A copy of the Company’s annual report and financial statements for 2020 – extracts from which are set out below – will be made available on the Company’s website www.rrrplc.com shortly and at the Annual General Meeting to be held on 12 February 2021.
We last reported to you in March in announcing our interim results, when we already had to consider what the impact of the Covid-19 pandemic might be on the world’s economy, on commodities, and on our activities in the various countries in which we operate. This has remained a consideration as the year progressed, but the impact on the Company has been mitigated by amending our programmes so that they fell within what was permissible and practicable for our local teams. Nowhere were we brought to a complete halt. Currently a ground geophysics field programme is under way in Congo, and in 2021, ground exploration activities will begin once again in Kenya. In both Australia and Kenya, community engagement activities have already begun in preparation for exploration activities.
Year Under Review – Financial Results
In the year to 30 June 2020, reported group profit before tax was £5.156 million after a reported loss of £1.724 million in the previous year. This reflected primarily a reduction in impairments and the writing back, as foreshadowed in the interim statement, of the £5.280 million June 2015 impairment taken to the Kenya assets upon the commencement of litigation there. Dividend income received during the year dropped from £0.750 million to £0.419 million, reflecting a reduced contribution from Jupiter Mines Ltd. This, and a small reduction in net borrowings, were offset by £0.504 million proceeds of the sale of financial assets. Diluted earnings per share are 0.64 pence for the year. Principally as a result of the write-back, shareholders’ funds rose from £9.529 million to £13.965 million and total assets from £12.362 million to £18.260 million. Administrative expenses of £0.597 million were held at nearly the same level as the previous year, despite increases in compliance and accounting costs, as office and other costs were reduced, allowing an increased budget for marketing activities.
Year Under Review and Since – Operations
An exciting development during the year was that we were able to turn the first lockdown to good account by strategizing ways in which to re-energise our Australian subsidiary Red Rock Australasia Pty Ltd (“RRAL”). A small opportunity was brought to us in Victoria, which we took in joint venture with Power Metal Resources plc, reducing our risk in a new area by taking in a 49.9% partner with complementary strengths. Further analysis, when for a time we were working Melbourne rather than London hours, led us to expand considerably, and very rapidly, this bridgehead, with what later appeared to be fortunate timing as the gold price rose, stocks with Victoria exposure rose on the markets, and vacant ground, not all of it obviously prospective, saw a rush of applications. As now a 50.1% owned joint venture subsidiary, RRAL used the lockdown period to establish a strong ground position in the Victoria Gold Fields with 14 applications, the first three of which are well advanced.
We have set up a local office, carried out some preliminary site and community visits, commissioned and received new geophysical analyses and a NI 43-101 Report, and spent much time on interpretation of previous work and planning future work. Three of these license applications are well advanced, and we hope to be in a position to start work on them soon. Our plans for 2021 include seeking a stock market listing for the core tenements of this joint venture.
During the first half of the year the Company obtained the approval of the Mineral Rights Board of Kenya for the re-grant under the Mining Act 2016 (“the Act”) of its licenses in that country. Unexpectedly, due to a quirk of wording of the Act, despite the grant being under a provision allowing a ‘through train’ for licenses held under the predecessor to the Act, it was found, or interpreted, that licenses renewed in this way required landowner consents, similar to those required for new licenses. In a country without a central land register, and where much land is held without registered title, the obtaining of these consents presented a number of challenges. This late-arising issue was dealt with during the year, as were others, but working and movement restrictions in Nairobi imposed in response to Covid-19 meant that the Company, though compliant with all requirements, only received copies of the re-grant after the period end.
The length of time it has taken to resolve this matter has been disappointing, but the targeted result has been achieved. The ability to start work again and to build on the foundation of the 1.2m oz Mineral Resource Estimate established in 2013 represents an important milestone for Red Rock and a foundation for further development.
The Company had been in advanced discussions with a Chinese enterprise in relation to a sale and joint venture in Kenya, but when the SARS Covid 2 story broke in the Spring, Chinese citizens became for a time unwelcome in Kenya, as that was the apparent source of the virus. Although this no longer applies, our Chinese counterparts are unwilling to travel until they have received a vaccination, and since the State geologists they had been using may also be reluctant to return to Kenya until vaccinated, Red Rock has indicated it is now open to discussion with other parties that have shown interest in our gold assets.
In the Democratic Republic of Congo (“Congo” or “DRC”), considerable time has been spent over the year dealing with issues relating to the VUP joint venture, comprising principally copper-cobalt properties near Kolwezi. Our local partner had an internal family dispute to resolve, which involved some complex issues where we considered that though vexing, it was necessary for us to co-operate. These internal issues have been resolved, some minor documentation matters remain, and we expect to be able to progress more rapidly with exploration and development in 2021.
In another DRC joint venture, the 80% owned Luanshimba copper/cobalt license, the closing of the country’s transport links for a period in response to the pandemic meant that equipment and some crew for the planned follow up programme to the earlier geochemistry Red Rock had carried out, a ground geophysics programme, had to wait until after the end of the Company’s financial year. This geophysics programme, consisting of a ground magnetics survey and six lines of induced polarization survey, has now finished its first phase and is moving into its second phase but the indications from preliminary analysis are encouraging.
