Interview: Andrew Bell of Red Rock Resources, MineMouth.com Interviews Red Rock Resources Options

[SharesForum]

MineMouth: What, in your opinion, has been the company’s single biggest achievement to date?

Andrew Bell: Red Rock’s biggest achievement, undeniably, has been to take our iron ore and manganese assets and move them to the stage where we are now. Iron ore and manganese are not simple, they are low cost commodities, yet there are big costs in taking them to the market. There’s transport costs, infrastructure, railways, courts. When you are talking about infrastructure like that, well, that requires political clout; that requires long term financial planning. And only big companies tend to be able to give it. We started out with some good, potentially high-grade iron ore and manganese assets and now have taken it to the stage where we have got a powerful partner, in Pallinghurst, joining with them and jointly taking over Jupiter Mines in Australia. Almost all the assets Jupiter has now came from us originally, so this is to a large extent our creation. POSCO, the world’s fourth biggest steel company, has now come in and taken ten percent. So we now have the political clout, the credibility, the financial backing and the expertise… and we still have 27 percent. [Share of Jupiter]

MineMouth: So, the involvement of a big company like Pallinghurst was crucial to Red Rock’s development?

Andrew Bell: I think that when you are a small company developing assets you have to know which ones you can carry all the way through to production and which ones you are just trying to add value with. You have to know when to let go. We could have got out of our iron and manganese: by selling them; by joint venturing them; by floating them off. Floating them off in some form would have been the best thing, because the public can always give you higher valuation than an industry partner. But what we have done is something even better. The value of Jupiter now doesn’t reflect only the assets it has, but also recognition of the partners’ strengths and aspirations for the future. We are leveraging off a very small base in Jupiter to operate in markets where you have to be very big to survive. So people will look at this $80 million company and say, well, with those backers and those aspirations, this is going to be us a billion dollar company.

MineMouth: What can investors expect the company to achieve over the coming year?

Andrew Bell: We now have a shareholding in Jupiter worth more than £10 million, our market value is £7.5 million, so that’s value in just one shareholding over a third higher than our market capitalisation. We expect the Jupiter price to go up from here. We expect a lot of corporate action. That discount will increase if our price doesn’t go up.

We are also – well, I suppose we’re not doing quite the same thing with Resource Star, another listed Australian company, [but something very similar.] We are re-listing Resource Star as a uranium company. We are starting that process and it will be re-listed by December. It’s going to be smaller to start with than Jupiter was, and although we have first class management with first class backgrounds, we don’t have the strong partner that we had with say, Pallinghurst. But then, it took four years to identify Pallinghurst and with Resource Star we are starting at an earlier stage. We are now talking to, and are interested in forming relationships with say, for example, Chinese companies. We will be forming joint ventures.

We hope that whereas in iron ore and manganese Jupiter will be our vehicle. In uranium, Resource Star will be our vehicle, and that will be another leg of the company. So, what we’ve done with Jupiter we are starting to do with Resource Star and when it gets re-listed I think that the value of that stake initially will be £1.2 million or £1.3 million. It’s possible that it will actually be a good performer in the first quarter, second quarter of next year.

Developing our gold assets in Kenya is another thing we will be doing this year. We’ve reviewed the old work that established a 43-101 resource of 1.1 million ounces and we want to get the resource up to over 2 million ounces. From here on we need to be chasing ounces. We need to find the high grade so we need to do very specific exploration - so if the gold price remains strong, then we will get a much higher value per ounce.

MineMouth: Do you think the gold price will remain strong?

Andrew Bell: I think that in the long term, gold will more than hold its own. South African production has gone down from 900 tonnes to 300 tonnes per annum, and since South Africa is by far the biggest producer, the exhaustion of those old mines, well, nothing in the world that has happened has been able to compensate for that. Deeper mines are becoming unviable - because of social and human factors, the difficulty and danger of working in those environments. I think new discoveries being made will not easily compensate for that decline. I think the rates of economic growth and demand for gold in those countries which have historically shown a predilection for buying gold will increase and accelerate. So in the long term, I think gold is going to be a good investment. Whether it’s slightly over done in the short term, it’s too difficult to say.

