And what a ride it hsa been... RMC.v 2 Year (Yahoo Finance)
Reservoir Minerals (TSXV:RMC), which has been one of the best performing mineral exploration stories of recent years, climbing 1000+% since 2012 following successful exploration results at its Timok project in Eastern Serbia, may have gotten ahead of itself, according to PI Financial's Digging Through The Dirt Newsletter. The authors are Bill Whitehead, 56, Senior Vice President, Adam Simmons, 33, Ph.D. Geology, and Justin Hayek, 29, Certified Investment Manager (CIM). Here's what they had to say on RMC:
First and foremost, I have to state that I love this project and think it is one of the best on a global basis at the moment and it does stand a chance of developing into a giant/super giant porphyry deposit if they can continue to intersect long runs of copper/gold porphyry related mineralization to the NE of their currently defined high sulphidation resource. However I’m going to take the unpopular stance here, I find myself overwhelmed by the valuation that Reservoir is getting. As a porphyry copper person I am a bit perplexed and I don’t mean to trash the project, because I would rank it as one of the best projects out there right now globally. But, it seems to be way ahead of itself and in my estimation they are only approximately 15-18% of the way there by contained copper metal and around 5-7% of the way there by volume to being interesting for a porphyry system. Let’s do a little bit of investigation on this valuation and see how it compares globally. Below I will assume that Freeport will earn in to their 75% interest in the project.
From the research that I have done and supported for the most part by analysts at other firms, South American porphyry copper deposits are generally purchased at a price of about $0.06 USD /lb copper, these are by far some of the best assets in the world regardless of commodity and certainly in the copper porphyry world. Looking at North America and Canadian alkaline porphyry deposits in particular the average buy purchase price per pound is in the $0.12 USD /lb range. You may ask why inferior Canadian porphyry projects fetch a premium on a per pound basis, and this is primarily due to the fact that they contain gold with sub-equal economic importance to copper. I know that there are several analysts and newsletter writers that have generated NPV’s based on the recently released maiden resource for Timok (discussed below). While these NPV’s seem impressive consider what exactly it is that Freeport is after here, a copper bearing system that can add to their bottom line, which means large and if it is going to be large we will have to consider a large block cave style operation. In other words throw those NPV’s out the door, because this project has a long ways to go. I’m going to forgo any talk of NPV here and approach this project from a more simple perspective, the take out price per pound as this tends not to really change all that much. I will also remind readers that RMC will only retain 25% of the project once Freeport has earned in, meeting Freeport size there is no competition to purchase RMC, there is only one buyer. Therefore the likelihood of receiving a premium much beyond the current going rate would seem to be a stretch, in my opinion.
Last week RMC put out their maiden resource on the Timok project which came back at 65.3Mt at 2.6% Cu and 1.5g/t Au (3.5% CuEQ), including 6.8Mt at 9.6% Cu and 5.9g/t Au, all in the inferred category. This roughly gives 3.75 billion lbs of copper metal. Let’s discount the values for South American and Canadian porphyry copper deposits to 75% of those values ($0.045 and $0.09), as their buy out prices. This would lead to valuation of RMC’s portion of their copper to being between $42.2M and $84.4M. On a share price basis this is $1.01 to $2.02. At RMC’s current market capitalization ($256.8M), they are getting a $0.274 /lbCu valuation, which seems high to me. Additionally, at the discounted South American and Canadian porphyry buyout prices per pound (see above) RMC is being given credit for between 11.4Blbs to 22.8Blbs of copper. The upper end of this range is starting to approach global top 20 copper porphyry deposits in terms of contained copper, which the western Tethyan belt has not produced. Another important factor for the Timok system is that it is a high-intermediate sulphidation epithermal system that has collapsed onto the top of a porphyry system. To date most of what has been drilled is the high sulphidation portion, which contains notoriously bad copper bearing minerals (e.g. enargite) from a recovery point of view. Admittedly, not all of the minerals observed in this portion of the high sulphidation system at Timok are problematic, however the proportion of the poor minerals remains unknown and I would expect recoveries from this part of the system to be relatively poor.There have been two drill holes that have intersected porphyry mineralization, FMTC-1218 and 1219, which intersected 699m at 0.75% Cu and 0.23g/t Au and 734m at 0.75% Cu and 0.10g/t Au. These are the sort of important intercepts that are required for the style and scale of mine that Freeport would be looking for. From the drill pattern it appears as though the system plunges to the NW and is open in this direction. However, a large volume of rocks will be required to be drilled. For me there are two important factors for this project: 1) RMC needs to continue hitting long intercepts of lower grade copper and gold in porphyry style mineralization over volume measuring something along the lines of 700x700x700m; 2) If these types of intercepts do not pan out over an adequate volume of rocks, they will have to start looking at this as a lower tonnage underground mine, in which case I would question if Freeport would be interested in the Timok project at all.
Clearly the Timok project is one of the best projects out there. However, it is my conclusion that while it may develop into a monster copper ore body, it has a long way to go and is very far ahead of itself. In other words, it is not a forgone conclusion that RMC is a takeout target at this point, and I will reserve judgment until real porphyry mineralization is more consistently intersected or when Freeport gives up their portion of the project and smaller copper miners or perhaps gold miners can begin looking at the project.
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