EXHIBIT 99.2
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RUBICON MINERALS CORPORATION
Management’s Discussion & Analysis
Second Quarter Ended June 30, 2015
44 Victoria Street, Suite 400, Toronto, Ontario M5C 1Y2 Tel: 416-766-2804
Toll free: 1-866-365-4706 Fax: 416-642-2299
E-mail: rubicon@rubiconminerals.com
www.rubiconminerals.com
TABLE OF CONTENTS
| INTRODUCTION | 3 |
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| DEFINITIONS | 3 |
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| COMPANY OVERVIEW AND STRATEGY | 4 |
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| HIGHLIGHTS | 4 |
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| THE PEA | 5 |
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| ABORIGINAL CONSULTATIONS | 6 |
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| OTHER RED LAKE PROJECTS | 6 |
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| UNITED STATES EXPLORATION | 7 |
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| CORPORATE DEVELOPMENTS | 7 |
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| QUALIFIED PERSONS AND QUALITY ASSURANCE | 8 |
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| RISKS AND UNCERTAINTIES | 9 |
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| OPERATING RESULTS | 9 |
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| SUMMARY OF QUARTERLY RESULTS | 11 |
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| FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES | 11 |
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| CASH FLOWS | 11 |
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| FINANCIAL INSTRUMENTS | 13 |
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| OFF-BALANCE SHEET ARRANGEMENTS | 13 |
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| PROVISION FOR CLOSURE AND RECLAMATION | 13 |
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| COMMITMENTS AND CAPITAL LEASE OBLIGATIONS | 14 |
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| CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES | 15 |
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| CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION | 17 |
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| OUTSTANDING SHARE DATA | 17 |
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| INTERNAL CONTROL OVER FINANCIAL REPORTING | 17 |
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| CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING | 17 |
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| ADDITIONAL INFORMATION | 18 |
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| FORWARD-LOOKING STATEMENTS | 18 |
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| APPROVAL | 19 |
INTRODUCTION
This Management Discussion and Analysis (“MD&A”), dated August 13, 2015, includes financial information from, and should be read in conjunction with, the consolidated financial statements for the second quarter ended June 30, 2015. It is further assumed that the reader has access to the audited consolidated financial statements for the year ended December 31, 2014 and the accompanying MD&A for the year ended December 31, 2014. Please refer to the cautionary notices at the end of this MD&A, especially in regard to forward-looking statements.
Rubicon Minerals Corporation (“Rubicon” or the “Company”) reports its financial position, statement of comprehensive loss, changes in equity and cash flows in accordance with International Financial Reporting Standards (“IFRS”) in Canadian dollars.
Rubicon is a Canadian-based company that has been primarily involved in the acquisition, exploration and development of mineral property interests in Canada and the United States. The Company’s key asset is the Phoenix Gold Project (hereinafter defined) located in the Red Lake gold camp, in the Province of Ontario. In addition, the Company has significant land packages in the Red Lake area outside the Phoenix Gold Project and other significant land packages in Nevada and Utah, United States. The Company does not have any assets or mineral properties that are in commercial production or that contain a reserve.
The Company is a reporting issuer in all the provinces of Canada as well as with the Securities and Exchange Commission (“SEC”) in the United States. The Company’s common shares trade on the Toronto Stock Exchange (“TSX”) in Canada under the symbol ‘RMX’ and on the NYSE MKT Exchange in the United States under the symbol ‘RBY’.
DEFINITIONS
The following terms are used in this MD&A:
“F2 Gold System” is a gold mineralized system located at the Phoenix Gold Property composed of high-grade gold mineralization and a lower grade sulphide-rich zone, which currently has a strike length of approximately 1,200 m (3,937 ft) and a depth extent of 1,650 m (5,413 ft) below surface and remains open along strike and at depth. The system appears to at least partly correlate with a large Titan-24 chargeability anomaly. The anomaly extends laterally from the F2 Gold System for over 1,500 m (approximately 5,000 ft) and to depths up to 750 m (approximately 2,500 ft) – the current depth limit of the survey. As for the setting and style of this zone, it is similar in many respects to the high-grade zones present at the nearby Red Lake Gold Mines. The F2 Gold System is 420 m southeast of the existing shaft and is entirely independent from the previous gold resource of the McFinley Gold Deposit.
“PEA” means the amended and restated National Instrument 43-101 technical report titled “Preliminary Economic Assessment for the F2 Gold System, Phoenix Gold Project, Red Lake, Ontario”, prepared by SRK Consulting (Canada) Inc., dated effective June 25, 2013 and filed on SEDAR on February 28, 2014.
“Phoenix Gold Project” The Phoenix Gold Project is the construction, development, and commissioning of an underground gold mine and mill located on the Phoenix Gold Property, as described in the Phoenix Project Closure Plan that was filed in December 2011 pursuant to the Mining Act (Ontario).
“Phoenix Gold Property” is the property containing the Phoenix Gold Project located in Bateman Township, Municipality of Red Lake, Ontario, Canada,
COMPANY OVERVIEW AND STRATEGY
Rubicon is an emerging potential gold producer, focused on the responsible and environmentally sustainable development of its Phoenix Gold Project in Red Lake, Ontario. Rubicon has commenced initial gold production at the Phoenix Gold Project and is fully permitted for potential production to 1,250 tonnes per day. In addition, Rubicon controls over 100 square miles of prime exploration ground in the prolific Red Lake gold district and approximately 350 square miles of mineral property interests located in the emerging Long Canyon gold district that straddles the Nevada-Utah border in the United States. Rubicon’s common shares are listed on the NYSE MKT (RBY) and on the Toronto Stock Exchange (RMX).
