A C$70,000,000 investment from Agnico-Eagle Mines Limited (NYSE: AEM) has catapulted the share price of Rubicon Minerals (AMEX: RBY) above the $4.00 level on Thursday, pushing as high as 4.12 during the trading session following yesterday’s close of 3.21. While Agnico-Eagle picks up a total of 21,671,827 common shares at C$3.23 per common share, representing 9.2% of the issued and outstanding shares of Rubicon Minerals the gold mining company now has the resources to expedite their efforts with the F2 Gold System, part of their Phoenix Gold Project in Red Lake, Ontario.
RBY had announced positive results of a Preliminary Economic Assessment for the F2 Gold System back in June. According to that PEA just over 2 million ounces of gold could be produced over a 12-year mine life, which equates to about 180,000 ounces annually with an average cost around $519 per ounce. Using a Base Case that values an ounce of gold at $1,100 the F2 Gold System would generate an internal rate of return of 28% yet those are extremely conservative figures as gold is currently trading above the $1,611 mark per ounce. This would push the IRR above 50%, essentially representing quite literally a gold mine.
Now with the C$70 million RBY will be able to conduct additional drilling, studies, testing and other development work in connection with the F2 Gold System, possibly elevating the gold production possibilities at the Phoenix Gold Project. As has been pointed out by a number of analysts already, the current deposit is “open in all directions” which means additional drilling near the existing resource would likely expand the deposit over a period of time.
Not to be lost in the private placement announcement was a technical services agreement forged by the two parties that would provide RBY with access to Agnico-Eagle’s geological and engineering mining team, a tremendous resource to RBY as they expand their development of the F2 Gold System.
As much good as the strategic investment will bring RBY there are those who question how much Rubicon surrendered. Sitting on a gold project in Red Lake, Ontario, considered by many gold investors to be among the hottest areas for high-grade gold deposits in the world, it would seem that Agnico-Eagle got a bargain when they paid C$70 million for 9.2% of the company. Worked into the deal, Agnico-Eagle will also have the right, at its election, to participate in certain subsequent issuances by RBY in order to maintain its level of ownership in the company.
While it may be true that Agnico-Eagle didn’t have to shell out much for such a considerable piece of RBY the truth is RBY makes out alright in the deal. Not only will this speed up their gold production efforts it will also eliminate the need to seek out additional financing from unfavorable sources. Access to Agnico-Eagle’s team of experts should also be factored in when looking at the balance of the deal.
With the excitement over the deal shares in RBY have moved passed their 50-day moving average of 4.03 and have moved closer to their 200-day moving average of 4.68 while trading volume for Thursday had already eclipsed the 6 million mark late in the afternoon.
It seems reasonable to think that these share prices will continue to climb as RBY is well positioned in a proven gold project and with the infusion of cash to bolster production the company may finally start giving shareholders what they’ve been hoping for since 2008.