A further DRC copper project with a good address and with a producing neighbour from the same structure, where we have applied for a direct grant, awaits finalisation.
The Company has devoted time and effort to developing contacts and know-how in the Congo. This has taken patience, because our view of the inviolability of contracts derives from a different historical experience, where stability is assured and so a long-term view and a deferral of reward are the norm. The Congolese experience has been more precarious, and trust needs to be earned and is not easily given. While law and contract do give a decisive advantage to the party with written evidence, that works best as a reserve power, acting in support of persistence, reliability, and persuasion.
Red Rock now has sufficient confidence in its ability to work within the predominantly francophone environment of the DRC to have become involved most recently in supporting the administrators and secured creditors of an Australian company Vector Resources Limited (In Administration) (“Vector”), in order that Vector should have time for a reconstruction and in order to assist with negotiation. Red Rock believes that it is capable of adding value to Adidi-Kanga, a substantial and high-grade gold project in the DRC where a majority interest is held by Vector, but where Vector’s rights are being challenged.
Elsewhere, the Company’s interests in the Tshipi é Ntle manganese deposit, held through its investment in ASX-listed Jupiter Mines Ltd, has continued to show resilience through a period where for a while it and all other mines in South Africa were forced to close, and has continued to pay dividends that offer the prospect of a double-digit yield.
The decision by Jupiter to distribute to shareholders its iron ore interests by seeking a separate listing early in the New Year appears well timed, as the iron ore price returns to levels last seen at the beginning of the decade. This development offers a double benefit to Red Rock: both as a shareholder in the new float and as the holder of a 1.3% gross revenue royalty over the 1.84 bn ton magnetite iron ore Resource, Mt Ida, held by the new company. Anglo-Pacific Group Plc has an obligation to purchase 0.45% of this royalty interest from Red Rock for $8 million upon the achievement by Jupiter of certain milestones in relation to Mt Ida, namely (a) a definitive feasibility study and decision to proceed, and (b) commercial production.
Royalty revenues from the El Limon gold mine in Colombia have continued at a low level but improving gold prices and the implementation of a new business plan and extensive on-site expansion and shaft improvements hold out the prospect of a worthwhile contribution to our revenues in 2021 and steady state production levels beyond.
Other minor interests, in gold exploration in the Ivory Coast, and Elephant Oil in Benin, have made no significant impact during the period, though could prove material were they to see further progress.
Since year end the investment in Power Metal Resources Plc (“POW”) shares and warrants, stated at a value of £0.118 million and with a book cost of £0.100 million, has increased in value to £1.096 million. POW is at an early stage of its development and we expect it to continue as an aggressive explorer and deal-maker in the coming year.
There is much that is uncertain in the world outlook. The IMF in its October report anticipated a global GDP growth of 5.2% in 2021, after -4.4% in 2020, a year in which it is almost China alone that is showing positive growth. By now expectations may already have changed.
China has become so big a demand factor for many commodities, iron ore and copper included, that sharp recent price increases have been seen in these commodities. Chinese steel production for the first nine months of the year has run at 6.8% above 2019 levels. Demand for copper from China also reflects the recovering economy, at a time when South American production has been interrupted by the effects of the pandemic.
Longer term, the forecast for copper demand is for 2% growth p.a., and copper investment to replace consumed reserves has been insufficient in recent years. One may also wonder whether, if the world is to be converted to alternative energy and electric cars, the implications for demand for the world’s best conductor have been fully thought through and reflected in projected prices. Not only do electric cars contain more copper, but the transmission network necessary to take the electricity to the point of use, substituting for all the petrol tankers in the world, will be far greater than that currently existing. Moreover, alternative power generation technologies require large amounts of copper to mitigate their inherent inefficiencies.
Turning from the industrial world to the financial, the arguments for gold as a store of value are well rehearsed, and the apparent switch from a strong to a weak dollar, combined with money creation in the world’s major economies, create conditions in which gold looks at worst a defensive investment, and may at best be a very good one in 2021 and 2022.
Red Rock has a balance of gold, copper/cobalt, and manganese exposure that plays into the trends we see developing. Our aim is to exploit our strong and well-balanced project portfolio to become, in our chosen markets, an influential presence and a leading representative in the London markets.
The process of recruiting additional staff and directors has been under way for several months at the subsidiary level, and at the parent is now beginning. As we develop, our capabilities and structure have to develop to match.
We plan an active 2021, building on the years of preparation we have undertaken with dynamic exploration programmes and active engagement with potential partners.
We thank our staff, old and new, our business partners and our shareholders for their support and faith in us over the period and going forward.
Chairman and CEO
If anyone reads this article found it useful, helpful? Then please subscribe www.share-talk.com or follow SHARE TALK on our Twitter page for future updates.
Terms of Website Use
All information is provided on an as-is basis. Where we allow Bloggers to publish articles on our platform please note these are not our opinions or views and we have no affiliation with the companies mentioned