Rubicon has substantially completed the construction of surface and mill infrastructure at its 100%-wholly owned Phoenix Gold Project in Red Lake, Ontario, and is currently in a trial stoping phase. Between October 1, 2013 and June 30, 2015, the Company has spent approximately $426 million on the construction and development of the Phoenix Gold Project. In 2013, the Company delivered an improved updated mineral resource estimate, with indicated resources totaling 1.129 million ounces of gold based on 4.12 million tonnes grading 8.52 grams per tonne of gold (“g/t Au”) and inferred resources totaling 2.219 million ounces of gold based on 7.45 million tonnes grading 9.26 g/t Au. In June 2015, the Company announced the first gold pour from the Phoenix Gold Project.
The Company delivered a positive PEA with an effective date of June 25, 2013 and an issue date of February 28, 2014. In the PEA, the Phoenix Gold Project would potentially generate an after-tax internal rate of return (“IRR”) and net present value (“NPV”) of 27% and $531.0 million, respectively, based on a gold price assumption of US $1,385 per ounce, and a CAD/USD exchange rate of 1.05:1.
Since the Company released the Preliminary Economic Assessment in 2013, Rubicon has conducted and completed a number of technical studies including a study assessing the crown pillar, a study and analysis of the results from a 38,000-metre infill and definition drilling program in the upper levels of the deposit, and a study and analysis of chip and muck samples collected from stope development. Considerable additional information will be collected on ground support, stoping methods and practices, dilution, and drill patterns during the trial stoping phase.
Rubicon’s strategy is to become a mid-tier gold producer, to increase the mineral resources through further exploration at its Phoenix Gold Project, and its extensive Red Lake holdings, and unlocking the value of its Nevada-Utah land packages.
HIGHLIGHTS
Phoenix Gold Project – Construction and Development Highlights
Phoenix Gold Project milestones include:
| | · | The Phoenix Gold Project successfully poured its first doré bar containing 742 gold ounces in June 2015. |
| | · | The construction and the commissioning of the mill circuit is complete. Rubicon processed waste and low-grade mineralized material during the commissioning phase of the mill. |
| | · | The Company completed the initial 8,023 m of planned underground development (both lateral and vertical) prior to the start of projected initial production. Rubicon has commenced trial stoping on the 244- and 305-metre levels from the initial two test stopes. The Company’s main objective is to optimize the stoping method and establish best stoping practices in a controlled environment before increasing tonnage towards permitted capacity. The Company is also developing five stopes which are planned for future stoping. |
| | · | The tailings infrastructure is ready to accept approximately two years of tailings. |
| | · | All surface and on-site construction is substantially complete. |
Construction and Development Update and Outlook
Rubicon has substantially completed the initial construction of surface and mill infrastructure at the Phoenix Gold Project. The project capital cost spent to June 30, 2015 at the Phoenix Gold Project was approximately $426 million. The Company has completed the commissioning phase of the mill and has commenced trial stoping and is progressing with ongoing underground development and infrastructure construction. Rubicon estimates that approximately $26 million of sustaining capital is required for the remainder of 2015 on underground development and underground infrastructure construction. Declaration of commercial production will be primarily based on achieving an average throughput of 70% of 1,250 tonnes per day (“tpd”) or 875 tpd for at least 60 consecutive days.
Exploration
Rubicon has completed 9,553 metres (“m”) in 21 holes of surface exploration drilling that focused on target areas located within a one-kilometre radius north of ongoing underground development at the Project. This program revisits the high-grade intercepts discovered from previous drilling on the Carbonate Zone (“CARZ”), as well as commencing an initial wide-spaced drilling program to test the northern extension of the F2 deposit. The highlighted assay results (previously unpublished) from exploration drilling include:
CARZ Hanging Wall
| | · | PR-15-11: | 24.17 grams per tonne of gold (“g/t Au”) over 2.00 m |
| | | | 4.88 g/t Au over 10.50 m (including 6.43 g/t Au over 7.00 m) |
| | · | PR-15-16: | 8.48 g/t Au over 3.25 m (including 11.10 g/t Au over 2.25 m) |
| | · | PR-15-19: | 8.43 g/t Au over 1.05m 2.30 g/t Au over 12.00 m (including 5.76 g/t Au over 2.00 m) |
CARZ
| | · | PR-15-09: | 7.84 g/t Au over 1.50m |
Details of historical drilling results are available on the Company’s web site at www.rubiconminerals.com.
Further drilling of the F2 Gold System North is warranted in the long-term, once Rubicon is in a positive cash flow position. Future drilling programs will infill the high-grade gold intersections and test the down-plunge continuity of the CARZ, which remains open to depth. It will also continue to test high-interest areas within the F2 Gold System regional trend.
THE PEA1
On June 25, 2013 the Company announced positive results and highlights from a preliminary economic assessment and an updated mineral resource estimate completed by SRK for the F2 Gold System,
which comprises part of the Company’s flagship Phoenix Gold Project, located in Red Lake, Ontario. A technical report documenting the preliminary economic assessment was filed on SEDAR on August 9, 2013 in accordance with the requirements of National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”). The preliminary economic assessment filed on August 9, 2013 was superseded in full by the PEA dated effective June 25, 2013 and filed on SEDAR on February 28, 2014. The report can be viewed at www.sedar.com, www.sec.gov/edgar.shtml and the Company’s website at www.rubiconminerals.com. The summary below does not take into account the review by the Company of planned construction schedules.
