For a company capitalised at eight million pounds Red Rock Resources plc has a bewildering number of projects listed on its web site. However things make more sense if we order them under their mineral content: Manganese ? three projects, Iron Ore ? nine projects, Uranium ? six projects. So Red Rock looks like a manganese, iron ore and uranium play!
Why manganese, iron ore and uranium? The industrialisation of Brazil, India and China is going to consume mountains of iron and steel and manganese is used in steel making and in steel alloys. Uranium, as "every schoolboy knows" is a source of heat that creates no carbon dioxide so it is seen as part of the future of the electricity generation. So here are three industrial metals that are likely to be in demand for the foreseeable future. Red Rock Resources was initially spun out of Regency Mines, who is still a major shareholder. Since then attention has focused primarily on its Manganese and Iron Ore projects. Like its parent company, Red Rock's business model is skewed towards acquiring large amounts of early stage projects, adding value to exploration results, and subsequently progressively spinning them out, either into new vehicles or into an existing company looking for projects to earn into. This allows the company to maintain a seemingly huge range of projects and interests but at the same time keep cash burn relatively low.
Iron Ore
Iron Ore exploration is certainly a realm of mineral exploration companies, but when it comes to production, the global market is controlled by a handful of players. Iron Ore projects tend to be very big operations that require huge capital investment and operation experience. Simply put, Iron Ore is a tonnage game. The end user is the steel industry, which is located in Japan, China, Russia, and India and still has a presence in North America and Europe ? in recent years China has overtaken other countries to become the largest steel producer in the world.
The Yilgarn Craton in Western Australia is the single most productive mining region of Australia. It is emerging as an iron ore province and sources of haematite and magnetite iron ores for export through Perth. Australia's relative proximately to Asian steel producers coupled with huge deposits makes it the world's largest exporter of iron ore. In 2006 China's iron ore imports totalled 325 million tonnes and are expected to hit 355 million tonnes this year. Unlike other metals, Iron Ore prices are negotiated once a year between the major suppliers and major steel producers. The most recent round of iron ore price negotiations between BHP, Rio Tinto, CVRD and Baosteel Group (a leading Chinese steel company) agreed a 9.5% price increase. This years price increase in not out of the ordinary. Iron Ore prices have risen robustly in recent years, and are closely tied to the health of the global steel industry.
In May, Red Rock sold its Mount Hope and Mt Ida iron ore prospects the southern Yilgarn region of
Western Australia to Jupiter Mines (ASX: JMS) for A$250,000 cash and 4.6 million shares in Jupiter and a 1.5% royalty on production. Red Rock later announced that it was starting an iron ore exploration programme on its 205 square kilometres Mount Alfred prospect in the Eastern Goldfields area of the Yilgarn Craton in Western Australia. Red Rock's Mount Alfred prospect is adjacent Iron Mountain Mining's Mount Richardson prospect. Iron Mountain's shares jumped 300%, in October, after announcing high grade mineralisation over two kilometres of strike at its Mt. Richardson project. The results that excited investors in Iron Mountain are on the same strike that extends into Red Rock's Mount Alfred prospect. Iron Mountain helped put Red Rock on the map.
Uranium
In August, Red Rock Resources divested its uranium prospects into Retail Star (ASX: RSL). The consideration for the acquisition by Retail Star was A$1.5 million in cash which was funded by Red Rock subscribing for 80 million ordinary shares in RSL at A$0.015 per share, which represented about 15.6% of the issued share capital of RSL - post acquisition. Red Rock also received 20 million options and up to 80 million performance shares in RSL. Ian Scott, the former chief geologist of the Olympic Dam copper-uranium mine was recruited as one of Red Rock's nominees to the Retail Star's board.
Manganese
Red Rock has an interesting manganese project at Chiwefwe in Zambia. What makes Chiwefwe interesting is that it outcrops at the surface, its high grade, and a main road and railway are within sight of it. As a project, it looks like it can be operated like a quarry which means the capital costs to set up a mining operation could be relatively low.
A scoping study for Chiwefwe showed a need for improved mapping of the prospect and the need for further drilling to extend the ore resource, which was estimated at 2.36 million tonnes with a grade at 46% manganese. The study also recommended that steps be taken to improve the level of confidence in the resource. Red Rock, having raised £699,000 with two placings, commissioned work on optimising the project.
Red Rock plan to eventually ship most of Chiwefwe's ore by rail to Dar Es Salaam. In the meantime it has negotiated a toll agreement with Chimam Manfacturing, who own a processing plant a couple of hours drive along the main road from Chiwefwe. The processing agreement was to produce ferromanganese, Red Rock would have exclusive use of one of Chimam's two furnaces and paying $150 per tonne of ferromanganese produced, the cost of coke, plus 25% of the sale profit net of royalties. At the time the deal was announced the furnace was closed as it was having scrubbers retro-fitted and was due to reopened within weeks at which point Red Rock indicted it would start quarrying and trucking ore to the plant.
So uranium, manganese and iron ore. Some projects held outright, some divested for equity stakes and royalty payments on any future production. Red Rock Resources is a bit of a slow burner, but offers an interesting mix of projects in Australia and Africa ? and is one of only a few companies listed in London with Iron Ore prospectivity in its portfolio.