As 2012 winds down and I look ahead to the investment climate in 2013, I’m troubled by increasing warnings of potential “hyperinflation” ahead. As an investor, one way I can deal with this potential threat is to look for producing mining companies with large, verified resource deposits, and the capacity to develop these resources. One Company which fits that description is Revett Minerals, a copper and silver miner that I recently had the pleasure of visiting on a recent tour of their operations.
Imagine if you will, a morning walk, the muted foot-falls of leather on a dirt path. The quiet of a valley morning unbroken, the view ringed by the Cabinet Mountain Wilderness of Montana. An inverted mist hanging over a stream, the air so moist it seems a shame to let the morning sun break up such a splendorous sight. A bend in the road, and another scene evolves.
There are banked hills, and earthworks akin to what The Army of Engineers would create, such as for a small reservoir. Upon further inspection, this appears as an upper plateau, tall grass growing pale under the sun, the valley a few hundred meters distant. In that valley, a stream runs through, laden with trout; frogs sunning themselves on the bank. A stand of yellow pines blankets the far hillside, fair cover for elk to calf in the spring.
This scene is disrupted by activity in the foreground, pipes are delivering a brown, clay-like slurry coming from the direction of the mountain range above. Its contents landing like a soft serve, piling up over time. Pan out, and one sees that there were hundreds of square meters of this dried slurry, aging, drying out, creating fields that are being planted. Something is going on here, perhaps some conservation experiment by the forest service?
Readers need to appreciate the natural beauty of Northern Montana. I just described the scene at the Troy Operation of Revett Minerals – an operating copper/silver mine -- amid the Cabinet Mountain Wilderness of the surrounding area. The “conservation experiment” is their tailing pond/fields.
This isn’t some “sideshow” for Environmentalists, but an operation within the operation, and one that Revett is very proud of. We spent as nearly as much time touring the tailings and conservation areas as we did the mine and the mill. Many in society have a pre-existing distrust of large mining operations, and the environmental hazards that they pose.
That being stated, it can be hard for some to wrap their heads around the idea that mining operations and conservation aren’t mutually exclusive. Yet when visiting Revett Minerals, you simply wouldn’t know you were near a mining operation if you didn’t have the sign to remind you.
One approaches the plant, and mine on a simple gravel road, ending in what appears to be a town garage in a rural area. The mine is further above, at the foot of the mountain with the ground-level entrance virtually out of sight. The ramp and tunnels ascend into the mountain. This is a unique ore body. While “underground”, it isn’t deep. There are few watering issues, the water runs naturally from mountaintop, down through the mountain. Even when its raining outside, or with snow melting in the spring, the water drainage issues through the mountain are minimal.
The ore-body consist primarily of 0.7% copper and 1 oz/ton silver, and is reportedly quite benign, having no arsenic or other chemicals that would harm the groundwater. They have to monitor the copper they are extracting, and a few other trace elements. The mine is a pleasant 55-60 degrees or so, and remains fairly constant throughout the year: mining heaven, and a robust workforce that appreciate how good they have it.
Because the ore-body is nearly devoid of chemicals such as arsenic, this makes it a comparatively clean operation from mine to mill to tailings pond below. The plant has no cyanide circuit, the end product is concentrate which is shipped to a smelter, for electrowinning and the eventual production of copper and silver. There are no leach fields, no liners; so consequently the ground water is not in danger of contamination by cyanide or other toxic chemicals.
Water coming from the mine is tested often, and potable. The slurry from the plant is capable of growing grass, without any other ground cover, which is what they are doing in the older, dry tailings ponds. Not what one expects for a copper heavy operation. Likely not what officials even in Montana think they are doing. The Troy Operation is certainly not what environmental groups are “opposing”.
I went on this mining tour with a few other enthusiasts, mostly writers and fund-managers; expecting and prepared to tolerate the droning of facts and figures of how much copper they produce, and how much silver; the profit margins. A reasonable trade-off, in exchange for a view of Montana and Idaho -- areas I haven’t visited. If lucky, perhaps a good meal and a beverage or two.
I braced for the operational rhetoric: new ramps, or new stoping and we will do better next quarter, next year. Meanwhile, at some level, I was wrestling with the conflict of writing about a mining operation in a beautiful area with potential watershed issues. Sure, they may profit, but at what cost to the environment?
I must say that little about the operations were as expected. Montana is certainly beautiful, but with more mountains and lakes versus the open range than I envisioned. My fears about environmental impact were methodically put to rest as the tour progressed. The staff were warm, engaging and overtly proud of what they do.
The briefings were confident: we have resources, we are efficient, we are good corporate citizens and conservationist, lets us prove it. We produce 10 million oz’s of copper and 1.3 million ounces of silver annually. We have one operation now, which features multiple strata of ore bodies, and we are adding mine life with surface and underground exploration.