Updated Phoenix Gold Project Mineral Resource Estimate Highlights:
| ● | Increased indicated mineral resources by 111% to 1.129 million ounces of gold in 4.12 million tonnes grading 8.52 g/t Au using a 4.0 g/t Au cut-off grade; |
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| ● | Block model demonstrates substantial continuity of mineralization and an average horizontal thickness of 7.8 m (based on 4.0 g/t Au cut-off estimated using tonne weighted average thickness per level); |
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| ● | Reported inferred mineral resources of 2.219 million ounces of gold on 7.45 million tonnes grading 9.26 g/t Au using a 4.0 g/t Au cut-off grade; and |
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| ● | Updated mineral resource estimate includes approximately 116,000 m of additional drilling (90% infill) since the 2011 mineral resource estimate. |
Recommendation from SRK and Continuing Studies
SRK determined that the results of the PEA support the continued advancement of the Phoenix Gold Project and work related to further technical studies. No production decision was made at the time of filing of the PEA. SRK concluded that such a decision, if reached, would require additional technical studies and ongoing evaluation by Rubicon of the construction and development of the Phoenix Gold Project and would not be based solely on the PEA.
ABORIGINAL CONSULTATIONS
Consultations are ongoing with local First Nation and Métis communities.
Rubicon holds approximately 100 square miles of additional mineral claims in the Red Lake area which were acquired for their high geological potential to host gold mineralization. Due to the Company’s focus on developing the Phoenix Gold Project, exploration of these additional properties has been deferred to a future date, however, the Company considers these projects to be of strategic importance for future exploration. The Company is continuing the geological compilation studies on several of its Red Lake projects to identify targets for future exploration programs.
UNITED STATES EXPLORATION
Nevada and Utah Properties in the Long Canyon Gold District
Rubicon controls approximately 350 square miles of variable fee simple mineral property interests in the emerging Long Canyon gold district that straddles the Nevada-Utah border in the United States (“Nevada Properties”).
West Kirkland Mining Inc. (“West Kirkland”) held an option over the Nevada Properties and did not complete the required minimum earn in expenditures during 2014. As a result, Rubicon terminated the agreement effective February 18, 2015. West Kirkland had spent approximately US$3 million on preliminary test work and drilling in four main targets: Toano, Lewis Spring, 12 Mile and Bandito. Rubicon has begun the process of exploring options to obtain value for its Nevada Properties and continues to believe the properties are highly prospective.
For more information on the Nevada Properties targets, please visit our website at www.rubiconminerals.com under “Projects”. Rubicon has begun the process of exploring options to obtain value for the Nevada Claims and continues to believe the properties are highly prospective.
CORPORATE DEVELOPMENTS
CPPIB Loan Facility
On May 12, 2015, the Company entered into a secured loan facility with CPPIB Credit Investments Inc (“CPPIB”) for US$50.0 million (“Loan Facility”). The Loan Facility bears interest at a rate of 7.5% per annum payable in cash on a quarterly basis. The principal is payable on or before the maturity date based on cash flow availability, the maturity date being May 12, 2020. The Loan Facility is secured by a pledge of all Company owned assets. The US$50.0 million was drawn on May 12, 2015 and the Company granted CPPIB 10,000,000 common share purchase warrants (“Warrants”) exercisable on or before May 12, 2020, at a price of $1.715 per Warrant. Transaction costs related to the Loan Facility amounted to $2.7 million. The proceeds from the Loan Facility will be used for the development of the Phoenix Gold Project and to provide adequate working capital and flexibility to optimize the Project.
Flow-Through Share Issuance
On April 9, 2015, the Company closed a public flow-through share offering of 23,600,000 common shares on a “flow-through” basis under the Income Tax Act (Canada) at a price of $1.28 per flow-through share for aggregate gross proceeds of $30.2 million. The Company incurred share issuance costs of $2.0 million including an underwriter’s commission representing 5% of the gross proceeds. As at June 30, 2015, the Company estimates it has spent $23.3 million on eligible expenditures. The Company expects the full amount of the offering will be renounced to investors with an effective renunciation date of December 31, 2015. The gross proceeds from the Offering will be used to incur eligible Canadian Exploration Expenses.
Long-Term Electricity Cost Savings Program
On May 20, 2015, the Company was accepted into the Industrial Electricity Incentive Stream 3 Program (“IEI Program”). As part of the 9-year IEI Program, the Company anticipates an average electricity cost saving of approximately $4.0 million per full year of operations based on 2014 electricity rate information. The IEI Program is expected to commence in the fourth quarter of 2015. On May 20, 2015, the Company posted a deposit of $1.1 million as part of the terms of this agreement.
Power Agreements
In February 2015, the Company entered into a series of agreements to secure the remaining electric grid power requirements for the Phoenix Gold Project. On February 25, 2015, the Company posted security of $7.8 million, in the form of a letter of credit, to secure these obligations.
The cost to the Company as a result of these agreements is dependent on a number of factors including the cost to construct the required power line upgrades and power usage levels over the life of the agreements. During the second quarter of 2015 the Company accrued a provision in the amount of $6.6 million related to these agreements. The cost of the infrastructure power agreements, in excess of amounts accrued, is estimated to be between $2.7-$16.5 million, and expected to be settled between 2016 and 2018.
Employee Share Purchase Plan
On June 24, 2015, at the Company’s annual general and special meeting of shareholders, shareholder approval was granted for the establishment of the Employee Share Purchase Plan (“ESPP”). The ESPP is designed to advance the Company’s interests by encouraging officers and employees to acquire equity in the Company by way of acquisition of common shares through the ESPP. Officers and employees of the Company are entitled to contribute up to 6% of their annual gross base salary to the ESPP and the Company will contribute an amount equal to 50% of each ESPP participant’s contribution. The combined contribution will then be used to purchase common shares of the Company from treasury on a quarterly basis. The ESPP is expected to commence in 2016.
Long Term Incentive Plan
In the first quarter of 2015 the Company established a Long-Term Incentive Plan consisting of Restricted Share Units (“RSU”) and Performance Share Units (“PSU”) for directors and certain employees of the Company. On June 24, 2015, at the Company’s annual general and special meeting of shareholders, shareholder approval was obtained to modify the terms of the RSUs and PSUs, at the discretion of the Board, to issue of the equivalent number of common shares in lieu of a cash payment.
