A Sober Reawakening for Rubicon Minerals

The party rages on for this gold bonanza holder, even if the music has been turned down a notch or two.

A distinct pall of uncertainty fell over the red-hot shares of Red Lake (Ontario) gold explorer Rubicon Minerals (AMEX: RBY  ) in mid-February, after the company indicated that the British Columbia Securities Commission had challenged certain aspects of the company's latest resource estimate for the F2 Gold System of its Phoenix Gold Project.

The stock had previously rocketed higher by 36% after Rubicon released its long-awaited, first-ever resource estimate last November. That report outlined an inferred resource of 4 million ounces and enthralled investors with an extrapolated vision of the deposit's ultimate geological potential at between 13 million and 16 million ounces of gold.

After being called to task on specific parameters of the resource calculation methods employed, consultant Geoex Limited prepared an amended report that chopped 410,000 ounces from the inferred resource estimate (a reduction of 10%). Significantly, the amended estimate of 3.6 million contained ounces (uncapped) suffered no material deterioration of the estimated ore grade. The F2 deposit's awe-inspiring grades of more than 20 grams of gold per ton continue to rank the resource among the most economically attractive gold concentrations this Fool has ever encountered.

But here is where the hangover comes in. In the amended report released Thursday, the discussion regarding the F2 deposit's geological potential has been dialed back significantly. To be clear, this does not necessarily mean that Rubicon's F2 zone will never attain a scale of 13 million to 16 million ounces as envisioned in the initial report, but rather suggests that the British Columbia Securities Commission was only comfortable permitting Rubicon to extrapolate existing data to envision total geological potential of about 5 million to 9 million ounces of gold.

The volatile experience of Rubicon shareholders with the company's initial resource estimate for its cornerstone asset provides an opportunity to remain mindful that initial estimates like these seldom tell the full story of a project's potential. Additional exploration will continue on Rubicon's Red Lake properties to better define and expand the known deposit, and at several steps along the way, the company can be expected to deliver updated resource estimates that bring successive upgrades in both the scale of the deposit and the degree of confidence behind it. It bears mentioning further that Rubicon has already conducted 38,000 meters of successful exploration drilling since mid-2010 that were not included in the initial resource estimate.

Having reviewed every successive set of exploration drill results from the Phoenix project over the years, I remain resolutely confident in the exciting potential for further expansion of the known resource. That outlook led me to include Rubicon Minerals among my list of the top 10 gold and silver stocks for 2011. Similarly explosive organic growth potential also ensured that producers Gammon Gold (NYSE: GRS  ) , Northgate Minerals (AMEX: NXG  ) , and Yamana Gold (NYSE: AUY  ) each made the list's top five. Rubicon is also a top 10 holding of the Global X Gold Explorers ETF (NYSE: GLDX  ) , and deservedly so. I encourage Fools to target organic growth potential consistently within their mining industry investments and to remain steadfast in anticipating long-term share price appreciation from Rubicon Minerals.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Gammon Gold, Northgate Minerals Rubicon Minerals, and Yamana Gold. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (20)

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  • Report this Comment On April 01, 2011, at 10:39 PM, jacobske wrote:

    Chris,

    Thanks for the info. This is going to be a very interesting company to watch. I'm looking for a good entry point for my RBY trading position. There are a lot of catalyst coming up for this company.

    Kip

    Long RBY

  • Report this Comment On April 04, 2011, at 9:15 AM, Jbay76 wrote:

    Oh Man,

    Whats worse about this article Chris is the fact that I was hung over this weekend ! :(

    I guess I need to read these reports better, and slower, becuase I didn't notice the 10% reduction.

    In the end, RBY needs to do more exploration and use the new finds to further quantify their resource potential. So, since they initially used the polygonal method for estimating resources but finally settled on the block method for their amended report, I would think it plausible that with a little more digging around, they will be able to show that the resources they quantified via the polygonal method was very correct after all and that the need for the amendment was unwarranted.

    FWIW...hangovers suck!

  • Report this Comment On April 04, 2011, at 9:16 AM, Jbay76 wrote:

    Oh BTW......Thanks for you analysis of the situation Chris! I'm learning a lot from you and your diligence, and this just show how much more I have to go......

  • Report this Comment On April 04, 2011, at 12:07 PM, XMFSinchiruna wrote:

    Jbay,

    I don't interpret the developments in the same way that you do above. Both the polygonal and block model calculations were amended, though it is perhaps not mere coincidence that the two methods now more closely support each other in the amended report.

    Also, please note that while RBY will certainly keep exploring as you point out, the existing resource is more than sufficient to warrant a fast-tracked process of additional analysis and economic assessment to upgrade these resources from the inferred category and move toward an abbreviated path to production.

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