What I heard, and witnessed was the historic evolution of the underground works, by mining managers that had been there since the Asarco days. They knew every adit and stope like their “backyard” – because that’s what it is. They already have (and are continuing to build on) a safe, and well-trained workforce. Every worker “trains up” for every position, then specializes based on aptitude.
The ore is very hard, and tough on equipment, especially tires. Workers that show efficiency and are easy on equipment get to stay in that job. There is also a robust in-house repair shop with 23 workers, there is genuine upward mobility, depending on their diligence and skill.
The ore body at Troy is robust in thickness but low-grade, the mine is underground room and pillar in design. It consists of three main strata, the “C”, “I” and “J” beds. The C-bed they are working currently consists of 2/3 “top cut”, and 1/3 “bench cut”, ore thickness being around 30 meters. There is ongoing exploration into the I beds, which are soon coming on line, and there is evidence of continuity between the I beds and the 1km distant J-beds. This represents a significant extension in the mine life for the Troy Mine.
The plant is of large capacity, with redundancy in its infrastructure. This is a versatile design due to the twin circuits. There are two sets of ball mills and gravity separation that have a combined capacity of 8500 tpd. They can speed up, by using both circuits, and catch up to the mining rate if needed. They also can take one circuit off-line, to do repairs without missing a beat. Management has a good handle on long-lead items, and contract for lower bulk rates for items with predictable lifecycles.
The ore is not uniform from each zone within the mountain. Some ore is high sulphide, which lends itself to floatation because it is naturally hydrophobic. However, some ore is low-sulphide, or high oxide. To process this type of ore, the plant staff adds two reagents, to increase its “hydrophobic” nature, and therefore the ability to separate out the copper and silver during floatation.
They have an in-house lab, from which they can process samples, taken from the slurry at various stages. This can be synchronized with the real time sensors displayed in the lab, which indicate what kind of return they are generating while running the ore after crushing/milling. They use this process to improve their reaction time with new ore, and the efficient use of reagents to maintain highly efficient 85-90% capture rates for the end products.
Much of the tour was given by Larry Erickson, the Manager for Technical Services. He manages the plant, and much of the water quality and conservation aspects of the operation. When in the plant, he speaks as a chemist. When outside, one would think he’s a forest ranger. He is very proud of the efficient production of copper and silver, however equally passionate about water quality and the tailings he’s sending down the hill. To my surprise, he lead us around the tailing pond, showed us the reclamation programs in place.
He narrated the story that I was painting in the first two paragraphs. The tailing pile can grow grass without topsoil being added. The water used by the sprinklers was from the mine/mill, which was potable. There are areas just past the tailing pond, where the elk come down the mountain to calf out in the spring, and the river run through this area, is stocked with trout, and a thriving ecosystem. Hardly the image one has of copper mines, i.e., bare patches of land, strip-mined, scarred and left with contamination. Not so here, not remotely.
Lets put on an investor cap on for a few moments. Is there any blue-sky value here? The Troy operation has more mine life, which buys time to develop another operation, and keep a strong balance sheet. The latent value is the Rock Creek Project. As with all large projects, this is a double-edged sword to investors, and one has to be discerning about when to invest.
Over the shorter term, it represents a development story that could create sideways trading, if not a reduction in share price due to potential dilution. However, they have a potent share structure now, roughly 35 million shares out, after already doing a reverse split a few years ago. This may represent accretive dilution, depending on the share price, and the feasibility of the project.
Rock Creek is 9300 acres with 370 unpatented claims, and 99 patented load claims. There is 230 million ounces of silver and 2 billion lbs. of copper resource here representing one of the largest untouched resources of its kind in the US. The ore is similar to the Troy Ore Body, devoid of toxic chemicals that would create watershed issues.
Reserve numbers will have to wait for tighter spaced, in-fill drilling. Fortunately, for shareholders and management alike, the exploration was done by ASARCO in the 70s and 80s. This represents millions of dollars they won’t have to spend, and reduces the unknowns.
Rock Creek remains in the permitting stage, and is successfully progressing through the various issues, including buying a large, surrounding “reserve” to keep the bear population from being affected. Development plans are progressing: a feasibility study in 2 years, construction in 3 years. Their goal is a ten-thousand tpd operation, anticipated to produce 6 million ounces of silver and 52 million pounds of copper annually over a 20-30 year life of mine, based on current resource numbers.
So why put Revett on your watch list? They are good corporate citizens, efficient yet conservation minded. They are good for the local economy, and create a workforce in an area with few jobs. Revett has a low float with only 35 million shares outstanding, creating shareholder value if metal prices hold or appreciate.
They have “blue sky” potential with the massive Rock Creek Project in the wings. If you are looking for exposure to a Junior Copper Operation, with silver credits that has the potential to be a mid-tier producer, Revett is worth considering. It certainly wasn’t what I expected: much nicer, and I am grateful for the tour.
Written by Brian Boutilier
I have no shares of Revett currently...