QUALIFIED PERSONS AND QUALITY ASSURANCE
Phoenix Gold Project drill core assays were conducted on sawn NQ-sized half core sections. The saw blade is routinely cleaned between samples when visible gold is noted during logging and sampling of the drill core. All assays were conducted by SGS Minerals Services using standard fire assay on a 50 gram (1 assay ton) sample with a gravimetric finish procedure. Assays are uncut as is standard practice in Red Lake. Standards, blanks and check assays were included at regular intervals in each sample batch. Check assays on 5% of samples are carried out by ALS Minerals, a third party independent laboratory. Gold standards were prepared by CDN Resource Laboratories Ltd.
The content relating to the PEA has been read and approved by SRK staff including Mr. Sébastien Bernier, P.Geo., Principal Consultant (Resource Geology), Mr. Glen Cole, P.Geo., Principal Consultant (Resource Geology), and Mr. Stephen Taylor P. Eng., Principal Consultant (Mining) and Mr. Pierre Roy, ing., P. Eng., of Soutex Inc., all independent Qualified Persons as defined by NI 43-101. The PEA was prepared by SRK with metallurgical and processing contributions from Soutex Inc. Individual contributing authors are Mr. Sébastien Bernier, Mr. Glen Cole, Mr. Stephen Taylor, and Mr. Dan Hewitt of SRK and Mr. Pierre Roy ing., P. Eng., of Soutex Inc. All are independent Qualified Persons as defined by NI 43-101.
Phoenix Gold Project operations, including engineering studies and ongoing development are currently supervised and verified by, and except with respect to the third party prepared PEA, any operating technical data disclosed in this MD&A has been verified by, and the technical operating disclosures in this MD&A, have been approved by Bill Shand, P. Eng., Vice President Operations for Rubicon, a Qualified Person as defined in NI 43-101.
Mark Ross, B.Sc., P. Geo., Chief Mine Geologist for the Company and Howard Bird, B.Sc. (Hons.), P.Geo., Vice President, Exploration for the Company, are Qualified Persons and employees of the Company and have reviewed and approved the disclosure of technical and scientific information included in this MD&A.
RISKS AND UNCERTAINTIES
The success of the Company depends upon a number of factors, many of which are beyond the control of Rubicon. Typical risk factors and uncertainties, among others, include political risks, financing risks, title risks, commodity prices, exchange rate risks, permitting risks, operating and environmental hazards encountered in the exploration, development and mining business and changing laws and public policies. Risk factors are more fully described in our Annual Information Form (“AIF”), dated March 27, 2015, for the year ended December 31, 2014, on file at www.sedar.com and www.sec.gov/edgar.shtml.
OPERATING RESULTS
Three Months ended June 30, 2015 compared to the Three Months ended June 30, 2014
For the three months ended June 30, 2015 the Company had net income of $1.1 million and net income per share of $0.00 compared to a net loss of $3.0 million and a net loss per share of $0.01 for the three months ended June 30, 2014, an increase of $4.1 million. Comprehensive income for the three months ended June 30, 2015 was $1.1 million compared to comprehensive loss of $2.7 million for the prior year comparative period, an increase of $3.8 million.
Significant factors in line items that caused the change in net loss and comprehensive loss for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014 were as follows:
| | ● | Salaries and benefits increased by $0.7 million primarily due to the addition of administrative staff to support the Company’s increased operations; |
| | ● | Share based compensation increased by $0.6 million primarily due to the introduction of a long-term incentive plan and the timing of issuance of increased stock options in the current year; |
| | ● | Interest and other income decreased by $0.4 million primarily due to a lower average carried balance and lower interest rate earned on cash and cash equivalents in the current period as compared to the preceding prior-year period; |
| | ● | Foreign exchange gains increased by $1.0 million due to movement in the Canadian / US dollar exchange rate and its effect on the Company’s Gold Stream Facility and Loan Facility liabilities, which are denominated in US dollar, and on the US dollar denominated cash and cash equivalents held by the Company; |
| | ● | Other fair value adjustment on the financial liabilities increased by $3.9 million primarily due to changes in forecasted gold price, interest rates, accretion, and share price. |
| | ● | Deferred income tax recovery increased by $1.2 million due to use of funds from the Flow-Through Shares issuance and resulting amortization of the flow-through share premium liability. |
| | ● | Other comprehensive income decreased by $0.2 million on fair value adjustment of available for sale financial instruments in the preceding year period; the Company disposed of these assets in the current year. |
Six Months ended June 30, 2015 compared to the Six Months ended June 30, 2014
For the six months ended June 30, 2015 the Company had a net loss of $8.3 million and a net loss per share of $0.02 compared to a net loss of $7.3 million and a net loss per share of $0.02 for the six months ended June 30, 2014, an increased loss of $1.0 million. Comprehensive loss for the six months ended June 30, 2015 was $8.4 million compared to comprehensive loss of $7.0 million for the prior year comparative period, a decrease of $1.4 million.
