Rose Petroleum returns to mining roots

Few companies can claim ten-bagger status in 2014 - Rose Petroleum can. But while oil and gas is its bread and butter these days, the company hasn't forgotten its mining roots and has just agreed a joint venture with Minera Pafex to take the high-grade Mina Charay deposit in Mexico into production.

Ten years ago, Rose subsidiary Minerales VANE (MV), drilled 27 holes on the site over a strike length of some 240 metres. But gold and silver prices have increased markedly since then and the high-grade veins at Mina Charay have become increasingly attractive.

On in-house estimates, the mine has a total resource of 29,000 ounces of gold and 173,000 ounces of silver, with a grade of 10 grams per tonne of gold and 60 grams per tonne of silver. MV will cover the development and mining costs of the project, which has a minimum three-year production life. After operating costs are deducted, the profits will be split 60/40 in MV's favour.

"MV has already commenced activities including mine design with consultant mining engineers Physical Resource Engineering, and surface work in preparation for development and mining as well as renewal of the blasting permit," said Rose. Expect permits to be granted within 1-3 months.

Production will be trucked 600km to MV's existing San Dieguito de Arriba Mill in Acaponeta, which generated revenues of £5.7 million and gross profits of £1.57 million last year. Analysts at Allenby Capital reckon profits will be similar this year, covering much of its administrative and corporate expenses.

"Although no longer a core focus for Rose, this new JV will provide valuable mine life extensions to its Mexican gold operations and the higher grade gold compared with the current ROM feed (although partially offset by the extra trucking distance involved) could potentially raise operating profit margins," said Allenby.

Formerly Vane Minerals, Rose officially turned its focus from mining to oil and gas 12 months ago and has had a bullish few months on the news front. In a recent chat with Interactive Investor, chief executive Matt Idiens was particularly excited about the purchase of both the Paradox and Mancos projects in Utah.

And, although its focus has turned to other commodities, management have not wanted its mining assets to fall to the wayside, with the potential of creating two companies later down the line and its oil and gas division being listed in North America.

Raising £6.5 million capital and the publication of its economic analysis and reserves report has helped its market value rise over fourfold since May. The JV gave the share price an extra boost on Monday, with it trading at 3.5p.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.