Rogue Resources (RRS.V) entails three divisions. Rogue Stone-selling quarried limestone for landscape applications; Rogue Quartz- focused on advancing its silica/quartz business with the Snow White Project in Ontario and the Silicon Ridge Project in Québec; and Rogue Timmins with the gold potential at Radio Hill and an ownership position in the private company EV Nickel, exploring in the Shaw Dome.
June 7 - Landscape Stone Sales continue through April and May, Extends Debt Facility. During April and May, the Company sold a total of 4,490 tons of limestone for gross revenue of $387,296 and are in line with the sales expectations.
Debt Financing- extending current facility
Rogue has elected to extend its $1.8M debt financing (the “Debt Facility”) with a leading Canadian, non-bank lender (the “Credit Group”). The Debt Facility is secured against all of the Company’s assets and will be extended for 6 months.
The Debt Facility has interest-only payments until the principal is due in full at maturity, carrying an interest rate equal to the higher of prime plus 8.05% or 12%. There were no penalties or further fees related to the extension.
Rogue Stone continues production and also managed to extend its debt financing for another 6 months. Given this development, is it likely that Rogue Stone will make another acquisition in FY 2021?
More importantly, an issue came to light recently. As reported earlier, RRS.V sold the Langmuir to EV Nickel Inc.
Mar. 5 - Selling Langmuir Project: Further to its news release dated January 11, 2020, the Company intends to transfer its ownership and rights in the Langmuir project located southeast of Timmins, Ontario (the "Langmuir Project") to EV Nickel Inc. ("EVNi"), a private company incorporated under the laws of Ontario.
EVNi is a recently created private Ontario company established to advance the exploration of Langmuir. Pursuant to the terms of the Agreement, Rogue will hold at least 20% of the shares of EVNi at closing of the Concurrent Financing and after the subsequent transfer of the Langmuir Project. The initial board of directors of EVNi will constitute five members and include two Rogue representatives.
Consideration to Rogue
Pursuant to the terms of the Agreement, and in consideration for the transfer of the Langmuir Project, Rogue will hold at least 20% of the shares of EVNi after the Concurrent Financing and receive $150,000 in cash at closing. In addition to the consideration paid at closing, an additional future payment will be received by the Company based on the size of an updated new mineral resource estimate, expected to be completed by EVNi in early 2022. This payment will be up to a maximum of $5,000,000 paid in cash, EVNi shares, or a combination thereof with the split to be determined by EVNi.
Rationale for the Transaction
As highlighted during Rogue’s October 2020 & January 2021 Investor Calls, the strengthened nickel price market has led to increased demand for potential nickel investment stories. The Langmuir Project is a non-core asset to Rogue but has a 14.8M pound, high-grade nickel Resource (See news release dated May 19, 2010 for detail). With a 9,200 hectare land package and located just 25 km southeast of Timmins, Langmuir is well-positioned for further exploration.
It was originally believed that the sale of Langmuir was a positive for Rogue for two reasons: a) exposure to exploration and b) the ability to focus on the Stone business. The latter is now in question since the filing for EVNi disclosed that Rogue's Management Team also happens to be at the helm of EVNi.
This nuance was not disclosed in the Mar. 5, 2021 release. Two board seats does not imply managerial roles. Setting aside the ethical dimensions of the deal, this is believed to materially impact future prospects for RRS.V shareholders.
Here's how! Having a management team that split its time between two businesses (Rogue and EVNi) is not optimal especially when Rogue Management made allusion to SiteOne as a "comparable" on a prior investment call.
SiteOne has grown via acquisitions (>10 in 2020, >3 in 2021) and its management team is solely focus on that business.
Other than time, issues such as the resolution of potential conflict of interest between the two entities are unclear. Remember, RRS.V shareholders owned 100% of Langmuir prior its sale. Now RRS.V owns 20% of EVNi's shares.
Given these nuances, was the sale really in the interest of all RRS.V shareholders? Specifically, RRS.V retail shareholders will not get individual shares of EVNi. It's clear now, the sale benefited some but not all.
Remember, RRS.V valuation has been anemic for years. The stock is barely active and there has been little interest in promoting the story. In any event, coverage for RRS.V is now ending on ethical and practical considerations.
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