Significant factors in line items that caused the change in net loss and comprehensive loss for the six months ended June 30, 2015 as compared to the six months ended June 30, 2014 were as follows:
| | ● | Consulting and professional fees decreased by $2.0 million due to non-recurring professional and advisory fees incurred during the first quarter of 2014 in connection with the Gold Stream Facility; |
| | ● | Salaries and benefits increased by $1.1 million primarily due to the addition of administrative staff to support the Company’s increased operations; |
| | ● | Share based compensation increased by $1.4 million primarily due to the introduction of a long-term incentive plan and the timing of issuance of increased stock options in the current year; |
| | ● | Interest and other income decreased by $0.4 million primarily due to a lower average carried balance and lower interest rate earned on cash and cash equivalents in the current period as compared to the preceding prior-year period; |
| | ● | Foreign exchange losses increased by $3.5 million due to movement in the Canadian / US dollar exchange rate and its effect on the Company’s Gold Stream Facility and Loan Facility liabilities, which are denominated in US dollar, and on the US dollar denominated cash and cash equivalents held by the Company; |
| | ● | Other fair value adjustment on the financial liabilities increased by $2.6 million primarily due to changes in forecasted gold price, interest rates, accretion, and share price. |
| | ● | Deferred income tax recovery increased by $1.2 million due to use of funds from the Flow-Through Shares issuance and resulting amortization of the flow-through share premium liability. |
| | ● | Other comprehensive income decreased by $0.4 million on fair value adjustment of available for sale financial instruments in the preceding year period; the Company disposed of these assets in the current year. |
SUMMARY OF QUARTERLY RESULTS
The following results are based on the unaudited condensed consolidated interim financial statements.
| | | 2015 Second Quarter | | | 2015 First Quarter | | | 2014 Fourth Quarter | | | 2014 Third Quarter | | | 2014 Second Quarter | | | 2014 First Quarter | | | 2013 Fourth Quarter | | | 2013 Third Quarter | |
| | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | |
| Interest and other income | | | 205 | | | | 133 | | | | 352 | | | | 505 | | | | 575 | | | | 235 | | | | 299 | | | | 371 | |
| (Gain) loss on sale of investments | | | - | | | | 24 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2 | ) |
| Net income (loss ) | | | 1,066 | | | | (9,376 | ) | | | (2,836 | ) | | | (1,052 | ) | | | (2,959 | ) | | | (4,308 | ) | | | (2,081 | ) | | | (3,038 | ) |
| Basic and fully diluted net income (loss) per share | | | 0.00 | | | | (0.03 | ) | | | (0.01 | ) | | | (0.00 | ) | | | (0.01 | ) | | | (0.01 | ) | | | (0.01 | ) | | | (0.01 | ) |
Annual totals in the table may differ slightly from annual reported amounts due to rounding.
Overall, quarterly losses should tend to increase due to increased administration costs to support an expanding exploration and development program. Other factors generally causing significant variations in results between quarters include share-based compensation, fair value adjustments on the Gold Stream Facility, fair value adjustment on the Warrant Liability, foreign exchange gains and losses, gain or loss on sale of investments and mineral property option payments received in excess of property costs. See operating results, above, for discussion of movement in net income (loss) for the three and six months ending June 30, 2015 as compared to net income (loss) for the three and six months ending June 30, 2014.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $58.2 million at June 30, 2015 compared to $82.8 million at December 31, 2014. Working capital decreased in the current year by $24.6 million, primarily due to development expenditures and other costs incurred during the year on the Phoenix Gold Project.
On April 9, 2015, the Company closed a bought deal private placement financing of 23,600,000 common shares on a “flow-through” basis under the Income Tax Act (Canada) at a price of $1.28 per flow-through share for aggregate gross proceeds of $30.2 million. The gross proceeds from the offering will be used to incur eligible Canadian Exploration Expenses. The proceeds are inclusive of an overallotment option that was fully exercised on closing. In connection with the offering, the Company incurred share issuance costs of $2.0 million including an underwriter’s commission representing 5% of the gross proceeds.
On May 12, 2015, the Company entered into a financing agreement with CPPIB Credit Investments Inc., a wholly-owned subsidiary of the CPPIB, for a US$50 million secured Loan Facility. The Loan Facility has a five-year term that will mature on May 12, 2020, with the entire principal amount payable at maturity. The Loan Facility bears an annual cash interest rate of 7.5%, compounded quarterly. In consideration for the Loan Facility, the Company issued 10,000,000 warrants to CPPIB. Each warrant gives the holder the right to purchase one common share in the Company for a price of $1.715 exercisable up to and including May 12, 2020.
CASH FLOWS
Three Months ended June 30, 2015 compared to the Three Months ended June 30, 2014
For the three months ended June 30, 2015, the Company had net cash inflows of $19.4 million compared to net cash outflows of $27.3 million in the three months ended June 30, 2014, an increase of net cash inflows of $46.7 million. Proceeds from financing activities, partially offset by spending on the Phoenix Gold Project, contributed to the net cash inflows increase for the current period.
Operating Activities
Net cash from operating activities was $4.0 million for the three months ended June 30, 2015 compared with net cash used in operating activities of $3.1 million for the three months ending June 30, 2014, representing an increase of net cash inflow of $7.1 million. The increase in cash used in operating activities was a result of increases in non-cash working capital primarily due to payment of trade payables and accrued liabilities, and a decrease in the net loss as discussed in operating results above.
Investing Activities
$71.5 million of net cash was used in investing activities for the three months ended June 30, 2015 compared with net cash used in investing activities of $22.9 million for the three months ended June 30, 2014, a difference of $48.6 million between periods. The change was due to an increase in expenditures related to the construction of the Phoenix Gold Project in the current year partially off-set by proceeds from restricted cash.
Financing Activities
Financing activities generated $85.5 million of cash in the three months ended June 30, 2015 as the Company issued Flow-Through Common Shares, for net proceeds of $28.1 million, and entered into a Loan Facility for net proceeds of $57.7 million. Net cash used in the three months ending June 30, 2014 were $0.2 million reflecting minimal financing activities.
Six Months ended June 30, 2015 compared to the Six Months ended June 30, 2014
For the six months ended June 30, 2015, the Company had net cash outflows of $42.8 million compared to net cash inflows of $104.5 million in the six months ended June 30, 2014, an increase of net cash outflows of $147.3 million. Increases in spending at the Phoenix Gold Project and reduction in proceeds from financing activities contributed to the net cash outflows increase for the current period.
