Regency Mines: Ask the Oracle!

On Friday afternoon, Regency Mines (LON:RGM) announced to the market that it had entered into an agreement with Oracle Coalfields PLC (PLUS: ORCP) to subscribe for 18,500,000 new Oracle Shares ("New Oracle Shares") at a price of 5.5 pence per share, representing approximately 10.04 per cent. of the enlarged issued share capital of Oracle.After very little activity on the corporate front for quite some time, Fridays news gave the market an indication that whilst things may appear to go quiet, the Company is not standing still.

We caught up with Regency's Chairman Andrew Bell over the weekend and put some questions to him about the Company's move into the Coal space. Here's what he had to say: 

MM: With regard to your Oracle Coalfields announcement, could you outline how this transaction came about?

AB: We have been familiar with the Oracle story since before its listing in 2007. From time to time someone has told us how good it is. In November last year even my son, who had been researching it, told me. We always had reservations, about the grade, or our lack of knowledge of the coal industry, or being busy with other things, or having insufficient human or financial resource to follow our investment and take a practical interest.

We bumped into the Chairman, Tony Scutt, at a conference a short while back. He was chatting about something else, but said enough about Oracle to pique our curiosity and so we googled it again and did a little research.  We were really impressed by how much progress there had been in the last year. Here was an asset with 1.3bn t of Measured Resource and nearly 400m t of Proven open-pittable Reserve, and Oracle had signed MOUs with the leading power company – Karachi Electric Supply – and the leading cement producer – Lucky Cement – and engaged top names such as SRK and Wardell Armstrong for the feasibility and environmental studies. And they had done the biggest raise on PLUS this year, involving placees who never, never invest in PLUS companies, and they were committed to going on to AIM, raising more money, and going into production in 2011/12.

And our first thought was "Wow! And they did all this when they were on PLUS, struggling to raise any cash at all, and never had much? Imagine what they could do with proper support ". So when we rang Tony back it wasn't about what we had discussed; it was about Oracle. And he quickly arranged a meeting with Shahrukh Khan, the CEO. Shahrukh is a Harvard economist and an English gentleman, besides being well-connected in Pakistan. We knew when we met him that this was someone we could deal with, and someone with the vision and potential to lead a large company. So we put our proposition, which was that we would invest at once, and at a fair price, in a stake large enough to give us interest in the outcome of the game, though not as large as the stake we would eventually like, and then help them get their story across and get the price up to the level they really need for the AIM listing.

Because once they are on AIM there will be no holding them back. This will be a big company.

They said  'we will go away and think about that'. And they went away and thought. And now here we all are.

MM: How does this deal compliment your existing portfolio and operations?

AB: Regency does deals. It always has. It has its huge lateritic nickel/cobalt project, in Mambare. And it has its nickel and copper exploration potential in Australia. And it has its stake in Red Rock, that accounts for 85% of the market cap, which was originally a sideline, a spin-off. And because of the confidence the stake in Red Rock gives, when it invests now, it has raised its sights and wants to invest in projects with the potential to be huge, and accept the greater risk involved.

Another point. We had become over-dependent in the public eye on nickel, which although its prospects are one of the best of any metal has not performed as other metals have done since the nickel price spike in 2008. And we had not been as successful as we would have liked in balancing our exposure to nickel with good copper assets. Coal is a great commodity – one of the three most traded dry bulk commodities, up there with iron ore and grain – and with the trade so big it is a good one to get rich in and build up volume production. The Oracle coal won't be exported, but it will substitute for imports, and some of the products will be exported (eg cement to the Gulf), but it is part of the same trading system, where pricing will be set by internationally traded prices.

Regency's affiliate Red Rock knows already what its next one, two, three – no, four – income streams from production will be. Regency hasn't, and that is frustrating. Early coal production from the Thar basin will fill in that gap.

Also it makes sense because we can leverage our expertise and assist Oracle to realise its potential. We have helped three companies list on AIM. This will be the fourth. We can help raise money and help present the investment story effectively.

Finally, we are in business to make profits. Good or exceptional profits. We expect to make good profits and perhaps exceptional profits from our investment in Oracle.

MM: What potential do you see in Oracle Coalfields in the future and how do you view the geopolitical risk?

AB: Do we see the potential for a 50p stock within months of AIM listing? Certainly, and with some confidence. But that will only be a stepping stone. And political risk? Well, this is not the North-West frontier. Nor the Afghan border lands. This is Sindh, two or three hundred km from Karachi. And Pakistan is a country with great potential, the great history of the Indus valley, and many educated people. It is not Afghanistan. We do not see it going that way. If we believed the Press we would explore nowhere – because apparently South Africa is going to the dogs, and so is Colombia, and so is Kenya – yet our affiliates are active in all these places - so Pakistan is in good company.

MM: Recognising the company's operations and interests do you feel, particularly with this new deal, that the share price reflects the value and potential of Regency Mines?

AB: Of course not.

MM: What updates can investors expect over the next six months?

AB: Updates on Queensland, updates on WA, updates on Mambare, and updates on Oracle. Some updates have been promised as imminent, and that is because they are! I can't, as you know, say more than that.

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