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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) 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.
Reservoir is "one of only two copper junior exploration stocks that we currently like," Toronto-based brokerage Dundee Capital Markets said in a research note last week.
"The Timok project has the potential to be a significant copper-gold porphyry system," Dundee said. Porphyry deposits are the world's most important sources of copper and major sources of gold and silver.
Analysts also like that the Timok project is just 6 km (3.8 miles) from an existing smelter that is being refurbished, is easy to access by road or rail, is in an area that has been mined for more than 100 years, and is in a now relatively stable country that wants to join the European Union.
As with any mining project, there are risks as well, CEO Ingram said, including political change, environmental activism and resource nationalism, where governments want a bigger share of the spoils from their countries' resources.
Although Reservoir may try to hold onto 100 percent of its exploration permits for longer than in the past, Ingram said the company has no ambitions to build a mine and will bring in partners at some stage.
"What a good-quality discovery gives you is profile, and many of the majors have come through and spoken to us, certainly, about the exploration that we are doing in Timok, and we are engaging with them," Ingram said, referring to Reservoir's four permits in the Timok area outside of the Freeport agreement.
The Timok joint venture with Freeport has an inferred resource of 65.3 million tons at an average grade of 2.6 percent copper and 1.5 grams per ton of gold, or 3.5 percent copper-equivalent. That compares with average industry mined copper grades of well below 1 percent copper-equivalent.
The recent fundraising is less about needing money and more to do with a strategic decision to bring in new robust shareholders, Ingram said. Some C$23 million is being privately placed with investors, including one of the world's biggest money managers and a major Asian industrial company.
Under Serbian government permitting rules, Freeport, which is the operator of the Timok joint venture and funding all expenditures, has five years to do a feasibility study. The study will determine if the resource can be mined economically. Freeport's stake will jump to 75 percent on completion of the study.
Asked if Freeport might consider buying out Reservoir's then remaining 25 percent stake, Ingram said it was "a possibility". He added that other companies might also be interested in the stake and in becoming Freeport's partner.
Phoenix, Arizona-based Freeport, the world's biggest publicly traded copper company, did not respond to a request for comment.
($1 = 1.1080 Canadian dollars)
Editing by Jonathan Oatis