gold stock pays 20% distribution on shareprice

Now that should be an attention grabbing headline/announcement for those browsing the latest posts this morning!

I noticed RCO got their distribution announcement mentioned in a brief article on Proactive Investors yesterday:
Royalco Resources (ASX: RCO) has determined that a cash distribution of approximately $5.27 million should be made to Royalco shareholders in the form of a return of capital of 10 cents per share.
This distribution is to be made due to Royalco having surplus cash for its current operations. As previously announced to the market, as at 28 April 2010 Royalco had cash/liquid assets of approximately $14.2 million.
After a review of Royalco's financial position and its ongoing cash requirements, the company said it has concluded that its cash/liquid assets are more than adequate to continue its development and objectives.
The conclusion is on the basis that the company expects continued cash inflows from royalties, minimal expenditure commitments over the next 6 months and has no immediate other opportunities for acquisitions.
Accordingly, Royalco considers that it would be in shareholders' interests to return some of the surplus funds to shareholders at this time.
The proposed return of capital must be approved by Royalco's shareholders at a general meeting. Royalco also proposes a special resolution to amend its constitution to allow for certain alterations of capital, including reductions of capital.
The meeting is to be held at 10:00 am on Wednesday 16th June 2010 at the offices of Baker & McKenzie, Level 19, 181 William Street, Melbourne.
Royalco Resources shares rose 10% to 48 cents in trading this morning.
******************************************************

Those that are finding out about this stock on the tail end of yesterdays announcement can be forgiven for missing the great prospects that this company offers. Those currently holding have been waiting for a dividend/return of capital (I don't thnk any of us would have guessed it would be this large though!).

RCO described their dividend policy after their maiden profit was announced last year:

September 11th, 2009
Dividend policy
Given the inherent and likely long-term profitability, of Royalcos business model the board of directors of Royalco has endorsed an indicative dividend policy:-
1. Dividends to commence once they can be classified as fully franked.
2. Biannual payments.
3. Up to 60% of after tax profits will be paid as dividends.
4. The board retains the right to alter the formula in the event of unforeseen circumstances.
Royalco executive chairman, Peter Topham, said, Royalco is in a strong financial position and the board is very pleased to be able to report its maiden profit result.
The board considers it likely that the company will generate a similar level of net revenue in the current financial year.
If that is the case it is possible the company may be in a position to implement its dividend policy in 2010.
******************************************************

Profit ending 30th June, 2009 was $4.783m. Times this by 60% and divide by 53m shares = 5.5cps. Yet on this occasion they paid a 10c distribution due to their excess cash position. Further to this yesterdays announcement would indicate that this will be a tax free payment:
"Royalco shareholders will not be required to include the distribution in their assessable income"

From their March Quarterly Report
Royalco currently holds a total of ten royalty interests of which three produced income during the quarter. Using prevailing spot prices for gold, income for the quarter from these interests was $1.8 million.
...
The delivery of physical gold into the Companys account at AGR Matthey continues under the Reefton royalty agreement with Oceana Gold Limited. The royalty payment for the December quarter was 1314 ounces pre New Zealand withholding tax. Subject to the spot price remaining above NZ$900 (currently NZ$1500+), royalty receipts should adjust back to the original rate of 1250 ounces per quarter pre withholding tax. At prevailing prices and exchange rates this equates to approximately $5 million per annum in net royalty income.
******************************************************

$5m from Reefton alone, 60% of that is over 5.5c per share...AUD Gold was $1260 at this quarterly's release, it's now $1375, $115 (9%) higher.

In September 2009 their royalty interest was valued (by DMR Corporate) between $15.88m and $16.96m - Link to announcement

Even after payment of the the distribution they will have around $9m in cash/bullion and a royalty valued at $16.5m (taking the midpoint), total net assets of $25.5m. Their market cap at 47.5c is around $25.2m. Even after the payment they will be trading under net asset value if the SP didn't rise higher from here.

Extreme value buying here IMHO. Over 20% back in your pocket within a few weeks if you manage to buy under 50c. Tell your friends!