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BIG PICTURE - Rambler Metals & Mining: A copper-bottomed investment?

Rambler Metals & Mining is a rarity for AIM – a profitable and growing junior. Quarterly results earlier Monday revealed revenues and profits are on the up and the group is headed for debt-free status by the end of next month.

Rambler Metals & Mining (LON:RMM) is a rarity for AIM – a profitable and growing junior.

Quarterly results earlier Monday revealed revenues and profits are on the up and the group is headed for debt-free status by the end of next month.

Closer inspection of the figures reveals the average grade from the Ming copper-gold mine in Newfoundland, Canada, was around 10% higher than projected.

Production, meanwhile, was 900,000 pounds higher than forecast, while recoveries also surprised on the upside.

The upshot was that Rambler posted Q1 2014 turnover of C$16.75mln, profit before tax of C$5.2mln and had cash at the period-end of C$5.7mln (US$6.7mln as at Dec 9).

Based on the quarterly performance, Rambler looks set to generate annual profits of around C$20mln – which makes a mockery of the current enterprise value of C$60mln (the market cap minus the company’s cash).

On that basis Rambler is trading on three times pre-tax profits, where it might easily expect to be on a rating of anywhere between five and 11 times. 

The upper figure would see Rambler knocking on the door for inclusion among the mining mid-caps.

An update to the reserve and resource report, due very early next year, could be the catalyst for a re-rating, particularly if, as analysts expect, it can add a further two years to the mine life.

Paying a dividend out of cash flow would mark Rambler out from the pack; however, the group may produce a far greater return for investors by ploughing the money back into the business.

For instance, an investment in the crushing and grinding facilities at the Nugget Pond facility would increase daily copper output to 1,000 tonnes from 630 current (a 59% uplift).

And it would also allow the group to run the copper and gold plants in tandem.

This has the potential to transform the finances at Rambler’s operation – and at a comparatively low capital cost. Analysts estimate the investment to be in the order of C$8-10mln.

At the same time there is the potential to create a regional play. It has made investments in the Little Deer Copper Project, Maritime Resources and Marathon Gold. 

However, none of this is reflected in the current share price, which was off 4% at 25.79p in morning trade and is down around 28% in the year to date. 

That said, Rambler is probably one of the better performers among the juniors, which have been hit by a sustained sell-off over the past 12 months.

Cantor Fitzgerald is a fan of the business with a ‘buy’ recommendation and 47p price target. 

“[Rambler’s] strategy of building on its production base in Newfoundland with strategic acquisitions of stakes in other copper and gold projects in the area has been well advanced and yet still the stock trades on modest multiples,” said analyst Asa Bridle in a note to clients. 

“However, as the production track record builds throughout the year we expect that to change.”

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