CymorFund 10-Bagger Stock Pick – Romarco Minerals Inc

Romarco Minerals Inc. (TSX-$0.72)

This stock is a remarkable story. It is a gold explorer run by a women, Diane R. Garrett, M.A., Ph.D., Mineral Economics, Eng., President, CEO and Director, who is smart, dedicated, and has led this company through its development with confidence and skill.

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They own 100% of  a massive gold deposit – the  Haile Gold Mine, located in Lancaster County, South Carolina at approximately 3 miles northeast of the town of Kershaw. That’s correct – a gold deposit near the south east coast of the USA. Talk about trying to develop an environmentally challenging development in an area that doesn’t like developments that change the landscape.

The Good News

  • The deposit is massive and rich
  • The deposit keeps growing in size

Gold resources as of today stand at 71.2 million tonnes at 1.77 g/t for 4.01 million ounces of measured and indicated ounces of gold plus additional 20.1 million tonnes at 1.24 g/t for 800,000 ounces of inferred resources. The 2010 proven and probable gold reserve was 30.5 million tonnes at 2.06 g/t for 2.0 million ounces.   

  • This is an economically feasible deposit of gold
  • Its grade of mineral is in the top tier worldwide

The Bad News

  • This is a classic case of NIMBY.  Hey Buddy – find gold somewhere else. We like our frogs, our backwoods, our trees, and our creeks as they are.

Some Background

This company has been at it for many years. Time after time, they hope that they have passed all the hurtles, all the studies, all the objections, dealt with all the environmentally connected lawsuits. And time after time, when they are expecting a final “YES” – it turns out not to be a final “yes.

Yet they persevere. They keep funding studies, and listening to and committing themselves to this or that, as they try to overcome all objections. Of course, the Obama procrastination on developments in the USA that involve any environmental issues hasn’t helped. as the atmosphere is always against developing anything that might be environmentally damaging.

An Update on Environmental Matters

Quote from a Romarco press release

  • On June 26, 2013, the US Army Corps of Engineers (“Corps”) issued a schedule for the Haile Gold Mine  Environmental Impact Statement (“EIS”) as follows:
    • Alternatives Development and Evaluation Report publication –Completed: August 5, 2013
    • Community meeting – Completed: August 20, 2013
    • Draft EIS publication – March 2014
    • Draft EIS public hearing – April 2014
    • Final EIS publication – July 2014

Supposedly, this report is the last hurtle to overcome before production. Maybe, but we have heard that before.

The Project Value

According to reports published by the company on SEDAR  from independent parties, with gold at about $1,330 per ounce, there is a full payback of costs in less than 2.4 years, and an IRR of over 37% – IMPRESSIVE.

Even if gold again plummets in price, the project is profitable at values below $1,000 / ounce Au, and at $1,000 gold, the project still pays itself off in less than 4 years. These are very good numbers, and rarely achieved anywhere.

The company projects an average grade of 2.06 g/t, an operating cost of $379 /oz / Au, and a capital cost of only $320 million.

Management are True Believers – They Personally Invest

When the stock was $2.20, management was telling people that they were buying shares on the open market. They have continually bought shares as they believe the project will go ahead, and they believe that the shares at each stage were very undervalued. Many of these purchases were at far higher values than today’s price. The point is, at today’s price, they continue to buy.

If you check on SEDI, which is where insiders report buying shares in their own company, you will find that this management continue to buy shares at various price points.

Usually if an insider of a company is buying shares, it is a good sign. In this case I will let the reader make the judgement, as management bought at prices much higher, and are still buying at prices that are much lower.

The Stock

The following is a chart of the stock since May 2010. As Romarco expanded its gold deposit discovery, its stock rose from pennies beginning in 2009 on a continual rise in the price of the stock until it reached its peak of $2.88 in November 2010. That stock price gave the company a tremendously high valuation and market cap.

Investors saw this company as having found a major gold deposit as the price of the yellow metal gold was also rising at a rapid rate. Here was a low cost producer, run by good management, in a safe jurisdiction. What more could an investor ask for?

3 yr chart

 

 

 

 

 

Then came the fall.

From May 2010 to June 2012, the stock slide down the slippery slope. The combination of a gold price that was weakening and continual faiiure by the company to overcome environmental objections – in spite of its best efforts – cost investor confidence, and the stock continued to weaken. Some investors worried that environmental issues would completely defeat the project.

The stock fell to under $0.50 before recovering a bit. That was almost 1/6th of its previous value. There were a lot of doubts.

Before the end of 2012, the stock recovered to over $1.00, and then a new slide started. The disastrous fall in the price of all commodity stocks beginning in early 2013, took Romarco with it, and the stock  fell to $0.30 at one point. A stock that sold for $2.88 was now selling for $0.30, and buyers were few.

 Romarco 2013 - 2014

 

 

 

 

 

 

The stock languished, but as 2013 ended & 2014 arrived, real value commodity stocks started to be recognized, Romarco started its slow journey back to respectibility.  

Yesterday it closed at $0.72.

Part of This Rise in Value is Attributable to the Increase in the Price of Gold

As the price of an ounce of gold continued its decline starting in mid 2011 until the end of 2013, the value of the Romarco stock followed. Starting in 2014, gold has recovered somewhat and from a recent low under $1,100 , it now is in the $1,330 range. That is only a 20% gain, which by itself is not stupendous, but the important fact is that as the price of gold rises incrementally above the cost of producing an ounce of gold, each $1 rise in the value of gold, is multiplied many times over for the miners of gold in profits for gold producers.

Romarco Financial Position

 At the last report, Romarco has cash on hand of over $47,000,000, yet it ceased most operations and issued a press release stating that until conditions improved, they were conserving cash.

Very few companies would conserve cash with a bankroll on hand of $47 million, yet this management recognized that the market moves in cycles, that the current cycle was against resource exploration companies, and that Romarco needed a large cash balance on hand so that if and when they obtained the necessary permits, they could could immediately start construction of the facilities, and that each of these cycles reverses itself over time.

A conservative logical breath of fresh air in an industry where the norm is 

  • raise cash
  • spend cash
  • raise cash
  • spend cash
  • ignore everything else

Shares Outstanding – about $660 million

Market Cap –  about $470 million

Trading range 12 months – $0.31 – $0.91

Overview

This company has one giant issue. Will it ever be fully permitted? Given the advancements to date, the frustrations to date, and in the inexorably painful but continual progress, we believe the end of the environmental process is in sight in 2014, and the project will move ahead.

Buy Romarco Minerals (TSX-R) at $0.72

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By Larry Cyna

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele. He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC’s with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section. He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder’s Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants. He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm. Mr. Cyna is well known in the Canadian Investing community. He is invited to, and attends presentations given by public companies usually 3 or 4 times each week. These presentations are intended by the various hosting companies to present their inside story to sophisticated parties and Investment Managers for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being a part of this keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.