Red Rock chairman confident of unlocking El Limon's full potential

Red Rock Resources (LON:RRR) chairman Andrew Bell says he is “relaxed” about progress in Colombia with “incremental improvements” starting to feed through at the El Limon gold mine.

He reckons the company has been unlucky on a number of levels as it attempted to ramp up production.

The mine and facilities required more work than anticipated at the time of the investment, and the information from local partners was not always correct.

Meanwhile, vital parts were difficult to source as the area’s only supplier of some parts and spares became ill and eventually died, and attempts to bring them in via the local airport were hampered by a transport strike.

Bell and his team are now targeting a number of landmarks – in fact they have achieved the first these in staunching the losses at El Limon "almost before we noticed them".

Experienced personnel with operational expertise in South America have been drafted in while new equipment is improving the extraction process rapidly. 

“How quickly they can get us to the next level we will see when our new hires get their feet under the table,” Bell says.

“I am relaxed that things have taken a little bit longer than we thought. What I’m not relaxed about is the level of production.

“We want to build that up and we have to tune up the plant. That’s what happens next.”

If Red Rock can stabilise daily production at about 100 tonnes per day at a grade of about 10 grams per tonne then it will have reached the next “important plateau”, the chairman reveals. 

At that point it will be a case of “fine tuning things in order to make the next advance”, which may require further investment, he adds.

“But when it’s all finely tuned, what’s the potential of Colombia all in? To aim for 20,000 ounces (a year) would not be an unreasonable objective. 

“I don’t want to mislead people into thinking this is going to be quick and easy. It is going to need some work. And it is harder than we thought. But until we get El Limon absolutely right, we ought not to think of expansion by acquisition" in Colombia.

"We do however see considerably promising exploration potential in our existing ground".

The group’s interests in Colombia accrue through its 50.5 per cent stake in Colombian gold miner Mineras Four Points SA, which in turn has rights over two gold mines in Antioquia, El Limon and El Mango. 

At some point Red Rock may look to take tighter control of the operations in South America.

However it may require an innovative deal that allows its local partners to maintain their interest in the producing El Limon mine, but which recognises the investment the AIM listed firm is likely to plough into the ground.

And the exploration potential of Colombia shouldn’t be under-estimated, says Bell. “There is possible scope for new mines and the potential for an open-pittable resource.” 

Kenya, and the Macalder tailings project located on the Migori belt, in the south-west of the country, also offers excitement.

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 has already indicated a resource of 1.42 million tonnes grading 1.64 grams of gold per tonne.

This, when it starts producing, has the potential to augment Colombia’s output by a further 5,000 ounces of gold a year, Bell reveals. 

“In Kenya we will not be at the 20-24,000 ounce levels we planned and it will take some time to get anywhere near that,” he admits.

“This is compensated to some degree by higher gold prices. 

“We would have been quite happy when we went into this if we were producing just 4-5,000 ounces a year. 

“It would be a tremendous return. Even 3-4,000 ounces would be a good return on the money we put in.”

The Macaldar tailings are just a fraction of the story in Kenya where it has a 60 per cent interest in the 68 kilometre Migori greenstone belt. 

Just 30 kilometres north of the operating North Mara gold mine in Tanzania, Red Rock’s tenements have a 43-101 Indicated Resource of 1.172 million ounces of gold.

And we are entering into a particularly interesting phase with the results of a recent 20,000 metre drilling campaign set for release between now and the end of the year. 

The aim is to bump at a least a portion of the indicated resource into the higher confidence measured category.

However, Bell and his team have “taken a step back to go forward” in compiling a comprehensive data set from Migori.

“We’ve treated this as a big project as every other comparable project of that large area, like North Mara, is in the hands of a large company,” the Red Rock chairman adds.

“Without that type of positive approach we are not going to get anywhere.

“If we can a get few million ounces there as a resource, then it must be an option to bring in a major.

“When the majors come a calling they do expect the data to be assembled in the most professional way. 

“You simply can’t have some amateurish small company effort. We have done things really professionally.”

But gold is just one half of the Red Rock story. The company also has a 4.8 per cent investment in ASX-listed Jupiter Mines.

Those of you know Red Rock will know that Bell negotiated a very savvy deal in wrapping the company’s Mt Ida and Mt Hope iron ore assets in Australia in with those of Brian Gilbertson’s Jupiter.

And the group also holds a 1.5 per cent gross royalty from the Mt Ida project that could be worth US$10-15 million a year once the project is up and running.

There’s uranium, a little sprinkling of rare earths and some blue sky iron ore exploration in Greenland.

Company research specialist Edison recently said that Red Rock might actually be worth as much as 58 pence a share, or £420 million, which seems outlandish given the stock is currently bumping around 6 pence.

However you spend five minutes with pen, paper and calculator and you begin to see where analyst Charles Gibson is coming from – though it is difficult to fully agree with his ultra bullish assessment.

He says the company’s listed investments – including convertible loan stock and warrants - are worth a very punchy 10 pence a share.

Meanwhile, the gold assets bump that figure up to 23.7 pence if Colombia hits the targeted 150 tonnes per day and Kenya “rerates in line with the average valuation of its gold resources”.

“Including all other factors, we estimate that Red Rock could be worth as much as 58.2p per share,” Gibson adds.

And thanks to its secured loan notes deal with Cornhill Capital, the company is fully financed for the foreseeable future.

But with so many moving parts there is a tendency among those who have not followed the company closely to dismiss it as lacking focus.

Bell bristles at this suggestion. He says there are two distinct parts – the gold and the steel feeds investments – which perfectly counter-balance one another. 

“We get in cheap and find ways of getting out expensive. So we are something like a traditional mining finance house. Well something between that and a producer and explorer,” he concludes.