One stock we are currently waiting on is Red Rock Resources (AIM:RRR). We hold the shares here and we have been adding to our position as the price continues to fall.

There are some legacy issues to note here; perhaps they could be summed up as “previous performance expectations”. This is not a fundamental value issue, but it is currently hanging over the share price and dampening investor sentiment. As value investors we are focusing on the value staring us in the face, so we will happily discount all the prevailing sentiment issues and wait for the mood to change. It usually does.

A much lofted phrase, but we certainly are in ‘difficult times’ when it comes to small cap mining and exploration shares.  In fact times are so difficult that the usual market responsibility of valuing a company in line with current assets, combined with a reflection of future potential has gone completely out of the window.

In times when certain market commentators seek to bemoan conditions and demonstrably worry about the future, we are scouring the market to identify value opportunities that the markets may, in their dubious wisdom, have battered to the floor – valuation wise – with unreasonable efficacy.  This task is illuminating for sure, and strong hearted investors are likely to do very well buying shares in this trough, but it is also somewhat demoralising to see companies languishing on the floor when we know the hidden value that lies beneath. So, it is particularly heartening when one of the companies we follow closely actually demonstrates to market the value it is creating and helps enliven our spirits with a taster of what may be delivered in the future.

The case in point here being Red Rock Resources (LON:RRR) who today released their annual report to 30 June 2011 noting profit approaching £14million for the year (1.78p earnings per share).  Not bad for a company with a market capitalisation at 4p of around £30million and with a diverse portfolio capable of delivering, in our opinion, significant upside in the near term.

Of course market sentiment being what it is, we await the siren call of those bemoaning the impending tax liability due on such a prodigious gain.  But sadly for the naysayers, as the lion’s share of the gain relates to the accounting for Red Rocks substantial holding in Jupiter Mines (ASX:JMS), and not technically a crystallised gain, deferred tax largely applies.  Further details of this tax deferral are outlined in Note 17 to the annual report.

We live in an impatient investing world, where there is little tolerance for medium term business development where challenging operational progression necessarily replaces instantaneous success.  But as Rome was not built in a day, large listed corporations must be nurtured from small beginnings.  Whilst many companies are adept at spinning the benefits of their operations one fact about Red Rock remains simple: From early exploration activities, and very little initial value, the company was able to vend iron ore and manganese assets into Jupiter Mines securing shares worth today, even after initial disposals and the retrenchment in Jupiter’s market capitalisation, in excess of £16million pounds.

We watch with interest  to identify where the next leap in value will develop.

To download our latest Value Proposition Report

on Red Rock Resources click here

Disclosure: The Authors hold shares in Red Rock Resources

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Red Rock Resources (LON:RRR) After a series of updates on developments covering operations in Kenya, Colombia and Greenland, we took the opportunity to put some investor focused questions to Chairman Andrew Bell. We hope you will find his answers as informative and insightful as we did!

As readers will know, MiningMaven has been following the Red Rock Resources story since 2009. Over that time we have witnessed an extraordinary scale of business development, through organic growth, acquisitions and investments. Reflecting that growth, we have also seen the share price climb from around 1.5p, up to 20p (intraday) and then retrace back to where it is today, around 7p per share. Quite a ride!

As investors ourselves, we know to expect pullbacks, especially when a share has undergone such a dramatic growth and rerating exercise. We also recognise that as a retracement runs its course, the price also tends to overshoot in the opposite direction.

Red Rock Resources updated the market on Tuesday with news on progress across their operations and investments. Executive Chairman Andrew Bell took the time to answer some investor focused questions for MiningMaven. Here’s what he had to say: