CEO interview: Rubicon’s Winship discusses Phoenix error

Michael Winship, a mining engineer, joined the board of Rubicon Minerals (TSX: RMX; US-OTC: RBYCF) in 2011 and was appointed the company’s interim-president and CEO in October 2015. Rubicon started trial mining its F2 deposit at the Phoenix property in Ontario’s Red Lake district last year, but the geology was more complex than they thought, and underground operations were halted in November. Management announced that there is “significant doubt as to the ability of Rubicon to continue as a going concern.” Winship spoke to The Northern Miner about the project and Rubicon’s future.

The Northern Miner: Starting with the elephant in the room, why did the company decide to build the mine on just a preliminary economic assessment (PEA)?

Michael Winship: At that time it was a measured evaluation and measured risk where we had the benefit of high metal prices, we had financing available and we saw that we would have to invest nearly the same amount in underground development, and the optionality was really the incremental cost to build the mill facility.

TNM: Would you do it again?

MW: Everyone is smarter with the benefit of hindsight, and certainly we’ve seen in history a lot of people doing complete underground exploration and feasibility studies, and with the benefit of that knowledge now, we would have proceeded along a different path, no doubt.

TNM: But shouldn’t Rubicon have figured out at the time that it is important to do a feasibility study before building a mine? How does hindsight play a role?

MW: People are challenging it again with the benefit of hindsight, but where we sat at the time, and based on the drilling, the zone looked continuous, we had high-grade intersections and knowledge of the other Red Lake mines like the Campbell and Dickinson mines, so there were feelings that the potential was strong at the Phoenix.

There’s another major gold miner down the road that has made quite large investments and has run into some challenges as well, and that’s the nature of exploration and development. It’s a risky business and you try to make the best judgment with the information you have.

TNM: In January the Association of Professional Engineers and Geoscientists fined Peter Thomas George for his role as Qualified Person in Rubicon’s first two resource estimates in 2011.

MW: I wasn’t on the board when the Peter George estimate was made, so I can’t really make a knowledgeable comment.

TNM: AMC Consulting did another resource and a PEA the same year. Does AMC Consulting not share any of the responsibility? Or SRK Consulting, for that matter, which did the June 2013 resource estimate, and the second PEA? Should they be investigated for their role in any of this?

MW: They’re professional companies, they have professional geologists and they’re both coming under their share of criticism. But again, as you advance exploration projects, you make estimates with the best information you have at the time, and certainly it’s a recent discovery — the influence of these crosscutting or D2 structures — that wasn’t really understood until the last few months, when there was development on the mineralized zones.

TNM: How much time did SRK spend on-site before the 2013 resource estimate?

MW: I couldn’t give you a knowledgeable answer over the phone. It was as part of the 43-101 process. They had to spend time and anecdotally, I’ve heard that they spent extensive time, but I can’t give a qualified answer on that.

TNM: Did SRK have any interaction with Rubicon geologists who worked the core and managed the drill programs?

MW: In both instances, if you went back and checked the 43-101 reports and PEA, you’ll see that it’s well documented what those interactions were, and who was involved.

TNM: But should they, like George, be evaluated in their roles in completing subsequent resource estimates and PEA-level studies?

MW: People can draw their own conclusions, but my point of view is that the documents were published at the time with the information that was had, and there’ s a recent discovery of information with regards to the structural geology, and a more conservative estimate.

TNM: What do you mean by the recent discovery of information?

MW: The recent discovery of new information was that we were developing and drilling along the mineralized zone, and raising, and sub-drifting, and that’s where we saw the lack of continuity in the lithological structures, and came to learn the influence of these cross-cutting faults.

TNM: By some estimates Rubicon raised more than $700 million from investors over the years for Phoenix. Is that number correct?

MW: I’d invite you to look at our financial statements and you can confirm or deny that. I’d have to consult with our financial people to know that exact number, I don’t have it at my fingertips.

TNM: What is the company worth today?

MW: The current market capitalization is $25 million.

TNM: Could you sell the mill?

MW: That’s a possibility. I’d hate to speculate. It really depends if there’s another company that wanted to use it in the Red Lake area or if they were looking at a similar-sized capacity mill in northern Ontario, then it could be worth a lot more. If you just sold some of the individual assets, like the semi-autogenous grinding or ball mill, it would definitely be worth a lot less.

TNM: Was Rubicon’s former president and CEO Michael Lalonde fired or did he resign? The company announced he left the company on Oct. 5.

MW: I’m not going to comment on that, you can go and look at the wording of the press release and the management discussion and analysis.

TNM: When did it become clear that there were serious problems? Which month? Was that September 2015?

MW: Not really going to comment on an exact time frame, as I say there were discoveries along the way of the geological complexities, so it wasn’t at one specific point in time that we saw the challenges.

TNM: Yes, but at the Denver Gold Forum from Sept. 21–23 in 2015, Lalonde gave a presentation and did not seem to suggest there were any major problems. The slides he used described Phoenix as “low risk.” Some people are critical of Rubicon’s disclosure. Can you comment on that?

MW: No, I won’t comment on that aspect, or get into it. I replaced Mike at the beginning of October, so I can’t comment on what he said at the Denver Gold show. There were concerns at the board level in the ramp-up of the mine.

TNM: Are there any constructive lessons that the industry can learn from what happened at Rubicon and its Phoenix project?

MW: Last night I spoke in Sudbury at the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) and inevitably in any project there are lessons learned and there are things that you take away that you could have done better. The major aspect with the benefit of hindsight would have been to go to a more traditional way — of full underground exploration and delineation of both resources and reserves.

TNM: Do you mean doing a feasibility study?

MW: With the benefit of hindsight, going with that more traditional approach — as has been done in the past with many projects of going with a feasibility study — could have uncovered some of the challenges that later came out.

TNM: Looking ahead, are you optimistic that Rubicon can work something out with the Canada Pension Plan Investment Board?

MW: We’re continuing constructive discussions with CCPIB. I would caution that at any time they could exercise their rights under contract to put us into default and into a restructuring situation, and that hasn’t occurred to date.

TNM: What would be the best-case scenario?

MW: We’re looking at a number of options. We call it a strategic review or divestiture that could bring value to some of the stakeholders, and another path could be to go through a restructuring that would allow the Phoenix property to move ahead and some of the stakeholders get some value — let the project proceed and presumably go back to an exploration … that would require further recapitalization and financing to advance the exploration. We’ve been doing studies in parallel to look at where we’d focus exploration attempts.

TNM: What are your plans over the next year or so?

MW: I’m president-elect of CIM. In May I’ll take over … and I’m looking forward to that role to [give] back to the mining industry.

TNM: Any other comments you’d like to make about the project?

MW: I would just say personally, having worked in Red Lake as general manager of the Campbell mine, I still believe in that district. It’s a world-class district and I remain cautiously optimistic that the Phoenix project can be advanced and ideally made into a mine.

As project manager at Musselwhite, it did not go ahead immediately. We sunk a shaft and did an underground exploration program, and it was put on hold for about seven years. Later it was advanced, and it’s been one of Canada’s best gold mines. Goldcorp owns it.

TNM: So Phoenix could still become a mine?

MW: I’m cautiously optimistic. There’s good potential. There are quite a few high-grade intercepts there and that would be a logical place to explore, and we saw the Dickinson mine, now the Red Lake mine, it came into its own at depth, so that would be my hope for Phoenix.

[Dickinson] operated for a number of decades on a fairly marginal basis. They discovered higher-grade material at depth, and that became the preeminent mine in the camp.