MineMouth: Will Red Rock maintain its current stake in Jupiter for the foreseeable future?

Andrew Bell: Yes, for the foreseeable future. But I can’t foresee very far into the future.

MineMouth: What is the attraction with iron ore and manganese? Aren’t these commodities of comparatively low value?

Andrew Bell: I remember once speaking to somebody who was working for Trusthouse Forte, a hotelier, and he was talking to me about a conversation his boss had had with a man who owned a palace. He said “serve princes and you live like pauper, server paupers you live like a prince.” If you have low price commodities like iron ore, the sheer volume used in the market is so great that it dwarfs everything else. That’s why all the really large companies like BHP and Rio Tinto, they are all in iron, and the things that go with iron, like coal.

If you want to be really large, sure, aluminium is quite a big market, and there are other fairly significant ones, but nothing beats iron. That’s a good argument for being in iron - it may be low price, but people need a lot of it.

If you are in Australia producing iron ore you can put a few ticks right there -the two big exporters of iron ore are Australia and Brazil. The world wants Australian iron ore, and the main markets consuming iron ore and steel are the Asian markets, which are a lot nearer to Australia than they are to Brazil, or West Africa.

As for manganese, manganese is non-substitutable. And it’s absolutely essential for steel-making. The manganese demand which is being met by domestic [Chinese] production is in any case low-grade - thin deposits, expensive to process, of low quality with too many impurities. So China’s entry into the import market is an irreversible trend, and is going to become increasingly significant.

There is a lot of manganese in the world but the amount being supplied at a low price and of high grade is relatively finite. And therefore, if you can be finding manganese profitable at today’s prices, the odds are it is going to continue to be profitable, or very profitable, in the future.

MineMouth: How has the global financial crisis affected the company?

Andrew Bell: At the end of last year nobody wanted to know us. We went through a difficult period, trying to raise money, [and] the share price was pretty low. That was partly due to decreased liquidity in the market and partly due to the collapse in commodity prices at that time. Early this year, we decided that times like this are the times when foundations of big companies and big fortunes are laid out, and it’s better to be aggressive than defensive. So we have been steaming forward as fast as we can, looking for opportunities and trying to advance, and I think we are in better shape for it.

MineMouth: What is the company’s medium to long term plans, as far as business strategy is concerned?

Andrew Bell: We expect within the next few weeks and months the in-built value of our activities in iron ore, manganese, the value of our uranium and rarer assets will become evident. We also think that we will be able to bring out some of the value of our gold assets in Kenya. We don’t want to be over-diluting stock before we see much higher share prices. We’ve got to concentrate on getting the message out on what we are doing.

MineMouth: What do you see as the biggest risk area for the company in the next 12 to 18 months?

Andrew Bell: For us, the risk is that we just don’t get recognised. That’s the biggest risk because we’re sure we have the value. The world economy generally is a risk. China may become overheated although I am not too sure about that – I am optimistic but the thing that worries me is that everyone is getting so optimistic so quickly that we could see a decline in the markets. And we’ve seen how things can turn so quickly; in markets that can happen. So today’s conditions where everybody wants to invest in things, particularly in Australia but also here – well, that could change very quickly. It shouldn’t affect us because we are going to try to be quite liquid. One of the dangers would be that the markets fall before we put all our chess pieces in place, so that we are not prepared. Our aim is to put ourselves in the position where we can exploit any weakness in the market.

MineMouth: What is the future looking like for iron ore and manganese? How much demand will there be for these two commodities in the medium/long term and where will that demand likely come from? China?

