Rubicon Minerals Corporation (RBY)
“Due to an odd market abnormality, gold stocks are selling at a steep discount to physical gold. Historically, when gold goes up, gold miners trade at a premium to gold. This is because miners have fixed costs. If a gold mining company has a production cost of $800/oz...
“Due to an odd market abnormality, gold stocks are selling at a steep discount to physical gold. Historically, when gold goes up, gold miners trade at a premium to gold. This is because miners have fixed costs. If a gold mining company has a production cost of $800/oz to excavate gold, and they are selling at the market price of $1000/oz, they make $200 profit per oz. However, if the price goes up by 10% to $1100/oz, and their production cost remains constant, the company would increase their profits by as much as 50%.
“Rubicon Minerals Corporation (RBY, $3.72) is an exploration and development company focused on developing its flagship Phoenix Gold Project in Red Lake, Ontario. Red Lake is home to the richest gold deposit in the world, operated by Goldcorp Inc. The Red Lake and Campbell mines’ combined past production, current reserves and resources total more than 24 million ounces. Rubicon thinks it has a high-grade resource with 0.5 million ounces indicated and 2.3 million ounces inferred. The company has about 100 square miles at Red Lake.
“At the end of June, the company had $225 million in cash and zero debt. They last did a public offering in February at $4.10, which, at their current burn rate of $83 million a year, should keep them going for until they produce gold in Q1 2014. This is an exploration company, so there is no revenue or income. The shaft is expected to hit the 610-meter level by the end of Q1 2013. The gold is expected to be down past 1,000 feet.
“The upshot is that they have geography with a lot of potential and they have the cash to execute their plans. Furthermore, they are now trading at a discount to their secondary offering -- and well below their all-time high over $6. The market cap is $1 billion. The chart has gotten ahead of itself by ten cents or so. If you want to cherry-pick, you could set a buy price at $3.65. In the end, I don’t think it will matter much. Buy Rubicon Minerals under $3.80. Current price $3.75.”
- Christian DeHaemer, Crisis & Opportunity, September 7, 2012