marben100 wrote: I was pretty angry when RNC published their Q3 results, a day after stating that they had $18.8m of cash as at 9th November.
At first glance the results looked terrible, still showing a loss on the quarter and with the notes to the accounts still being qualified:
"The Corporation's ability to continue future operations and fund its operations and successfully operate its Beta Hunt Mine is dependent on management's ability to secure additional financing in the future, which may be completed in a number of ways including, but not limited to, the issuance of debt or equity instruments, expenditure reductions, or a combination of strategic partnerships, joint venture arrangements, project debt finance, offtake financing, royalty financing and other capital markets alternatives. While management has been successful in securing financing in the past, there can be no assurance it will be able to do so in the future or that these sources of funding or initiatives will be available for the Corporation or that they will be available on terms which are acceptable to the Corporation. If management is unable to obtain new funding, the Corporation may be unable to continue its operations, and amounts realized for assets might be less than amounts reflected in these unaudited consolidated interim financial statements."
However, I did not have time to study the accounts fully on the day, so have not taken any action (buying or selling). Today I have started drilling down (still more work to do) and two key points emerge:
Firstly, a large part of the "loss" shown in the P&L is due to a C$8.9m "share based payments" charge. This is a pretty artifical accounting entry, principally due to the gain in value of manbagement share options as a result of the big gain in the share price in the quarter. IMO it can be disregarded, when evaluating the true profitability of the company.
Secondly, and even more significantly, the valuation of inventory shown in Note 5 to the accounts is anomalous. It notes, as is standard: "The Corporation’s accounting policy with respect to inventory is to value the ounces held at the lower of cost and net realizable value."
Now, the value of "Coarse gold, gold ore and gold in process" is stated as C$4.4m (the cost price for extracting that gold), but the note goes on to say: "As at September 30, 2018, coarse gold, gold ore and gold in process included 11,361 ounces from the Corporation’s high-grade
coarse gold discovery in September 2018. Total number of ounces held at September 30, 2018 was 16,383".
Clearly the realisable of all those oz is vastly higher than the C$4.4m attributed. So, once the coarse gold is actually sold that should add at least C$17.8m of revenues/cash, which will strengthen the balance sheet accordingly.
Whilst I still have more work to do, studying the accounts, those factors give me sufficient comfort to continue holding the shares.
Cheers,
Mark