rmx - broker email

This is just something my broker sent me on Wednesday,

Dear All

I had the chance today to catch up with Jon Dugdale (the incoming Red Mountain Mining (“RMX”) CEO) to discuss the Batangas gold acquisition in great detail. I came away from the discussion absolutely confident that once the promotion and the drilling starts that we will likely see at least a 100 – 200% rally in the RMX shareprice over the 2H of 2012 to $0.20 to $0.30/share.

The company also had meetings today with research analysts from Patersons and DJ Carmichaels and a lunch with brokers from Euroz, Hartleys, Bell Potter, Indian Ocean and Morgan Stanley. Formal full scale promotion and roadshowing of RMX is scheduled to commence next Monday week.

Post completion of the acquisition, RMX will have 179 million shares on issue and a gold resource of 501,000 oz (excluding silver credits equivalent to ~35,000 oz of Au).
· At $0.10/share the company trades at an EV/Resource metric of $36/oz.
· Using today’s significantly depressed ASX industry average for pre-production companies of $114/oz, RMX is valued at $0.32/share (excluding the silver credits). Including the silver credits values the company at $0.34/share. This is the valuation using the current ASX industry average before any drilling is done. Based on my discussions with Jon, I expect the JORC resource to increase 40 - 50% over the next 6 months.


The exploration upside…
Having now been run through the assets, it is obvious the Archangel target at Batangas sits on a very large porphyry system. The current resource of 501,000oz barely scrapes the surface of what is possibly there and at the moment the resource only encapsulates the “surface cap” of the mineralised system along only 1km of the 6km strike. Geologically the system is like a mushroom – with an eroded (lower grade) cap a surface, with an enriched higher grade stalk which leads to the mother-load porphyry at 200m+ depth.

Late last year, before Mindoro got a cash squeeze, they drilled into and intersected the enriched high grade zone (the “stalk”) that feeds into the splayed orebody at surface. The drilling of the enriched high grade feeder zone included hits of 61m @ 5.1g/t gold, 64m @ 3.5g/t gold and 26m @ 4.0g/t gold. These are WORLD CLASS results (that haven’t yet been included in the JORC resource) and form the basis of the current geological model to be drilled by RMX. Now that there is a very good control of the orientation one would expect additional and greater success with future drilling programs. Further intercepts similar and better than the above, will quickly add a significant amount of ounces to the existing JORC resource and will really excite the punters and get the shareprice moving!

Drilling of the feeder zone is scheduled to commence immediately on July 1. There is already a rig on site. RMX’s geologist doing the due diligence and designing the upcoming drilling program is usually very reserved. However I have never heard him more excited than about what he is seeing now. Expect some very sexy results to be announced! Drilling is scheduled to commence July 1.

Below the feeder zone lies a porphyry orebody yet to be tested. I confidently expect that one exists because as holes were drilled into the feeder zone, they intersected significant grade copper and zinc in coincident with the gold as they progressed deeper. This indicates that an orebody potentially exists at depth, however as Archangel hasn’t been drilled below 150m there is no way of knowing what scale this orebody is, until it tested by drilling. What we do know (from other systems such as Ridgeway/Cadia) is that these porphyry orebodies exist in clusters. Just 7km away from Batangas is the Taysan copper-gold porphyry project which contains 4.6 billion pounds of Copper, 7.8 million ounces of Silver and 2.7 million ounces of Gold! This is a very good neighbourhood!!!

The Batangas project has been limited by funding and is underexplored to date. I believe that it has the potential to underpin a $250M to $500M company over time. Now that the Batangas project is in a “pure play” gold company and has access to funding via RMX, I expect the project to be advanced at a much more rapid rate.


The entry point…
The following chart indicates a clear bottom in the share price at $0.10 supported by INCREASED volume on the buy side.
I believe that RMX has bottomed at these prices and I believe that there is little to no chance it will go lower than these prices based on the value inherent in the acquisition announced last Wednesday.




Why Buy NOW?
1. I believe this will be the LAST CHANCE to buy the stock sub 10c before the promotion starts next Monday week.
2. These are the best markets to make MULTIPLES OF RETURN over a 18 – 24 month timeframe.

I have listed below the returns of various ASX gold stocks over 24 months coming out of the GFC in 2009.

Ampella Mining (AMX) from 2009 to 2011: from 7c to $3.33: Returned 4700% – ie. $100,000 turned into $4.7 million in under 2 years!


PHILIPPINES: Medusa Mining (MML) from 2009 to 2011: from 59c to $6.47: Returned 1100% - ie. $100,000 turned into $1.1 million in under 2 years.


PHILIPPINES: CGA Mining (CGX) from 2009 to 2011: from $1.45 to $3.09: Returned 213% – ie. $100,000 turned into $213,000 in under 2 years.


PHILIPPINES: Oceana Gold (OGC) from 2009 to 2011: from 21c to $3.65: Returned 1740% – ie. $100,000 turned into $1.74m in under 2 years.


PHILIPPINES: Red 5 (RED) from 2009 to 2011: from $0.40 to $2.00: Returned 500% – ie. $100,000 turned into $500,000 in under 2 years.