Red Rock Resources: New funding options??

As Red Rock shareholders will realise, the company's holding in Jupiter Mines has the near term potential to dwarf its current market cap (mention in the FT article here) . But as any reader of John Steinbeck’s ‘The Pearl’ will attest, having something of significant value doesn’t necessarily mean you can readily realise its true worth. And if you are limited in terms of who you can talk  to, then the process becomes even more constrained. You need the flexibility as well as the knowledge.

We therefore note with interest the latest developments from Red Rock Resources who, this morning, announced the end of their Joint Venture Agreement with Pallinghurst. This Joint Venture saw the companies working together to vend assets in exchange for stock in an enlarged Jupiter Mines.

In 2009, Red Rock vended various assets into Jupiter and in return, became Jupiter’s largest shareholder with a holding of 93million shares, around 25% of Jupiter's overall share capital. That shareholding, as we highlighted in our recent Value Proposition, is currently worth around £11million or nearly 2p per Red Rock share (not bad considering the entire company trades at 1.55p mid, and that includes all the other assets thrown in for nothing).

So the announcement today effectively marks, the successful conclusion to the venture with Pallinghurst and the end of the pre-emptive rights they had over Red Rock’s stake in Jupiter Mines. This is significant, because until this point, Pallinghurst were effective gatekeepers of Red Rock's stake, thus limiting potential market interest.

So from now on Red Rock has the flexibility to talk openly with others who may be keen on acquiring a strategic stake in Jupiter Mines. 

Bearing in mind that most of Jupiter's stock is tightly held by Pallinghurst, their partners POSCO and others including more recent arrivals on the share register, Hancock Prospecting. So anyone after a decent sized stake will find their options severely limited.

On another level, an intriguing consequence of this development will see Red Rock's voting power and therefore influence in Jupiter increase. This may well come in handy should Pallinghurst wish to divest one or more of their assets in whole or part into Jupiter. (Brian Gilbertson speculated on this potential in their last investor presentation - well worth a listen). In this event Pallinghurst would not be able to vote, but of course with Red Rock now free from their concert party  arrangements with Pallinghurst, their shareholding represents a significant control block.

So with what looks like a new window for funding about to open, what would be the reaction if Red Rock were to sell just 10 of their 90 million shares at the current price of 20c, raising £1 million? This would certainly be sufficient to cover development plans for Migori Gold, Zambian Manganese and just about anything else in the pipeline for some time to come.

Of course the immediate ability of Red Rock to release value from the Jupiter holding is exciting stuff. But what if that’s just a side show?

The conclusion of the Joint Venture with Pallinghurst suggests to us that plans are afoot for another step change in activities at Jupiter Mines and we will be watching Jupiter news feeds with keen interest. It seems clear that Pallinghurst have plans to turn Jupiter into a major steel feed business. And at its market cap of just A$80million it is still a minnow. That may all be about to change and positive news on this front could improve the Jupiter share price and, with a growing market cap, the ease through which existing holder can realise a return on their investment when required.

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