Operating Activities
Net cash used in operating activities was $9.6 million for the six months ended June 30, 2015 compared with net cash used in operating activities of $3.8 million for the six months ending June 30, 2014, representing an increase of net cash outflow of $5.8 million. The increase in cash used in operations results from significant changes in non-cash working capital primarily due to payment of trade payables and accrued liabilities, and an increase in the net loss as discussed in operating results above.
Investing Activities
$138.1 million of net cash was used in investing activities for the six months ended June 30, 2015 compared with net cash used in investing activities of $31.0 million for the six months ended June 30, 2014, a difference of $107.1 million between periods. The change was due in part to an increase in expenditures related to the construction of the Phoenix Gold Project in the current year. Additionally, no temporary investments matured in the current period compared to $10 million that matured during the six months ended June 30, 2014, and cash used in restricted cash of $5.8 million in the six months ended June 30, 2015 compared to cash proceeds from restricted cash of $3.9 million during the six months ended June 30, 2014.
Financing Activities
Financing activities generated $101.0 million of cash in the six months ended June 30, 2015 as the Company received the final deposit from the Gold Stream Facility, issued Flow-Through Common Shares, and entered into a Loan Facility. Proceeds from financing in the six months ending June 30, 2014 were $140.5 million primarily due to a public offering and proceeds from the Gold Stream Facility.
FINANCIAL INSTRUMENTS
The Company’s financial instrument policies and fair values by category are described in Notes 2, 4, 14 and 15 to the financial statements. Overall, the Company’s most significant risk exposure relates to its cash and cash equivalents, Warrant Liability, and Gold Stream Facility.
The Company’s paramount concern with respect to cash and cash equivalents balances is preservation of capital and therefore, during the period, authorized investments were restricted to instruments guaranteed by the Government of Canada or a Province of Canada or high-grade money market instruments.
The Company entered into a Gold Stream Facility in 2014 as described herein under the section “Significant accounting judgments and sources of estimation uncertainty”. Calculation of the Gold Stream Facility fair value is subject to risks and uncertainties related to variables contained in the Company’s valuation model. Management seeks to mitigate these risks in consideration of experience, internal and external sources of information and expectations of future events that management believes to be reasonable in the circumstances.
The Company entered into a Warrant Liability in 2015 as described herein under the section “Significant accounting judgments and sources of estimation uncertainty”. Calculation of the Warrant Liability fair value is subject to risks and uncertainties related to variables contained in the Black-Scholes option pricing model.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements, other than commitment and contingencies, as described in Note 20 to the Financial Statements.
PROVISION FOR CLOSURE AND RECLAMATION
The Company has an obligation to close and rehabilitate the Phoenix Gold Project site upon its abandonment.
The estimated closure costs of the Phoenix Gold Project based on the period-end condition of the site were inflation adjusted to the estimated date of site remediation, which is 14 years from June 30, 2015, and then discounted back to the year-end using an estimate of the risk-free rate of 1.68%. The provision for closure and reclamation as at June 30, 2015 increased to $2.5 million (December 31, 2014 - $2.3 million) with the increase, after accretion of the discount of the prior estimate, added to exploration and evaluation assets.
On April 10, 2015, the Company replaced a restricted deposit with a surety bond in the amount of $3.5 million as security for reclamation and closure obligations of the Phoenix Gold project with the Ontario
Ministry of Northern Development and Mines (“MNDM”). As of June 30, 2015, the Company has deposited a total of $nil (December 31, 2014 - $3.4 million) with the MNDM.
COMMITMENTS AND CAPITAL LEASE OBLIGATIONS
At June 30, 2015, the Company has the following contractual, capital and operating lease and rental commitments:
| | Payments due by period | |
| Contractual Obligations | Total | | Less than 1 year | | 1-3 Years | | 3-5 years | | More than 5 years | |
| Loan Facility | $ | 62,370 | | Nil | | Nil | | $ | 62,370 | | Nil | |
Gold Stream Facility (1) | $ | 92,827 | | Nil | | Nil | | Nil | | $ | 92,827 | |
| Capital (Finance) Lease Obligations | $ | 7,735 | | $ | 1,564 | | $ | 5,109 | | $ | 1,062 | | Nil | |
| Lease and Rental Obligations | $ | 1,450 | | $ | 527 | | $ | 603 | | $ | 320 | | Nil | |
| Purchase Obligations | $ | 4,303 | | $ | 4,303 | | Nil | | Nil | | Nil | |
| Provision for power agreements | $ | 6,600 | | Nil | | $ | 6,600 | | Nil | | Nil | |
Other Long-Term Contractual Obligations reflected on the
Company’s Balance Sheet under the primary
financial statements | | Nil | | Nil | | | Nil | | Nil | | Nil | |
| TOTAL | $ | 175,285 | | $ | 6,394 | | $ | 12,312 | | $ | 63,752 | | $ | 92,827 | |
(1)Subject to change see Note 15 “Gold Stream Facility” within the Notes to the Financial Statements for further discussion of this obligation.
The Company is required to make certain cash payments and incur exploration costs to maintain its mineral properties in good standing. These payments and costs are at the Company’s discretion and are based upon available financial resources and the exploration merits of the mineral properties which are evaluated on a periodic basis.
In February 2015, the Company entered into certain agreements necessary to secure the remaining hydroelectric grid power requirements for the Phoenix Gold Project once it enters production. The cost to the Company as a result of these agreements is dependent on a number of factors including the cost to construct the required power line upgrades. As of June 30, 2015 the estimated cost of these agreements, in excess of amounts accrued and as described in Note 13 to the Financial Statements - Provisions and Other Liabilities, is estimated to be between $2.7 million and $16.5 million. The balance remains unaccrued as it is contingent on uncertain future events.
CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES
The Company’s accounting policies are described in detail in Note 2 of the December 31, 2014 annual consolidated financial statements. The Company considers the following judgments and estimates to be most critical in understanding its financial results:
Significant accounting judgments and sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts and the valuation of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the period reported. Management uses its best estimates for these purposes, based on assumptions that it believes reflect the most probable set of economic conditions and planned courses of action. Estimates of the future price of gold pose a significant risk to the valuation of the Phoenix Gold Project and the impairment review of carrying values as described below.
Impairment of non-current non-financial assets
The Company reviews and evaluates the carrying value of each of its non-current non-financial assets for impairment when events or changes in circumstances indicate that the carrying amounts of the related asset may not be recoverable. The identification of such events or changes and the performance of the assessment requires significant judgment. Furthermore, management’s estimates of many of the factors relevant to completing this assessment, including commodity prices, foreign currency exchange rates, mineral resources, and operating, capital and reclamation costs, are subject to risks and uncertainties that may affect the determination of the recoverability of the carrying amounts of its non-current non-financial assets.
The determination of fair value and value in use requires management to make estimates and assumptions about expected production and sales volumes, gold prices, mine plan estimates, operating costs, mine closure and restoration costs, future capital expenditures and appropriate discount rates for future cash flows. The estimates and assumptions are subject to risk and uncertainty and, as such, there is the possibility that changes in circumstances will alter these projections, which may impact the recoverable amount of the assets. In such circumstances, some or all of the carrying value of the assets may be further impaired or the impairment charge reduced with the impact recorded in the statement of income.
As at June 30, 2015, management of the Company determined that the volatile price of gold, escalating costs in the industry and the Company’s depressed share price had not resulted in a market capitalization below the carrying amount of the Company’s net assets indicating that the assets were not impaired. Although the result of this test did not indicate impairment, the Company completed an impairment assessment for the Phoenix Gold Project that included an estimate of the Project’s value in use.
Key assumptions incorporated in the impairment model included the following:
| | ● | Long term gold price: US$1,263/oz. |
| | ● | Life of Mine gold head grade: 8.06 grams/tonne |
| | ● | Life of Mine average operating costs: $154 /tonne mineralized material milled |
| | ● | Canadian / US dollar exchange rate: 1.17 |
| | ● | Production volume and recoveries as indicated in the Company’s Technical Report filed on SEDAR February 28, 2014 |
Management’s impairment assessment did not result in the identification of an impairment loss as of June 30, 2015. Although management believes the estimates applied in these impairment assessments are reasonable, such estimates are subject to significant uncertainties and judgments. Sensitivities to changes in gold price, grade, and estimated operating costs, that differ from current projections, and increases to estimated capital costs might trigger an impairment that could be material.
Financial liabilities at fair value through profit and loss
As discussed in Note 14 to the Financial Statement – Warrant Liability, the Company entered into a secured loan facility with CPPIB for US$50.0 million on May 12, 2015. As part of the loan facility the Company granted CPPIB 10,000,000 Warrants exercisable on or before May 12, 2020, at a price of $1.715 per Warrant. The Company reviewed the terms of the Warrant agreement and determined that IAS 39 Financial Instruments: Recognition and Measurement is the applicable standard under which the accounting for the agreement should be evaluated. As the Warrant agreement meets the criteria for treatment as a financial liability through profit and loss, the Company designated it as such with initial and subsequent measurement at fair value.
Fair value of the Warrants Liability on initial recognition and in subsequent periods is determined using the Black-Scholes option pricing model. Subsequent fair value is calculated on each reporting date with gains and losses recorded in profit and loss as other fair value adjustments.
As discussed in Note 15 to the Financial Statements - Gold Stream Facility, the Company entered into a Gold Stream Facility with Royal Gold on February 10, 2014. The Company reviewed the terms of the agreement and determined that IAS 39 Financial Instruments: Recognition and Measurement is the applicable standard under which the accounting for the agreement should be evaluated. In accordance with this standard, the Company concluded that the agreement represents an embedded derivative within a host debt instrument (purchase and sale agreement for gold). As the entire hybrid contract meets the criteria for treatment as a financial liability through profit and loss, the Company has designated it as such with initial and subsequent measurement at fair value. Transaction costs directly attributable to the Gold Stream Facility are expensed through profit and loss as incurred.
Fair value of the Gold Stream Facility on initial recognition is determined by the amount of the cash advance received. Subsequent fair value is calculated on each reporting date with gains and losses recorded in profit and loss as fair value and foreign exchange adjustments. Components of the adjustment to fair value at each reporting date include:
| | ● | Accretion expense due to passage of time |
| | ● | Change due to movement in USD/CAD exchange rate as the liability is incurred in USD |
| | ● | Change in the risk free interest rate |
| | ● | Change in the Company specific credit spread |
| | ● | Change in any expected gold ounces to be delivered |
| | ● | Change in forward gold price forecast |
Estimates and assumptions underlying the fair value calculations are reviewed on an ongoing basis in consideration of experience, internal and external sources of information and expectations of future events that management believes to be reasonable in the circumstances.
CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
IFRS 15, “Revenue from Contracts with Customers”
In May 2014, the IASB and the Financial Accounting Standards Board (“FASB”) completed its joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for IFRS and United States Generally Accepted Accounting Principles (“US GAAP”). As a result of the joint project, the IASB issued IFRS 15, Revenue from Contracts with Customers (“IFRS 15”). IFRS 15 establishes principles to address the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.
IFRS 15 will be effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. We are currently assessing the effect of this standard on our financial statements.
IFRS 9, “Financial Instruments”
The IASB issued its completed version of IFRS 9, Financial Instruments (“IFRS 9”) in July 2014. The completed standard provides revised guidance on the classification and measurement of financial assets. It also introduces a new expected credit loss model for calculating impairment for financial assets. The new hedging guidance that was issued in November 2013 is incorporated into this new final standard.
