Replies to post #79 on RNC Gold Inc fka RNC

[amarksp]

My recollection is as follows:

Embry/Sprott participated in the initial PP @ C$3.00 and 2nd PP @ C$2.00 and now owns about 15% of RNC. I would guess his cost basis is about C$2.33 per share. Embry still likes the company from his recent comments, RNC fits Embry's investment profile - a producer with good management and undervalued relative to its peers. Embry likely took as much of this PP as possible, I guess over 30%, just so he can play double up, catch up on this heretofore losing investment for his fund.

FWIW, RNC management forgave debt owed to it by RNC in exchange for RNC shares valued at C$1.68 per my recollection. RNC management thought its shares were very undervalued at C$1.68 or they would not have forgiven this debt, and simply preferred to be paid back the cash. Now the share price is C$1.21, so they likely wish they would have waited...

RNC will use proceeds to get Panama mine into production much faster (1 year earlier) than if they had to wait on internal cash flow. They did a deal to buy used mining equipment at a very cheap price relative to new equipment but they needed the cash now to consummate the deal is my understanding. Also, some proceeds will be used for exploration which would have had to wait until at least 3Q05 given the lack of cash. RNC will be unhedged by end of 1Q05, thus instead of getting $340 for POG on 70% of their production, RNC will begin to get market prices for POG, hence much better cash flow starting in 2Q05, IMO.

I hope RNC management is in on this latest PP, since it is beginning to appear doubtful that their substantial position in warrants may not be in the money @$2.50 by year end, hence these management warrants may well expire worthless.

RNC is betting that even at this ridiculously low PP price & terms, this PP will be accretive to share price. First, it is a tiny PP at only C$6M. Second, if the exploration hits like they believe, then an additional 1M ounces in reserves will certainly do wonders to their share price since it is easily accessible from their existing mine (very little new capex needed to put into production). Third, Panama going into production sooner rather than later may likely give RNC a better production growth profile which investors are willing to pay up for, and the equipment was gotten on the cheap similar to Alamos used equipment at Mulatos. We will have to see how this pans out. If it were me, I may have simply relied on internal cash flow and waited, or more likely I would have just raised $2M or so for the exploration. But RNC management believes that both the exploration and earlier production from Panama will both be accretive to the stock price. Time will tell.

Finally, you may be right this sweetheart PP deal may be tied to future promotion. I can't see how RNC can fall any further based on the fundamentals, but I have been thinking that ever since it went below C$1.60, i.e. when management forgave its debt to convert to equity at C$1.68. I hope RNC management was a buyer of this recent PP, but have not asked them yet...