S. E. Wells'  Instablog

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, metalurgical 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 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 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.

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

Minera Andes, with operations and exploration properties in Argentina, just reported a $.02 per share net income ($5.2 million total) on 11/16/2009.  This income mostly derived from Minera Andes 49% share of Minera Santa Cruz' operations of the San Jose gold/silver mine in southern Argentina.  Hoschild owns the other 51% of Minera Santa Cruz.

This move to profitability comes on top of Minera Andes strong position for the future in its Los Azules project (copper) now that Xstrata is out of the way and Minera Andes is in a 100% ownership position of Los Azules.

Los Azules is a relatively straight-forward play.  It has a little over 11 billion pounds of copper in 922+ million tons of .55% copper ore.  It's going to cost a little bit less than $3 billion dollars to develop the mine.  Do the math.  With copper at approximately $3 per pound, there is huge potential here.  The project was analyzed with a copper price of $1.90 per pound and found to be justifiable in a preliminary assessment, a synopsis of which can be seen at http://www.minandes.com/s/NewsReleases.asp?ReportID=337344&_Type=News-Releases&_Title=Minera-Andes-Announces-Results-Of-Preliminary-Assessment-At-Los-Azules-Copp....  At higher prices for copper, the project becomes a potential profit whale for Minera Andes.

There are a couple of negatives.  Minera Andes has a lot of shares outstanding.  Over 220 million. And, while Argentina is no Democratic Republic of the Congo or Indonesia or Venezuela in terms of political risk, it's not the top rated jurisdiction in terms of political risk either.

Still, all in all, there is tremendous upside potential here with the solid income stream over the next 3 years at San Jose (and resource expansion at San Jose seems likely to me), the Los Azules copper project, and the other promising gold/silver exploration properties in Argentina.

I'm long MNEAF and accumulating more.

I've been following Rubicon Minerals since it was at $.89 a few months back.  It's taken a huge run to approximately $4.00 at present.  Is it time to take the money and run?  What to do with Rubicon from here? To answer that question, I need to have some idea of what RBY may be worth so I'm going to attempt a baseline evaluation of Rubicon. In an article on Mineweb about Exeter Resources (http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=89192&sn=Detail) it was stated that the top 10 miners, reflected in their market capitilization divided by their gold ounces in the ground), shows a value of $143 an ounce for their compliant resources. Well, Rubicon is right next door to GoldCorp which the same article says is valued at about $440 for their ounces in the ground. GoldCorp also acquired the Bruce Channel Deposit (BCD) via the Gold Eagle acquisition for something around $240 an ounce and the BCD is next door too and the largest stockholder of Rubicon is the guy that started and built GoldCorp into the powerhouse it is.

So, I'm asserting that it's reasonable to assume Rubicon's ounces in the ground are worth the $143 in the ground ounce average. That may sound like too much for a junior exploration company but I think that's conservative given the tenor of the assays, lack of political risk, quality of management, cash position, no debt, etc.

This leaves one to determine how many ounces they have. In the absence of a full blown 43-101 being available, one is left to less rigourous devices. On the Rubicon site, in a presentation, they say their ore body, so far, is of the dimensions of 1100 Meters by 300 meters by 1100 meters. They also show the distribution of assay results. The lowest result they report is 3 grams a ton. The following is an attempt to convert that info into some useful approximation of what Rubicon has based on what we currently know and what it would be worth per share if valued at $143 per ounce. The critical assumption that I'm making here, in an attempt to come up with some baseline value in light of Rubicon's strong run up already, is that only 10% of the orebody is of 3 gram per ton tenor. As we all know, they have hundreds of assays of 15 grams per ton and even much, much higher. One of there recent assays in from drilling southwest of the original F2 zone was for north of 12 grams per ton over 140+ feet.  So, assuming 10% of the ore body to be of a 3 gram per ton tenor seems defensible to me. Here's the result.

Width   300
Length   1100
Depth   1100
Cubic Meters   363,000,000
Tons per Cubic Meter   2.35
Total Tons   853,050,000
% at 3 grams   0.1
Tons @ 3 grams   85,305,000.00
Grams Contained   255,915,000.00
Grams Per Tr. Oz   31.1
Ounces Contained   8,228,778.14
In Ground Value Per Oz.   $143.00
Value of Deposit   $1,176,715,273.31
No. Shares   192,300,000.00
In Ground Value Per Share   $6.12

In other words, it would appear that Rubicon is currently trading for about $2 a share less than it's arguably worth on a conservative assessment of what they have at a reasonable value for in the ground ounces. It is also not so silly to think it could be worth $30 a share by the time they finish this current drill program if they extend the orebody and keep hitting bonanza grades.

Yes, Rubicon has moved a long, long way from the $.90 a share I first bought at but I'm still a big buyer at the current price of appox. $4.00 per share.


I'm long RBY, short the Rubicon March 2010 7.50 call options, long the March 2010 $2.50 RBY calls.