rol up 10% in frankfurt...., page-18

In reply to Discocopper,
I am not sure how long you have been interested in ROL, but I have been invested since 2009 and have watched the share price decline from a high of $2.72 in January 2010 to todays $0.22. I believe management and their ongoing conduct must take part of the blame for the lack of confidence and interest from the institutions and the market as a whole. Apart from minor issues like an inability to meet projected timelines, factual discrepancies in announcements and failure to communicate to shareholders in a timely manner, there are a number of major issues which I intend to highlight;
1. North Romang Drilling Program – On the 5th July 2011, management announced the commencement of an initial 5000m drilling program to test anomalies in the prospective North Romang region of the island. Subsequent quarterly reports and presentations over the next 9 months made reference to the ongoing drilling program at North Romang and yet here we are in July 2013 and the market is yet to receive any results of this drilling program. Not one hole. Reading between the lines it is clear that this program was obviously abandoned by the company due to something (maybe landowner or permitting issues) and yet there has been silence from management. Furthermore what role did the local partner play in this process?
2. Employee Option Plan - The adoption of an Employee Option Plan at the discretion of the directors which included amongst other things an interest free loan to the employees to fund the subscription to shares taken up under the plan. Any such loan was to be repaid from any sale of the subject shares or the cessation of employment at the company. Furthermore any such loan would be payable at the lesser amount of the loan or the sale price of the subject shares. So ROL would only get paid back if the share price was higher when the shares were sold. A pretty good deal for directors and employees but is it the best use of the company’s capital?
3. Investment in Reliance Resources – on the 5th July 2012, management announced that it had used ROL’s ‘’precious’’ capital to invest $695,000 in Reliance Resources to obtain an ‘’insignificant’’ 4% stake. It was part of a private placement to raise $1.2m with ROL providing half the required capital. The announcement failed to include that Reliance had 3 common directors with ROL and also the same CEO. The $695,000 investment is today valued at $115,690. Since the investment there has not been one update from management on its progress. This was definitely an ‘’interesting’’ use of a very scarce resource (ie capital) by management to essentially fund Reliance.
4. Purchase of Andash Copper Gold Project – A surprising decision to purchase a project in the Kyrgyz Republic, a country that makes sovereign risk in Indonesia look like a piece of cake. The project may well be promising but ROL are only able to purchase it at the price it is because Kentor Gold has given up trying to solve the local access and parliamentary approval issues. I’m not convinced this management team will achieve any better success. Furthermore I would have thought ROL has its hands full with the projects on Romang Island, which will all require substantial capital in the future. This capital does not come easy to the junior resources sector in the current climate and now it will have to be spread even more thinly across another project.
5. The sale of a further 17.5% to Salim Group for $5m - How does a project valuation go from $100m+ at the original sale of 22.5% to Salim Group to less than $30m now, when all they have done is spend $25m+ on drilling with a ''much trumpeted'' positive conversion rate of 93%? If this truly is the case and the project has lost this value in the current climate then maybe a sell down at this point in time is not the best idea.
6. Rights Issue at 30c to raise $4.41m – Is there any minority shareholder that will take up there rights under the issue when the current share price is around 22c. Salim Group probably hope that no one does as their 100% owned subsidiary, Droxford International has fully underwritten the issue. This benefits’ Droxford in two ways, the first being that they can
pick up additional 10m+ of shares at an average price of 30c which is far cheaper than if they were to purchase them on the market, given the lack of volume in the stock would drive the price much higher than 30c if they attempted this. Secondly and more importantly it allows Droxford to increase its stake far beyond the 20% stake without making a full takeover for the company. Usually Droxford would only be able to creep 3% every 6 months but on this occasion because the offer (in this case the rights issue) has been made to every shareholder and they have declined (as I assume most shareholders will) then Droxford have every right to take up there full entitlement under the underwriting agreement which could move them to a 30%+ stake. I can’t help but think that the rights issue price unfairly favours Droxford. If it isn’t deliberate then it is extremely naïve by management.

Admittedly ROL falls into a segment (small cap resources) of the market which has struggled to gain traction in the current climate, however I contend that management have done very little to make themselves attractive to the market. I am not a downramper as my record shows but I must say I have lost patience with this company and its management team.
Locust