Initiating Coverage on Rubicon Minerals

GRAHAM COPLEY, Macquarie Capital Markets (08/18/2009)
F2 Zone—Truly a Game Changer
  • The key to the Phoenix project, the F2 Zone, was discovered March 2008. The company announced high-grade intercepts from three holes, including 1.0m grading 283.2g/t and 2.0m grading 34.6g/t.
  • Since then, Rubicon has reported assays from 64 holes (surface and underground drilling). We estimate the mineralized envelope has a 700m strike, a 1,100m vertical extent and an apparent thickness of 80m.
  • Mineralization at the F2 Zone remains open in all directions and at depth. The key for Rubicon will be to focus its efforts on exploring and discovering mineralization. We see the most significant opportunity along the northeast trend.
Possibility for Near-Term Production
  • Rubicon has two other advantages: a recently refurbished shaft (to 122m) as well as a permitted tailings pond (with estimated capacity of 4mt), which could allow Rubicon to advance to production as early as 2011–12, while also allowing access for underground drilling.
  • If Rubicon opts for this approach, we could see annual production of about 120,000oz (750tpd), at cash costs of $275–300/oz, with minimal capex (~$60m).
Valuation: Upside Potential with Exploration Success
  • We have valued Rubicon by estimating the total volume of the mineralized envelope and allocating a per-ounce value for our estimate of contained gold ounces. Based on our interpretation of drilling to date, we could see a 3.0–8.0m oz deposit in the F2 Zone. Valuing contained ounces at $200–250/oz, we arrive at a range of potential share prices, of C$3.60–12.10 (C$3.65-11.80 fully diluted).
  • On an operating basis, we could see EBITDA of about $80m, with cashflows in the $40–50m range, supporting potential valuations at the C$4.00/sh level.
  • Key catalysts for 2009 are the completion of the shaft extension to 300–350m as well as assay results from the 80,000m drill program (60,000m underground) at F2 and the 20,000m drill program focused on regional targets. Should Rubicon show continued success on these fronts it could be a top-tier takeover candidate.
Recommendation
  • We are initiating coverage on Rubicon with an Outperform rating and a C$5.50 target price, reflecting a 3.5m oz deposit and a per-ounce value of $250/oz.

 PRINT THIS PAGE   EMAIL THIS PAGE

Under SEC rules, analysts are required to disclose their interest in securities that they cover. We strongly encourage you to contact them to understand any potential conflicts of interest they may have.

Related Quotes: