If you’re looking for exposure to silver, we believe Revett Minerals Inc. (TSE:RVM – NYSEAMEX:RVM) could be a good choice.

Troy Mine

Revett currently produces approximately 1.3-1.4M ounces of silver per annum at their Troy Mine in Montana. The share price came under pressure after missing production targets in Q2, producing only 278,000 ounces vs. 325,000 ounces in Q1. The lower output in Q2 was caused by heavy rainfall and snowmelt, which caused the mill throughput to fall approximately 10% compared to Q1 2011.

Because of these lower than expected production figures, Revett has revised its production guidance down to 1.325Moz of silver and 10M lbs of copper in 2012 versus 1.4Moz and 11.5M lbs respectively.

We do however expect Q3 to be better, and forecast a production of 310,000 ounces of silver at a cash cost of $10.50/oz. As we expect the company to have sold the silver at an average of $28.5/oz, we are expecting an operational cash flow of roughly $5.5M in Q3.

Revett currently has an enterprise value of $95M, so they are trading at roughly 5X operational cashflow. The company has $30M in cash and an unused credit line of $20M.

Rock Creek

The real lottery ticket at Revett is the Rock Creek Project, in Montana as well. Rock Creek contains 300Moz silver and 2.5B lbs copper at a higher grade than the Troy Mine in an inferred and historical estimate.
The company hopes to have a supplemental EIS on Rock Creek before year’s end, and to start breaking ground at the project sometime next year.


Based on the cash flow from the Troy Mine, Revett is currently one of the cheapest silver producers operating in a safe country. Even though the share price has gone up 15% in the past week, Revett still offers considerable upside potential through both the producing Troy Mine, and the development of the Rock Creek project, once they get the final nods.

Disclosure: The author holds a long position in Revett Minerals Inc. Please see our disclaimer for current positions.

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