'Buying the dips' is easy in theory, but hard in practice. Often, investors must be willing to buy shares in the face of overwhelmingly negative market sentiment, such as that affecting Rambler Metals & Mining (RMM).
- Copper plant generating cash
- Low production costs
- Shares trade far below net assets
- Technical analysis support
- Copper price weakness
- Has to cut debt
Even though Rambler reached commercial production at its Ming copper-gold mine on Canada's Atlantic coast earlier this year, its share price tumbled to a three-year low of 23p amid a wider sell-off in commodities and shares in junior miners. Yet this is nothing new for Rambler. The company's share price has behaved like a yo-yo these past three years, depending on how positively or negatively investors perceived the junior mining sector. But it has always traded within a range of 23p to 40p. And, on the three occasions that the company's share price has fallen below 25p since 2010, it rebounded at least 50 per cent in the subsequent five months.
That's in contrast to the steady, humdrum progress Rambler has been making at its Ming mine. The company's new mill is up and running and is starting to generate substantial profits, including $4.97m (£3.3m) in operating cash flow during the last reported quarter. Broker Cantor Fitzgerald expects Rambler to produce 5,700 tonnes of copper concentrate in the year to 31 July 2013, along with 7,700 ounces of gold and 38,100 ounces of silver. That would generate profit before tax of about $18.7m this year if copper prices remain steady, rising to $24.5m the year after slightly higher production (see table).
Granted, there's no guarantee the copper price will co-operate. We expect it to fall slightly over the course of 2013 as a glut of new supply comes on stream. We foresee prices dipping from their current $3.30 per pound to around $3. For Rambler, this small fluctuation shouldn't matter too much - its operating costs were just $1.43 a pound last quarter, and Cantor Fitzgerald expects them to drop significantly next year to around 67¢ a pound, net of by-products.
RAMBLER METALS & MINING (RMM) | ||||
|---|---|---|---|---|
| ORD PRICE: | 23.5p | MARKET VALUE: | £33.5m | |
| TOUCH: | 23-23.5p | 12-MONTH HIGH/LOW: | 39p | 23p |
| DIVIDEND YIELD: | nil | PE RATIO: | 2 | |
| NET ASSET VALUE: | 32p | NET DEBT: | 34% | |
| Year to 31 Jul | Turnover (C$m) | Pre-tax profit (C$m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | nil | -2.46 | -2.9 | nil |
| 2011 | 3.52 | -0.08 | -0.1 | nil |
| 2012 | 1.22 | -3.37 | -2.6 | nil |
| 2013* | 57.7 | 18.7 | 13.1 | nil |
| 2014* | 57.8 | 24.5 | 17.2 | nil |
| % change | nil | +31 | +31 | – |
Normal market size: 10,000 Market Makers: 10 Beta: 0.4 £1=C$1.51 *Cantor Fitzgerald forecasts | ||||
Admittedly, it will be a while before Rambler is in a position to start paying dividends - which would be the big catalyst for a long-term re-rating. That's because the company had short-term and long-term debt of around £34.4m in January. Much of this comprises a loan based on gold production that may not have to be immediately repaid, although Rambler expects to pay off its other interest-bearing loans by the end of this fiscal year.
Instead, short catalysts for the share price could be a rebound in commodity prices, further strong production updates leading to good financial results and a rally in junior mining stocks.
