Rockfire Resources (LON: ROCK) shares are up 6% this morning on the news that they’ve won the bid for the Greek zinc deposit at Moloai. It’s pretty obvious that this is a good deposit and zinc is one of those metals where the market is worried about where future supply is going to come from. So, it’s entirely possible that this is good news for Rockfire. But it’s still early days.
Rockfire Resources is currently an early-stage exploration company. In the lifecycle of junior miners, this means that it is looking for things that might be worth mining rather than actually producing anything. All the effort is being put into proving – in the sense of testing – mineral occurrences to see whether the ore is rich enough, the volume great enough, for it to be profitable to mine them.
This is a perfectly respectable and potentially profitable area of the mining world but it is risky. For every deposit that does get mined must go through this process but there are those that expenditure occurs upon but which then turn out not to be worth mining. The upside can be very large, but also the loss can be total that is.
The specific deposit at Moloai is a zinc, lead, silver one. First discovered in the 1980s there has been some work done to explore it. It’s in Greece which is, by current standards, a safe legal environment to mine in. Zinc is a metal where reserves – that’s what has been proven to be economic to mine – are getting pretty short. So, there is good profit to be made by discovering deposits or resources that can be explored and thereby upgraded into being those reserves ready for mining. This is exactly the process that Rockfire is engaged in.
There is the risk that it won’t work out, of course, there is. It’s also true that this is only one stage in a long process. It’ll be many years, even if everything goes entirely ticketty boo, before there’s revenue from this project.
On the other hand, each extra level of research, reducing each piece of uncertainty as to ore volumes, concentrations and quality, increases the value of the current licence. Each additional piece of evidence – as long as it’s positive evidence of course – adds value. So there are a number of possible valuation events ahead at Rockfire.
One possible worry is that people have been known to overpay at auctions – the so-called “winners’ curse”. More information about the actual price paid would alleviate that worry.
What’s likely to determine the Rockfire share price in the times ahead is the flow of information from the research programme. More drilling, the results of drilling, the mapping out of the deposit, news on ore concentrations and so on. As each piece of news comes out it adds to the general picture and thus value of Rockfire. Given that actual mining is many years away still, it’ll be the information flow that matters.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.