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Royalco (RCO.ASX) - a unique company


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Firstly, let me say that these forums a great idea, and hopefully they thrive! Shame I just found them now...Also a shout out to the guys at Minesite.com whose articles I enjoy every morning!


Now onto this little company, in which I will say upfront I am a large shareholder in as are several associates, so I am extremely biased (to be kept in mind while reading).


Royalco Resources is a relatively new listing making its appearance in June 2006 without much fanfare. The fanfar was restricted by the fact that the total shares of the company were held 75% by the top 20 leaving bugger all free float (a lot less now!)


The performance of the shareprice has been anything but glorious and it is sitting currently at its listing price. No point putting a chart in given the average volume in the stock has been negligible for past few weeks (as has the price action).


So what is Royalco and why am I interested in the company.


First the brief version:


Royalco is a company involved in both exploration and royalties (unique in Australia). Its market cap is around 27 mill but it has around 10 mill in cash, and a imminent royalty of around 3-4 million pa from Oceanagolds Reefton project in NZ. Its exploration projects are mostly the old OXR Phillipines projects which are likely to throw up large porphyry gold/copper systems, and with the cash in the bank and royalty, exploration is fully funded without having to raise more capital (the achilles heel of most exploration companies).


The detailed version:


When I invest in small mining companies, and I've been doing it for almost 10 years, I have 5 core requirements that the company needs to meet, though the 5th one is a nice to have.


They are (in order of importance):


1. Quality Management/staff

2. Early or likely cashflow

3. Tight capital structure without a likely blowout

4. LARGE scale exploration projects

5. My broker needs to like it


A few companies (all Aussie) I've picked at the bottom that had all or most of these attributes for example were OXR (at 4c), IGO (at 30c), BSG (at 14c)...admittedly they were all when metal prices were down in the dumps...it wasnt brain surgery finding those and many more value situations...I'm sure you'll agree its a LOT HARDER to find a VALUE company in the junior mining sector these days!


But I think I've found one in RCO which meets each one of these in the following way:


1. Quality management/staff

The originators of the company were two fellows that have been on each others coattails for the last couple decades. Both ran Mineral Commodities and have been involved in in the corporate world for a while. They are NOT geos or exploration experts...but they know 'royalties' (see 2. below) and they have a very strong network in the industry...and its not that cowboy network in Western Australia either!


The exploration prowess comes from several areas. Tom Eadie, also a director, is one of the best geophysicists in Australia. Those that follow Copperstrike, another listed ASX company will note the board is pretty much the same as RCOs except in reverse. Basically Copperstrike is a keenly focussed exploration company. The two companies will share resources, and CSE's exploration team is second to none with Terry Lees and Steve Tambanis. (Note: CSE itself is definitely worth following!)


Further, RCO have been lucky enough to grab the services of Peter Lester from Oxiana (OXR is RCOs top shareholder). Peter was responsible for the Phillipines exploration areas of OXR, which OXR has divested into RCO in return for 10 million shares (and clawback rites - see 4 below)


2. Early cashflow

RCO's market cap at current shareprice is around $27M. Thats pretty high for a recently listed exploration company, specially given that its still at listing price...bit different from the dodgy 3-4 mill floats appearing on the ASX every second day.


So how does RCO meet the 'early cashflow' requirement, since it doesnt have any project ready to go?


ROYALTIES! As far as I know, RCO is the only listed ASX company with a focus on both royalties and exploration. And the first royalty is probably only 6-12 months with production starting at the project in a month or so. That royalty is on OceanaGolds Reefton project which has an initial minelife of around 7 years. At current gold price, the royalty should be worth the equivalent of around 3-4 million AUD to RCO...I say equivalent because the royalty is actually delivered in physical gold...so there is large exposure to the gold price.


So 3-4 million cashflow for 7 years...thats pure profit since of course there are no mining costs involved...that sticks it on a PE of about 7-10 depending on actual amount received and the fact that the companies previous tax losses should minimise tax for at least a couple years.


