RCO - Royalco Resources

[Ken]

well thanks for the heads up.

time will tell.

i bought some more at 50 cents.

Looking at the market depth and the way the stock trades, it looks like it will go up in a hurry when the positive news comes. There is not many buyers.... However the sellers are not putting any downward pressure on the price.


It is screaming opportunity at the moment to me...

 

[Ken]

hmm still flat on 49-51 cents. low volumes. good or bad....

how far along the line are we on exploration results being released.

 

[Ken]

annual general meeting this friday.

might pop along.

 

[Ken]

currently drilling Samay prospect as per attached Quarterly Report.

Both Pao and Gambang tenements are awaiting final access approvals as per the above report.

Once gained should be drilling at both locations during 1st quarter 2007. Both areas have extensive drilling programmes proposed through 2007 into 2008.

Following up drilling at Samay will also be conducted subject to results achieved from this current programme.

Malangza is in the final stages of approval and once completed requires further groundwork prior to selection of drill sites-hopefully second half 2007.

As indicated in the Prospectus, Pao and Gambang are the most prospective areas on what is known to date.

 

[Ken]

did anyone else go to the AGM.

was my first one that i have been too

I was pretty impressed. 2007 should be an exciting year with the Gambang exploration

 

[powwww]

Didn't make the AGM unfortunately Ken however was at the melbourne mining club Cutting Edge pres last night. Look out for audio/slides at this link. http://www.melbourneminingclub.com/cuttingedge.htm

I agree, 1st quarter 2007 could be impressive. Also grab the age theres an article in their on them worth reading.

See below an article on the company story from an international mining forum. Cheers,

powwww


Now onto this little company, in which I will say upfront I am a large shareholder in as are several associates, so I am extremely biased (to be kept in mind while reading).

Royalco Resources is a relatively new listing making its appearance in June 2006 without much fanfare. The fanfar was restricted by the fact that the total shares of the company were held 75% by the top 20 leaving bugger all free float (a lot less now!)

The performance of the shareprice has been anything but glorious and it is sitting currently at its listing price. No point putting a chart in given the average volume in the stock has been negligible for past few weeks (as has the price action).

So what is Royalco and why am I interested in the company.

First the brief version:

Royalco is a company involved in both exploration and royalties (unique in Australia). Its market cap is around 27 mill but it has around 10 mill in cash, and a imminent royalty of around 3-4 million pa from Oceanagolds Reefton project in NZ. Its exploration projects are mostly the old OXR Phillipines projects which are likely to throw up large porphyry gold/copper systems, and with the cash in the bank and royalty, exploration is fully funded without having to raise more capital (the achilles heel of most exploration companies).

The detailed version:

When I invest in small mining companies, and I've been doing it for almost 10 years, I have 5 core requirements that the company needs to meet, though the 5th one is a nice to have.

They are (in order of importance):

1. Quality Management/staff
2. Early or likely cashflow
3. Tight capital structure without a likely blowout
4. LARGE scale exploration projects
5. My broker needs to like it

A few companies (all Aussie) I've picked at the bottom that had all or most of these attributes for example were OXR (at 4c), IGO (at 30c), BSG (at 14c)...admittedly they were all when metal prices were down in the dumps...it wasnt brain surgery finding those and many more value situations...I'm sure you'll agree its a LOT HARDER to find a VALUE company in the junior mining sector these days!

But I think I've found one in RCO which meets each one of these in the following way:

1. Quality management/staff
The originators of the company were two fellows that have been on each others coattails for the last couple decades. Both ran Mineral Commodities and have been involved in in the corporate world for a while. They are NOT geos or exploration experts...but they know 'royalties' (see 2. below) and they have a very strong network in the industry...and its not that cowboy network in Western Australia either!

The exploration prowess comes from several areas. Tom Eadie, also a director, is one of the best geophysicists in Australia. Those that follow Copperstrike, another listed ASX company will note the board is pretty much the same as RCOs except in reverse. Basically Copperstrike is a keenly focussed exploration company. The two companies will share resources, and CSE's exploration team is second to none with Terry Lees and Steve Tambanis. (Note: CSE itself is definitely worth following!)

Further, RCO have been lucky enough to grab the services of Peter Lester from Oxiana (OXR is RCOs top shareholder). Peter was responsible for the Phillipines exploration areas of OXR, which OXR has divested into RCO in return for 10 million shares (and clawback rites - see 4 below)

2. Early cashflow
RCO's market cap at current shareprice is around $27M. Thats pretty high for a recently listed exploration company, specially given that its still at listing price...bit different from the dodgy 3-4 mill floats appearing on the ASX every second day.

So how does RCO meet the 'early cashflow' requirement, since it doesnt have any project ready to go?

ROYALTIES! As far as I know, RCO is the only listed ASX company with a focus on both royalties and exploration. And the first royalty is probably only 6-12 months with production starting at the project in a month or so. That royalty is on OceanaGolds Reefton project which has an initial minelife of around 7 years. At current gold price, the royalty should be worth the equivalent of around 3-4 million AUD to RCO...I say equivalent because the royalty is actually delivered in physical gold...so there is large exposure to the gold price.

