RCH richfield group limited

new approach

  1. 1,057 Posts.

    A world class 106M Molybdenum deposit containing 117,660 tonnes of metal worth $US8.8 Billion in the ground. Based on the paucity of drilling on the prospect there appears to be a high probability that the tonnage could grow substantially.

    The current diluted market cap is $90M. Doesn't reflect resource grade and size.

    The grade of the resource at 11% Mo (60% x MOS2 and after adjusting upwards for the stated assay errors believed to be responsible for previously understating grade by at least 33%) compares well with the following world class deposits. The grades are for Mo not MOS2.

    Malmbjerg....0.11.8%….220Mt
    Roca Mines...0.12% ……..42Mt
    Mount Hope...0.068%…..965Mt
    Endako's…....0.051%…..276Mt
    Lucky Ship…...0.07%……..60Mt
    Ruby Creek...0.062%…..199Mt
    Moly Metals...0.06%…..450Mt
    Cannivan G....0.06%...…17Mt
    Blue Pearl...0.043%…..492Mt

    As is pretty clear, RCHs grade is significantly higher than most pure Moly producers/soon to be producers.

    Moly Business

    The Moly business is a high margin, fat profit game so long as you can get your project financed. eg $300M to $1.1Billion is the usual range.

    This is no easy feat due to the absence of a forward market to sell future production into and thus give the financiers the comfort they require. For this reason, most projects will never get funded unless the grade is high and the payback is quick. Moly Metals for example is currently out banging the drum on its $1Billion capex project. Although their grade is the standard fare at 0.06% MO they should still get there because they are a quality outfit. Many will not though and that will keep the Moly market tight and prices firm.

    You should also be aware that the current Moly price is $US34lb against the price used in Bankable Feasibility Studies (BFS) of $US15lb. Most Moly Mines tend to boast a cash cost of around $US5lb so if you can get funded you usually get to make a pile of cash.

    RCH

    Statement: Im going to show you what the share market hasnt even begun to understand about RCHs project and why the main players have been telling their purple circle that RCH has a theoretical value of 40 cents.

    It was only after studying a BFS document and several Moly operations and that crappy presentation put out by RCH (what were they thinking?) that the penny dropped for me.

    The Moly miners dont blend their high grade ore with their low grade like gold miners do, they just rip the guts out of the high grade zone first (thats if they can get to it first) and pay the debt off and recoup their investment as soon as possible. Again, as there is no Forward Market you don't know what the price of Moly will be in 12 months time so make hay.

    Now go and have a good look at the Santos numbers from that horrible RCH presentation. You will see 17.7Mt at 0.29% MOS2 for 2.5 years or 33Mt at 0.20% for 3 years. Convert this to Mo and adjust for the assay errors and this gives us a Mo grade of 0.23% for the Open Pit. Yep rip out this high grade zone first and send it down the hill to the plant below.

    Have you any concept of what 0.23% run through a 7.2M tonne pa mill returns you?

    If this project used a modest size plant of say 7,200,000 tonnes p.a. mill, it could under reasonable grade and price assumptions make a Net Profit After Tax of at least $US452M p.a for the first 3 years and a Cash Operating Surplus of $400M (after $100M in debt repayments and after adding back $50M in depreciation). It then adjusts downward accordingly as the Mo grade comes back to the 0.11% MO grade range but which is still about double other companies in the same business.

    Im also telling you here and now that this project could pay off its capex of say $500M in 1 year at the current MO price if they wanted to.

    Are you comprehending this? Mull it over for a minute.

    This is why they can and will do a JV with a bigger company who will give RCH a free carry (China Molybdenum listed in HK would be an really good example wouldnt it? oops).

    Example: They sell 50% of the project to a large company in exchange for that major stumping up the equity component of say 30% of the capex and guaranteeing the 70% debt component. Also lets assume they pay for 50% of the feasibility costs of say $20M. Money out the door for the major? A lousy $170M

    In each of the first 3 years at current MO prices, the return for the major partner at the current MO price would be 50% of the Net Profit After Tax and less after say, a $100M in debt repayment. A cash return of $200M. Year 2 & 3 are the same. That’s a post tax & post debt payment, return of 118% per year for 3 years, to the big guys. Nice work if you can get it. After year 3 theres no debt to worry and the major has its investment back in year 1.

    So where is RCH in all this? It owns 75% of 95% so it ends up with 75% of 95% of 50% after a JV is struck with a major (though in reality the minorities will probably sell out rather than stump up any cash but we will assume for now they stay in).

    RCH would receive about 35% of the Net Profit Before Tax and all it has to do is fund half the feasibility study/drilling etc for say $20M (may even get this free carried though).

    Now 35% x the Net After Tax and after debt repayment of $US400M is $US140M in years 1 to 3. Again, banking a tax paid, debt paid, surplus of $US420M or $A467M in total for the first 3 years for RCH is a fantastic return for a outlay of $20M for its share of the feasibility.

    Somehow I dont think they are going to have any trouble raising the $20M do you?

    Where is this share price going when the punters eventually come to grips with this?

    Yep, North big time.

    The purple circle keep saying its worth 40 cents a share. Lets see, 2 Billion bits of paper fully diluted. Lets say they raise $20M at 10 cents (dont laugh this is going to 10 cents soon). So they have 2.4 Billion shares with a theoretical value of 40 cents. Thats a market cap of $960M. Thats a PE (post tax) of 5.4X for each of the first 3 years (35% X Profit after tax of $US450M or $A500M = $A175M). Can you justify 40 cents? At the current MO price and once its operational, yes.
 
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