And thats only one royalty...it has several others, and is working on acquiring several others...since thats what it does, buy royalties...and what better place to get them from than from RIO TINTO's own royalty database (there is a reason that RIO has 7% of RCO and thats it!)


Two other imminent production royalties are Kagara (at Garnet - production to be recommenced in 2008/9 though likely to be much earlier according to Kagara due to high metal prices and good drill results) and CopperCo (cant remember project name but should commence prod next year).


Oh and the company also has $10 million in cash.


3. Tight capital structure and will stay that way

RCO only has around 56M shares on issue...of which around 72% is held by T20 shareholders in the latest annual report. I can guarantee its higher than 72% now, probably around 80-85%.


Unfortuantely it is too often you see small mining companies lose the plot and go on cheap capital raisings that raise money but destroy the potential for shareholder wealth...a company that I made this mistake in (but unfortunately was blind to the problem forming) was Integra Mining which before you knew it had gone from less than 100 mill shares to well over 200 mill...and they just did another rights issue.


I am glad to say the same will not happen with Royalco, for 3 reasons:


(a) Management have specifically told me that the last thing they want to do is have to issue more shares...hence the clawback rights with OXR...though of course if they find a project that is too small for OXR, but significant size for RCO then they may need to to develop it...but thats ok since thats 'development' raisings not 'exploration'


(B) their current cash balance is $10M and that should be sufficient for 2-3 years exploration


© the cashflow from Oceanagold royalty (see 2 above) at 3-4 million per year will more than fund ongoing exploration


4. Large scale exploration projects

I'm interested in companies that have projects that can become company makers...however they have to be quality projects. Im getting sick and tired of companies saying that their project is Olympic Dam style, or has affinities to Voisey Bay etc etc.


It is imperative that you take a look at the ground and see if a company is selling you a story, or ha some substance. RCO's exploration projects in the Phillipines have substance...they were former OXR projects and previous exploration results were extremely significant. Why did OXR give them away...well, firstly they got 10 mill shares in RCO for the divestment, secondly they have retained 50% clawback rights (for consideration) at certain resource levels, oh and at the time, they were working on a 'small little project' in LAOS called SEPON :D .


The core focus is to find large porphyry gold/copper systems, a bit like the Didipio projects owned by Climax (and now ironically by Oceanagold due to merger)...drilling is currently going on at Samay (this was a previous Phelps Dodge project), however that is a low priority target compared to the others...the real exitement will be when Malangza and Gambang get drilled imo (both just waiting on approvals)...worth taking a look at recent quarterly and the 'lost feasibility study'.


5. My broker needs to like it

Up until 3 years ago, I was pretty much going it alone, and doing very well if i do say so myself. However my own job got a bit hectic and decided I liked certain article I saw a particular broker writing, who was focussed on the junior explorer end of the mining sector. Anyway, its been a rewarding relationship, and he likes Royalco...and it is extremely hard to get him to a like any company other than the ones he likes.


So what we have is a well managed company with a imminent significant cashflow, cash already in the bank, and large exploration potential in projects that have more than a chance of throwing up so good stuff.


So why the boring share price. I and my associates have been wondering the same thing...but we think its a factor of the Aussie public not understanding the royalty story, and the illiquidity of the shares. It may take time, but eventually the market will sit up and take notice. I'm not into one night wonders by the way, prefer to make money investing in a company with a real future.


Hopefully starting tomorrow, with RCO presenting at the Melbourne Mining Club which Ill be a very interested spectator at.


Feel free to shoot me a PM or email if you want to discuss this, or any other Aussie mining company that I might know a bit about.


Cheers and happy investing


BuffetJr B)

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"ROYALTIES! As far as I know, RCO is the only listed ASX company with a focus on both royalties and exploration. "


A bit like BMGX, one of my favorites


We just need a chart now...

to put the story into context

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Hi DrBubb


Tried to post a chart, but didnt allow me...bit computer illiterate unfortunately. Chart not much to look at imo though given the negligible volume over last couple months...ie price easily moved by small trades.


Can see one at www.asx.com.au if needed...just put in for a quote on RCO then click on chart icon.





