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