Originally posted by neptune61
RVR.asx
Recommendation: Buy
Share Price $0.150
Valuation$0.42
Red River Resources Ltd (RVR)
DecQ record production but royalties lower cash.
Red River (RVR) reported record production in DecQ (Q2FY19), with higher ore mined (+7% qoq) and increased zinc (+13%), lead (+9%) and copper (+74%) concentrate production.
Pleasingly, zinc, lead and copper grades have also improved, up 21%, 18% and 33% respectively, with zinc and lead recoveries maintained around design levels. Improvements in the copper circuit have seen recoveries increase, with ~54% recoveries reported in the DecQ (up from ~35%), and ~73% recoveries achieved in the Dec’18 month. Improved copper recoveries are well-timed for first development ores from the Far West underground, which remains on track for first ores in the MarQ and stoping in 2HCY19.
Concentrate sales of 7,121dmt (+24%) zinc concentrate, 2,828dmt (+8%) lead concentrate and 347dmt (-35%) copper concentrate, generated revenues of A$18.2M (up from A$16.3M) for positive site EBITDA of A$1.7M (up from A$1.3M). Revenue was impacted by slightly lower zinc and lead prices during the period, but both metals have now recovered, which could provide improved sales in the MarQ. In addition, zinc concentrate treatment costs (TCs) increased during the DecQ (up US$120/t of concentrate), appear to have stabilised, while both lead and copper TCs remain flat, with demand still strong for all metals (zinc, lead, and copper).
Operating costs continue to decrease qoq, due largely to higher payable zinc, reduced development costs for West 45 and lower mill reagent consumption. RVR anticipates ongoing operational improvements for reducing costs in the coming quarters. Payable zinc metal was 8.2Mlb (up from 7.0Mlb) and reported C1 cash costs of US$0.47/lb payable Zn (-33% from US$0.70/lb Zn) and C3 costs of US$0.93/lb payable Zn (-24% from US$1.22/lb Zn).
Cash at bank at DecQ end of A$12.7M (A$17.4M SepQ), a decrease of A$4.7M, after exploration (A$1.7M), capex largely for the Far West underground development (A$2.4M) and royalty payments relating to FY18 sales (A$4M). RVR is debt free, but has an undrawn US$10M facility.
West 45 setting records with second mine coming on-line
Mining at the West 45 underground set new records, with 96kt of ore mined, up from 90kt in the SepQ, with some high-grade stopes improving head grades. The current mining rate of +1,000tpd at West 45 continues to be sustained and we forecast higher production levels in the MarQ as first development ore from the Far West underground is mined. Far West has a current reserve life of +5 years at a 300ktpa mining rate, but with further resource conversion a LOM +7 years is assumed (system remains open). We now forecast mill throughput of ~390ktpa in FY19 for production of +15.5kt payable zinc metal at an AISC (net of credits) of ~US$1.09/lb payable Zn.
Zinc price recovery, low Zn and Pb LME stocks: Maintain Buy
We have further updated our Thalanga model off the release of the DecQ report. Our RVR NAV is 42cps, current spot NAV is 52cps and latest price target is 40cps (from 50cps). There is downside/upside risk to our valuation if commodity prices move below/above our forecasts.
We maintain our Buy recommendation on RVR, on valuation grounds and off the expectation of continued operational and costs improvements.
