Red Rock Resources - Initiation of Coverage
Compelling portfolio of commodity investments underpinned by RRR’s stake in Jupiter Mines expected to be worth one and a half times the current market cap providing the rest for free
Red Rock Resources joined AIM in 2005 to advance iron ore and manganese projects in Australia. An early deal with ASX-listed Jupiter Mines paved the way for a lot of future success which propelled the shares from 1p to 20p. Today, the company is still headed by founder Andrew Bell and continues to pursue a strategy based on a combination of corporate deal making alongside exploration.
Negotiated a series of strategic deals based on providing the ‘last dollar’
Red Rock is a small cap that punches well above its weight. The recent Steelmin deal sees them taking a 20% stake for providing the finance to get this ferrosilicon smelter complex back into production in 2018. Red Rock may emerge with a far larger interest and share of profits.
Poised for substantial growth with battery metals
The portfolio is being broadened to include battery metals. Red Rock has interests in manganese, which is now being heralded as a future battery metal, and is undertaking DD on an exciting copper/cobalt play. Big value could be added by driving such a project towards early cash flow generation.
EBITDA multiples and peer comparisons suggest an upside of 204%
Red Rock’s stake in Jupiter Mines, assuming an upcoming IPO valuation of A$1 billion (£574 million), is worth more than the company’s current market cap. In addition, our conservative valuation also demonstrates that the stock is highly under-priced ex this stake. We initiate coverage of Red Rock Resources with a target price of 2.89p and a Conviction Buy stance.
RISK WARNING & DISCLAIMER
Red Rock Resources (RRR) is a research client of Align Research. Align Research & a Director of Align Research hold an interest in the shares of RRR. For full disclaimer and risk warning information please refer to the last page of the full document. This investment may not be suitable for your personal circumstances. If you are in any doubt as to its suitability you should seek professional advice. This note does not constitute advice and your capital is at risk. This is a marketing communication and cannot be considered independent research.
| Year to June | 2016A | 2017A | 2018E | 2019E |
|---|---|---|---|---|
| Revenue (£'000) | - | - | - | - |
| Pre-tax (£'000) | (283) | (1,114) | 1,095 | 2.137 |
| EPS (p) | (0.1) | (0.24) | 0.22 | 0.33 |