Riverside Resources is a prospect generator with a high-octane CEO, strong cash position, a portfolio of projects and a joint venture with BHP in place. It is trading at bargain basement prices. Because it meets our definition of an "indestructible company", we are buying it around current prices (11 cents to 14 cents).
Tuesday, November 1, 2022
It is 2015 and 2020 all over again.
The gold miners indexes are now down 50%, which means many junior gold stocks are down 70% or more.
If an equity has the potential to go up 5 or 10 times, does it really matter if you must wait 6 months, 1 year or 5 years? In uncertain times it is paramount to invest in indestructible companies, so even if your timing is off you will still make real money.
It looks like we have hit the bottom of this two-year correction, but bottoms are difficult to predict. New lows are always a possibility.
But, if you buy a stock cheap enough, timing becomes irrelevant.
The low risk Project Generator Model
Riverside Resources (RRI.V and RVSDF) follows the prospect generator model. This means that most of the exploration cost does not come from the company’s treasury but from the budgets of third parties. As Rick Rule often states, this is the best way on a risk-reward basis to invest in junior exploration stocks.
We are buying Riverside Resources now at $0.11 up to $0.14
In the depth of the worst bear market for junior gold stocks in late 2015, Riverside Resources was trading at 12 cents. Within a little over one year, the stock surged to 60 cents.
At the market low of the Covid crisis in March 2020, RRI was trading at 10 cents, but five months later it was 54 cents.
Could this happen again? Yes, certainly and here's why.
Shareholder Friendly President / CEO
John-Mark Staude is a trustworthy and shareholder-friendly President and CEO.
When stocks collapse, when sentiment is horrific and when shareholders are losing tons of money, you do not hear or see from mining CEOs anymore!
This is not true of John-Mark Staude.
In November 2015, Staude travelled from Canada to Geneva and Zurich to meet with faithful shareholders. He explained then (just as he is doing today) that the company was solid, had great prospects and had plenty of cash to withstand any type of adverse market. He encouraged everyone willing to listen to average down.
Today it is unusual for a CEO to buy shares in his own company in the market, especially if the CEO already has a large position. Mr. Staude has bought approximately 126,000 shares in the open market in 2022.The company is also supported by savvy investors and fund managers. Rick Rule owns the stock personally and the reliable analyst and asset manager Adrian Day continues to back the company, owning approximately 8% of shares outstanding.
A Solid Company with No Burn Rate
Riverside Resources, as a prospect generator, has only 78 million shares outstanding fully diluted. This is unbeatable low dilution for a company that has been in existence for more than 15 years.
And no, there have not been any rollbacks.
On top of this, Riverside Resources shareholders were given shares of Capitan Mining for free when the company went public at 20 cents. Anticipation that the gold-silver mining exploration company would make a significant discovery at its Cruz de Plata Project in Durango Mexico caused the stock to rise to 60 cents.
Today, RRI has CAD $4.5 million in cash against a fully diluted market cap of approximately $9M CAD. It only had $4 million in cash at the low of the Covid crisis.
How is this possible? As a prospect generator, Riverside earns fees when it drills for its joint venture partners. So basically this company has no burn rate.Not a bad start! But what else do they have?
Quality Exploration Projects that Attract Major Mining Companies
The CEO is a real professional. Mr. Staude earned a PhD in economic geology and has worked for major international mining companies including Kennecott, BHP and Teck Cominco.
Thanks to his knowledge of how major mining companies operate, he has been able to attract many joint ventures with major companies (Teck, Argonaut Gold, Yamana Gold, Rio Tinto, BHP, Teck, Centerra and Silver Standard)
Joint venturing is an ongoing process, but investors can be fairly confident that Riverside will continue to generate new joint ventures with its properties on a regular basis.
Today, Riverside has a very strong joint venture agreement with BHP to explore five copper properties in Mexico. These properties may lead to the discovery of a copper porphyry. Such deposits will be in huge demand, as we explained in our post about Western Copper and Gold.As part of this agreement, Riverside benefits from monthly management fees, plus 10% of all work that is conducted.
BHP is one of the largest mining companies in the world. It does not agree to a joint venture unless its executives can envision making a significant discovery. BHP and Riverside recently extended its strategic copper Exploration Funding Agreement (EFA) into its fourth year. BHP has committed itself to fund US $1.6 million in exploration to prepare targets for a drill program.
Exploration Drilling in Canada
Riverside Resources will also generate significant news flow because it is starting to receive what it hopes will be good assay results from its 1700 meter initial drill program on its 100% owned Oakes Gold Project in Ontario, Canada. This project consists of 5,680 hectares in the Beardmore Geraldton Greenstone Belt, which featured historical production of 4.1 million ounces of gold from 13 mines. Its project is also 20 to 30 kilometers away from the Equinox Gold / Orion Greenstone Mine near Geraldton.
Riverside Resources is a Value Play
In conclusion, at around 11 cents, the fully diluted market capitalization of Riverside Resources is only $8.5 million with $4.5 million in cash, no debt and no burn rate.
This is a crazy undervaluation for a professional team, a joint venture with BHP on five copper projects in Mexico, five precious metal properties in Sonora (the leading gold producing state in Mexico), and one gold-silver project in NE Sonora (17km NW of Silvercrest Metals’ Las Chispas Mine) wiith solid evidence of high-grade gold. Riverside also has two sizable projects in Ontario, one of which is being drilled currently.
Could something go wrong?
Yes, the only thing guaranteed in the world of junior mining stocks is that many things can and will go wrong. In exploration, failure is the norm!
But the beauty of the prospect generator model is that you get to fight another day. Riverside Resources already has survived many devastating bear markets. It is always acquiring new promising properties and generating new joint ventures.
The ultimate proof of value is that although John Mark Staude, the high octane CEO of Riverside, already has a substantial position, he has been buying more shares on the market.
This is the kind of stock to accumulate for the next phase of the bull market in junior gold stocks.
Disclaimer: SGL does not provide investment advice and is not a registered investment advisor. Always do your own due diligence before making an investment. Investing in securities, especially junior miners, can be risky and never invest money you cannot afford to lose. SGL cannot guarantee the accuracy of the information in this post. SGL has attempted to present the information fairly, but we own shares of RRI.V so bias cannot be excluded. SGL writers may buy or sell shares at any time.
SGL makes no representations, and specifically disclaims all warranties, express, implied, or statutory, regarding the accuracy, timeliness, or completeness of any material on this website. You should seek the advice of a securities professional regarding any stock transactions. SGL cannot guarantee in any way that it is providing all of the information that may be available. Please do your own due diligence before buying or selling any security.