Junior zinc play Rathdowney Resources (CVE:RTH) received Friday an initial "buy" recommendation and a target price of C$1.05 per share from equity research firm Collins Stewart - implying more than 220 percent upside from the current share price.
mining company is developing a zinc asset called Olza, located in
Southern Poland, with the work focused on verifying a substantial
historical resource of 77million tonnes averaging 6.2% zinc plus lead,
registered with the Polish state. In total 70 kilometres of drilling is
planned, which started last June.
Rathdowney is due to release a
maiden NI 43-101 resource at Olza in late in the second quarter or
early in the third, followed by an update by the end of the year, which
will form the basis of the preliminary economic assessment (PEA).
is located in a traditional mining area with "excellent
infrastructure", said the Collins report, and a nearby zinc smelter. In
2010, Rathdowney was granted two exploration permits in Poland, Rokitno
and Zawiercie, which form the Olza project.
holds a number of exploration projects in the Irish Midlands zinc
district, where it has assembled a land portfolio comprising some 1,600
square kilometres in six project areas. Early stage exploration over the
past two years established 45 drill-ready zinc-lead targets, with
initial drill testing starting last April.
"We view Rathdowney as
a technically sound, low risk, relatively low capital intensity zinc
play, located in an investor friendly jurisdiction with excellent
infrastructure and existing smelting facilities nearby," said Collins
Stewart analyst, Andrei Kroupnik.
"We expect shares to increase on the back of the company defining a substantial NI 43-101 resource in 2012."
companies are coming into focus this year, as forecast increased demand
for the metal from emerging economies such as China, combined with an
expected supply deficit on the closure of a number of big mines, has
many analysts forecasting a price surge for zinc in the medium-term.
the upcoming zinc shortage has gone largely unnoticed in the market,
the M&A and other corporate activity has accelerated, with large
producers, such as Nyrstar and Glencore looking to secure future sources
of production," the Collins Stewart report said.
Indeed, this means many large producers will be zeroing in on zinc juniors with compelling assets such as Rathdowney Resources.
Stewart said Rathdowney is one of the standouts in the junior zinc
space for several reasons, including a large potential resource base,
"excellent location and low political risk", existing mine and smelters
nearby, and "exceptional technical capability".
advisory firm said Olza's 77 million tonne historical resource would
make the zinc/lead deposit "globally significant". Collins Stewart said
the "excellent correlation" between recent drill results and historical
drill data gives the firm "great confidence" that much of the historic
resource will be converted to NI 43-101 compliant status.
result of our recent site visit to Olza, we have little doubt in the
quality of the resource estimation work undertaken by the Polish
geologists. The initial focus is on a higher grade part of the system
with a historical resource of 20Mt averaging 8.3% Zn + Pb, which will
form the basis of the scoping study," the report noted.
December, Rathdowney reported positive drill results from its Olza
zinc-lead project northwest of Krakow, confirming mineralization over
650 metres in one area of the property. Significant results from the
program included four metres grading 9.74 percent zinc, 0.19 percent
lead, and 49.0 grams per tonne (g/t) silver, in hole OLZ-025.
project is also supported by 180,000 metres of Polish State drilling,
and is located in the well-known Upper-Silesian zinc mining district,
where mining operations have been taking place for decades. Collins
Stewart noted that Poland is also a stable democracy, and a "mining
friendly" jurisdiction, as it is "one of the better countries for mining
The property is situated only 25 kilometres from the
Boleslaw smelter, which is currently processing zinc from the
state-operated Pomorzany mine nearby, which is due to close in
2015-2016. As such, Olza is in prime position to be the main supplier of
zinc to this smelter, Collins said, with an operating rail spur running
through the Olza resource to the smelter.
The report stated:
"As envisaged by Rathdowney, Olza would be a simple extension of the
same mining and processing operations which have been occurring in the
region for decades, with the opportunity to incorporate modernized
mining equipment and techniques. This significantly reduces the
"With the cost of mining and processing at
Pomorzany known, the degree of confidence in the project economics at
Olza are high, considering its relatively early stage."
also took note of Rathdowney's "impressive team" to drive the Olza
project forward, with several of the key technical staff seconded from
Hunter Dickinson (HDI), a global mineral resource group with a "good
track record" of developing mining projects over the last 25 years.
Experienced management in Poland is also a strong point for Rathdowney Resources, which has just under C$23 million of cash in the bank.
view Rathdowney as an attractive acquisition target, once the
confidence inits potentially very large resource base in Poland is
gained," Collins Stewart concluded.
Further potential M&A
activity in the zinc sector could also put more spotlight on the
company’s large potential resource base.
Collins Stewart applied a 50 discount to its valuation for Rathdowney Resources,
reflecting risks associated with resource conversion, as well as the
completion of technical studies. The valuation also assumes a one
million tonne per year operation at Olva, beginning in the first half of
2017, and a conservative capital cost assumption of $150 million -
given all the infrastructure is already in place.
changing hands at around 32 cents Friday afternoon, implying an 84
percent discount to Collins Stewart's NPV - a discount that the firm
expects to contract as Olza's resource base builds.