After seeing its share price slashed from 2.05p to 0.34p in 2020, Rambler Metals & Mining (LSE:RMM) is finally starting to rise. In fact, over the course of April alone, the stock was up 87.5%! It’s worth noting that it’s still down by 65% over the last 12 months. But what’s causing this sudden growth? And should I be adding this stock to my portfolio?
A rising RMM share price
Rambler is a copper and gold producer that operates within the Baie Verte Peninsula in Canada. In recent years the company has been struggling. And once Covid-19 hit, it actually came close to insolvency. But based on the latest set of published results, it seems that this risk has receded for now.
The management team successfully completed the sale of its gold circuit as well as other exploration properties and royalties to Maritime Resources for US$2m (all monetary figures are in US dollars). In addition, it was able to perform a major financial restructuring through an oversubscribed share placement that raised a further $10.5m.
Using these funds, the firm negotiated new financing agreements and satisfied existing creditors that brought the overall level of debt back under control. After all this, total debt was reduced from $13.8m in 2019 to $3.5m at the end of 2020. Similarly, the cash on the balance sheet rose from $1.9m to $6.2m.
And so, with a much stronger financial position, the business not only survived the impact of the pandemic but also came out stronger, in my opinion. Therefore the recent surge in the RMM share price doesn’t surprise me.
What’s next for the business?
With the looming threat of bankruptcy no longer a primary concern, all focus is being placed on restoring production volumes to pre-pandemic levels. Ming Mine is the firm’s primary asset and its production levels dropped considerably last year.
The management team has begun restoring Ming to its full capacity of 1,350 tonnes per day. This process is expected to be completed by December this year at the latest. What’s more, the company is also investing in expanding this production capability to 2,000 tonnes per day by 2022. And at the same time, it’s establishing an ore sorting facility at the Ming Mine site to improve operational efficiency.
Needless to say, this sounds very promising. But it’s worth remembering that any delays or further disruptions to its operations could cause significant volatility for the RMM share price. Also, because this is a mining business, it is very susceptible to fluctuating commodity prices. Copper is in high demand at the moment, which has increased its value. But as more mines become operational and the metals shortage nears an end, these increased prices may not last. This could have a negative impact on Rambler’s operating profits.
The bottom line
I believe the worst has passed for Rambler. The business appears to be back on track, and if it can increase its production volumes to the forecast level, I think the RMM share price can continue to rise.
Having said that, like many small-cap mining companies, it still carries a considerable level of risk. Personally, I’m going to wait and see how it progresses in restoring Ming’s production volumes before adding any shares to my portfolio.
Zaven Boyrazian does not own shares in Rambler Metals & Mining. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.