Rose Petroleum plc

Allenby Capital Briefing

11-September-2014

Rose Petroleum (ROSE.L, 3.4p, £44m). Latest deal could justify a separate mining company.

Aside from Rose’s Utah Oil & Gas assets, which account for the majority of the Company’s valuation, Rose has some considerable wind in its sails in regards to its mining assets.
After recently announcing a JV to develop a small high grade gold asset to further production at its existing mill in Mexico, Rose’s wholly-owned mining subsidiary Minerales VANE S.A. de C.V. ("MV") has entered into a joint venture agreement with Minera Camargo S.A. de C.V. ("Camargo") in connection with two base metal porphyry targets and some high grade gold & silver veins.

Camargo has conducted early stage exploration programmes over four years, including rock chip, stream sediment and soil sampling programmes targeting gold & silver mineralisation, due to historical small-scale underground production on high grade veins. These veins will be the target of MV as a possible ore feed for the Company’s 100% owned mill. At two formerly producing underground operations, San Agustin and La Gloria, small-scale sampling undertaken by MV as part of due diligence has returned average gold grades of 14.3g/t and 8.2g/t respectively. As with other high-grade, narrow vein gold targets in Rose Petroleum’s portfolio, any profits on production from these veins would be split 50:50 by the joint venture.

Camargo’s early exploration work also found copper and molybdenum porphyry anomalies, on which Rose intends to conduct a maiden drill programme. MV separately owns the option to earn-in to 75% of these base metal targets by spending $5m over 5 years.

Porphyry copper deposits are currently the largest source of copper in the world, are formed from hydrothermal fluids rising up from a magma chamber and are typically voluminous in nature, meaning fairly low grade (c.0.5% Cu) deposits can be economic.

One identified anomaly is a 2km x 1.5km target containing a high-grade 2m channel sample averaging 2.35% copper. Whilst it cannot be inferred from a small sample that the average grade of the porphyry target would be >2% it is encouraging to see visible copper minerals at surface. Given the typical size of porphyry targets, (which often extend to considerable depths), if drilling confirms the presence of a copper ore body, we expect to see large intercepts of 0.5-1.0% copper. Any grades above these values would be interesting indeed. A separate anomaly also indicated a 3km x 1km molybdenum target.

Management comments indicate the Utah Oil & Gas assets and the mining assets may become separate entities. (JR)

 

*Allenby Capital acts as Nomad & Broker to Rose Petroleum