Rupert Resources (RUP) - Learn to Invest Like a Portfolio Manager in Uncertain Markets

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 4Moz Ikkari discovery, permitted Pahtavaara mill with a land package that spans a 595 square kilometre 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.

The Market Landscape

Rupert Resources is cognizant of the current market condition. The company is in a favourable position as it isn't building a project at this time. It does not need to source equipment that is either unavailable or is being offered at 50% higher prices.

The company has between $42M-$43M in current cash flow. A healthy cash flow gives it flexibility in relation to timing. It has a very high-quality asset for a relatively small company. According to Rupert Resources, investors should look for companies that have a good portfolio of quality assets. A preferred company should have a long-term measured plan that is systematic and designed to deliver results.

Based on the share register, Rupert Resources has long-term shareholder support. In fact, some of the shareholders have been with the company from the beginning helping it find large, high-quality tier-1 assets with long life. The company has delivered on this expectation. It was successful in finding the first high-quality asset. It is looking to add more high-prospect assets to the portfolio.  The company is cognizant that even though an asset’s life may be 20 years, given the market volatility, it might go through a few more cycles. Maintaining a long-term view helps the company maintain focus.

As per the company, drill results and findings may bring investors comfort. Rupert Resources put out a 4Moz resource last year. The discovery cost was $5/oz. It led to a re-rating in the company evaluation which grew to $150+/oz, making it an incredible return on investment. Since then, the company has been putting out really good drill results which have boosted its confidence in the resource. In the current position, the company is focused on building confidence. Its engineers are currently analysing the underlying gold and its potential for generating economic value.

Once the PEA (Preliminary Economic Assessment) is in place, the market will have a sense of capital, the costs involved, and asset life. The company anticipates that the asset will have a long life along with a relatively low cost, which would ultimately lead to a lower project CapEx (Capital Expenditure). Due to the high inflationary environment, the company isn’t looking to build right now. It has plans to build the project in a few years’ time, in a much more favourable environment.

Conducting a PEA will enable the company to validate the $150/oz value established by the market. The PEA will put forward important considerations that will help the company attract additional investors. It anticipates that over time, the value will be re-evaluated to $300/oz-$400/oz. The company is looking to continuously de-risk the asset and share information with the investors. This helps reinforce the sense of value and comfort in the current environment and will also help unlock additional value in the future.

As an investor, one needs to compare performance between peers and figure out whether a company can survive an economic downturn. One also needs to factor in whether a company can achieve the set goals and whether the quality of assets is good enough to meet future goals. Dilution is expected when a capital raise is conducted for project building, but there are other factors that can potentially kill an investment.

Investors should look into the project’s PEA, the IRR (Internal Rate of Return), and the free cash flow generating potential based on the market gold pricing over time. A project’s NPV (Net Present Value) is not an ideal measure of value as it is arbitrary and it often ends up discounting other important aspects. Determining an asset’s survivability should account for the annual free cash flow that a project is expected to generate in the future. This can also help determine whether the project is a worthwhile investment in its current state or not.

Based on an old adage in fund management,  the best way to judge a company is by its cash flow statement rather than the NAV or AISC (All-in Sustaining Costs). An investor needs to determine whether a company made money in the last few years. Did a company raise additional funds each year or constantly make money YoY (Year-on-Year)?

As a production company, Rupert Resources anticipates that the Ikkari asset will generate revenue every year.  The Ikkari project is an open-pit, near-surface high-grade asset. As the asset is based in Finland, a tier-1 jurisdiction, it doesn’t have a risk element. The deposit is very simple and the company has consistently worked on publishing detailed project information to the market.

Ikkari is one of the simpler gold deposits, an aspect that gives investors an additional sense of comfort. A potential investor should determine whether the identified grades would work once the asset turns into a mine. A big, simple, high-grade deposit that is near surface and continuous makes things significantly easier.

From the company’s perspective, gold is outperforming everything else in the market. Even though gold is down by 6% in the current environment, it’s in a much better position compared to other commodities.

In 2018, Rupert Resources conducted a resource estimate for a part of the deposit using €950/oz, which increased to €1,710/oz, just 4 years later. The company believes that inflation is here to stay. Investors have ongoing concerns in relation to inflation and a rise in interest rates.

The company anticipates that gold will grow multiple times its current value in the future. It is a great currency that continues to perform well. Even in times of downturn, gold will continue to perform better than other commodities.

Project Classification

A project with a long life is bound to experience multiple market cycles. A low-cost base and a mining-friendly jurisdiction is preferred, as it often has some of the best assets. In the mining industry, it makes little sense to invest in short-life, smaller businesses. Rupert Resources’ business model is designed to find bigger assets.

Interestingly, building a small mine can be just as hard as building a bigger one. A mine with a 100-year life or a 10-year life can have the same set of risks and challenges. However, a fundamentally low-cost asset with a longer life is better. It is also important to take into account the underlying geology and the amount of confidence it brings. When assessing a project, investors should look into the possibilities of mine life extension and asset expansion. While monitoring these parameters can be challenging for the average investor, sticking to a longer-life asset with relatively low operating costs can make for good investments.

Based on the current market cycle and investor interest in the sector, developing a successful project can be challenging for a company. Short-term holdings either in an average project or in oversold companies can provide money-making opportunities, however, holding long-term portfolio positions in such assets is unadvisable.

Rupert Resources is looking to build a portfolio of quality assets. It has found one such asset and has plans to grow the asset base. Investors that are looking to create a portfolio should target short-term market opportunities for a 1-2 year time frame rather than a 10-20 or a 5-10 year timeframe. The company is content with investors renting its stock as its part of the process.

To find out more, go to the Rupert Resources website