Broker Hartleys has a Buy Recommendation on the stock, with a 12-month price target of $0.60, which is around double the last traded price.
The following is an extract from the report.
Thalanga reaches production milestone and ramp-up
Red River Resources’ (RVR) Thalanga mill was commissioned in Sep’17 for first production of zinc, copper and lead concentrates.
The restart of the Thalanga zinc mine (100%-owned by RVR) was a major milestone for the Company, and well timed for concentrate sales into improving base metal prices.
Zinc prices, in particular remain strong and recently traded at decade high prices of ~US$1.54/lb Zn.
The restart of production at Thalanga was achieved ahead of schedule and slightly under budget (pre-production capex was ~A$17M), with the plant now ramped up to a run-rate of 325ktpa.
The mill has capacity to process ore at a rate of 650ktpa and RVR remains focused on finding more ore to increase mill utilisation while extending the mine life of the operation.
An updated reserve for West 45 and a maiden reserve for Far West have already extended mine life.
Importantly, both underground deposits remain open along strike and at depth, with further mine extensions anticipated.
Quality zinc production with significant exploration upside; Buy
RVR offers quality zinc production exposure (plus other base and precious metal credits) and has significant exploration upside from its portfolio of VMS prospects within the highly prospective Mt Windsor Belt.
We have made modest adjustments to our Thalanga model from updated reserves and resources (West 45 and Far West) which have improved our valuation.
We have a strong conviction in our Buy recommendation for RVR.
The Company is currently trading a significant discount to our updated NAV of 54cps (up from 45cps), and current spot NAV of 78cps.
Our latest 12-month price target is 60cps (up from 45cps), implies upside potential of 100%. RVR is fully funded and remains debt free (undrawn facility for US$10M) with cash (est) of A$15.6M.
Thalanga commissioned with optimised mine plan due MarQ
Recent commissioning saw the processing of 16,645t of low-med grade ore for the total production of 1,433t of concentrate.
The first delivery of zinc concentrate was made in early Oct’17, delivered to offtake partner Trafigura, who has a 3-year offtake agreement for zinc and lead concentrates.
RVR has received its first payment from the sale of zinc concentrate.
Commercial production is anticipated in early Q1 CY18.
The current mine plan is based on the mining of three high-grade deposits (West 45, Far West and Waterloo).
A maiden reserve from Far West (1.5Mt @ 12.0% ZnEq) was recently released which will update the mine plan.
Reserves for West 45 (0.6Mt @ 11.6% ZnEq) have also been updated.
The 10% increase in contained metal for the reserve is expected to extend mine life at West 45 to CY19 and provide an opportunity to increase production when the second underground mine (Far West) comes online (2H CY18).
The optimised Thalanga mine plan is also expected to be released in Q1 CY18.
Increased exploration in 2018 = Big value driver
We anticipate increased exploration expenditure in CY18.
RVR has a portfolio of high-grade deposits and targets within the Mt Windsor Belt to infill and extend to grow mine life and provide opportunities to increase plant utilisation, lifting production.
The Mt Windsor Belt remains one of the most prospective geological provinces for VMS mineralisation in Australia.