Past mine acquisition records

Hi everyone,

I thought that from the impression I got on this forum that there are a few posters who hold an active disdain for the CEO Mark Zephner over his recent strategies on the Edna May acquisition and the current bid for Explaurum. I also think a number of posters have been highly critical of the price paid for Edna May as being overpriced and that they are now basically up Brown Creek because of delays in development. As for Explaurum, the bid has been perceived to be too low and thus seem to be a low ball offer that is bound to fail, especially due to Alkane coming in with what appears to be a white knight offer.

I hold stocks in both RMS and EXU, selling down some of my RMS to jump onto EXU on the day the bid was announced. I saw synergy benefits in them combining given the proximity of the Tampia Hill gold to the Edna May processing facility. Furthermore, RMS had almost $100m in cash and bullion at the time of announcement while Explaurum had less than $5m of cash but a very attractive level of reserves and resources, and is in near-production stage. Thus, I believed both could combine for a win-win situation.

Of course, the bid and the language that Mark used was interpreted to be somewhat inflammatory and the way he went about the bid was also bordering on hostile. This led to a back and forth between both companies' management and this further spilled over onto this forum, with many posters (veterans and relatively new people alike) trading barbs.

I want to offer a more balanced view on the past records of RMS to provide further context to why RMS should not be seen in such a negative light given the recent obstacles faced with the Edna May development project and their potential to deliver in the future through their strategic acquisitions.

Looking back at the acquisitions of the Vivien and Kathleen Valley mines, that cost $10m in 2013 and $4.1m in 2014, respectively, those two examples should show that the RMS management are rather sharp. These two mines delivered 118koz and 63koz to date, with the Vivien gold mine still having 77koz reserves and there is further development. The Vivien gold mine development cost was around $20m and it was initially slated to deliver 109koz at $1450/oz. The Kathleen Valley gold mine development cost was around $1.5m. All up, these two mines cost the company around $40m and ended up delivering some 180koz of gold. During this time, they sold their gold for as much as $1 700/oz. 

With the Edna May acquisition, they paid $40m and it could cost them up to $90m. Thus far they have delivered 97koz of gold, with another 18koz expected for the Dec quarter. The amount they have spent exploring and developing the mine is $8.8m ($2.3m for Dec 2017 quarter, $3.7m for Mar 2018 quarter, $1.4m for Jun 2018 and $1.4m for Sep 2018). So far they have spent almost $50m on the mine and produced just under 100koz, and they are expecting to need to spend another $6m or so to develop the initial stage of the underground project for 57koz of gold in 2.5 years. Sure, this may sound puny and all. However, the mine does have around 1Moz of resources and can replenish the reserves as gold price rise. I know that some 120koz of reserves disappeared in the latest reserves update and that was a real disappointment to shareholders, but I believe that the mine is not a writeoff. 

The Edna May mine is definitely disappointing at this stage given the writedown of the reserves when we were expecting it to increase from the April 2018 announcement, and that there is a delay in the underground project development. Shareholders have watched the stock price fall from 75c in February 2017 to the low 40c now, and this is taking into account the company generating some $50m during this period, net of the acquisition costs. I have been dismayed at seeing the company appear so undervalued for so long that I have my doubts whether they know something we don't. However, the reality is that they have a large cash balance, no debt and they have increased their production and weathered the last 18 months well when gold price fell and oil price rose. If we look back longer into the company's history of acquisitions, I think there is really not much justification to throw our hands up and say that the RMS management are clueless and we are indeed stuffed. I have frankly seen many gold miners these past 5 years to know which ones are in more dire straits and have a track record to prove it. RMS is not even close to being in that group.

Anyway, I welcome your comments and also any clarifications of my rough numbers and calculations above. I remain confident of the company's prospects going forward. I am going to remain patient that this company will deliver. Please do your own research as this is all my opinion, and they can be wrong =b