Rose Petroleum PLC (LON:ROSE) has “a three pronged attack”, according to chief executive Matt Idiens.
First, there’s the potential for cash generation in the short term from the company’s Mexican gold interests.
Then, there’s the more medium term potential of the Paradox oil project in Utah.
And finally, there’s the more speculative upside of a recent move into Cuban gypsum, in a deal that’s yet to be finalised but which could give the company a commanding position across an economy that’s just opening up to free-market capitalism.
Diverse, intriguing, full of potential - this is a company that’s had its ups and downs over the years, that once went wildcatting for huge copper porphyry projects in the hunt for multi-bagger discoveries, but which has had to cut its cloth accordingly since the mining industry turned down in the wake of the Lehman Brothers collapse.
Gold has since recovered some of its lustre, though and it’s in that context that Idiens is now beginning to talk of a renaissance in the Mexican mining portfolio.
“We have a mill there,” he says. “Since the downturn in the gold price we’ve been tolling milling. It keeps the operation running and it doesn’t burn our cash. But now there is a glimmer of light at the end of the tunnel. The gold price is up and so the plan is to go back to profit-share contract mining deals.”
These deals will ensure that the mill is fed with the right quality and the right quantity of ore from ground that is under Rose’s control.
The idea would be to set local operators up on different veins and to let them get on with the mining. Profits would be split 60:40 after costs are recouped, and the Rose calculations show that net free cash flow from each operation could be significant. Rose has already got one such operation lined up. There could be others, and if there are, the revenue could start mounting up in a serious way.
“The idea is that we get back our original model that Mexico would pay for the group costs,” says Idiens. “These costs would be the backbone.”
The Paradox project, by contrast, he describes as the “sex and drugs.”
According to a report compiled by Ryder Scott, Paradox could contain as much as 1.1bn barrels of oil and 2.2tn cubic feet of gas.
“It’s potentially large deposit,” says Idiens.
And it’s not alone. In fact Paradox sits in a formation that’s been well-worked by the Rose’s near-neighbour Fidelity Exploration and Production.
Fidelity has provided a template for working these prospects, which Rose is only too happy to follow. The plan is to shoot 3-D seismic in the second half of 2017, a process which Idiens hopes “will identify multiple targets.”
For a small company like Rose the US$2 mln cost of that shoot isn’t negligible, but as Idiens says “the value that it creates for us is enormous.”
How the company gets hold of a sum like that still remains to be seen. One option is that some sort of deal could be struck with Fidelity, or at least Fidelity’s new owners, following its sale to a private equity group.
“It’s quite obvious they would be a good partner to bring in to fund the 3-D,” says Idiens. “And we would help them with knowledge locally.”
So, come the end of 2017, Rose could be a whole different proposition, and not just because of the gold and the oil.
The gypsum remains an early stage proposition, given that full terms have yet been signed. The company is deep into a tendering process for the manufacturing of calcined gypsum conducted by a local government agency, and so far progress looks good.
“If we can get a deal signed up it will be tremendous,” says Idiens.
And what is the potential of a foray into gypsum?
“Gypsum is in everything,” he says, “In every room it’s there on the walls, because it’s plasterboard. In a country where tourism is growing as strongly as it is, it’s going to be very widely used. It’s also used in cement and in the dental industry.”
So what will Rose look like in a year’s time? One thing’s for sure, it’s going to look a lot different to what it looks like now.