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thanks frizzers,


Now that i do actually see their chart :mellow: it does look interesting. shame there is no volume to break it out more strongly.


I note the other company Copperstrike (CSE) with basically the same board as RCO has been going gangbusters last few weeks with over 50% rise in SP. I'm holding quite a few of them as well :D though nowhere near as much as i have in RCO. Now the CSE chart looks nice...strong upward move on increased volume.


I might get around to doing a similar post on CSE as per my RCO post shortly...that is also an interesting story though purely exploration and development focussed with short term upside from exploration, an imminent feasibility at Einsleigh and probably JVs on some of their other projects.



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  • 1 month later...

Morning all


Just a little update on Royalco. Couple weeks ago, I was lucky enough to be invited on a fieldtrip to the Philipines to see a couple of their exploration areas, being Gambang and Samay.


Although these project visits took a backseat in terms of also enjoying the culture and hospitality of the Filipinos, I was lucky enough to see first hand what Royalco has, and why I am invested in it, particularly at Gambang.


Although Gambang, and the other very prospective project PAO are still awaiting approvals, meeting the locals made it obvious that this should happen very shortly and quickly. The support of Royalco by the locals is evident...which is not surprising given the jobs they will create for the locals.


Samay itself is actually already being drilled right now, however it is a low priority area. The real excitement should happen at Gambang...I have actually put some links to photos of the rocks I saw (blue means copper!). And yes that is my hand holding the rock :rolleyes: Given the SIZE of the pics (very large) I've simply copied the links below.


Copper at Gambang: http://img101.imagevenue.com/img.php?image...g_122_369lo.JPG

Copper at Tokla: http://img155.imagevenue.com/img.php?image...a_122_373lo.JPG

Copper stream Gambang: http://img136.imagevenue.com/img.php?image...m_122_446lo.JPG

Copper rock from Tokla: http://img9.imagevenue.com/view.php?image=...r_122_308lo.JPG


The copper stream picture is quite amazing since that bluish/green is actually the concrete road. The stream comes from the top of the mountain washes over the road then continues on down the mountain. The copper in the water is actaully absorbed by the concrete hence the colour. This makes it clear that the source of the copper comes from the top of the mountain...not a bad way to find it :P


Upon returning to Melbourne, soon after announcement that Malangza had been approved for exploration was made. Highly excited by this...although nowhere near as advanced as Gambang, and a higher risk project, the potential size of any project is enormous...think Indophil's Tampakan. Gold has been mined on the south of the island, however they still need to put drill holes to see if there is anything substantial their. But one geo I know has described it as a 'geologist's wet dream'. Bit crude I know.


However I am more looking to Gambang where having seen the ground for myself, I am more than convinced they will find a significant deposit at one of the many prospects in the area...heck they already have one deposit, even though it has to be proved up and which they hid the details of in a quarterly (not really into promotion).


Anyway I hope you enjoy the pics...have a fantastic XMAS and New Year, hopefully 2007 is as successful for mining investment as the last couple years!



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  • 4 weeks later...

Hi all


Good to see RCO finally moving in the right direction, up to 63c from around 50c at time of my last post (touched 70c very briefly before getting hit by traders).


Thought I would upload a new research report on the company, written by Shaw Stockbroking. It clearly shows the cashflow potential of the Oceanagold royalty.


If your interested, just copy and paste the following link in your browser, and it should start the DL (fingers crossed) which is just a small PDF.




I would expect an ann very soon from Oceanagold confirming commencement of production (as indicated by ann) and would be surprised if Royalco did not co-announce it with a reference to the royalty...which i believe would start 6 months post production.


I also hear that the approval process for Gambang (their most prospective project imo by far though company also ranks pao yabbe highly) is going very well, which im not surprised by since i got to meet the locals on my fieldtrip and they were obviously supportive of the company.





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Hi Frizz


CSE, another company i posted on previously, has recently options a tungsten project to Paradigm (PDM). PDM subsequently went for a run, because the tungsten project is a very good one...CSE offloaded it though because they are focussed on their copper/zinc/lead play at Einsleigh, which is much more value adding (though with exposure to PDM through shares).