So 3-4 million cashflow for 7 years...thats pure profit since of course there are no mining costs involved...that sticks it on a PE of about 7-10 depending on actual amount received and the fact that the companies previous tax losses should minimise tax for at least a couple years.

And thats only one royalty...it has several others, and is working on acquiring several others...since thats what it does, buy royalties...and what better place to get them from than from RIO TINTO's own royalty database (there is a reason that RIO has 7% of RCO and thats it!)

Two other imminent production royalties are Kagara (at Garnet - production to be recommenced in 2008/9 though likely to be much earlier according to Kagara due to high metal prices and good drill results) and CopperCo (cant remember project name but should commence prod next year).

Oh and the company also has $10 million in cash.

3. Tight capital structure and will stay that way
RCO only has around 56M shares on issue...of which around 72% is held by T20 shareholders in the latest annual report. I can guarantee its higher than 72% now, probably around 80-85%.

Unfortuantely it is too often you see small mining companies lose the plot and go on cheap capital raisings that raise money but destroy the potential for shareholder wealth...a company that I made this mistake in (but unfortunately was blind to the problem forming) was Integra Mining which before you knew it had gone from less than 100 mill shares to well over 200 mill...and they just did another rights issue.

I am glad to say the same will not happen with Royalco, for 3 reasons:

(a) Management have specifically told me that the last thing they want to do is have to issue more shares...hence the clawback rights with OXR...though of course if they find a project that is too small for OXR, but significant size for RCO then they may need to to develop it...but thats ok since thats 'development' raisings not 'exploration'

( their current cash balance is $10M and that should be sufficient for 2-3 years exploration

© the cashflow from Oceanagold royalty (see 2 above) at 3-4 million per year will more than fund ongoing exploration

4. Large scale exploration projects
I'm interested in companies that have projects that can become company makers...however they have to be quality projects. Im getting sick and tired of companies saying that their project is Olympic Dam style, or has affinities to Voisey Bay etc etc.

It is imperative that you take a look at the ground and see if a company is selling you a story, or ha some substance. RCO's exploration projects in the Phillipines have substance...they were former OXR projects and previous exploration results were extremely significant. Why did OXR give them away...well, firstly they got 10 mill shares in RCO for the divestment, secondly they have retained 50% clawback rights (for consideration) at certain resource levels, oh and at the time, they were working on a 'small little project' in LAOS called SEPON .

The core focus is to find large porphyry gold/copper systems, a bit like the Didipio projects owned by Climax (and now ironically by Oceanagold due to merger)...drilling is currently going on at Samay (this was a previous Phelps Dodge project), however that is a low priority target compared to the others...the real exitement will be when Malangza and Gambang get drilled imo (both just waiting on approvals)...worth taking a look at recent quarterly and the 'lost feasibility study'.

5. My broker needs to like it
Up until 3 years ago, I was pretty much going it alone, and doing very well if i do say so myself. However my own job got a bit hectic and decided I liked certain article I saw a particular broker writing, who was focussed on the junior explorer end of the mining sector. Anyway, its been a rewarding relationship, and he likes Royalco...and it is extremely hard to get him to a like any company other than the ones he likes.

So what we have is a well managed company with a imminent significant cashflow, cash already in the bank, and large exploration potential in projects that have more than a chance of throwing up so good stuff.

So why the boring share price. I and my associates have been wondering the same thing...but we think its a factor of the Aussie public not understanding the royalty story, and the illiquidity of the shares. It may take time, but eventually the market will sit up and take notice. I'm not into one night wonders by the way, prefer to make money investing in a company with a real future.

Hopefully starting tomorrow, with RCO presenting at the Melbourne Mining Club which Ill be a very interested spectator at.

Feel free to shoot me a PM or email if you want to discuss this, or any other Aussie mining company that I might know a bit about.

Cheers and happy investing

BuffetJr

 

[Ken]

RCO

not going anywher at present.

But there is no doubt in my mind that its found its base at 50 cents.

a big order for this stock of 160,000 shares was placed to sell at 50 cents.

there were no buyers on open within 20 minutes snapped up and gone.

i dont know what too make of it but i would say someone is accumulating a **** load at 50 cents. 160,000 is the biggest order i have seen in months with this one and would almost put them as a substantial holder.

still a flat stock at the moment. but interesting that hasnt dropped below issue price on volume.

 

[Ken]

RCO's last 10 trades since 8th of december now 12th....

8/10 of ten trades have been between $10,000 and $30,000.

purchases ranging around 52 to 50 cents.

I follow the stock closely.

The volumes are still low. But the size of the trades are usually only $4000 for a day!

now we are seeing trades of $30000 and some even $65000 in one hit.

something is up with this one.

2007 few things are happening.

If the big money was exiting you would have thought there would have been a more severe drop in price as people paniced. But looks like people smart money is taking place.

Powwww any updates buddy?

