldn’t believe it was that thick. Normally you don’t see gold getting that thick.”
He looked down and realized he was standing on a large gold stone, and that there were coarse bits of gold and boulders everywhere.
Regardless of any future payout — and there will be one — the discovery has already changed the trajectory of the company that up to then was primarily a struggling nickel miner. It has allowed it to pay down a crippling debt load, sent its stock and market value soaring nearly tenfold, and provided enough cash to embark on an ambitious drill program to test how large the gold vein it stumbled into really is.
Small, a fourth-generation miner who grew up in Timmins, Ont., said he had never seen anything like the find on Sept. 2 — Father’s Day in Australia — at the Beta Hunt Mine 600 kilometres east of Perth.
More than a month later, the finest gold slabs are on display in the Perth Mint. Soon, they will travel to Asia on the first leg of a global tour that RNC Minerals is putting together to drive up interest among collectors and museums that pay a premium for such large specimens.
In total, the firm believes it will get around $50 million for the haul. But there is some concern about whether the score is really the tip of the iceberg, or just a lucky strike.
“Look, you just don’t find those concentrations of gold,” said Pierre Vaillancourt, a mining analyst at Haywood Securities Inc. with a background in geology and finance. “It’s very rare.”
But he added: “As spectacular as the find is, it only covers a very small area. Most geological professionals that I talk to are not believers. They say these kinds of things happen in this district, and they’re very localized and you’re not going to get much more.”
Mark Selby, chief executive of RNC Minerals, won’t hear of the idea that the find is an anomaly. “I must have done some good things in a past life,” he said, “to have this much good luck in this life.”
Just weeks earlier, executives from another Canadian mining firm had flown down to Australia and toured the Beta Hunt mine as due diligence before buying it.
“I told those guys that there’s $280 million of gold to be found,” said Small, who guided them. “I’ve been saying that from day one.”
Every five weeks or so, he flies from his home in Sudbury, Ont., to a remote southwestern corner of Australia. From the airport, he drives two hours through the rugged outback, passing a series of open pit gold mines, including the so-called Super Pit, on the way.
Compared to those mines, the largest of which produces close to 850,000 ounces of gold per year, Beta Hunt’s annual production of around 60,000 ounces looks puny, especially since it churns through 2,000 tonnes of rock per day.
Small shrugs off the open pit mines as “big sandboxes,” whereas underground mining puts the workers in contact with the earth and rock they are blasting.
“I would stand up in front of the crew for about a year, and say, ‘We are building the largest underground mine in Western Australia. We just don’t know it yet.’”
In reality, RNC for most of 2018 was desperately trying to sell Beta Hunt, even though Small — an engineer by training — thought he had pieced together a geological theory to explain why a motherlode of gold lurked inside the mine.
But gold wasn’t on Selby’s mind at the time. RNC bought the mine in 2016 — when the company was still called the Royal Nickel Corp., the name it still trades under on the Toronto Stock Exchange — because it was a nickel mine.
Even though the company knew there was gold just beneath the nickel zone, the mine quickly proved to be a liability. RNC had assumed about US$10 million in debt from the previous owner as part of the purchase, Selby said.
By the end of last year, the company was having a hard time coming up with the cash to service its debt.
This summer, Selby thought he had found a buyer for Beta Hunt. But August, the month shareholders were told the deal would close, came and went without a sale.
Small said he had given the buyers access to all the data they could have possibly wanted. It wasn’t quite clear to Selby what the holdup was. And then, out of the blue at 3 a.m. on Sept. 3, Selby stumbled out of bed to use the bathroom, and saw a new email from Small on his phone. He opened it to find pictures of the gold strike.
He can’t rationalize how the planned sale — which would have been at a price below the value of the gold found on Father’s Day — dragged on so long.
Within weeks the company had pulled out enough gold to pay down its entire $18 million in debt, according to Selby, and it now has cash on hand to embark on an ambitious drill program to prove that the so-called Father’s Day vein, named after the date of its discovery, wasn’t a fluke.
The firm is also going to pursue a listing in Australia to add to its TSX one, so that it can raise money for exploration without having to compete with cannabis and cryptocurrency firms in Canada.
RNC still wants to develop a nickel mine in Quebec, but Selby is under no illusions about why his stock jumped to 89 cents in September from less than 10 cents in August. The reason is gold, he said, and that’s where the bulk of the company’s value comes from.
It’s a sharp pivot from Selby’s strategy of the past few years, during which he made dozens of trips to Asia seeking partnerships with battery firms for his nickel mine.
But Vaillancourt said the company has its work cut out for it if it thinks finding huge amounts of gold will be easy. “After the big discovery, reality sets in,” he said, “and they have to ... do a really disciplined systematic study to see what they have.”
Selby remains undeterred. “I had a subscription to the Northern Miner when I was nine years old,” he said. “These are the kind of discoveries that when you get into mining you hope to do.”
He added, “It’s a little bit of science and a little bit of luck.”