Another tungsten company is Vital metals, but i personally wouldnt touch it...being run by Bill Ryan who although a nice enough bloke, really didnt do a good job with Titan when he was at the helm of that company. The tungsten project is quite good, and i would probably take another look at it if someone else was appointed to head the company.


GIP havent really looked at it...geo mate of mine used to like it, but has completely changed his view and now wouldnt touch it. The fact taht its Egypt is enough for me...and even if i didnt mind Egypt, i would lean towards Centamin (CNT) instead of GIP.



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  • 3 weeks later...

RCO now up to 73c...on small volume though still...


Would expect there has been some very good progress on getting approvals on Gambang/Pao...so hopefully they are imminent...this would allow them to jump into exploratio nin their best areas.


OGD ann re confirmation of production commencement cant be far away and RCO would co-announce that i would expect.


However, given how many gold producers on ASX are getting carted at the moment 9due to their pathetic perforamnce over the last coupoe quarter in terms of costs and production volumes), not sure this will have a major impact on shareprice...


But its going up at the moment, thats the main thing. I personally picked up a few more at 71c today.



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  • 1 month later...

Royalco (RCO) finished just shy of its highest ever closing price on Fri, which is not a bad effort given the smack (unjustifiable) the ASX resources sector took over the week.


Here is a post I Did on another forum few days ago re royalco:


i'm liking the shareprice action in RCO currently...i thought it might drop a little from people getting impatient with confirmation of gold production at OGD's reefton proejct (from which RCO will get an annual royalty worth round $4 million), but despite the delay, the RCO shareprice has held up well.


A couple significant (i wouldn't say large) sellers have been soaked up by eager buyers (including myself), eager because its damn hard to get this stock in decent quantities given how tightly it is held.


Given the bounceback in the gold price, the royalty is now ever more valuable, and i would expect some decent shareprice appreciation after it commences, remembering that the royalty will last at least 7 years.


Given an exploration spend of around 2 million per year, you could expect that RCO will pay dividends after a couple years.


And remember this royalty is production risk free since its gold price based, not production based. So unless gold price collapses completely, the cashflow will not be effected significantly and of course if gold price goes up, they benefit significantly.


Add the royalty cashflow from the other two projects, Kagara's Mt Garnet, and Copperco's project and we have an 'explorer' with a PE of around 7-8 at current shareprice.


And then theres the massive upside from their phillipines exploration projects...i've been there, seen what they have first hand (see pictures above). Their exploration will find copper/gold (heck theres already a deposit on the ground), the market will rerate it, then its a matter of furter drilling to see if its in quantity, and then another rerating.


Should be a core stock in every junior mining/explorer portfolio in my opinion.


The MD recently was interviewed on a particular show on Bloomberg TV, and was the first ever junior aussie miner to be featuered on this show. I've been told the file will eventually be placed on the Royalco website once they can condense it into a downloadable size. Well worth a listen.


And here is a snippet from a stockbroker about RCO, release couple days ago (table and graph not included):


RCO's share price is now up 50% since listing due to anticipation of signficant royalties from OGD's Reefton gold project commencing around July/August 2007 after a 6-month grade period. OGD reports that 30,000 tonnes of ore had been stockpiled for processing in the first quarter of 2007. As can be seen from the chart below RCO's total cashflows are quite sensitive to gold prices because of a accelerator component between NZ$700/oz and NZ$900/oz. This mean RCO actually receives more physical ounces with a rising gold prices within this price band as well as more for each ounce.


Assuming current spot commodities RCO should be able to sustain a well funded exploration programme for several years and build a signficant cash position at the same time. Total cashflows at current commodity prices and current cash in the bank is rough equivalent to RCO's current market capitalisation. Discounting cashflows at 5% plus cash in bank gives a valuation of 69cps at spot commodities or 58cps using our current assumptions. We await news on the company's Philippine exploration activities.



