Stock market darling Reservoir Minerals tries new tack

Tue Mar 4, 2014 1:48pm EST
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By Nicole Mordant

TORONTO (Reuters) - Emboldened by a promising copper-gold discovery in Serbia that has catapulted its stock 15-fold in the past two years, Reservoir Minerals Inc RMC.V, a small Canadian mining exploration company, is branching out from its tried and tested business model.

A stock market darling at a time when there is little love or money for so-called junior miners, Reservoir is sinking its own funds into exploration drilling on a corner of the Timok mining complex in eastern Serbia, its chief executive officer said.

Traditionally, the Vancouver-based company has looked for partners to fund drilling in exchange for a stake in its projects. Drilling is usually the biggest-ticket item for juniors, who survive on investor funds as they generally have no cashflow of their own.

This is how copper giant Freeport-McMoRan Copper and Gold Inc (FCX.N: Quote) ended up with a 55 percent stake in Reservoir's flagship Timok joint venture, which early data show has the potential to be a large, higher-grade find at a time when such discoveries are scarce.

But with C$48 million ($43.32 million) in hand, experience in the region and a potentially big discovery right next door, Reservoir is risking some of its own money on other exploration permits it has in the hope that the payoff will be bigger in the end.

"Rather than give away that opportunity to another partner for C$3 million to get 55 percent, if we find something there, the dynamics for us as a company change quite dramatically," CEO Simon Ingram said in an interview at the PDAC mining conference in Toronto.

Reservoir's stock has soared from 48 Canadian cents at the end of 2011 to C$6.94 on Tuesday at a time when most other junior miners have seen their shares slump and financing dry up as investors fled the mining sector due to weaker metals prices, spiraling costs and poor management decisions.

Last month, Reservoir said it would raise C$33 million from investors, C$5 million of which will go toward drilling.   Continued...