I still hold. I'll try get my holding up to 30,000 shares by end of january.

Deciding whether to put profits from T3 into this.

 

[Ken]

sellers are disappearing with RCO.

looks like could be the beginning of a small upward trend for the moment.

I know the market has risen a fair bit. but int he past RCO has been flat.

The announcement of the grant they received for phillipense looks positive also.

definitley big year for RCO once drilling starts.

$10 million in royalties, no capital raising.

proposed dividends

will hold and buy on the bad days...

 

[Ken]

RCO touching 55 cents is a good sign. not on big volume, but the sellers have disappeared.

i can see it gathering up to 60 cents, but on the flip side i can also see a big seller coming in and wiping it back down to 50 cents.

time will tell, but i still hold for the good times.

 

[Ken]

powwww

any updates, you seem to be all over RCO, any idea when its going to get moving.

I'd love to buy more but can see some shorter term gains at the minute.

do you think the overseas mining in the phillipines plays apart in the lack of share price movement?

 

[Ken]

it rocking now...

and i think its ready to roll...
market depth looks good.

once its through 60 cents i can see it heading further north rather quickly.

2007 big year for them....

explorer with cash flow...

and 75% owned substantial holder... these current volumes have been large for this stock considering it doesnt normally get much action..

 

[powwww]

Ken as you have read RCO is my top pick for 2007 for a number of reasons (not all listed).

"RCO Royalco Resources Ltd. www.royalco.com.au
1. $10 million cash, $30 million market cap
2. Reefton Royalty to kick in during 2007 with potential to generate in excess of $4million.
3. Substantial exploration upside from several highly mineralised tenements to be drilled 2007.
4. Modelled on US based royalty income company, Franco Nevada which averaged 30% gains over a 10 year period however didn't have the exploration upside RCO has.
5. Current price would be PE 5 of market cap minus cash when Reefton royalty kicks in mid 2007. This doesn't include exploration upside.
Rgds, Powwww"

 

[Ken]

well there is hardly anymore shares left to buy...

so i put mine up for sale at 90 cents... not going to get bought but they look good there!!

 

[powwww]

that was you ha, sniff of news and they might be gone-you never know!

 

[Ken]

hehe

8409 sold @ 90 cents. Seeing as i paid 51 cents.

Dont know how far they are going to go.

Cant see them moving over 70 cents without some real good news to market...

But I hope I am wrong.

 

[Ken]

Last 10 trades. These are relatively big trades for this company. It was only a few weeks ago that there was 1 or 2 trades a day and sometimes no trades.

It has some momentum, my favourite stock because of the lack of sellers.

Royalco Resources Limited (RCO)


Date Time Price ($) Quantity Value ($)
15-01-2007 03:52 PM $0.645 20000 $12,900.000
15-01-2007 03:52 PM $0.640 1300 $832.000
15-01-2007 02:34 PM $0.630 12996 $8,187.480
15-01-2007 02:34 PM $0.630 4 $2.520
15-01-2007 12:34 PM $0.650 10000 $6,500.000
15-01-2007 12:34 PM $0.650 15500 $10,075.000
15-01-2007 12:34 PM $0.660 23000 $15,180.000
15-01-2007 12:32 PM $0.700 3000 $2,100.000
15-01-2007 12:14 PM $0.650 2500 $1,625.000
15-01-2007 12:06 PM $0.650 7500 $4,875.000

 

[Sean K]

Last 10 trades. These are relatively big trades for this company. It was only a few weeks ago that there was 1 or 2 trades a day and sometimes no trades.

It has some momentum, my favourite stock because of the lack of sellers.

Royalco Resources Limited (RCO)


Date Time Price ($) Quantity Value ($)
15-01-2007 03:52 PM $0.645 20000 $12,900.000
15-01-2007 03:52 PM $0.640 1300 $832.000
15-01-2007 02:34 PM $0.630 12996 $8,187.480
15-01-2007 02:34 PM $0.630 4 $2.520
15-01-2007 12:34 PM $0.650 10000 $6,500.000
15-01-2007 12:34 PM $0.650 15500 $10,075.000
15-01-2007 12:34 PM $0.660 23000 $15,180.000
15-01-2007 12:32 PM $0.700 3000 $2,100.000
15-01-2007 12:14 PM $0.650 2500 $1,625.000
15-01-2007 12:06 PM $0.650 7500 $4,875.000

Ken, you aren't serious?
Of the 10 'big' trades, 5 of them are less than $5K....
I am really missing something here.

 

[Ken]

kennas,

RCO's trades are normally pretty low in volume.

There have been some larger trades just recently. And anything over $10,000 has driven the share price up.

I am not saying volume is massive, but compared to a few weeks ago when it would go days without a trade it is something positive.

the stock is not going to be a million plus volume share unless the top 75% shareholders decide to sell up.

 

[Ken]

Kennas,

DKS is probly a similar stock to RCO as far as the way it is traded. Not many shares are traded daily, and share movements is not very tight.

just my observation.

It is not going to be a day traders stock due to the lack of volume.