For past 18 months, Red Rock Resources, which was spun out of fellow AIM minnow Regency Mines, hasn?t captured the markets attention. It is getting harder and harder for small capitalization companies to stand out from the crowd, especially in the resources sector where a huge wave of new listings has bamboozled investors and commentators alike. Red Rock Resources landed smack in the middle of the rush of IPO?s in 2005 seeking to capture higher investor awareness for resource related companies on the back of surging commodity prices. Since the feverish tempo in 2005 and the first half of 2006, things have cooled off somewhat despite commodity prices remaining strong.
In comparison Red Rock Resources looks relatively benign: raising a modest sum of £476,000 net of expenses at 2p per share on listing and subsequently a few small additional placing have occurred - all at 2p. Taking into consideration the inexcusable spread served up by the market makers, and it would be easy to argue that Red Rocks shares have barely moved in the past 18 months.
Red Rock floated with iron ore and manganese (MN) projects at Oakover, Mt Ida, Mt Hope, and Mt Alfred in Western Australia, and at Savage River North and Arthur River in Tasmania. Since then tenements with uranium in Malawi, iron ore in the Northern Territory in Australia, and manganese in Zambia have been added to the portfolio. What becomes abundantly apparent is that despite the low valuation and low awareness amongst investors, Red Rock has a wide range of projects - and a serious lack of capital to advance the projects at a pace that would be acceptable to most retail investors.
Fear not, Red Rock does appear to have focused its energies on the MN potential in Zambia! Furthermore, the company has entered into an option and royalty agreement with Jupiter Mines in Australia over its Mt.Ida and Mt Hope iron ore licenses in Western Australia which ensure some exploration work is carried out at no cost to Red Rock.
Andrew Bell, CEO of Red Rock and Regency Mines (which still holds 60.1% of RRR) sees near term potential in Zambia. Manganese (MN) is predominately used in the steel industry, and on average typical steel contains 0.75% manganese. The steel industry has seen impressive expansion in the past few years, and has also been a sector which has seen unprecedented consolidation as a handful of global steel companies attempt to consolidate there position. Not surprisingly, China, which accounts for 40% of global steel production is a major importer of high grade manganese, and Australia is the predominant supplier, with Consolidated Minerals (AIM:CSM) arguably the highest profile independent producer on the scene.
Red Rocks MN project in Zambia certainly appears to have a lot going for it. The deposit is high grade (46%), outcrops at surface, and looks pretty darn big. Because of the high grade and open pit potential of the ore, Red Rock wouldn?t need to process the ore in any manner. Andrew Bell likens this project more to a quarry than a mine. The current resource of 7.5 million tonnes is calculated over the south-west zone, which represents approximately 550m of a 7km strike, so there is clearly scope for resource upgrades. CSA are working on a scoping study which is expected to be completed before year end and are focused on increasing the confidence in the SW zone. Andrew Bell envisages the ?quarry? producing between 200,000 to 300,000 tonnes per annum (tpa) with minimal upfront capital cost ? so minimal that it may not even be necessary to carry out a bankable feasibility study as no bank debt will be required.
It appears that mining cash cost should be favorably low too with simple mining methods and low strip ratios, however the ?hitch? appears over how Red Rock gets the ore to market. The Tanzam (Tanzian/Zambiam) railway which runs past the deposit, and connects to the Dar es Salaam port appears to be the major hurdle. It was built by the Chinese in the 1970?s and hasn?t seen much attention since. Without the railway, Red Rock would have to truck ore to the port which would be quite cost prohibitive.
The far more palatable option is to gain access to the railway. There are negotiations underway to privatize the Tanzam railway to Chinese interests, and part of any deal would likely involve injecting capital in the line to increase reliability. Andrew Bell believes that Red Rock could play a pivotal role in these negotiations, as a sweetener for the private equity investors would be the knowledge of a long term contract to ship MN ore to the port for several years - which would help with the economics? of the rail line.
It is entirely feasible that if the scoping study confirms Andrew Bell convictions and access to the railway can be secured, that Red Rock could be mining before the end of 2007 ? a stretch, but not implausible.
Hurdles remain, but the potential upside is noteworthy if Andrew Bell can pull it off.