Reading the Tea Leaves on Rubicon's New Drilling Program

Nov.18.09 | About: Rubicon Minerals (RBYCF)

Rubicon just announced a new 200,000 meter drilling program to expand their 9X drilling program at the F2 zone in Red Lake, Canada. They just completed issuance of 18 million plus new shares in a bought deal equity financing that raised $85 million Canadian (Canadian $4.55 per share). They plan to use $60 million Canadian for this new drill program leaving approximately $73 million Canadian in the treasury after allocating $60 million to the new drill program.

According to the company news release they plan to do a couple of types of drilling in this new campaign. They will do more delineation drilling, one expects in preparation for a NI 43-101 to be prepared subsequently, and they will be doing more drilling in an attempt to find the outer boundaries of the F2 zone. They also say they may drill other properties in the Red Lake area. It's important to realize that as good as the F2 zone looks, they have other properties in Red Lake that also appear extremely prospective for Red Lake style gold mineralization. It's encouraging to see them expanding the scope of their exploration drilling onto those properties too.

Another thing they plan is 750 meters of underground excavation into the F2 zone for the purposes of new underground drilling stations and for extracting a bulk sample for milling design, metallurgical test work and grade assessment.

While it's speculation on my part, this newest bought deal and the new drilling programs indicate to me that Rubicon isn't simply grooming this deposit for sale. These seem to me to be the plans of a company that intends to go into production. I think they already had enough in the corporate treasury to prove up F2 sufficiently to attract a buyer if selling the company was what they were looking to do.

When one looks at the companies in which Rob McEwen holds large stakes, it's possible to get a glimmer of what may be in store for those companies in the longer term. Mr. McEwen started Goldcorp (NYSE:GG) and grew it into the power house it became by having a core holding that is high grade and highly profitable and then acquiring high quality companies from that position of strength. With his holdings in Rubicon, US Gold (NYSE:USG) and Minera Andes, it's starting to look like a possibility that this is what he intends to do all over again.

If so, share holders can probably expect to be handsomely rewarded for participating in the earlyish stages of that process.

Disclosure: Long RBY, short Nov. 2009 $5 puts and long March 2010 $2.50 calls.