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Website: http://www.revettminerals.com Symbol: RVM.TO | US routing symbol: RVMIF

Revett is not one of my typical hot penny stock picks, but for this junior mining stock I had to make an exception. Revett is an established Silver-Copper Producer that owns and operates the producing Troy Mine and the world-class development stage Rock Creek project (containing an estimated 229 million ounces of silver and 2 billion pounds of copper); both properties are located in northwestern Montana. The Company plans on expanding production through exploration in and around their Troy mine, and further advancement of their Rock Creek project. I am targeting a share price of$1.59 without Rock Creek.

Opportunity($):

Current Share Price: $0.35 | Target Share Price: $1.59 |  Share Price Increase: ~4x

With its current share price of only US $0.35 cents & 126 M shares outstanding at the time of this writing, Revett Minerals is an absolute bargain penny mining stock.  However, there are some risk to consider with Revett that investors should be mindful of (see the Weakness/Threats below). Even with the risk accounted for, Revett is still a good investment opportunity if only just considering their producing silver/copper Troy mine which has a targeted production of 1.5 MOz/yr of silver, and 14 Mlbs/yr of copper.

The Troy mine silver cost is currently ~$12/oz and copper cost is ~$2/lb due to the lower grade material being mined.  This is temporary and by design, as Revett anticipates getting into higher grade material by 3rd quarter of 2010 which is expected to reduce their cost by 20%. We will go with the higher grade silver cost per ounce for estimating the target share price and their estimated annual production numbers stated for silver and copper production at the Troy mine.  At an average silver market price of $17/oz and copper price of $3/lb, we should be looking at a target  share price (at standard 8 times earnings ) of $1.59, or roughly 4x increase over the current share price. This is independent of anything coming out of the Rock Creek property. Table 1 shows a projection of Revett’s share price at silver market prices ranging from $17 – $30/oz and a fixed copper price of $3/lb.

Table 1 – Projected Revett Share Prices

Now let’s talk about the Rock Creek property which happens to be one of the largest permitted undeveloped silver deposits in the world! Rock Creek has an estimated 229 MOz of silver and 2 billion lbs of copper and a 20-25 year mine life!  At $17/oz silver and a silver production cost reduction by 60% due to higher grades and higher throughput, this property alone would target a Revett share price $7.95/share!  Wow… an incredible opportunity available to everyone who can afford to purchase Revett shares currently at $0.35 cents per share. If the Rock Creek property lights your eyes up with green dollar signs and causes your mouth to salivate as you day dream about all the money you could make with this stock, you are not alone!

Wait…not so fast…before considering buying this stock and preparing to collect your million dollar profit to live the good life, see the weakness/threats and potential trading strategies near the end of this trading card .

Strengths:

Weaknesses/Threats:

Trading Strategy:

Strategy 1: Unfavorable Court Decision on Rock Creek Assumed- A trader taking this position, would ignore the possibility of any positive Rock Creek prospects and just go for a value play on the Troy mine by relying on higher silver prices to increase the share price of Revett. Any positive activity coming out of Rock Creek would be icing on the cake. A trader could take up to 50% of his position now and the remaining after the Rock Creek decision is announced. If the decision is not favorable and the share price drops, the trader could then dollar cost average down by buying at a bargain discount as the market will typically over react.  At that point the trader should hold the position until higher silver prices bring about an increase in share price. Silver prices are expected to soar in 2010 crossing over the $21/oz territory. Table 1 shows Revett share price projections based on possible silver market price points. The reason to take a position now is to hedge against a favorable decision coming out this spring and to also hedge against a quickly rising silver price before the Rock Creek announcement is made. Either way, a trader would need to have a position to ride any unexpected upside while waiting to pick up additional shares after an unfavorable court decision.

Strategy 2: Favorable Court Decision on Rock Creek Assumed- With this strategy, the trader assumes that all will be well, the sun will be shinning, and much money will be made when that favorable court decision is announced.  Based on a bit of logic, the trader reasons that since all the necessary permits have been approved for mining Rock Creek already and previous challenges have failed, the green leaning Judge and the environmentalist don’t have a strong enough case to prevent mining operations at Rock Creek from eventually commencing. This position is supported by the fact that all the necessary agencies have been involved and approved the permit back in 2001, then reviewed and reaffirmed their approval again in 2003, yet again in 2006, and in 2007.  Also, taking a note from history, similar tactics were used and eventually failed at the Troy mine from 1972 to 1979.

The environmentalist have resorted to delaying tactics in hopes of wearing Revett down financially and the management down mentally by submitting never-ending permit challenges in court.  If the Judge and/or the environmentalist had a wild card to play that would trump Revett, they would have used it by now. In the absence of having one, they are most likely running the clock, hoping that Revett will run out of cash (as they have already spent $5 million on legal fees) while they indefinitely keep Rock Creek on hold.

The trader concludes that in the end, these delaying tactics will not prove to be successful as there is currently no injunction preventing Revett from commencing development operations at Rock Creek. In fact, Revett has the legal authority to proceed with only a 20 day notice!  How’s that for a wild card?  Only an injunction would ultimately delay development of Rock Creek, which seems very unlikely at this point.  If it were that easy to get an injunction, the environmentalist would have obtained one a long time ago! If no decision is announced in March, Revett will play their wild card and commence development of Rock Creek.  A trader with this strategy, will probably take a 75% or higher position at this point saving the remainder to buy on further dips. Lastly, the trader reasons that you don’t get to be Silver Wheaton by making a lot of bad investment decisions. If Silver Wheaton is willing to take a 16% stake in Revett, why shouldn’t he take a decent position also?

Summary:

Revett could turn out to be one of the best trades one could hope to make if Rock Creek development gets underway and becomes a successful mining operation.  There is additional upside with the silver price being expected to rise dramatically over 2010 and 2011. Some may think that Revett may be a take over target by Silver Wheaton. However I disagree and believe this is very, very unlikely. Silver Wheaton works more on a royalty based model, they are not mine operators. This does not mean there is no significant role for them to play. Silver Wheaton most likely will play a substantial role in financing the Rock Creek development. Perhaps working out a deal where they put up the $200 million payable in silver from future Rock Creek production.

Two possible trading strategies were discussed with one assuming an unfavorable court decision and the other a favorable one on Rock Creek.  When considering these strategies, one should keep in mind that no outcome is guaranteed.  The best we can do is look for an edge that favors one way or the other and then place our bets accordingly.  This trade involves a lot more risk than say Timmins Gold that we previously discussed here.  Also, it should be noted that these things can take more time to resolve than what has been estimated so, one should consider this trade as long-term.  There are safer trades out there than Revett but may not offer the upside potential in share price as shown in Table 1.  This stock pick is highly recommended by several top analyst and has an institutional/insider ownership total of 41%!  It seems like a decent trade to me.

Related Posts:

• Revett Rock Creek Update – 3/18/2010
• Revett Receives Judgment on Rock Creek Legal Proceedings
• 6 Reasons Why I Sold My Revett Shares
• Revett Minerals Alert – 3/17/2010
• Revett Gets Serious, Hires A Big Gun….

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Disclosure: I have not received any compensation from Revett Minerals, Timmins Gold, Metanor, or Petaquilla Minerals. None of these companies are advertisers on GoldStockMania.com. I am extremely bullish on Petaquilla, Timmins Gold, & Metanor and currently hold shares.

Disclaimer: I am not a professional/qualified investment advisor. Readers should note I am not responsible for errors or omissions in this report. Also, I am not responsible for your trading decisions as you should do your own due diligence before making any investment decisions.