This final version of IFRS 9 will be effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. We are currently assessing the effect of this standard on our financial statements.
OUTSTANDING SHARE DATA
As at August 13, 2015, the Company had the following:
| Common shares | 394,752,832 |
RSUs(1) | 506,767 |
PSUs(1) | 1,398,279 |
Stock options(1) | 17,728,947 |
Warrants (1) | 10,000,000 |
| Fully diluted share capital | 424,386,825 |
| (1) | Each RSU, PSU, Option, and Warrant entitles the holder to one Common Share. |
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
ADDITIONAL INFORMATION
Additional information on the Company, including the AIF and other public filings, are available on SEDAR at www.sedar.com.
FORWARD-LOOKING STATEMENTS
FORWARD-LOOKING STATEMENTS AND OTHER CAUTIONARY INFORMATION
This MD&A contains statements that constitute “forward-looking statements” and “forward looking information” (collectively, “forward-looking statements”) within the meaning of applicable Canadian and United States securities legislation. Forward-looking statements include, but are not limited to statements regarding the Company’s plans in respect of its construction, development and outlook for the Phoenix Gold Project, the Company’s expectations in respect of the continuity, mineralization and grade of its deposits, the anticipated proceeds of the Loan Facility, the anticipated electricity cost savings the Company will realize in connection with the IEI Program, the expected costs and timing of settlement of the infrastructure power agreements and the expected commencement of the ESPP.
Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made and represent management’s best judgment based on facts and assumptions that management considers reasonable. The material assumptions upon which such forward-looking statements are based include, among others, that: the demand for gold and base metal deposits will develop as anticipated; the price of gold will remain at levels that will render the Phoenix Gold Project economic; operating and capital plans will not be disrupted by operational issues, power supply, labour disturbances, or adverse weather conditions; Rubicon will meet its estimated timeline for the development of the Phoenix Gold Project; Rubicon will continue to have the ability to attract and retain skilled staff; the mineral resource estimate as disclosed in the Preliminary Economic Assessment with an effective date of June 25, 2013 and with an issue date of February 28, 2014 (the “PEA”) will be realized; and there are no material unanticipated variations in the cost of energy or supplies, or in the pre-production capital and operating cost estimate as disclosed in the PEA.
Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Rubicon to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others: possible variations in mineralization, grade or recovery or throughput rates; actual results of current exploration activities; actual results of reclamation activities; conclusions of future economic evaluations; changes in project parameters as plans continue to be refined; failure of equipment or processes to operate as anticipated; accidents and other risks of the mining industry; delays and other risks related to construction activities and operations; timing and receipt of regulatory approvals of operations; the ability of Rubicon and other relevant parties to satisfy regulatory requirements; the availability of financing for proposed transactions, programs and working capital requirements on reasonable terms; the ability of third-party service providers to deliver services on reasonable terms and in a timely manner; market conditions and general business, economic, competitive, political and social conditions.
The PEA is preliminary in nature as it includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves and there is no certainty that the PEA will be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability. The quantity and grade of reported inferred resources referred to in the PEA are uncertain in nature and there has been insufficient exploration to define these inferred resources as an indicated or measured mineral resource category.
It is important to note that the information provided in this MD&A is preliminary in nature. There is no certainty that a potential mine will be realized. A mine production decision that is not based on a feasibility study demonstrating economic and technical viability does not provide adequate disclosure of the increased uncertainty and specific risks of failure associated with such a production decision.
Forward-looking statements contained herein are made as of the date of this MD&A and Rubicon disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise, except as required by applicable securities laws. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
Cautionary Note to U.S. Readers Regarding Estimates of Indicated and Inferred Resources
This MD&A uses the terms “measured” and “indicated” mineral resources and “inferred” mineral resources. The Company advises U.S. investors that while these terms are recognized and required by Canadian securities administrators, they are not recognized by the SEC. The estimation of “measured” and “inferred” mineral resources involves greater uncertainty as to their existence and economic feasibility than the estimation of proven and probable reserves. The estimation of “inferred” resources involves far greater uncertainty as to their existence and economic viability than the estimation of other categories of resources. It cannot be assumed that all or any part of a “measured”, “inferred” or “indicated” mineral resource will ever be upgraded to a higher category.
Under Canadian rules, estimates of “inferred mineral resources” may not form the basis of feasibility studies, pre-feasibility studies or other economic studies, except in prescribed cases, such as in a preliminary economic assessment under certain circumstances. The SEC normally only permits issuers to report mineralization that does not constitute “reserves” as in-place tonnage and grade without reference to unit measures. Under U.S. standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. U.S. investors are cautioned not to assume that any part or all of a “measured”, “indicated” or “inferred” mineral resource exists or is economically or legally mineable. Information concerning descriptions of mineralization and resources contained herein may not be comparable to information made public by U.S. companies subject to the reporting and disclosure requirements of the SEC.
Mineral Resources
Mineral resources that are not mineral reserves do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues. The quantity and grade of reported inferred resources in this estimation are uncertain in nature and there has been insufficient exploration to define these inferred resources as an indicated or measured mineral resource and it is uncertain if further exploration will result in upgrading them to an indicated or measured mineral resource category. The inclusion of inferred mineral resources are considered too speculative geologically to have the economic considerations applied to enable them to be categorized as mineral reserves. The mineral resources in this press release were reported using CIM Standards.
Qualified Persons
The content of this MD&A has been read and approved by Bill Shand, P.Eng., Vice President, Operations,, Howard Bird, B.Sc. (Hons.), P.Geo., Vice-President, Exploration, and Mark Ross, B.Sc., P.Geo., Chief Mine Geologist. All are Qualified Persons as defined by NI 43-101.
APPROVAL
The Board of Directors has approved the disclosure contained in this MD&A.