Andrew Bell: In this country maybe one percent live in the countryside – we are highly urbanised. In other areas, like China, you still have 60 to 70 percent of people living in the country. When these people move into towns it’s been measured in China that their incomes go up - from I think somewhere like $300 to $900 per year. They then become customers for all sorts of things - like stainless steel sinks, air conditioners, washing machines, refrigerators, bikes, and eventually cars - all these things use stainless steel. The growth of the urban affluent is going to continue for some time.

The world is still urbanising and that is going to result in an increase not only in stainless steel but all the other things that go with it. So the outlook for iron ore demand is that there will be increased demand. What can I say about prices? I don’t know about prices. When I look at manganese I think that prices have to be a little bit higher, probably, and I think that manganese demand will remain strong because you can’t make steel without it. There is also the possibility that new generation lithium batteries will use manganese. So I don’t think there is any downside on the demand side. When it comes to price, well, you must always look at what supply is doing as well.

MineMouth: Do you expect the company’s other interests (uranium/gold) to take centre stage in the future?

Andrew Bell: Yes, well, in a way we can’t do things in manganese and iron ore now, at least not in Australia, because we are doing it through Jupiter – that would be confusing. Once we re-list Resource Star then I think Resource Star will be our focus for uranium. That will take centre stage for the next three months. And after that I think gold will be the focus, because exploiting the opportunity in Kenya is going to take a huge amount of work and dedication, a lot of interpretation for example, a lot of patience, and a lot of energy. But the rewards will be very great.

MineMouth: What is the future looking like, as far as uranium is concerned? How important could this be for Red Rock?

Andrew Bell: At the moment China is producing 70 percent of its electricity from coal. China has cheap coal, so it’s understandable. Last year, they were opening a new plant something like every four days – and it is one reason for the staggering level of atmospheric pollution in its cities. Ambitious plans at the moment are to take the proportion of uranium power generation up to five percent by 2020. In my view, they are working very hard behind the scenes to identify uranium and they are going to accelerate that programme - because five percent is ludicrously low - they must know they need to get to 20-30 percent.

To put it in context, total French electricity generating capacity every year equates to the annual increase in China. Now we think it’s a big deal that France gets 70 percent of its power from nuclear. Yet if China were to be doing 70 percent of its new capacity, only its new capacity, as nuclear, then that would already be greater than France.

I don’t think they want to take the next step and raise their target to where it should be until they have got the uranium assets, because they know if they announce it first and try to get the uranium assets afterwards, it will cost them ten times as much.

So, am I bullish on uranium? I am more bullish on uranium than anything else in the world.

MineMouth: And gold? What is Red Rock’s interest in Migori Gold, and how long before production?

Andrew Bell: We have 15 percent and we have the right to take that to 60 percent. We are very interested in production. The first thing we had to do was get initial reports - we’ve done that - the next thing we need to do is the follow-up work targeted with a view of early production - there may be other stuff at the surface that we can get to at a low cost. At the moment, though, we are still accumulating data and information, compiling it. We have two geologists out there. One is looking at all the potential issues, he’s walking all over the ground, he’s a very good explorationist, so he’s identified new targets and new possibilities. The other has been going painstakingly over all the old work done, remodelling, re-sampling, re-stating its integrity.

But at the same time, we have people looking to see whether there are any areas where we can just go straight in and do a quick and dirty production of even a small amount of gold, because, hey, you know, even 2000-3000 ounces of gold is $2 or $3 million dollars, and that would more than defray the costs. We’ve got a 43-101 resource of 1.1 million ounces. We think with a bit more drilling it should be possible to get that to 2 million ounces … at which point it’s starting to become quite interesting.

RED ROCK RESOURCES:

Key Data:

EPIC - RRR
Share Price – 1.55p
Spread – 1.35p – 1.75p
Total Number of Shares – 477.38 million
Market Cap - £7.4 million
12 Month Range – 0.0375p-2.05p
Market – AIM
Website – www.rrrplc.com