Red River Resources Limited (ASX:RVR) has been maintained a Buy by Hartleys, with a 12-month price target of 61 cents per share, more than double the company’s current trading price of 24 cents.
Red River is a high-grade, low cost zinc producer focused on the Thalanga Operation in Queensland.
The following is an extract from the broker report.
We recently visited the Thalanga Operation in North Queensland, and we were impressed by the development completed to date (at both underground mines) and the improving performance from the Thalanga plant, with high quality concentrate production with zinc and lead recoveries increasing to targeted levels.
June quarter report highlighted record tonnes mined from the West 45 underground.
West 45 Development Face
Processing rates were also higher quarter-on-quarter (+13%) and with higher mining rates increasing stock levels, we envisage improved ore availability for processing in the coming quarters.
Productivity improvements underground, costs to decline
The capital development of the West 45 underground now largely complete, with only one more development level required for the current mine plan, and additional stoping fronts are anticipated in the second half of calendar year 2018.
With increased stopes on-line, mine grades are expected to lift and the current mining rate of about 1,000 tonnes per day is expected to be sustained.
The company has also committed to a 4,500-metre underground diamond drilling program with the aim of adding mine life (currently +1.5 years).
Far West Portal
Red River had about 15,000 tonnes of ROM ore stocks at quarter end.
Development is progressing well for the Far West underground (Red River’s second mine) with first development ore expected Q3 FY19 and stoping ore in Q4.
At this stage +5 year mine (reserve) life at 300,000 tonnes per annum mining rate is expected, but a life of mine +7 years is assumed (system remains open at depth).
Valuation – update
We have used the company’s restart study as the basis of our modelling for Thalanga, with additional mine life.
We see significant potential to extend the current deposits in the mine plan (West 45, Far West and Waterloo) and anticipate new deposits (Liontown/Liontown East) will be added into the plan over time.
Zinc concentrate transport
Red River has significant exploration upside from its portfolio of prospects within the highly prospective Mt Windsor Belt, with the discovery of further high-grade polymetallic mineralisation within the region as highly probable.
We assume a nominal $50 million (10 cents per share) value for exploration potential.