While it may be hard to pinpoint a single watershed moment at which a gold exploration project converts to a virtual guarantee of future mine production, this one has clearly passed the point of no return. Yes, Rubicon has crossed the Rubicon.
One could argue that the F2 deposit at Rubicon Minerals' (AMEX: RBY) Phoenix property in Ontario's famed Red Lake district was destined for success the moment exploration drilling began to encounter phenomenal bonanza gold grades back in 2008. I certainly thought so, which is why I increased my investment stake at less than $1 per share thereafter, and I never looked back.
Another key milestone occurred just recently when the company issued a preliminary economic assessment for the project. Although the results were positive-- and therefore supportive of the project's path to production -- they did fall short of expectations. The stock pulled back violently in response, though my great expectations for Rubicon's long-term outlook remained undaunted.
After Wednesday, however, all of that disappointment and creeping uncertainty was erased in the blink of an eye. Mid-tier producer Agnico-Eagle Mines (NYSE: AEM) announced it will acquire a 9.2% stake in Rubicon through a C$70 million ($73.75 million) private placement. More importantly, the deal includes provisions for Agnico to avail Rubicon of its considerable geological and engineering expertise to enhance the project's development trajectory.
After completing one of the industry's fastest production expansions on record, Agnico-Eagle's shares could use the injection of excitement that a stake in the Phoenix project will ultimately provide. Agnico reported lower gold production at higher costs for the second quarter than it had in the prior-year period, and saw its cash flow remain flat despite a 25% increase in the realized price of gold. Under the very capable direction of CEO Sean Boyd, the miner already possesses a slew of enticing equity investments in junior exploration companies, in addition to a high-quality pipeline of its own development projects that Boyd expects will be fully funded by existing cash and projected cash flow. Like the relatively stagnant stocks of fellow mid-tier miners Yamana Gold (NYSE: AUY) and Kinross Gold (NYSE: KGC), I expect Agnico-Eagle Mines to enjoy a highly profitable journey forward, and I view a Rubicon stake as effective fuel for the fire.
For Rubicon, Agnico's investment comes as a tangible pat on the back for a job well done thus far, and significantly raises the outlook for a fast-track path to production. Long-standing speculation that Goldcorp (NYSE: GG) may swoop in for piece of the operation is not necessarily quashed by the deal, though it does appear to grow less likely. Rubicon shares surged more than 25% Thursday, and I think it's fair to expect additional upside momentum from here. Rubicon may have a tough time catching-up with the best performers from among my top 10 stock picks for 2011 -- particularly AuRico Gold (NYSE: AUQ) with its golden ducks all in a row -- but I suspect shareholders will enjoy watching it give chase. In any event, I strongly encourage Fools to remain with Rubicon for its remaining journey to production.
- Add Rubicon Minerals to My Watchlist
- Add Agnico-Eagle Mines to My Watchlist
- Add Goldcorp to My Watchlist
- Add Yamana Gold to My Watchlist
- Add AuRico Gold to My Watchlist
