Red Rock Resources – Jupiter Mines 1H divi yield of 14.5% highlights latent mispricing

September 17, 2018 | Posted by

The announcement this morning by Red Rock Resources (RRR) of an interim dividend receipt from its Jupiter Mines (listed in Oz) investment that equates to 14.5% to us highlights the extreme negative sentiment towards miners in general aswell as the latent mispricing of RRR. The fact that this is only an interim dividend implies that Jupiter Mines is likely trading on a near 30% yield based on current manganese prices. This line from Jupiter’s CEO Priyank Thapliyal in particular stands out – “Our primary focus remains to put substantial cash into the shareholders pocket every six months.” 

Investors in Red Rock Resources at the current prices, adjusted for the circa £3.6m value of the JMS stake and the cash on the balance sheet are receiving Steelmin, Migori and the El Limon projects for a de facto nominal cost. In other words, such is the negative investor perceptions of the mining arena at present that the market is almost paying you to receive the value of these investments.  Our most recent breakdown of the asset worth of these projects to RRR (ex JMS and net cash) adjusted for the companies residual debt equates to circa £21m – nearly 5 times the current market cap. Here is the full note HERE. You can see that we believe the true value of RRR to be multiples of the current stock price. 

We spoke in depth with Andrew Bell last week and have reiterated that the way to materially re-rate the stock is to make a distribution to RRR shareholders of a good proportion of the current cash balance of circa £2m. Even a 50% distribution of this would put the company on a circa 20% dividend yield. We believe that management of RRR have taken this key point on board and anticipate moves in the near future to address the issue of negative distributable reserves that have been hampering a route to put cash into shareholders hands.

At the current stock price of just 0.80p we believe the stock remains woefully undervalued and given the prodigious cash flow profile from JMS that the day when these cash flows get put into the hands of RRR shareholders is drawing near. Accordingly we reiterate our Conviction Buy stance.


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