Rambler Metals and Mining’s (LON:RMM, CVE:RAB) planned acquisition of the Little Deer project is a timely reminder of the copper and gold miner’s progress in building a leading position in Newfoundland during difficult markets.
Where other juniors are having to hive off assets, if not going to the wall completely, Rambler with cash-flow from operations is expanding its portfolio and getting a new and highly exciting project.
Little Deer, of which Rambler has agreed to buy a 50% participating interest for C$550,000, consists of a copper deposit and associated dormant Whalesback mine.
It lies only 30km from Rambler’s deep water port facility, less than 150km from its processing plant and the company
Rambler hopes it can repeat the success here that it has had at its now producing flagship Ming mine (pictured), which it took on five years ago.
Chief executive George Ogilvie recently told Proactive how the purchase ticked all the “right boxes” regarding the firm’s strategy of finding a further local project to supplement Ming’s copper output.
He cites the region’s favourable tax system, good infrastructure and stable socio-economic features, among the reasons which make Little Deer so attractive.
He also highlights the deals compelling finances.
“If you consider the indicated resources alone (of Little Deer) of 129 million tonnes of copper and an acquisition cost of C$550,000, that equates to about one cent per pound of copper in the ground for a 50% stake,” says the CEO.
“Of course there are risks involved. No-one can categorically say at this stage that these mines will be profitable and resurrected but certainly based on Rambler’s track record, I’d have to say it has a better chance than most, particularly when you consider what we bring to the table.”
Mining analyst Asa Bridle at Cantor Fitzgerald recently echoed this sentiment, highlighting that the transaction is the largest made by the firm in the copper space to date.
Based on an economic assessment two years ago, Little Deer could produce 12,000 tonnes a year – which is a whole 60% more than the maximum figure the broker forecasts Ming could produce each year.
Bridle notes that assuming Rambler uses its existing equipment, plant and shipping facilities he would expect substantial savings to be possible on the original US$110mln capex estimate for the project which included around C$60m for a new mill, though “there would still need to be some spending to expand the facilities to treat these additional volumes”.
The deal begs the question of course, why did Cornerstone Capital want to sell the 50% stake?
Ogilvie’s answer echoes a theme being repeated up and down the mining sector, namely that it saw it as “non-core” and needed to monetise it to concentrate on its main asset.
“As these difficult markets continue to persist, I think we’ll see more junior explorers undertake this strategy (of disposals..),” he says.
“In my opinion this creates more opportunities for companies like Rambler, who have producing assets, which are free cash-flowing.”
And in these constrained times, which Ogilvie sees continuing in the short to medium term, he says Rambler will continue to be “opportunistic” and snap up further deals if they represent “good value for money”.
Cash is thus currently not a problem for the firm, and with better-than-expected production in the three months to July, it has been able to make serious inroads into paying off its Sprott debt – paying back C$500,000 leaving C$5.4mln outstanding.
Ogilvie said a main priority for Rambler was to pay this off and it is hoping to have done this by the end of the year.
Beyond that, Ogilvie added that Rambler’s mix of free cash flow from its operations mean the board would certainly need to consider how best to deploy its capital whether it be paying a dividend to return rewards to shareholders or look at share buy-back schemes if it believes the shares were still undervalued.
And momentum is certainly being maintained at Ming. The firm recently made its fourth concentrate shipment from Ming of around 7,800 wet metric tonnes, meaning it has shipped a total of around 26,000 WMT since first production in May last year.
Recoveries of copper through the Nugget Pond milling facility averaged 95% over the past two months, exceeding expected levels.
The company is forecasting copper production for fiscal 2014 of between 5,700 and 6,840 tonnes with 7,000 to 9,000 ounces of gold and 32,000 to 39,000 ounces of silver.
Analyst Bridle, which repeated his ‘buy’ stance on the stock notes: “With monthly production rates since August well in excess of 2kt concentrate, we believe RMM looks to be on track to meet its recently published guidance for FY14, its first full year of commercial production.”
So at a time where many commentators are positive on the longer term copper price, despite temporary setbacks in the market, Rambler is well-positioned to make the best of its Newfoundland assets.