Revett Mining Company: Patience

Apr.28.14 | About: Revett Mining (RVM)


Revett is committed to restarting operations at Troy.

An experienced management team is in place.

It has the financial strength to deliver on its promises.

Revett Mining Company, Inc. (NYSEMKT:RVM) is an established, mid-tier, silver-copper producer. It owns and operates the Troy Mine and the world class pre-development stage Rock Creek project in Montana, USA. RVM currently trades at $0.80 and has only 41.5 million shares outstanding on a fully diluted basis. Despite the suspension of operations in December 2012, it has no long term debt, 9 million dollars in the bank as of March 31, 2014 and approximately 10.6 million dollars in working capital and 6.5 million in restricted cash (2014 financial results).

RVM's share price plummeted nearly 80% since late 2012 with investors reacting to market uncertainty and operational interruptions affecting the Troy Mine with 44% of that decline directly attributed to the company's announcement to suspend its production at the Troy Mine (RVM crushed after update on Troy). While investor sentiment is understandable, it is worth noting that at the time of writing this author could find no other North American mining company with comparable financial strength and a demonstrated production capability. Troy's 2012 production included 1.2 million ounces of silver and 8.5 million pounds of copper bringing its production since 2004 to 8.6 million ounces of silver and 69.5 million pounds of copper. Despite the recent rock fall, Revett's reserves and resources remain unimpaired and include approximately 11.14 million ounces of silver and 86.94 million pounds of copper, proven and probable.

As writers and observers have acknowledged, investor frustration appears connected to a lack of apparent urgency to re-open the mine and possibly a lack of conviction that the Rock Creek property, widely recognized as America's largest undeveloped silver-copper deposit, with an Inferred and historic resource of 300 million ounces of silver and 2.5 billion pounds of copper, will ever be brought into production. The Q4 - 2013 Earnings Call sheds light on this situation while highlighting important risk considerations regarding investing in equities and the mining sector. In that call, Doug Miller, VP Operations, discussed the steady pace of re-opening the North C bed on time and on target with production resuming in the 4th quarter of 2014 and ramping up in 2015 as the decline intersected with the I bed. In an earlier comment to this author, Shanahan, said "we are going to be cautious, understand the geology and not make mistakes by rushing this."

Investors, particularly in the extraction industry, assume numerous risks when investing in capital intensive projects; mostly related to business execution. In this case, as a major employer in this part of Montana, Shanahan has taken on the added challenges of balancing mine safety with minimizing the community impact of employee layoffs, developing Rock Creek, maintaining RVM's environmental commitments and protecting the value of its assets. It is unfortunate for shareholders that communications appear to have taken a second place to operational concerns. The fact is that shareholders have different risk tolerances and investment horizons than the companies in which they invest. It is easy to suggest that RVM should prioritize the re-opening of Troy and return to profitability. However, Shanahan has made the point that the investment in Troy is an investment in Rock Creek and in this corner of Montana. "One way or another," said Shanahan to this author, "we will get Troy back up and running, hopefully it's through our current development work, but if not, we will find a way which may take longer and be more expensive. We are fortunate to have the financial resources and operating capabilities to get through these current difficulties without significant share dilution."

Disclosure: I have written this article myself and it expresses my opinion based on publicly available information and conversations with company management. I have no business relationship with Revett Minerals nor do I own shares in this company at this time. I have no plans to buy Revett shares in the next 72 hours.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.