Well-known gold bug Eric Sprott is signalling he plans to stick with his holdings in RNC Minerals after the Toronto-based company announced a “once-in-a-lifetime” gold discovery that sent its stock skyrocketing last week.
RNC shares soared 261 per cent to a near eight-month high of 32.5 cents over last Monday and Tuesday after the company announced on Sept. 9 that it uncovered 9,250 ounces of high-grade gold worth US$15-million at its Beta Hunt mine in Western Australia the week before.
The discovery captured global media attention from news outlets such as the Financial Times, the BBC and the Australian Broadcasting Corp. (ABC).
“There’s a big potential here that this is not going to be a one-off,” Mr. Sprott said of the discovery on Friday on his weekly podcast, calling it “the biggest discovery in a small amount of tundra the world has ever witnessed.”
But the one analyst who covers the TSX-listed stock, as well as a Canadian geologist who is a veteran at examining new gold finds, say investors should use caution in thinking the gold find could lead to the discovery of a much larger, mineable deposit.
Mr. Sprott, believed to be the company’s largest shareholder, announced in late January that he sold off some of his stock at an average price of about 35 cents, reducing his stake to 9.8 per cent, assuming the exercise of warrants, down from 11.6 per cent. The stock started to slide after that, falling to a 52-week low of 7 cents last month. It’s not known if he bought or sold more shares this week. Mr. Sprott declined a request to comment for this article.
Mr. Sprott acknowledged on the Friday podcast that he had recently turned pessimistic on RNC. “If you asked me two weeks ago where this stock was going, I would have said they had a shot at going broke here,” he said with a chuckle.
He suggested “any serious investor” should look into RNC’s discovery, which included a 95-kilogram specimen stone with an estimated gold content of 2,440 ounces and a second large specimen stone of 63 kg with an estimated gold content of 1,620 ounces, according to the company. Sam Spearing, director of the Western Australia School of Mines at Curtin University, told the Financial Times the discovery at Beta Hunt was very unusual given the large concentration of gold found. He said miners typically extracted 2 to 12 grams of gold per tonne of rock mined while RNC had found 2,200 grams per tonne.
“It would be worthwhile for people to think about whether this is likely to carry on,” Mr. Sprott said. “The suggestion [by the company] is that it does carry on. We are all going to stand by and find out if we have a world major discovery here. We’ll see.”
Some investors appeared unsure last week of whether to sell or hang on for more potential riches as the company tries to determine the scale of what it has uncovered. About 290 million RNC shares, or about three-quarters of the company’s public float, traded hands over the past week. The stock surged, then dropped midweek, then closed up another 17 per cent on Friday to finish at 28 cents, or 211-per-cent higher than where it closed a week ago.
The Beta Hunt discovery and subsequent surge in RNC shares is a rare piece of good news for its shareholders and the broader junior-mining sector, which has been beaten down by volatile commodity prices that have struggled to recover. The price of gold, for instance, continues to hover around US$1,200 an ounce, well below its record high of more than US$1,900 in 2011.
For some RNC shareholders, the find was a chance to get out of the stock given its drop in recent months, Haywood Securities analyst Pierre Vaillancourt said.
“Others are seeing it as a whole new chapter,” said Mr. Vaillancourt, the only analyst currently covering the company. He upgraded the stock to “buy” from “hold” on the news and increased his target to 40 cents from 15 cents.
“We recognize this recommendation is highly speculative as a result of very limited information, but we believe the prospect of further mineralization at Beta Hunt is nonetheless compelling,” he said in a Sept. 12 note.
In an interview, Mr. Vaillancourt called it “an incredible find,” and believes continued drilling could turn up more high-grade gold and improve the company’s fortunes.
“I’m not saying they’re going to find massive high-grade gold, but I do think it’s going to change the overall perception of this deposit,” he said. “Even if they don’t come into another bonanza like they just did, the chances are reasonable they can upgrade the overall grade and continue to find sweeteners like this.”
In an investor call on Tuesday, RNC chief executive Mark Selby called the discovery a “once-in-a-lifetime find” and “one of the most outstanding discoveries, not only in Western Australia but globally.” Mr. Selby said the discovery, from a small area of the mine, “confirms the significance of these high-grade sediment structures,” suggesting there could be more where that came from.
RNC bought the Beta Hunt gold and nickel mine in early 2016 and announced in March of this year that it was looking to sell it, to focus more on it Dumont nickel/cobalt project in Quebec. In announcing its second-quarter results on Aug. 15, Mr. Selby said Beta Hunt was “considered non-core to RNC.”
In an interview, Mr. Selby said the company came close to selling the mine to a junior company but plans quickly changed after the recent discovery.
RNC’s board is now looking at various options, which could include everything from a sale at a much higher price, partnering with a company to help develop the assets or spinning out the gold assets into a separate company.A consideration is that gold and base-metals investors are often different groups, which means a separation of the assets might make sense.
“We are open to the full suite of things we can do,” said Mr. Selby, who holds about 2 per cent of the company in shares and options.
Brent Cook, an independent exploration analyst and co-editor of the Exploration Insights newsletter, said Beta Hunt has produced “some of the best gold specimens in the world, and has for several decades.”
Still, he doesn’t own the stock and said he doesn’t plan to buy it at this time.
His understanding of the mine’s geology is that its high-grade gold is isolated and comes in “relatively small pods. … My suspicion is that these pods are not going to be frequent enough or large enough to support a large mining operation, and the real value is in selling the specimens. As such, it is not a stock we would buy in our Exploration Insights portfolio yet.”
Mr. Cook said his investment strategy is to identify early-stage projects or discoveries that will eventually attract a buyout from a major mining company. “We will, of course, keep a close eye on future results,” he said.
He said RNC may work as a short-term trade, but believes excitement from the media coverage is probably already factored into the share price.