Rupert Resources (TSX-V: RUP) - Incredible Economics on this Gold Company

Rupert Resources Ltd. is a Canadian gold mining company focused on the exploration and production of base and precious metals. The company's flagship asset is the Rupert Lapland Project in Finland. The company's other assets include Red Lake in Ontario, Surf Inlet in British Columbia, and the Hirsikangas deposit in Central Finland.

Matt Gordon caught up with James Withall, CEO, Rupert Resources. James has over 2 decades of experience in mining. He previously served as a Managing Partner and Fund Manager at Baker Steel Capital Managers. James was awarded 2 gold medals by Sauren Fund Resource in 2016 for excellent fund management in the "Equity Goldmines" category. He has worked as a geologist for over 7 years in Western Australia for multiple gold mining companies, in exploration, project, and mine geologist roles. His educational credentials include a degree in Applied Geology from Leicester University, and a Master's in Mineral Project Appraisal from Imperial College, London.

Company Overview

Rupert Resources was founded in 1981 and is headquartered in Toronto, Canada. Northern Aspect Resources Ltd. is the company's subsidiary. The company is listed on the Toronto Stock Exchange (TSX-V: RUP) and the OTC Markets (OTCQX: RUPRF). It owns 100% of the new, high-quality Ikkari discovery, and the permitted Pahtavaara mill with a land package that spans a 595 square kilometer area in the Central Lapland Greenstone Belt of Northern Finland. The company made a significant discovery in Northern Finland, the Ikkari discovery, featuring a 4Moz resource.

Rupert Resources has managed to bring the Ikkari discovery to a 5Moz resource. The study shows a 4.2Moz recovery. The project has a $1.6Bn after-tax NPV (Net Present Value) at a 5% discount for a $1,650 gold price. Through drilling and technical studies, the company has demonstrated a 2 year payback time for the asset. The IRR (Internal Rate of Return) at a $1,650 gold price is 46% along with some sensitivities on the VAT (Value Added Tax). The company is looking to showcase the real value of the ounces discovered so far. It seeks to demonstrate that the deposit has the potential to evolve in the future.

In its previous presentations, the company has always shown the long section of the deposit with a purple patch in the middle. Turns out, the deposit is a single, cohesive lump. Upon drilling, the team found 100m of continuous mineralization at 5g grades. The highest grade identified by the company so far is 8g. Since it’s a single big lump of rock, the company would need to deploy additional capital and carry out extensive development in order to advance the asset. The mineralization is located near surface.

In the early years, the company was moving around 1.5t-1.6t of waste for every 1t of ore. The current material grades are twice the average open-pit grades in the industry. The process of bringing the material into the mill is a simple and highly-cost effective operation. The company can achieve up to 95% gold recoveries at the asset. Based on the deposit’s morphology, the company anticipates that the ounces are low-cost. The main cost is to get the ounces to the surface. Since the material is easy to process, it makes for a simple, and cost-effective operation.

Last September, the company’s cost to find the ounces was $9/oz. In the last year, the company has spent an additional $2 per ounce, bringing the per ounce cost to $11. Even if the per-ounce discovery cost is at $20, the  $3.50-$3.70 NPV per ounce makes it a highly attractive project. This is one of the reasons why people prefer investing in companies during the exploration stage, as it leads to greater returns. It is often seen that the valuation of the recovered ounces is a lot lower. As a result, finding something worth around $150/oz-$200/oz is truly exceptional in terms of value.

Rupert Resources is currently focused on additional drilling. It is trying to find the extensions to the Ikkari discovery, which are expected to be deeper in the east or further below. The company is currently waiting for the ground to completely freeze so that drilling can be resumed at Ikkari North, a prospect that was discovered just 6 months ago.

The Ikkari discovery was made in December 2019 - January 2020. The first diamond hole was drilled in March. In May, the company published the drill results. Within a 5-month window, the company was successful in making exceptional strides in exploration. In the near term, the company intends to continue exploration. It has a lot of targets that need to be drilled. The company is looking for additional discoveries that can be included in the next stage of the study. At the same time, the company is demonstrating a 22-25 year mine life for the entire operation. Instead of waiting for the production stage, the company is looking to realize the value of the deposit in the present through continued exploration.

Cash Position

Rupert Resources had $37M in cash flow at the end of August 2022. It has about $30M in current cash flow. On a monthly basis, the company expects the burn rate to remain relatively unchanged.

Rupert Resources is prioritizing technical studies on the asset as it opens doors for raising additional funds. In case the market continues to be challenging for gold and the shares are on the lower side, the company will raise a limited amount of capital from its existing shareholder base. This would provide some flexibility in the business. The company is looking to raise capital to invest in an amazing business for further development.

In a case where the market conditions are more favorable, the company will raise more capital. It is trying to demonstrate that the business is really good for investment in various market conditions. The company is putting its best foot forward to encourage support from investors and institutions.

Targets 2022 and Beyond

Rupert Resources’ engineering approach isn’t based on the size of the deposit, the yearly ounces produced, or the total ounces produced over the project’s lifetime. Instead, the company’s approach is based around optimizing the net-free cash flow after tax every year. It is developing a project that has at least a 20-year mine life while showcasing the asset’s strong net-free cash flow generation capabilities.

In its current state, the Ikkari discovery is a medium-sized mine. The company is looking to demonstrate the presence of additional ounces that can add to the life of the project. The company isn’t focused on making the project bigger, as it’s already generating $200M in free cash flow. The asset is currently in the PEA (Preliminary Economic Assessment) stage.

Rupert Resources was able to raise a reasonable amount of capital last year. This was followed by Agnico Eagle’s investment. Agnico Eagle also exercised warrants earlier this year. Rupert Resources has always tried to position itself in a way so that it isn’t restricted by the market. Through the capital raise, the company is also looking to maintain a healthy balance sheet.

The company currently has a 30-person workforce. It is looking to ensure that all the employees have job security. At the same time, the company is focused on making it a good place to work. The company wants to ensure that a lack of funds does not dictate future decisions. Limited cash flow could serve as a hindrance in optimizing the project or managing flexibility. As a result, the company is managing the balance sheet as much as other aspects of the business including the permitting, the geology, and various other aspects.

James Withall, the company’s CEO is currently in Finland, catching up with the team for a Christmas get-together. He also has a few stakeholder meetings scheduled this week. For the past 2 weeks, the company has been conducting regular stakeholder meetings.

To find out more, go to the Rupert Resources website