A month ago I detailed why I believe Revett Minerals is the lowest risk silver miner on the market in an article on Seeking Alpha. The stock is up 20% since the article first appeared, mostly as a result of strong accumulation of shares on the back of a positive court ruling related to the company's proposed Rock Creek copper / silver mine. However, as I wrote in the article, dilution is the biggest risk to development stage mining companies, and on Tuesday Revett released another data point that confirms my thesis that the company is steering away from dilution generally, and that dilution risk is essentially zero over the next year.
In signing a $20M revolving credit line with Societe General (OTCPK:SCGLF) with an option to increase the credit line to $30M, Revett has procured a solid source of cheap financing with which to develop its flagship Rock Creek mine. Coupled with $20M in cash on the books and the profitable Troy mine which is throwing off $30M per year in operating cash flow, Revett has essentially taken away the risk of near term dilution by lining up funding sources to make a big push toward developing Rock Creek. With Rock Creek 4-6 years away from production, the continued cash flows from the Troy mine, coupled with the new revolving credit facility, should provide the majority of the $250 to $300 million that will be required to develop Rock Creek. In the near term, Revett has certainly lined up more than enough funding to get the project moving without a share offering.
To provide a case study for why dilution is so critical for development stage miners, a look at Entree Gold's (NYSEMKT:EGI) share price performance following its most recent offering offers investors a glimpse of the damage secondary offerings can cause. The day before announcing a secondary offering on November 4th, Entree Gold closed at $1.91. In the 5+ weeks since the offering was announced (and subsequently priced at $1.25), the stock is down 35%. What is worse, the company only managed to raise $12.5 million, a drop in the bucket when viewed in the context of the hundreds of millions of dollars that will be required to bring either of Entree's key projects to the production phase.
Like many development stage miners, Entree Gold's recent offering is a short term fix, providing cash for further drilling and biding time until the company comes to market again with another dilutive offering. Entree's experience is typical of most unprofitable junior miners, and stands in stark contrast to the relatively few small miners who are able to build cash through profits while they continue to explore.
Overall, Revett Minerals continues to shine as a mispriced opportunity in the junior miner space, and the company continues to execute its vision to become a significant player in the North American silver and copper markets. With the Troy mine providing the cash flow to springboard development of the company's much larger Rock Creek mine, Revett has a known, inexpensive resource in which to reinvest profits. With financing all lined up and no need for a dilutive secondary offering, Revett Minerals continues to give shareholders reasons to be merry.
Disclosure: I am long RVM.