Red Rock chief remains quietly optimistic over Macalder project

Red Rock Resources (LON:RRR) shareholders have accused management of downplaying a positive metallurgical update earlier this month on the company’s Macalder gold and silver tailings asset in Kenya but its chairman Andrew Bell remains wary of “over-promising” on the project.

Bell has been a little taken aback by the criticisms but clearly does not feel the need to apologise unduly, even as he appreciates fully the sore disappointment of shareholders over the performance of the stock, with the shares having halved in value over the last six months.

The Macalder tailings project is located on the Migori belt, south west Kenya. The belt is relatively lightly explored over the greater part of its length but does boast historic gold and base metal production including the Macalder VMS copper-zinc-gold mine.

Previous work by the group on the Macalder tailings had already indicated a resource of 1.42 million tonnes grading a rather decent 1.64 grammes of gold per tonne.

Last week, June 9, Red Rock updated on the project with its Phase 2 results, indicating an average recovery of nominally 65 percent gold for the tailings, and 10-20 percent recovery for silver.

On a further positive note the company said that the preliminary economics on the project are “positive”, with the tailings processing flowsheet expected to comprise a conventional cyanide agitation leach and Merrill Crowe recovery plant.

Furthermore, the company anticipates that the processing flowsheet under design for Macalder will not require grinding. The data also imply a reduction in the leach residence time compared to projections from Phase 1 testwork on the tailings.

The Phase 2 update, however, failed to impress the market, with the shares easing in the wake of its release, confounding and annoying some of Macalder’s shareholders who blamed the company for not highlighting enthusiastically enough the positive nature of the data.

In a letter to shareholders following the update, Bell sought to address the criticism: “We got the highest quality advice at every stage [for Macalder]. We are not going to change our approach and put out a bullish announcement about how this is a project that is going ahead and will make money until we have done the proper work. That is the answer to those who complain that we are not sufficiently upbeat or clear in our announcement.”

Bell continued: “We are not going to say 'we are going into production' until we have a proper and professional assessment of capital cost. We would look unprofessional. And we only just now have the answers on process and flowsheet. So only now can we know what to cost.

"The sizing of units, for example the leaching tanks and the flow sheet are dependent on the answers to the very questions to which we only now have answers to questions such as 'do we leach for 24 or 48 hours?’ and 'do we need to grind?' The answers to both questions were positive....”

Bell added in the letter that management believes that “with a simple plant and process flow some 50,000 oz of gold can be extracted economically” from the tailings.

He also added that the company’s environmental assessment is “encouraging” so far and has led the company to establish  a separate team to take the project forward and fast track the next stages: “This is an encouraging development for shareholders, and a good piece of news with which to end the financial year.”

Bell assured investors further: “The remaining work will not take long, and we would not be undertaking it if we were not confident that our internal rough internal rate of returns looked robust. We are fast-tracking it; and fast-tracking means fast-tracking.”

This week Bell reiterated his conservative stance on Macalder, saying he has already his fingers burnt with the market perceiving management “over-promised” in the past with developments of projects in Colombia. There the company owns 50.5% of Colombian gold miner Mineras Four Points SA, which in turn has rights over two gold mines in Antioquia, El Limon and El Mango.

El Mango has recently started producing ore for production at the El Limon plant. A recently completed refurbishment of the 150t/day plant at El Limon has seen the start of operations, and production building up towards rated capacity.

Bell, adding flesh to comments in the letter to shareholders, told Proactive Investor: “The bottom line is that we now have very accurate information on Macalder indicating a 75,000 ounce resource that is amenable to processing relatively easily, which means lower costs, cheaper plant requirements.

“Indeed using very simple processing, deploying a small plant, perhaps even second hand equipment, we are confident of recovering 65% at least. It is all looking good so far in terms of capex and in-house funding….”

On the environmental front, Bell said the company is quietly confident that proven technologies like reed bed, will largely address processing waste issues for Kenyan regulators but cautioned it is as yet too early to predict the final outcome of the assessment: “All we can say at the moment is that in out view it is developing very well…”

Another critical next step for the Macalder project though is the scoping study to fully detail the economic viability of the project. Here too Bell is cautious on timing: “We could come out very quickly indeed with a scoping study, and we hope to, but we have to be mindful of political and regulatory issues. Kenya is quite a demanding place in that respect so we don’t want to say anything that is not founded on the most rigorous analysis.”