Freeport cash backs Reservoir’s high-grade Cukaru Peki prospect

Workers at the Cukaru Peki drilling site. Source: Reservoir MineralsWorkers at the Cukaru Peki drilling site. Source: Reservoir Minerals

Reservoir Minerals (TSXV: RMC; US-OTC: RVRLF) has reported an 84-metre drill intercept grading 10.8% copper and 10.86 grams gold (17.3% copper equivalent), including 46 metres of 15.9% copper and 16.77 grams gold (25.9% copper equivalent), from its Cukaru Peki deposit in eastern Serbia.

The deposit is part of the Timok project, which is a joint-venture between Reservoir and Freeport-McMoRan (NYSE: FCX) in which Freeport owns 55%, but will own 75% after completion of a bankable feasibility study.

Freeport has committed US$18.7 million to exploration this year at Cukaru Peki, which has high-sulphidation copper-gold and porphyry copper-gold mineralization.

Raymond Goldie of Salman Partners in Toronto calls the intercept “remarkable,” and reasons that it “increases the chances that Freeport and Reservoir could begin production from Cukaru Peki before they get around to permitting, financing and building a mill.”

“Material with grades that were even a fraction of those reported … could be dug up and sold, without further processing, directly to the smelter just down the street,” the mining analyst writes in a research note. “Freeport-McMoRan is very much in the mode of conserving cash, not spending it. Yet it is budgeting US$18.7 million in exploration expenditures at Timok, which is an extraordinarily strong endorsement of the project.”

Goldie has a 12-month target price of $10.60 per share on the junior’s stock, which trades close to $4.15 per share.

Among the latest batch of assay results released on July 27 are intercepts of 43 metres grading 0.5% copper and 1.33 grams gold (1.3% copper equivalent) in hole 14-55; 189 metres of 3.4% copper and 3.86 grams gold (5.7% copper equivalent) in hole 14-58; and 9.6 metres averaging 15.3% copper and 15.69 grams gold (24.7% copper equivalent) in hole 15-59. 

An inferred resource encompassing just the upper zone of Cukaru Peki contains 65.3 million tonnes grading 2.6% copper and 1.5 grams gold per tonne (3.5% copper equivalent). The resource estimate was completed in January 2014, and reported above a 1% copper-equivalent cut-off grade.

Below the upper zone — which runs from 400 metres deep to 600 metres deep — is a porphyry zone that starts from 800 metres deep and runs to 1,000 metres deep.

Reservoir’s president and CEO Simon Ingram tells The Northern Miner that companies are interested in big deposits, and “what gets big companies like Freeport excited is having these very large, long-lived mines. We know the deposit size in the district is a billion-tonnes plus.”

Indeed, Cukaru Peki’s discovery zone is 7.5 km from the base of the Bor open-pit copper mine, which operated for 100 years before closing seven years ago, Ingram says, adding that the district is ripe with potential.

There are four drill rigs operating at Cukaru Peki that focus on infill-drilling the deposit’s upper zone, and confirm the lateral extent of the underlying porphyry-type, copper-gold mineralization, known as the “lower zone.”

The company says technical studies are underway for a preliminary assessment of the upper zone, and should be completed in 2016.

Reservoir believes the high-grade mineralization can be mined and shipped direct to smelter after size-reduction processing, without pre-concentration. 

Like Goldie of Salman Partners, Ingram emphasizes that Freeport’s willingness to invest millions of dollars exploring Cukaru Peki is a huge endorsement of the project. “If you see Freeport’s budgets for greenfield projects, they’re basically not spending anything — virtually nothing — on greenfield projects apart from us, and that is a particular commitment in a market like this, because you don’t get a return on your investment when it’s exploration,” he says. “There are not many companies that have four drill rigs on an early stage project … with a partner like Freeport, this is a project that has a good chance of being built.”

Ingram notes that the project has rich grades and is in the heart of Europe, where a tremendous amount of infrastructure already exists. Serbia also has a long mining history.

“We’re a few kilometres away from a railway line and a power line, and close to a government-owned smelter that has just been upgraded and has a lot of capacity,” he says. “There are also a lot of people employed in mining in the district, and there’s a lot of support for mining at the government and local levels.”

Reservoir has operated in Serbia for the last decade, and Ingram describes the country as “a good system to work in,” with a decent, clear and “positive” mining code.

Under the code, miners are subject to a 15% corporate tax rate and a 5% net smelter return royalty. 

“When you net those together it’s pretty competitive compared to other countries in the world,” he says.

Ingram also argues that the permitting process is quite straightforward. “You apply for a licence, you put forward a work program with a budget and you get a three-year licence initially,” he says, adding that next is to submit annual reports and renew the licence for two years and then another two years — for a total of seven years — during which time comes a feasibility study.

In addition to Cukaru Peki, Reservoir has four other licences in the Timok belt that surround the discovery, four licences for a sediment-hosted copper project and two lead-zinc licences. 

Outside Serbia, the company has two licences in Romania, four in Macedonia and a couple in both Cameroon and Gabon.

Reservoir has a $200-million market capitalization. 


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