Roca Mines (ROK.V)

I've been holding this for nearly a year waiting for the Max mine to re-open. Now that the mine is operating again, this is another of my top three picks both short and long term. I day traded a bunch last fall, and lowered my average price, but didn't capitalize on the rise to $0.40 in the winter as I was expecting the mine to re-open then. Instead they had to re-finance and a lot of work was required to get them operational again after their collapse. My reasons for this being a top pick are as follows:

1. Max Moly Mine back in operation. This will finally get them a revenue stream again, and it is profitable at current molybdenum prices. Cash flow from operations will take some time to get moving, but as operations continue, we will see how successful they will be.

2. Moly prices are forcasted to continue to rise along with steel for the next decade, and will likely have a good bump as China reduces their export of that metal.

3. All permits are in place to expand the capacity of their milling operation by 100% to 1000 tpd. The only issue remaining here is the financing of such an expansion, which will either come from further dilution, or cash flow from operations.

4. They will be getting into some higher grade ore over the next six months, meaning profitability will rise. Once they do have some cash flow, they will be drilling to extend the reserves and the life of the mine.

5. They have some very promising gold properties elsewhere in BC, however no plans at this time to explore them.

I may trade up to 50% of my shares on peaks and troughs, but plan to hold 50% for at least one year as I see their longer term potential near $1.

I was unaware of something that will likely limit the potential share price. There are 11,448,800 warrants that expire at 0.30 in Nov 2011. Although this would provide them with plenty of cash to finance their planned upgrade to 1000 tpd and leave them extra cash for other projects and exploration, it also means significant dilution (almost 10%). As a result I think the market will keep the SP below 0.30 until they expire. In the mean time they will be releasing their production results and relevant updates which will give us a better picture of what to expect going forward. I would guess this will be mixed with news of positive production data and a significant net loss. It should be all up from here.

The next warrants after that (5,000,000) expire at the same price in May of 2012, which is unfortunate, but by that time there will be 9 months of production and I don't think that these warrants will be enough to supress the SP below 0.30. Either way, I think an easy 30% gain can be achieved between now and Nov as I don't think the SP will stay in the low 0.20's for much longer.

Something else I forgot to mention was the updating of their website... or lack there of! I don't think it has been updated since 2006 at best! This is something that always rubs me the wrong way because this shows a lack of committment to shareholders and their business. A good and frequently updated website and frequent communication goes a long way for me because it allows me to be well informed and it shows the company wants you to be following them.

On Sept 26th a news release came out detailing Roca's production since start up in late July. Although production rates had been slow to ramp up, they did give me a sigh of relief in that things were finally operating again and they had new safety measures to learn to work around, which was slowing them down. I felt that it would be a long slow ascent from there.

On Oct. 3rd they released news that they would be suspending production in the next month due to 'softening moly prices'. Firstly I was pissed that they have not been able to make this economical, and then I was outraged that this news release was one week after the other. There is no way in hell that they didn't know about halting production when they put out their Sept 26th news release. I think its fradulent. Others don't seem to agree.

Now I am looking at a sp of 0.06 and thinking this will be bought out by someone soon who has the money to complete the expansion to 1000 tpd and bring this back to a profitable mining operation. I'm thinking of doubling down now because a) I can double my current position at a low cost and lower my entry point A LOT!; b) a fully operational mine of this nature costs roughly $200 million to get started meaning its value is much higher than market cap ; c) moly prices will return in time (how long I don't know) ; d) If I had the money to finance the expansion to 1000 tpd, then its would be a no brainer.

I don't know if these are good reasons. I just think this is a deal. Can anyone coment?

I can't comment on the stock itself, I haven't looked too deeply into it, and the more I invest in juniors the more I realize that it is not my area of expertise.

I think the idea of doubling down makes sense if the facts that you based your original investing decision on have not changed and you have a plausible scenario of why the stock price has declined (or are very confident that you are not missing some key information). In this case, however, it sounds like you are looking at a longer time horizon, and lower probability of this thing coming out positive than you originally planned.

I would try and set some limit to how far you double down. I know you play a high risk / high reward game, and so you don't pay much attention to diversification, but I think piling up a huge position in a stock after a big loss just to lower your average cost is possibly just an attempt to make yourself feel better about the money you already lost.

Question is: If you had no money in it, would you still buy on the merits of the current information? Take a top down approach to try and be objective (where are the ore prices going?, what is happening with global demand? Which region has the best returns, which company operates in that region?) If the answers lead you to another company, you need to cut losses and reinvest somewhere else.

I agree that you present a logical perspective to follow. Things have changed so much away from why I had originally invested or anticipated and I am unsure whether I would buy into this now. It is definitely a piss-off to have things change so much since I originally invested one year ago, and since August/September this year when I was so positive about ROK.

Having global moly prices dropping is not something I would have anticipated ... ever! It is a component of high strength steels used in applications everywhere, and steel is a growing industry, particularly in Asia. So I don't understand the reason for the lower moly prices or how long they can last. So this will obviously affect the bottom line. The problem is that now there is no bottom line because they stopped running again only a few months after they started. I now expect this to trickle down to nearly nothing over the next few months. If I get some infusion of cash I will consider doubling down, but until then I will wait and hope that someone with deep pockets buys us out or finances an expansion to allow a restart of their mine.

I feel that someone has been betting a risky game (against me) for an amazingly improbable sequence of events to occur and they seem to be winning... for now.