It’s nearly 3 months since I last covered Red Rock Resources (LSE:RRR). Since then the share price has nearly doubled from 0.6p to 1.15p last seen. As I explained in the last piece the fundamental reasons for buying Red Rock were pretty obvious and the share price gains haven’t been at all surprising. The market has woken up to the potential here and there could well be exciting news flow over the coming days involving the company’s flagship investment in Jupiter Mines.
Red Rock owns a 1.2% stake in the unlisted Jupiter Mines. Jupiter owns and operates the Tshipi manganese mine in South Africa. Tshipi is widely regarded as being a genuinely “world class” mining operation. It is already one of the top three global producers of manganese and is the only one of these to have a projected life of mine greater than 100 years.
However you look at it, Red Rock’s stake in Jupiter is a fantastic asset for the business to have on its balance sheet. Investors have recently started to get excited about the price discrepancy between the company’s market cap and its 1.2% holding in Jupiter. This has helped drive the share price up, but even at 1.15p per share there could still be plenty of upside on the table.
In February Jupiter announced an equal access share buyback of its stock. Rather than pay a dividend, Jupiter sought to buy back up to 6% of its stock for about $55million. Using the maths of this buyback to value Red Rock’s stake in Jupiter, this suggested Red Rock’s holding was worth about £11.65million. Red Rock’s market cap is currently just shy of £5.5million.
As positive as this all sounds, the outlook for Red Rock’s Jupiter holding might be even brighter. It’s been in the public domain for a while that Jupiter’s board has been looking either to re-float the business (it was previously listed on the ASX) or to sell Tshipi. In early May there was press speculation that there might be as many as 10 potential bidders for Tshipi. Over recent days this speculation has intensified and there is a growing expectation that Jupiter is going to make an announcement concerning its plans. Depending on the outcome of this, this could well be a catalyst for further gains in Red Rock’s share price.
What lends weight to this speculation is that Jupiter is due to publish its results any day. Last year Jupiter published its Annual Report on 16 June. The year before that Jupiter published its Annual Report on 26 June. It seems a fair bet this year’s numbers will be released very soon. If Jupiter’s results contain any positive surprises or bullish outlook for the business this could trigger a bidding war for Tshipi, either in a scramble to get shares in an IPO or between the 10 supposed bidders for the asset.
At 1.15p trading the results might seem risky, but if there is any weakness in the share price over the coming days or if the market sells on news this could present a significant medium term buying opportunity in Red Rock. With such a clear discrepancy between the company’s market cap and its fundamentals a sizeable re-rate is still on the cards, even from the current elevated share price.
DISCLOSURE: The author of this piece owns shares in Red Rock Resources