RCH richfield group limited

read this if you want toget to the guts of rch

  1. 1,057 Posts.
    RCH traders this aint for you because you will get bored reading the first 5 lines. Those that have taken reasonable positions and are paying attention to anything that comes your way, pay attention to what I’m about to tell you here.

    RCH has got its foot on a Molybdenum deposit in Indonesia which, from the data put together by Santos and Rio, is incredibly high grade. The Moly business is a high margin fat profit game if you can get your project financed ($300 – 1.1Billion) that is.

    This is not easy because there is no forward market to sell future production into and thus give financiers comfort. For this reason, most projects will never get funded unless the grade is high and the payback quick. Moly Metals is banging the drum on a $1Billion capex and it’s a big project but the grade at 0.06% is just standard fare. They should get there because they are a quality outfit but many others wont.

    You should also be aware that the current Moly price is $US34lb and the price used in Bankable Feasibility Studies (BFS) is $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.

    That’s a bit of the background, now if you are still awake, this is the main event.

    Statement: I’m going to show you what the market hasn’t even begun to understand about RCHs project and why the main players are telling the purple circle its worth 40 cents. It was only after studying a BFS document and several Moly operations and also that crappy presentation put out by RCH (what were they thinking?) that the penny dropped for me.

    The Moly gang don’t blend their high grade ore with their low grade like gold miners do, they just rip out the high grade stuff first (if they can get to it first).

    Have a good look at Santos numbers on that horrible presentation. You will see 27Mt at 0.29% OPEN PIT. Yep rip it out first and send it down the hill to the plant below. Have you any concept of what 0.29% run through a 7.2M tonne pa mill returns you? Well see below, but before you do may I draw your attention to the comments made in that same awful presentation about the Assay Grade Errors. They reckon the assay grades are up to 33% understated. This means the grade available in the first 2.5 years may be as high as 0.39% MoS2.

    This project using a modest size plant of say 7,200,000 tonnes pa. Could make a net profit of at least $1Billion p.a (see assumptions below) for the first 2.5 years and then it adjusts accordingly as the grade comes back to 0.15% – 0.2% (depending on that error factor).

    I’m also telling you that this project could pay off its capex (say $500M) in 1 year.

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

    This is why they can and will do a JV with a bigger company (China Molybdenum listed in HK would be an really good example wouldn’t 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 and say 50% of feasibility costs at say $15M, no make it $20M. Money out the door for the major, a lousy $170M.

    First year it get 50% of the net pretax profit of $500M, year 2 it banks another $500M (and so on for 10 years but at low profits as the grade drops. Lets say $400M for year 3, then 250M for 5 years, then $100M for last 2 years).

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

    RCH receives (after the major gets its half) about 35% of the net and all it has to do (worse case scenario) is fund half the feasibility study/drilling etc for say $20M (may get this free carried as well though).

    Now 35% x Net Profit of $1Billion is $350M in years 1 & 2 alone.

    Somehow I don’t 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 (don’t laugh). So they have 2.4 Billion shares with a theoretical value of 40 cents. That’s a market cap of $960M. That’s not even a P/E of 3 in the early years.

    What’s the downside? The Moly price but the world has changed. Moly may come back to the $US15lb feasibility price they all use but that impacts 90% other Moly operations before it troubles a very very high grade operation like RCH. At $US15lb, the Net Profit is $570M of which RCH gets $200M year 1 & 2. A PE of 5. So the Moly companies could almost all be squealing in pain but RCH is still banking huge profits. Even when its into its lower grade material it is still operating at 2-3 times most competitors grades.

    Here are numbers generated out of my industry BFS model. (Ruby Creeks actually)

    Grade 0.39% (for 2.5 years and adjusted for assay errors)
    Price $US34lb (current Spot)
    Year 1&2 Net Profit $US1.5 Billion

    Grade 0.29% (assume no assay errors)
    Price $US34 lb
    Year 1&2 Net Profit $US1.138Billion

    Grade 0.29%
    Price $US20lb (likely long term)
    Year 1&2 Net Profit $US580M

    Grade 0.29%
    Price $US15lb (BFS)
    Year 1&2 Net Profit $US380M

    Grade 0.39% (adjusted for assay errors)
    Price $US20lb
    Year 1&2 Net Profit $US841M

    Grade 0.39% (adjusted for assay errors)
    Price $US15lb
    Year 1&2 Net Profit $US573M

    I’ve posted the breakdown of the model previously so my numbers can be easily checked.

    But can one actually reconcile the theoretical vale of 40 cents. Yes is the answer.

    My prediction is we will soon have a JV partner.

    There is accumulation going on in this stock, its getting slowly sucked dry.

    The buyer/s already understand the above numbers and are taking cheap stock off the uninformed.
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