Unfortunately, my other stock I posted on here, Copperstrike, is not faring nearly as well. Though I did flag that there would be weakness after the feasibility, I didn't expect this much downside...but the resource sector slump exacerbated it. There is no justification for the collapse in CSE since the feasibility although ordinary in results, did NOT take into account the significant zinc project. The shareprice is now in ridiculously low bargain territory, and i will be buying back the ones i sold in the 40s/50s next week.



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  • 4 weeks later...

Royalco now up to 95c on NO news. Not much to add to my previous post except that I am perplexed by the absence of an OGD ann confirming production commencement at its Reefton project, though OGD preso on 14 March confirms first production to be 1st qtr 2007 (end of the quarter is only a few days away).


Also, MD will be presenting at the Asia Mining singapore conference this week...and two stockbrokers I know (and use), will both be there pushing the Royalco story as well as their other recommendations.


Approval process must be getting close to completion on their two prime exploration areas, Gambang and Pao, and I would expect a further upward rerating of the shareprice if the outcome is positive, though some of the market may think its priced in.


By far the best junior mining stock in the WORLD in my opinion (I've already described my reasoning in detail in previous posts)...but being the best doesn't necessarily mean giving the best investment returns (though you never know). I'll be happy with an annual doubling of SP given the amount i hold though I can see much more that that if things go to plan. A dividend resulting from royalty cashflow in a couple years would be nice too.



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  • 2 months later...

Been a while since I've posted here. Would like to say due to being to busy, but the truth is that I've been very lazy.


The good news is that the two main stocks i did post on, Royalco Resources and Copperstrike, have both performed exceptionally well with Royalco now finally double its IPO price, and Copperstrike showing a nice 200+% return.


Even better is that these gains have not been acvhieved simply due to the mining boom.


Copperstrike's gains have been based on very solid drill results mainly at their zinc targets. These appear to now be at resource definition stage which means they can be included in the feasibility study that was done on their copper project. Though the feasibility study was solid, the company intends to add the zinc projects to further increase the economics...the zinc projects are way above expectations and look like growting even further. Mind you, several broker reports valuing them at $1+ didn't hurt either. To top it off, CSE this week announced a spinoff company with an IPO expected in August...surprisingly the price dropped after that was announced.


Royalco's gains on the other hand are more by stealth...although they are short on announcements, there is a lot of work going on behind the scenes in the Phillipines to shore up support. They have done excellent work with the community over there and both the political and social communities strongly support the work RCO (and other ASX listed companies) are doing in the phillipines. Further to that, Oceana has now commenced production at eefton, which means the gold royalty will commence shortly. The market is slowly but surely taking notice that this will shortly be an exploration company with strong cashflows...hence the steady price rise recently.


I expect a lot more from the above two, though my preference is RCO for the bluesky appeal. I hold a lot more RCO than CSE.





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Today's announcement by RCO is excellent, and supports my recent post about the work they are doing in the Philipines.


They now have exploration access to one of their 'top 3' prospect areas, PAO. The others are Gambang and Malangza (though their other areas are by no means substandard). Gambang is my favourite (since I've seen what's there)...Malagza is a conceptual play (some access already granted here) that has the potential to be, well, 'earth shattering' would be an accurate term. But must more greenfields it seems.


Historic sampling at PAO as per following shows the 'potential':


"Historic sampling of the Manidyo vein has recorded up to 49.42 g/t gold, 348 g/t silver and 3.94% copper in assays, whilst samples from Digyan have assayed up to 95 g/t gold, 272 g/t silver and 13.6% copper. The outcropping vein at Manidyo is approximately 10 metres wide and at Digyan the vein is approximately 4 metres wide."


Of course they need to throw the lie detector down there to see if there is anything beneath. As shown by the graphic in the announcement however, the fact that these two areas are quite distinct (about 1km separate) shows the obvious mineralisation potential of the project.


Unfortuantely this was not one of the project areas I visited in December (refer posts and pictures in earlier posts) so couldn't see it first hand. Though my friend has (can't shut him up about it!).


Drilling should begin during July, probably towards the end or early august. If they hit something...thats when the fun really begins.



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  • 1 month later...

