A number of recent press releases from mining minnow Red Rock Resources suggest that something - which we mere mortals cannot quite grasp – is bubbling below the surface.
What am I blathering on about?
Three names: Jupiter Mines, Mindax and Pallinghurst Resources.
Over the past few months, Red Rock Resources has been building up a stake in ASX listed Jupiter Mines (ASX: JMS). Red Rock originally became a stakeholder when Jupiter exercised an option to buy two of Red Rock’s iron ore tenements in the Central Yilgarn of Western Australia, for approximately 4.6 million shares, A$250,000 in cash, and a 1.5% production royalty.
Since then, Red Rock has kept on buying shares, and with an approximate total spend of A$2.2 million, took its holding to 10.12% of the company.
Red Rock also built a 7.3% interest in Mindax Limited (ASX: MDX), which happens to hold tenements contiguous to Red Rock’s Mount Alfred tenement, also in the Central Yilgarn of Western Australia.
Enter Pallinghurst Resources - a heavyweight investment group, funded by several large backers to make investments in various parts of the natural resources sector, including those involved in the production of steel. Pallinghurst Resources is headed up by Brian Gilbertson, former CEO of BHP Billiton. Pallinghurst Resources has built up a 10.57% interest in Jupiter Mines, which together with Red Rock’s now diluted 8.81% makes 19.38%, just below the takeover threshold. Pallinghurs has announced it is acting in concert with Red Rock, and has placed one of its founders, Priyank Thapliyal, formerly the right-hand man of the Chairman of Vedanta Resources, on the board of directors. Andrew Bell, Chairman of Red Rock, has also joined the board of Jupiter.
So what does this all mean? Well clearly there is some sort of plan here; the problem is fathoming what will happen next. Andrew Bell has been difficult to reach recently – he seems to have been travelling to Australia a lot - but after speaking to him it became clear that our hunch - that Pallinghurst is keen to build up a large iron ore prospecting position in Australia - is not far off the mark.
What Mr. Bell would not say is how this will be achieved, but it looks likely that Jupiter and Red Rocks’ combined interests in the Central Yilgarn of Western Australia will be at the heart of any agreement or transaction. The combined stake of Pallinghurst and Red Rock in Mindax Ltd has also risen to 9.67%, with the parties declaring that they are acting in concert and the bulk of Red Rock’s holding has been sold to Pallinghurst. With iron ore prices continuing to rise, one has to wonder what value Red Rock’s tenements have – and how will this value be realised for shareholders? Perhaps a three-way merger is on the cards – time will tell.
Since listing, Red Rock Resources hasn’t exactly been a star performer, yet it’s hard to ignore that the company has built up a position in some sectors that are red hot. Pallinghurst and Red Rock have confirmed that they are working ‘in concert’, and now with two non-executive’s on the board of Jupiter, an announcement seems likely in the not too distant future.
Red Rock is also pretty keen on manganese – understandable since a $1bn bidding war occurred for Consolidated Minerals in 2007, and manganese prices have soared in recent years. Coincidentally, the loser of the bidding war for Consolidated Minerals was no other than Pallinghurst Resources, which recently bought into Kalahari Manganese in South Africa. Coincidentally, too, Red Rock’s extensive manganese tenements in Western Australia lie just north of Consolidated Minerals’ mine on the same trend and are regarded as some of the most prospective ground in the area.
Red Rock’s initial interest in manganese was a project in Zambia, which was originally supposed to produce cash flow for the company in 2007. A deal was struck with a Chinese company, but it is pretty safe to say that the agreement hasn’t worked out as planned. Red Rock has been pretty quiet on this front, which suggests that although the deal looks dead from London, there may still be ongoing negotiations with regards to the project, which makes it difficult for the company to update on the situation. Regardless, the soaring price of manganese may have something to do with why the agreement has never moved forward, as that wouldn’t have necessarily benefited all parties involved in the same manner.
Moving past Zambia, Red Rock has announced a further transaction in the manganese sector.
The deal is an agreement to acquire a 20% interest, which can be increased, in the Africa China Mining Corporation, which holds manganese exploration assets and applications in Burkina Faso and Male, in West Africa. The immediately valuable asset in Africa China Mining Corporation’s portfolio is a 10-year, renewable industrial mining permit for the Kiere manganese mine, in the province of Tuy, in Burkina Faso, where production is expected to commence in October. The price of the acquisition was not disclosed.
Red Rock isn’t just about iron ore and manganese, however; it has recently announced that Retail Star (ASX: RSL), the company into which Red Rock spun off its uranium interests and in which Red Rock holds a 24% interest, will be changing its name to “Resource Star” and changing its listing to one suitable for a uranium exploration company. As part of the re-list, Resource Star will be raising up to A$2.5 million, of which Red Rock has agreed to underwrite a maximum of A$1 million for a 4% fee. The company is run by a former Olympic Dam chief geologist and uranium veteran, Ian Scott.
Red Rock signed recently a memorandum of agreement with Goma Investments to obtain exploration rights and 85% ownership of a uranium prospecting licence, which covers some 19,000 hectares in the Mago District, Tete Province, in Mozambique. Red Rock gets 12 months to explore before deciding whether it wants to pay for the license, and can pull out in the first 6 months free. If the project looks good, expectations are that it will be handed on to Resource Star.
This leaves investors with the possibility of a more focused investment case for Red Rock Resources. Undeniably, Red Rock’s ambitions, always high, have suffered from its low market capitalisation and a lack of investor confidence in its iron ore-manganese business model over the past few years. The reclassification of some properties as uranium targets and the acquisition of uranium interests also led to a suspicion of a loss of focus. However, Pallinghurst Resources’ interest in the iron ore sector, the change in manganese’s status from a metal price laggard to a hot metal, and the hive off and now relisting under well qualified management of the uranium assets, makes the focus and strategy seem clearer.
Red Rock always claimed that its iron ore and manganese assets had value which would one day be recognised, and that it intended to marry its assets with management teams capable of bringing about production. It has taken time, but it may at last be happening
There may be many chapters left in this book, but the partnerships it is forming are beginning to attract attention and Red Rock’s persistence is beginning to look much less like obstinacy and much more like strategy. There may yet be a happy ending.