Hartleys has maintained its Buy recommendation on Red River with a price target of 45 cents per share.
Following is an extract from Hartleys’ report on Red River:
The company added cash of $4.7 million to have a cash position of $25.9 million at JunQ end, and remains debt free, but retains an undrawn US$10 million facility. The cash growth comes after exploration expenditure of A$0.5M (+25% qoq) and capex largely for the Far West underground of A$3.9M (-13% qoq).
Physicals largely in-line, Far West stopes coming on-line
Mining physicals were lower when compared to the previous quarter, while ore processed in the JunQ was largely in-line of the MarQ results. Ore mined was 90kt (-15% qoq) at a grade of 5.0% Zn, 2.3% Pb, 0.5% Cu and 0.2g/t Au (~9.8% Zn Eq, down 18%). Processed throughput for the JunQ was 104kt (- 5% qoq) at a grade of 5.4% Zn, 2.6% Pb and 0.6% Cu (~11.2% Zn Eq, down 2%), with similar zinc recoveries, slightly lower lead/copper recoveries for 1% more zinc concentrate, 10% less lead concentrate and 7% higher copper concentrate production qoq. Zinc concentrate production was ~9.1kt (+105t qoq), lead concentrate production of ~3.4kt (-394t qoq) and copper concentrate production of ~1.8kt (+112t qoq). Our metal production in concentrate forecasts were within 4% for zinc, 1% for lead, but overestimated copper production by 21% (our estimate was 518t vs 430t reported). The underground mine development of the Thalanga Far West orebody continues to progress well, with first stoping ores expected in the current quarter (SepQ).
Slightly less payable zinc qoq for JunQ EBITDA of A$7.6M
Concentrate sales of 9,902dmt (+9%) zinc concentrate, 3,422dmt (-9%) lead concentrate and 1,927dmt (-3%) copper concentrate, generated revenues of A$30.5M (from A$32.6M) for positive site EBITDA of A$7.6M (from A$12.5M). Sales realisation expenses were higher qoq, impacted by higher zinc concentrate treatment costs (TCs), which now appear to have stabilised. While higher operating costs were largely a factor of increased mine development at the West 45 underground mine. Payable zinc metal was 9.4Mlb (from 9.9Mlb) and reported C1 cash costs of US$0.44/lb payable Zn (from US$0.14/lb) and C3 costs of US$0.87/lb payable Zn (from US$0.58/lb).
FY19 delivers payable zinc of 15.7kt @ US$0.87/lb payable Zn
In FY19, RVR delivered payable zinc metal production of 34.5Mlb (or 15.7kt) at a reported C3 cost of US$0.87/lb payable Zn, we had recently (4 July) estimated 15.6kt @ C3 costs (pay) of US$0.85/lb Zn. No Company guidance has been provided for FY20, other than similar mine and process throughput levels are anticipated (~100kt/q for +400ktpa). We currently forecast slightly higher throughputs for higher zinc, lower lead and higher copper concentrate production. The installation of a gravity gold circuit would also be a good outcome, increasing gold credits from the copper or lead concentrate.
Undervalued on consensus and spot, Hillgrove to add value
We have updated our Thalanga model off the release of the JunQ report. Our RVR NAV is 45cps, current spot NAV is 48cps and latest price target is 45cps (unchanged). We maintain our Buy recommendation on RVR, with the recent Hillgrove acquisition also expected to add significant value over time.