All eyes are currently focused on the reopening of the Troy Mine which had to shut down in December 2012 after a seismic event forced the company to halt its operations. Revett Mining tried to regain access to the ore zones via the lower quartzite haulage route, but unfortunately a new development drift was necessary and the I Bed development drift commenced in November of last year.

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Introduction

Revett Mining (RVM.TO, NYSEMKT:RVM) operates the Troy Mine in Montana and aims to develop the world-class Rock Creek Silver-Copper project which contains approximately 300 million ounces of silver and 2.5 billion pounds of copper in an inferred and historical resource estimate.

All eyes are currently focused on the reopening of the Troy Mine which had to shut down in December 2012 after a seismic event forced the company to halt its operations. Revett Mining tried to regain access to the ore zones via the lower quartzite haulage route, but unfortunately a new development drift was necessary and the I Bed development drift commenced in November of last year.

The Troy Mine Redevelopment

Revett will regain access to the C and A Beds by constructing a new 7,500 foot drift to the North C Beds of which 2,250 feet has been developed as of at the end of January. We estimate construction has exceeded the 3,000 feet mark right now. Based on the current work rate, we expect this drift to be completed by the beginning of August, which would allow the company to recommence limited production early in the fourth quarter of 2014.

Once the North C Beds have been reached, Revett plans to drift an additional 5,900 feet to gain access to the I Beds, and this is expected to take another 6 to 9 months to be completed. This would allow Revett to be in full production again by the second half of 2015.

We expect stockpiling to start at the end of Q3 of this year which means the company is still on track to restart the mill in Q4 to process the stockpiled ore. This will bring in additional cash flow which should be sufficient to complete the second drift to the I Beds in 2015. We are expecting an output of approximately 900,000 ounces in 2015 and Revett should be able to reach the 1.2Moz per annum mark once again in 2016. Copper output should be around 6 million lbs in 2015 and back to 8 million lbs in 2016.

The extended mine life at Troy

Earlier this month, Revett Mining has announced a reserve update at Troy that was based on previous exploration efforts at the property. The new mine life of the project is approximately 12 years, which means the project will be in production until the second part of the 2020’s. This means Troy will continue to be a great cash flow generator for Revett Mining and could be used to fund ongoing exploration work at the Troy Mine and the Rock Creek project permitting process.

We are very encouraged with this new reserve update that once again proves the mine life of Troy might be substantially longer than originally anticipated. However, and perhaps most importantly, being an operator of the Troy Mine is a very important part of Revett’s long term plans at Rock Creek. Having a trained and experienced workforce established in the area will make permitting and execution of Rock Creek much easier.

The Financial Situation

After talking to the management team, we estimate Revett Mining will need an additional $5-8M in order to complete all necessary development to access the C and I beds by the summer of 2015. As CEO John Shanahan and Chairman Timothy Lindsey own in excess of 1 million shares in Revett Mining, they definitely are very mindful of dilution, and we expect the majority of the funding will be sourced through issuing debt or though some form of hybrid debt/equity scenario.
Revett’s share structure is very tight with only 34.5 million shares out and no warrants. They do have around 2.5 million employee share options out, but only about 6% are currently in the money (and a large part has strike prices of in excess of $4/share). However, as we usually make conservative assumptions, we are expecting some new shares to be issued.

Conclusion

Revett Mining had to suspend production at its Troy Mine approximately 15 months ago, but there seems to be light at the end of the tunnel as development of the drift is going as planned and Revett remains cautiously optimistic to get the mill back up and running in Q4 of this year.

At a current market capitalization of C$32M, Revett Mining isn’t trading very expensive, given the fact the Troy Mine produced in excess of 1 million ounces of silver per year before operations had to be suspended. On top of that, investors get immediate exposure to Rock Creek that very likely is the largest silver-copper project in a safe region.

Disclosure: Revett Mining Inc. is a sponsoring company. The author also owns shares. Please see our disclaimer for current positions.

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