I started watching Rubicon over a decade ago, it has been a company that I’ve covered for years due to the spectacular high-grade gold they hit in many drill holes over the years. But what made me step up and make them my #1 gold stock pick in early 2015 was after they got the funding to build their mine and were well along the way by then and ready to start commercial production in the second half of the year.
My thinking was they were deep into the development discount phase and regardless of whether gold went up or down, their cost of production would be so low they would be one of the lowest cost producers in the gold mining business. This would put them in a great spot to outperform their peers. Since starting my report I’ve made a lot of market calls and stock picks, I get it right much more often than I get it wrong, but Rubicon is one of my worst picks.
Like all lessons in the market, they usually come at the loss of a few bucks, which always hurts, but the real shame is when you don’t gain something from them. This fiasco with Rubicon is more than a loss of my money, it is a horrible pick and it’s also a black-eye for the gold mining industry.
When you have gold stocks already on their knees after a multiple-year correction that has decimated share prices, it didn’t need a smoke and mirrors show like Rubicon imploding.
Especially in Canada, in one of the best high-grade gold camps in the world.
Something that I’ve always focused on over the years is on companies in mining-friendly countries, in well-known regions for mining, where there is a strong understanding of the geology. There are several reasons for those criteria, the key one is reducing risk. These keys reduce risk significantly when it comes to mining exploration and development. But, most importantly, I’m an independent reporter on the industry, funded by myself from my consulting work and website sponsorship. I don’t charge for my reports and I don’t have the backing to be doing property visits and have a geologist and others on staff. I have to rely on others in the industry doing their jobs.
Such as I have to rely on the fact that when people put up the money to build multi-million dollar mines they get to take a real close look under the hood. I have to hope when they have that kind of money they are able to employee smart people that understand rocks who get to kick the tires. I also have to assume those building a mine know what they are doing, and at every step along the way competent people are used. I have plenty of insight into the business having worked in the industry for over two decades, but I’m no different than most investors, I do my homework, but there are limits to how far I can go, just like investors in mining stocks.
They had a chance to build a gold mine that could help turn Rubicon into a large gold miner with one of the lowest costs of production in the industry. Instead, they chose to build a smoke and mirrors show with no other intent than to keep the balls in the air as long as they could. Thankfully they closed down before there was an accident, they cut corners at every chance they could and it could have caused injury and lives.
The latest episode in the debacle is that the mine was shut down due to complex geology. First of all, what geology isn’t complex? But, let’s not forget they had pin-cushioned this thing with drill holes. With all that drilling they had to have a handle on the issues with the geology and gold mineralization. This is where I believe the smoke and mirrors show starts. A lot of geologists got to look at that drill core. Someone had to know if there were fatal flaws and that is likely the reason they went from a Preliminary Economic Assessment, didn’t do the advanced stage economic evaluations and went right to building a mine.
It is my contention, key management knew there were fatal flaws and didn’t want the Phoenix project to go under the microscope of economic evaluation so the best plan was to try to convince someone that doesn’t do a lot of due diligence but can cut a big cheque to fund building the mine. That would keep the balls in the air for years.
Shortly after the mine was shut down, they announced some of their efforts to try and fix the issues so they can bring it back into production. None of those plans included getting rid of the entire board and other key people, these folks drove the company into the ditch. Those that drive a company into the ditch are never the ones that get it out of the ditch. They screwed this thing up badly and there is no way folks on the inside didn’t know what was going on.
It shocks me that none of the biggest shareholders have stepped forward asking for heads to roll at the board level. Instead, it looks like the board is content to let the stock trade down to cash and then they will bleed the treasury dry before they all quit.
Rubicon needs a new team on the board and management, not a group that was incompetent when it came to building a mine and much more interested in keeping their smoke and mirrors show going. Shareholders deserve a lot better than this group, we need real leadership at Rubicon that know how to build and operate a high-grade gold mine in Red Lake, Ontario. The extensive drilling showed us that there is a lot of high-grade gold at Phoenix.
It would be great to get a team in there that is aligned with shareholders, who know how to build and operate a gold mine, and are focused on building a high-grade gold mining company with low-cost production.