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Red River Resources has solid final quarter, more copper and better earnings: Hartleys

The company achieved record copper concentrate production of 2,697 tonnes during the June quarter.

Red River Resources Limited - Red River Resources has solid final quarter, more copper and better earnings: Hartleys
Hartleys has increased the price target for Red River to 20 cents per share

Red River Resources Limited (ASX:RVR) achieved record copper production at its Thalanga Operation in Northern Queensland for the quarter ending June 30, 2020.

An increase in copper grade of ore milled to 1.0% and a record copper recovery to copper concentrate of 84.7% resulted in quarterly production of 2,697 tonnes of high-quality copper concentrate, compared to 2,310 tonnes in the previous quarter.

Hartleys has increased the price target for Red River to 20 cents per share from 19 cents (current price: 12 cents) following the release of June quarterly figures.

The following is an extract from Hartleys’ research update:

Red River Resources (RVR) reported stable production from its Thalanga Operations in Northern QLD in the JunQ, with production of 4,544t of zinc (+5% qoq), 1,133t of lead (+1% qoq) and 2,697t of copper (+17% qoq, record result) concentrates. The Thalanga Operations reported a positive site EBITDA of A$3.5M (up from negative A$2.6M MarQ), with increased revenue, lower concentrate treatment charges and improved operating costs.

Cash at bank at JunQ end was A$8.1M (down 36% from A$12.7M), after payment of A$3.3M on Far West mine development, A$0.2M on exploration and A$1.5M (US$1M) debt repayment from a facility provided by metal trader Trafigura. Debt is now ~A$7.3m (US$5M) and due to be repaid by 30Sep’20. Another US$5M (~A$7.3M) is available to draw for Thalanga, should it be required. RVR has a good working relationship with Trafigura (offtake partner for zinc and lead concentrates), and some flexibility could likely be afforded for the repayment schedule, though not guaranteed. Due to sales timing, a gold concentrate shipment provided another US$1.6M for estimated cash of A$10.4M and Net Cash position A$3.1M. We also note RVR ended the JunQ with higher concentrate inventories further improving the balance sheet.

JunQ result largely in-line

Processed throughput for the JunQ was 82Kt (-2% qoq) at a ~9.2% ZnEq grade (up 8% qoq), with improved zinc, lead and copper recoveries for 5% more zinc concentrate, 1% more lead concentrate and 17% higher copper concentrate production qoq. Payable zinc metal production was 4.6Mlb (up 5% qoq). Reported payable C1 cash costs of US$0.30/lb Zn (down 59%) and C3 costs of US$0.86/lb Zn (down 29%). We had previously forecast slightly higher throughput with zinc, lead grades in-line but lower copper grade. The historic gold tailings processed through Thalanga produced 475dmt of gold in concentrate grading over 62g/t Au for ~950oz and net revenues of US$1.6M.

FY20 delivered less zinc and lead, but more copper

In FY20, RVR delivered payable zinc metal production of 18.8Mlb (or 8.5kt) at a reported C3 cost of US$1.27/lb payable Zn, down from payable zinc metal production of 34.5Mlb (or 15.7kt) at C3 cost of US$0.87/lb payable Zn in FY19. We had previously (late Mar’20) forecast 9.0kt at C3 cost (pay) of US$1.45/lb Zn. No Company guidance has been provided for FY21, other than process throughput levels of +90-100kt/q for +360ktpa is anticipated. We currently forecast slightly higher throughputs (370ktpa) at improved grades for higher zinc, lead and copper concentrate production.

Maintain Speculative Buy; Hillgrove gold restart progressing

We have updated our Thalanga model incorporating the JunQ report. Our modelling continues to dilute for new equity, which we stress, may not be required. In addition, some additional funds could be sourced for the Hillgrove Gold Mine in NSW, where RVR is planning to restart gold production (subject to study outcomes and final permitting). Our RVR NAV is 23cps (from 24cps), latest spot NAV is 28cps and price target is 20cps (from 19cps).

We maintain our Speculative Buy recommendation on RVR, and look forward to the progression of restart activities at the Hillgrove Gold Project. RVR anticipates a low Stage 1 capital cost of ~A$5m with first gold production before the end of CY20.


Quick facts: Red River Resources Limited

Price: 0.125 AUD

Market: ASX
Market Cap: $64.53 m

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