Royalco (ASX.RCO) quarterly was released this afternoon...it makes for very good reading. I have copied the most important points below (with my comments in []. It is worth keeping mind when viewing these that RCO's market cap is only around $55 million.


- Announcements by Kagara Zinc Limted (Mt Garnet royalty interest) and Copperco Limited (Mt Kelly royalty interest) suggest income from these two royalties will commence in 2008.


[Mt Garnet was not scheduled to be returned to by Kagara until 2009. However if Kagara return to Mt Garnet in 2008, this would bring forward the royalty for royalco which is important for 2 reasons, being increased present value of the royalty, and also taking advantage of high zinc prices - which is important since the royalty is based on net smelter return.]


- Royalco’s cash position remains strong ($9.0 million cash on deposit)


[Ex cash assets therefore RCO's market cap is around 45 million...cash assets are expected to grow giventhe royalty from Reefton gold project]


- One of Royalco’s principal tenements, Pao, has now received National Commission on Indigenous Peoples, (“NCIP”), certification.


[This effectively means drilling can start immediately. Unfortunately its not possible to post the graphic from the report showing the vein sampling results, but it looks very exciting. Must be remembered that this is detailed trench sampling, not selectively chosen rock chip samples, therefore much more reliable. I would expect drill results would be available sometime in Sept/Oct. It is worth taking a look at the graphic in the quarterly report to see just how detailed the sampling has been and the fantastic results obtained over approx 2 kms---in other words, there is a very high probability they will get excellent high grade results. ]


- A revised application has been lodged on the Gambang tenement to comply with recent amendments to NCIP guidelines.


[This effectively means that they cannot drill yet so gambang, which is the prospect from where i took my photos - refer earlier post. So approval still required. However they will have their hands fullw ith PAO over next couple months...you would expect approval for this project in next couple months though so drilling before XMAS perhaps.]


- At Malangza, rock chip sampling has commenced and will shortly be followed by systematic soil sampling. Subject to rig availability, the initial drilling campaign will be undertaken towards the end of the year.


[if you remember my earlier post, this area was approved earlier this year so can be drilled. If they get a rig will be drilling by end of year as per comment. However this has been described as having the biggest potential of the projects though also most risky since fieldwork has been less than other projects. The potential size of any find (if there is any gold there) would dwarf other phillipine projects such as Indophil's]


- Extensive geochemical sampling has been completed at Surigao ...an advanced porphyry copper target. ...recently identified gold anomalism on the southern side of this prospect. A review of data is proceeding with a view to selecting appropriate drill targets prior to the end of this calendar year.


- Confidentiality arrangements concerning farm - in opportunities have been entered into on additional tenement packages. Due diligence is progressing in all instances.


[Many tenement packages in Phillipines are sourced from mines department...but to get access to these requires excellent relationships with the departmental personnel as well as the community. Royalco has cemented these relationships.]


- On that basis the Reefton gold project royalty is expected to will commence from October 1, 2007, with payment due 14 days from the end of each quarter – i.e. January 14, 2008. Based on prevailing gold prices, the royalty will generate 4,000 to 5,000 ounces of gold per annum ($A3million to $A4 million) over a project mine life of approximately 7 years.


[Think about it...3-4 million pa over a 7 year period...on this royalty alone...and pretty much risk free because its gold price based not production based...if we add the Kagara and CopperCo royalty in 2008, they coud be receiving royalties of $6-7 million + per annum...I've assumed a Kagara royalty of around $2 mill though at current zinc/lead prices, it could be more than that...now not all that money can go into exploration...after all they already have 9 mill in the bank...so I'm thinking DIVIDENDS or more ROYALTY ACQUISITION bargaining power.]


Also worth noting that the number of royalties in their royalty bank increased to 15...though the above three are the only certain income providers, the others are also in various stages of development/exploration.


All in all a VERY positive progress report. The company based on the three royalties along should be well north of $1. Its the exploration project that provide the blue sky however. Of course they still need to find something, but with that kind of cashflow funding their exploration, in my a opinion its a matter of 'when they find something' , NOT 'if the find something'.





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