Reservoir Minerals (TSXV: RMC; US-OTC: RVRLF) has been attracting attention as it proves up the Timok copper-gold discovery in the Bor district of eastern Serbia. The latest evidence: Scotiabank Mining analyst Mike Hocking has initiated coverage on the company with a “sector outperform” rating and a one-year target price of $7 per share.
Reservoir isn’t proving up Timok on its own, however, as the grunt work of defining the deposit is now in the hands of Freeport-McMoRan Copper & Gold (NYSE: FCX).
Freeport had a US$3 million earn-in option that it exercised to take a 55% stake in the project, and by funding development through to a bankable feasibility study, it moves up to 75%. That means Reservoir doesn’t have to put another cent into Timok until the feasibility study is delivered. It would be on the hook for 25% of the costs, but also 25% of what could become significant profits, if early drill results are any indication.
That a company with the heft of Freeport would so quickly move on its options — the Timok discovery was only made last year — speaks to the scale of the find.
Timok is part of the Timok magmatic complex, an area that hosts the state-owned Majdanpek and Bor operations. The integrated mines are composed of open-pit and underground operations, and mining has been ongoing for 110 years. Over that time the mines have turned out 6 million tonnes copper and 9.7 million oz. gold, and it still has non-National Instrument 43-101 compliant resources of 10.5 million tonnes copper and 12 million oz. gold.
Reservoir’s 535 sq. km of licences are nearby the operating mines. Of its total land package, 245 sq. km are joint-ventured with Freeport.
But Timok has drawn the most attention. Reservoir knew it was on to something in early 2012, when it hit copper mineralization 7.5 km southeast of the Bor pit. By September it caught the market’s attention by announcing a 160-metre intercept grading 6.92% copper and 5.4 grams gold, or 10.16% copper equivalent.
While there isn’t a NI 43-101 compliant resource out on the deposit, the drill results have analysts like Hocking believing that there is potential for a high-grade and high-margin deposit that could be developed and mined — and all just 6 km from a smelter complex.
Based on the drill results, Hocking estimates that at a 1.5% copper equivalent cut-off, Timok could have 22.4 million tonnes grading 3.7% copper and 2.4 grams gold, for a copper-equivalent grade of 5.2%.
Using that as a launching point, Hocking then forecasts annual consolidated production of 157 million lb. copper and 103,400 oz. gold over 11 years, at an average operating cost of US69¢ per lb. copper, net of gold credits.
A preliminary discounted cash-flow model by Hocking generates a $349-million after-tax net present value and a 40% internal rate of return, when considering Reservoir’s likely 25% stake in a future mine.
The news sent Reservoir shares up 3%, or 11¢, to $4.41 on 185,000 shares traded on Nov. 12.
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