Rogue Resources (RRS.V) has been covered before mainly for its Silicon Ridge Project's high grade of Silica purity (>98%) in large quantities (4M tonnes).
Despite RRS.V's management executing their plan meticulously, there has been a series of events that has changed our outlook on the company. As we previously mentioned, we believed that the major risk to the project was firm off-take agreements to enable RRS.V to come to production.
However, on August 10 the company announced that it has encountered a permit delay. The Government of Quebec, Ministère des Forêts, de la Faune et des Parcs ("MFFP"), gave RRS.V approval for a 2017-2018 mineral exploration license on April 28, 2017. The MFFP also happens to be responsible for the completion of Section 128.7 which will enables RRS.V's eligibility to apply for a full mining license. This is where the delay is.
The MFFP gave "Spring 2018" as completion date for Section 128.7 which in effect prevents RRS.V from going into production in 2017. Needless to say, this has caught both the company and its investors by surprise resulting in a 34% loss in value of the stock price overnight!
On August 14, RRS.V made another announcement regarding its progress on Silicon Ridge and its intention to apply for drilling on Radio Hill.
While, Silicon Ridge has been stripped and ready for other advancement activities, given the August 10 news from MFFP, the company has decided to target drilling on its Radio Hill property for 2017. Radio hill is 1,800 hectare and 85 km southwest of Timmins, Ontario and known for its gold potential.
The new issue of permitting and the re-orientation to Radio Hill for 2017 by RRS.V needs to be considered further.
Delay
While outside of RRS.V's control, the permitting delay is a new risk factor that we did not previously assess. If the current application for the mining permit is delayed, the risk for additional delays are also present. This adds to the existing risk factor that were identified before; the two off-takes agreement executed by RRS.V to date are not firm, both companies are building their own facilities and delays can occur there as well.
Radio Hill
By targeting drilling in Radio Hill, RRS.V's limited resources will be re-deployed. In the process RRS.V will now be joining the 100+ cohort of gold miners that currently exist on the TSX Venture. Drilling success, will not guarantee a favorable valuation of RRS.V's stock price, as we can point to many gold companies on the Venture that have great results and limited returns. Moreover, the 10 to 1 consolidation carried out by RRS.V last year might affect it's affinity to some gold investors which may consider the stock price as "expensive". Though we strongly favored consolidation, this is yet another issue. Also, it's worth noting that RRS.V itself was trading well under its intrinsic value before its emphasis on Radio Hill.
Will adding Radio Hill to the mix significantly change that? We don't think so.
It was previously reported that RRS.V needed about $2.7M to build a new open pit mine for Silicon Ridge. The focus on Radio Hill represents additional capital requirements which can take away from the Silicon Ridge project. As such, we consider Radio Hill an additional risk to Silicon Ridge's timeline.
Despite RRS.V's management stellar performance in advancing Silicon Ridge, the task will now be much harder than before as they will be having to work on both projects. Nonetheless, RRS.V's closed today at $0.32 (52 week low is $0.30 cents). This represent an opportunity for both short-term and bullish long terms investors. Where will the stock price go is hard to tell but $0.40 to $0.45 cents range in the medium term is possible.
Beyond that, the capital requirement of Radio Hill, along with the risks of Silicon Ridge's potential additional permitting delays, and secure off-take agreements are definitely an issue. Thus, it is not a given that Silicon Ridge will go into production in 2018.
We'll definitively be monitoring the situation over time and be looking forward to see how Fundamental Research responds to these events.
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