Saturday, February 17, 2007

The Sweetheart AGM - Feb 14 - Roca (V.ROK)

In truth, the formal part of the AGM lasted perhaps 7 minutes and the meeting was closed. It was in the discussions after that the sugar coating of what's to come was outlined, and the enormity of the earning potential that's going make this stock take off like a rocket was revealed.

Not many stocks can justify a 5 bagger return to investors in 5 years, but Roca has already done that for its initial 2002 investors and it has the fundamentals to justify it, and to promise more -- a lot more.

The 15,000% Sweetheart Deal

Roca started as a junior explorer looking for opportunity. They picked some properties, but their direction and focus immediately changed with the MAX molydenum project. A formerly existing mine, Roca saw the benefit of reduced captial costs to get a mine into production, and they also noticed that the former claim holder, Newmont, had not renewed their claims. Roca staked claims for the entire region. Once their position was secure, they negotiated with Newmont to buy their $15 million of research on the property for $100,000, a 15,000% return on investment. And now they had a map to veins of 2% MoS2, ore so rich, its minerals are about $650/ton, an equivalent to a head grade of one ounce of gold per ton.

Roca has plans to mine about 3 million pounds of molybdenum this year, starting around May. They have a contract to sell all of their molybdenum concentrate for around 90% of the spot price at their gate, so no shipping costs, no insurance costs, no roasting costs, the buyer pays all other costs.

The way their mine will work is they will mine 2-3 months, and then stop operations for 1-2 weeks to dig tunnels to the next level of ore. Each new dig will supply them with 2-3 months of ore. To mine 3 million pounds they will need about 150 operating days and perhaps 30 shut down days.

They've budgeted $100/ton for production, even though their report gives a figure of $70/ton. They expect to pay 20-25% taxes on earnings once the tax write-offs are taken. The numbers are monster numbers, about $69 million for their molybdenum, $15 million for production costs, a measly 1/4 million for administration. After taxes, it leaves a whopping $40 million for earnings, in the range of 40-50% eps or a P/E of 2 at the current share price!

The monster numbers are so big, capital costs that were raised through equity offerings will be repaid in perhaps 2 months. Roca has no debt.

And that's only MAX molybdenum.

The $100 million sugar coating

Foremore is another Roca property in advanced stage exploration. This property is central to the Eskay Creek mine and NovaGold's Galore Creek project. It has several large-scale copper, zinc and lead targets as well as gold and silver targets.

They've got a 30 bed lodge for an exploration team, a landing strip and plans to get some drilling done this summer.

But the sugar coating of this rich property reserve is that $1.7 billion dollar NovaGold project is going to build $100 million dollars of roads through Foremore. This year exploration is dependent on flying to the site, but in the next year or two, driving will be possible. This is an enormous value added feature for future development.

Meet you in Toronto?

One of the items at the AGM was to add a 5th director. This is in line with the requirements of the Toronto Stock Exchange. The other requirement that Roca will meet this year is having cash flow from operations. Once the second requirement is met, an applicant can be filed and processed in as little as two months. There is an excellent chance that Roca will become a TSE listing before the year is out.

Disclosure: I loaded up last week. Go Roca Go! All investors are responsible for their own due diligence.

I think Roca is available from Pinksheet for US clients who do not have access to Canadian exchanges through their broker. Yahoo hasn't made Canadian exchanges available yet.

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