RESERVOIR MINERALS INC V.RMC

Freeport Has 9 Drill Rigs On-Site Working

[psj567]

There are currently 9 drill rigs working on site: 5 drilling the high grade area and 4 drilling the porphyry. Something is up. At a time when Freeport has slashed its operating, development and exploration budgets across the board, it is increasing its exploration and development expenditures at Timok. Freeport obviously is expediting its internal due diligence on Timok, most likely for the purpose of determining whether to keep the project or sell its interest in order to raise badly needed cash. Sounds like Icahn and Freeport's lenders are forcing Freeport to make a decision sooner rather than later respecting Timok. That Freeport is now drilling the project expeditiously and exhaustively indicates just how important the project is to Freeport's future--- be it to raise cash because it is one of the few things Freeport can sell in this market and make some money-- or to keep the project and focus its development monies away from Grasberg and into Serbia. Either way, RMC and its shareholders win and win big. RMC's right of first refusal under the JV Agreement of any sale of Freeport's interest in the project is currently as valuable as the underlying asset itself. Kudos to management for having had the foresight to have negotiated and obtained this right. With about $35 million in its treasury and a very consevative annual overhead, RMC can outwait Freeport-- a rare occurrence in a joint venture arrangement between a major and a junior.

[thorgb1]

PSJ, when did you get the info about 9 rigs and from what source? 

[cd673]

Assuming true I agree with your assessment and that it would be great news for us. But it does raise a few questions. For example why has reservoir not updated its drill plan or released any information on holes up to 10 months old? Are they receiving the information the JV is obligated to give them on a best efforts basis? Are they being kept in the dark and if so why?

[bendystock]

I also agree the more drill rigs going the better for RMC eventually but do not agree on the requirements of Freeport, please correct me if your undertanding is different than the following.  My understanding of the flow of assay results is that RMC releases assay results as soon as they receive them from Freeport and Freeport is required to provide the assay results to RMC as soon as

[bendystock]

I am also hopeful that you provide a source for the knowledge of 9 rigs currently on site.

[Meester954]

As long as RMC has a right of first refusal (ROFR) on FMC's interest in Timok, it will likely have a chilling effect on the FMC sale process.  Why?  Because no large, sophisticated company is going to spend time and money evaluating something it cannot be assured of getting, even if it is the high bidder in the process.  Now once someone buys out RMC's interest (or teams

[cd673]

Thanks that is good perspective and makes sense. It is a very interesting and unusual situation. A lot of scenarios could play out.

[Meester954]

What is unusual is that FCX let RMC have a ROFR.  Kudos to RMC for getting it because it is definitely valuable.  It is a cardinal rule of M&A and JV work to never give someone an ROFR.  It really elevates RMC's position and leverage in any deal that happens with Timok.  While I wish I knew how the story ended, I bet it will be a happy ending.

[cd673]

It is a bidirectional right I believe in the agreement. And I would guess when they put it in Freeport wanted the right to buy RMCs position if an offer came in for RMC. Ironically the tables may be flipped now although there may not be too many buyers in the market right now. Time will tell. The most important thing right now is getting some size estimate for the deep deposit.

[cd673]

I think the key point is they have consistently said they will not be selling assets but now everything has changed. If it is the case that this asset is one they will put on the table for sale then the great news for us is as you say they will have to speed up the testing results. If they were not planning to sell it I do not know why they would put 9 drill rigs on site. If they wanted to keep it

[cd673]

One question I have for the board. If Freeport is looking to sell this asset will that improve our access to information or given our first right of refusal might it make things worse in the short term as they try to court other players?