Equities research firm PI Financial initiated coverage onRathdowney Resources (CVE:RTH) earlier this week, with a “buy” recommendation, citing the company’s proximity to infrastructure, exploration upside and near term catalysts.
Rathdowney is working to develop its 100-per-cent-owned Olza zinc project, located in the Upper Silesian Mining District in Poland – a Brownfield historical mining district with access to mining and logistical infrastructure.
The company recently revealed more drill results from Olza, and said mineralization at “significant grades and widths” continues to be found.
PI analyst Aleem Ladak said that Rathdowney’s proximity to excellent infrastructure, means options.
“The deposit sits 10 kilometres north of the Pomorzany underground zinc mine and 15 kilometres north of its concentrator, refinery and smelter.
“In addition, the region contains extensive logistical infrastructure such as railways, rail-spurs, roads and power lines.”
Ladak says Rathdowney has plenty of exploration upside, with the Olza project at a very early stage of development. The company released its maiden inferred resource estimate in September 2012, with 9.6 million tonnes grading 9.04 per cent zinc at a 5.0–per-cent zinc cut-off grade.
“The NI 43-101 complaint resource estimate is only based on 10 to 15 per cent of the total land package of the Olza project,” Ladak noted.
“In addition, the Chechlo concession - part of the Olza project - has had very little drilling performed on its site. We expect a further increase in the deposit size once the full deposit has been delineated.”
PI Financial said that “key near-term catalysts” for Rathdowney include full deposit delineation, which could be accompanied by a “substantial increase” in the resource size.
In addition, the firm said a preliminary economic assessment on the project “could begin to show colour” on the positive economics of the project given the infrastructure advantage.
“As a result of the closure of a significant amount of zinc mines around the world, we expect the zinc market to eventually head into a balanced state (currently in a surplus), which should support our long-term zinc price forecast of US 90 cents per pound,” said PI analyst Ladak.
“Beginning this year and by the end of 2016, approximately 14 per cent of the existing global zinc supply will have come off stream.”
Ladak did not set a target price for Rathdowney, believing it to be “too early” to put any value on the shares as the Olza project is yet to be fully delineated. He also said the company has many development options available which can materially affect the project’s value, and thus any target price placed on the shares.
“Our very preliminary net asset value (NAV) estimate of the Olza project points to a valuation of $1.21 per share at a 10-per-cent discount rate with no debt financing,” said the analyst.
“Further, at this time, Rathdowney shares are trading at a valuation of two cents per pound of zinc equivalent in the ground.”
Earlier this week, Rathdowney revealed what it called excellent metallurgy results from Olza.
The company said it saw zinc recoveries of greater than 90 per cent, for a zinc concentrate assaying 55 to 60 per cent zinc and containing 170 grams per tonne (g/t) silver, using standard zinc and lead flotation conditions without any upgrading ahead of flotation.
Lead recoveries of 90 per cent were also tested, for a lead concentrate assaying 65 to 70 per cent lead, containing 50 g/t silver. Around 85 per cent of the silver was recovered in the zinc concentrate, while roughly five per cent was recovered in the lead concentrate.
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