ROK Resources (ROKRF) Valuation Update - Apr 19

[dan_s]

I spent this morning updating my forecast/valuation model for ROK. The Company reported a loss for the year 2023, which included several 1-time items: $7.3 million loss in Q1 on a debt settlement, $5.7 million gain on acquisitions in Q1, $8.9 million non-cash impairment charge in Q4 and a $5.9 million mark-to-market gain on their hedges in Q4.

As you should know by now, my valuations are based on operating cash flow X a valuation multiple that I believe is reasonable. < 2023 Adjusted Operating Cash Flow was $25.8Cdn million ($0.12Cdn/share).

At the time of this post ROK.V was trading at $0.31Cdn per share. < Less than 3X CFPS last year AND CFPS in 2024 is going to be MUCH HIGHER.

ROK sold a package of non-core assets in Q1 2023 and used the proceeds to pay off all of their Senior Debt.
> The Company's Balance Sheet is now in very good shape.
> Based on my forecast, operating cash flow during 1H 2024 should be $17.7 million ($0.08/Share); more than covering the $10.5 million 6 well capex program that ROK announced yesterday. ROK is fully committed to funding growth entirely with operating cash flow.
> Even if ROK does not drill anymore wells in 2H 2024, their operating cash flow should exceed $20 million in 2H 2024.

ROK won't announce their 2H 2024 drilling program until late June, but based on my forecast they will have more than enough operating cash flow to fund a 10-12 well Forbisher horizontal development drilling program in 2H 2024. Forbisher HZ wells produce mostly oil and this year's drilling program will significantly improve ROK's production mix from ~50% oil in Q4 2023 to ~60% oil and ~11% high value NGLs by Q4 2024.

If WTI averages $82.50US per bbl in Q2 and $85.00US in Q3 and Q4, ROK should generate over $46 million of operating cash flow ($0.21/share) for 2024. I believe at ROK deserves a valuation multiple of 4.5 X 2023 to 2025 annualized operating cash flow per share.

ROK has a lot of high-quality "Running Room" in SE Saskatchewan where they hold 122,424 net acres with 102 gross development drilling locations for oil in the Frobisher zone. Slide 11 of their updated presentation shows that with WTI at $80/bbl their type curve shows the HZ wells paying out in 0.8 wells. They also have over 100 drilling locations that have potential in Midale, which is also oil prone.

My updated forecast has been posted to the EPG website. My valuation increases by $0.05 to $0.70Cdn per share.

Go to the ROK website and study their April presentation slides to better understand the company's potential.

[dan_s]

Update from Research Capital dated 4-18-2024
"With improved oil prices, ROK has added a 6 well drilling program. Two of the
planned wells offset the company’s best Frobisher well drilled to date which could
boost production in Q3/24. ROK’s lithium brine play seems to be progressing quickly
which could translate into additional upside for investors. We maintain our BUY
recommendation and our $0.60 target price."

Their price target is based on WTI averaging $72US/bbl in 2024 and they don't include a forecast for 2025. < My valuation is more forward looking.

Viewfield Lithium Brine Update: ROK holds a 25% interest in Hub City, a subsidiary of
EMP Metals (EMPS – CSE; Not Covered). Hub City holds over 200,000 net acres of lithium
mineral titles in Saskatchewan. On January 9, 2024, ROK announced the results of PEA on
the Viewfield Lithium Brine Project for the production of batter-quality lithium carbonate
equivalent (“LCE”) over a 23-year period. The PEA showed a pre-tax net present value
discounted at 8% (“NPV-8”) of US$1.49 billion along with an impressive IRR of 55% (see
our research report here).

Today, Hub City announced that the Direct Lithium Extraction
(“DLE”) Field Pilot Facility has been commissioned and pilot testing is underway. The
Facility was constructed using Koch Technology Solutions DLE technology. The facility
also uses technology from Saltworks Technologies to treat the Viewfield brine and convert
it into a highly concentrated lithium chloride eluent. The pilot is expected to run for 3 to 4
months and process approximately 4,500 litres of feed brine per day (“lpd”). This volume
is down from the previous estimated of 6,500 - 9,000 lpd, due to higher-than-expected
lithium concentration in the feed brine. Over the first several days of testing the average
feed brine lithium concentration was 185 mg/l. We have not included any value for the
Company’s lithium asset in our target price and view the lithium play as a free option
for investors.

[dan_s]

First Call's current price target is $0.73Cdn per share.

Trading volume on the venture exchange is more that 3X higher today than normal daily volume.

[ChuckGeb]

What is the venture exchange? Is that where their warrants change. What kind of brokerage account does one need to trade there?

[dan_s]

It is a Canadian stock exchange primarily for smaller companies: https://www.tsx.com/trading/tsx-venture-exchange

"The TSX Venture Exchange is a stock exchange in Canada. It is headquartered in Calgary, Alberta, with offices in Toronto, Vancouver, and Montreal. All trading through the Exchange is done electronically, so the Exchange does not have a "trading floor". It was previously known as the Canadian Venture Exchange (CDNX), but in 2001 the TSX Group (now known as the TMX Group) purchased it and renamed it.

It is cheaper and the best place for companies that start out with market-caps under $100 million. Successful companies that start on the venture exchange uplist to the TSX exchange based in Toronto.

ROK Resources trades at ROK.V on the venture exchange, but can buy it on the pink sheets in the U.S. using ROKRF.

[Finn352]

Different online brokers have their pluses and minuses, but at least IBKR lets you buy easily into almost any market in local currencies. You just have to ask for the trading permissions for the particular market(s).

For a long time, I focused on the US markets since I didn't want to have too many currencies on my account but then I realised that it is better to buy small Canadian or Australian resource stocks on their home markets even when a US listing exists. There is often more volume in the local markets, transaction fees are usually lower than on US pinksheets and margin requirements can also be lower (in case it matters).

ROK and other small Canadian oil stocks have not really woken up yet but I think they deserve a part in one's portfolio. Of course there is also an opportunity cost. At the moment small gold, silver and copper stocks look more promising. Lithium might be bottoming around here, so maybe ROK's lithium assets will one day add to its share value.

[marc.wolin@yahoo.com]

ROK Resources Valuation

Penny stock, pink sheets, reminds me of “The Wolf Of Wall Street” with Leo Decaprio.

Marc Wolin

[dan_s]

Buying stocks via the pink sheets is just a way to buy stocks of companies that are traded on foreign exchanges. You can also open international brokerage accounts, but it adds a bit more bookkeeping.

Other pink sheet companies include:
Hemisphere Energy: HMENF
InPlay Oil: IPOOF
Surge Energy: ZPTAF

All three started out as a micro-cap like ROK and now have strong balance sheets, are free cash flow positive and pay nice dividends. I'm just telling you that ROK already has a strong balance sheet, has lots of "Running Room" and is free cash flow positive this year. Guess what comes next?

Some of our largest gains EPG member have realized have been on Canadian Juniors (small-caps) that started out on the TSX Venture Exchange, but can be purchased using a pink sheet listing. It has nothing to do with the risk level.