TPS Trade Alert – April 23, 2013
April 23, 2013
Recommendation:
Buy Revett Minerals (AMEX: RVM) up to $1.55 per share.
Trade Rationale:
In recent days, precious metals have taken it on the chin like we haven’t seen in years. Gold is down 15% year to date, and silver has dropped 23%.
Moreover, industrial metals aren’t doing much better. The key industrial metal, copper’s also down 15% so far this year. Investors rotating out of commodities and strong central bank stimulus are driving the declines in both categories of metals.
However, there’s a big difference between gold and other metals, even silver. You see, gold has very little intrinsic value. Yes, it’s important for jewelry and electronics, but that’s a very small part of its appeal. Most investors use gold as a store of value.
Meanwhile, silver and copper have significant importance as raw materials. One or both of the metals may be used in electronics, automotives, construction, chemicals, and more.
Because of the wide array of industries silver and copper are used in, as the economy improves, the prospects for both metals will improve as well. As such, the recent plunge in metal prices looks like an excellent opportunity to find a silver/copper miner for cheap.
What’s more, if we can find a miner who specializes in silver and copper without being exposed to gold, it would be an ideal investment at this time.
That’s where Revett Minerals (AMEX: RVM) comes in.
RVM is copper and silver mining company with mines in Montana. The company’s principal properties include the Troy mine and Rock Creek project. Troy is in production while Rock Creek is a development stage project.
Basically, Troy production is providing cash flow for RVM while the Rock Creek project comes online. In 2012, Troy provided $18.7 million of operating cash. That comes from production of 1.1 million ounces of silver and 7.6 million pounds of copper.
The good news is there’s still plenty of upside left with the Troy mine. There are areas of the property with excellent exploration and development potential.
Here’s the thing…
What’s really impressive to us is the Rock Creek project. You see, Rock Creek is North America’s largest undeveloped silver and copper deposit.
Inferred and historic resources for the site are 300 million ounces of silver and 2.5 billion pounds of copper. Project production is 6 million ounces of silver and 52 million pounds of copper per year over the life of the mine.
Those are some pretty eye-popping numbers. And, development of the mine is well under way.
Even better, with operating cash coming from Troy, RVM’s financials are already in great shape. That’s rare for a miner the size of Revett.
Now, RVM’s 2012 numbers are all down from 2011. But, it’s almost entirely due to lower production based on unusually high spring runoff. This also resulted in suspension of mining activities late in the year due to unsafe ground conditions. These issues are behind the company, which will restart production this quarter.
That being said, the company still pulled in $59.2 million in revenue for the year and $4.1 million in net income. And as we mentioned earlier, the company has very strong operating cash flow.
More importantly, RVM has $28.3 million in cash compared to just $2.3 million in debt. Plus, current assets are a strong 5.6x current liabilities.
In other words, the company has more than enough cash and cash flow to keep going while Rock Creek comes online.
Now the best part…
Because of the recent selloff of metals and last year’s mine safety issues, RVM shares are extremely undervalued.
Look at this way, the company’s book value per share is $2.57. That’s how much the company would be worth if it was broken up into pieces and sold off.
It means at the current price of $1.35, RVM shares are trading at just 0.55x book value. The share price could easily double over the next few quarters.
Now’s the time to add RVM to your portfolio while it’s trading at dirt cheap prices.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | Revett Minerals |
| Ticker: | RVM |
| Recent Price: | $1.35 |
| Market Cap: | $46.9 million |
| Avg. Daily Volume: | 154,545 shares |
Chart:
Category: TPS Trade Alert
