Red Rock Resources (RRR.L) Half-year Report

Red Rock Resources plc (“Red Rock” or “the Company”), the natural resources investment, exploration, and development company with interests in manganese, gold, copper and cobalt, and other materials, announces its half-yearly results for the six months ended 31 December 2020.

Chairman’s Statement

After a $400 move upwards to $2,036 per ounce in the gold price in the four months to early August, the succeeding months have seen a 15% retracement in the gold price, and market interest rotating to base metals and then other sectors as a more general recovery in markets took place, and as it began to seem likely that economies would quickly recover much of the lost output resulting from Covid and its associated lockdowns.

The world held its nerve largely because of the one economy that showed growth in 2020: China, where post-Covid recovery was rapid and characterised by iron ore demand and steel output exceeding that in the previous year. Growth for the year was 2.3%, with crude steel production up 5.2% to 1.053bn tons, having reached a monthly record in August of 94.85m tons. This was interesting because planning in 2017 had been for reducing steel output to 800m tons by 2020, partly to cut pollution. Faced with declines in output due to Covid, the Chinese leadership decided without hesitation to reverse this and once more to push local infrastructure spending to restore demand, with natural consequences for steel production and for iron ore imports (as well as those of coal and manganese).

As after 2008, China acted as the immediate locomotive of recovery, and the psychological effect of their increased demand impacted other markets and so other countries. Projections for world growth in 2021 range from 5.4% to 4%, with the Conference Board projecting 5.5% growth in the U.S. The promotion of infrastructure projects and the pushing for an earlier transition to electric vehicles appear to be common features of many of the programmes being put forward, so there are certain metals where we can be reasonably confident of a growth in demand.

At the same time, the creation of excess money in major economies by a surge in Government spending has inflationary consequences that ought to increase the marginal demand for gold. The market’s ‘taper tantrum’ in the US in 2013 showed that even in the world’s strongest economy the Government did not have the nerve to unwind the post-2008 increase in its Central Bank’s balance sheet, and this served as a precedent for other countries. The monetary expansion this time, part of which is once again indirect by being originally created through quantitative easing, has an increasingly prominent component of direct subsidies of individuals and companies, and an emerging emphasis on infrastructural spending. These direct forms of monetary expansion may make it increasingly difficult to pull off the trick of keeping inflationary expectations and interest rates low at the same time as pumping increasing extra cash into the economy.

The background for our sector could be much worse. Easy money translates to buoyant share markets and the expectation of both inflation and of infrastructure spending translates to positive sentiment towards gold and also towards those base metals that are going to be required. “What”, an observer might ask, “could possibly go wrong?” and the answer, as usual, is “events”.

We live in volatile times, and must be prepared for sieges as well as marches. The opportunities before us in every direction seem promising, and this may be a time when we can generate enough energy from the conjuncture of having good projects and being in a good market to move up by an order of magnitude to a new level. That is certainly our aim. But in doing so we must not lose our balance and jeopardise the hard won gains of the last year.

At the time of writing, the value of our marketable securities and cash is near £4m. It has been higher recently, and with the receipt of anticipated dividends from Jupiter Mines Ltd, an in specie share distribution and IPO of Juno Minerals Ltd, and the dynamism of Power Metal Resources plc with its diverse portfolio, we consider it reasonable to aim to bring that figure to a level somewhat higher by our June year-end.

In addition, we welcome the news that our 4.6% shareholding in Elephant Oil Ltd may finally realise its potential with a market listing, and if the hopes raised by the passive seismic carried out two years ago over the c4,000 sq km held onshore in Benin are to any degree fulfilled this may become a significant asset for us.

Progress continues with the planned IPO of our subsidiary Red Rock Australasia Pty Ltd, and we would expect the crystallisation of the value of our holding thereupon a listing to give a valuation uplift significant in relation to our market value.

With three IPOs to look forward to from our holdings, 2021 is likely to be a strong year for the Company, with liquidity continuing to increase in the second half of the year, and a medium-term target of £20m for cash and liquid investments.

If we want to advance to become a mid-tier mineral exploration and production company, we need from here to give increasing importance to building and maintaining a high level of liquidity. We are in a better position to do so than we have ever been.

The unaudited results for the six months to 31 December 2020 showed modest improvement on all fronts. Total Equity increased by 20.4% over the six months to £16.659m, after a 53.7% increase over the previous six months.

Current and non-current assets together increased by £2.299m over the six months, while liabilities decreased by £0.53m (and have seen a further £1.4m reduction by payments made to Kansai Mining since December).

The loss for the six months of £(0.43)m, compared with a profit of £0.337m in the same period of the previous year, reflected an increase in administration costs, including employment costs, partly as a result of the high level of activity at Red Rock Australasia Pty Ltd as it increased its land holdings and prepared for exploration and listing. A reduction in dividends from Jupiter Mining Ltd, as Tshipi e Ntle took a more cautious view of distributions at the height of the Covid uncertainty, was also a factor.

Our exploration activities in the period ahead will be as important as our IPOs and capital market transactions. In the DRC we are preparing to drill some short reverse circulation holes at our exciting Luanshimba copper-cobalt prospect once the geophysics is complete and the ground conditions permit, with the hope of delineating a resource.

In Kenya, we are finalising a drill programme to follow up the JORC Resource recently announced and to test new targets.

In Australia, active exploration has begun and we look forward to drilling the first targets later in the year.

The Company will continue to maintain a low-cost structure, and to seek value from disciplined and focussed exploration.

Finally, we thank shareholders again for their support for the Company and its endeavours.

Andrew Bell


30 March 2021

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