Trevali Mining: Riding the Zinc Wave

With three-month zinc on the London Metal Exchange at a three-year high of $2,247.50 per tonne, it’s the perfect time for investors to get acquainted with zinc-focused base metals miner Trevali Mining (TSX:TV,OTCQX:TREVF). 

Of course, for many it’s likely to be a case of getting reacquainted. Trevali is a favorite in the zinc space, a fact that’s been highlighted these past couple of weeks in particular — since June 26, the company has received much positive attention from analysts, including reiterated “buy” ratings from Dundee Capital Markets, Mackie Research and M Partners and an “outperform 2″ rating from Raymond James.

It’s not hard to see why the company has such a following. With operations in Canada and Peru, Trevali is able to put out a steady stream of good news; indeed, since Dr. Mark Cruise, president, CEO and director of Trevali, spoke to Zinc Investing News (ZIN) at the end of June, the company has closed an agreement to sell its Tingo run-of-river hydroelectric station, a non-core asset.

Here’s what Cruise had to say about how Trevali has managed to achieve such success in today’s markets and what’s in store for the company in the coming months.

ZIN: I’ve got some questions worked out for you, but would you like to start by touching on Trevali’s June 26 news?

MC: Sure. Really it’s just general market guidance and an update on Caribou. We’ve been busy there — in May we announced our preliminary economic assessment, and it shows pretty robust economics. It’s a very conservative study, but it suggests a two-year payback on capital, which is pretty good, and an internal rate of return at a 5-percent discount rate of approximately 59, 60 percent. That’s using long-term prices: $1 zinc, $1 lead, $21 silver. No potential zinc price rally baked into that at all.

Leading on from that, we announced our debt facility for the restart, which was $52.5 million. That’s given us the capital to restart Caribou — pre-production CAPEX is about $40 million, so we have a little bit of a buffer for working capital and what have you. Once we close that down we’ll be able to sign some of our major contracts.

At the moment, our underground mining contractor, Alex MacIntyre, who we’ve worked with before and have a strong relationship with, is currently moving in. We’re just getting the site ready — it’s pretty busy already, we’ve got about 60 people on site. That will ramp up over the course of the year to about 300, 320 people at peak construction, dropping down to about 250 when we hit steady state production in H1, H2 of next year.

I was just at New Brunswick for two weeks, and we’ve been hiring a lot of people. We’re very fortunate that there is a very highly skilled labor pool available, just coming off the back of Xstrata’s Brunswick 12 mill closure a little bit over a year ago.

ZIN: So you’re seeing people switch over?

MC: Absolutely. We’ve been very fortunate to leverage those skill sets. A lot of our senior and operations staff are incredibly experienced at working in the district, working with the same ore types, same rocks, so it’s a very smooth transition and a big technical de-risk for us, which is fantastic.

ZIN: All the work at Caribou, is that what’s on deck for this summer? Will Trevali be doing anything else?

MC: We’re exploring [elsewhere] pretty aggressively, but the main focus, just so there’s no confusion, is to get Caribou up and running as fast as possible. It’s going to be construction from now through to the end of Q1 next year.

Based on current timelines and schedules, we hope to start commissioning basically in late Q1, into Q2 next year. That certainly seems to be achievable because all the major items and key equipment are on site. They arrived late last year and into the first quarter of this year. It’s just getting down to completion now and trying to get as much work done in the summer before winter hits in October, November.

ZIN: In New Brunswick you also have the Stratmat deposit and Halfmile mine. Are they both fully permitted mining operations?

MC: No, only Halfmile. Halfmile resources are indicated, so we have a lot more confidence in the resource estimate, while Stratmat is only inferred, 5.5 million tonnes. But we’ve done quite a lot of work on Stratmat this year and are actually going through the permitting process. At the moment we’re in the middle of roughly a 30,000-meter drill program. The idea is to step off the known mineralization, hopefully add some more tonnes, and also do infill definition drilling so we can basically take the inferred resource and re-estimate, hopefully to a higher confidence category. That will allow us to put more detail into mine planning and permitting. This is part of that permitting process.

That will be ongoing to the end of the year, effectively, and then we will update. There is a pretty large economic study on the potential for a combined Halfmile-Stratmat mining operation, so we’ll use this data to update that study, and, contingent on results, move forward.

ZIN: What’s the timeline for updating that study?

MC: Broadly speaking, it will occur in the first half of next year. We’re going to continue drilling all the rest of this year, then get the data back. By the time we process the data and update the report it will be sometime in the first half of 2015.

ZIN: And then you’ll have a better idea of what’s going to happen.

MC: For sure. The previous study was positive, but nevertheless we want to update it based on the information we’ve learned from working in the district from 2011 onwards. We’ll be updating it with more detailed work, some lessons learned from both Halfmile and Caribou, to provide the most reasonable outlook based on our current knowledge.

ZIN: Switching over to Peru, it seems like Trevali’s biggest achievement this year has been starting commercial production at the Santander mine. That happened just before zinc prices really started to move was the timing deliberate?

MC: You’re never going to get the timing exact, but it was pretty good. The first key zinc mine to close down was Brunswick 12, that was the big one, the canary in the coal mine, so to speak. That was last May 2013, and we started commissioning Santander in August. Just fortuitously, that was our schedule.

That said, we’ve been anticipating a zinc deficit for quite awhile — we’ve got a very strong background in zinc mining, most of our professional careers have been in zinc. So we see these major mines closing down, and we know all the major players in the zinc space, so we’re aware that no new major zinc mines are getting developed, permitted or built anywhere on the planet.

I think the timing for Caribou will be even better because we’ll be commissioning in the first half of next year, and that’s when Century, the big mine in Australia, is scheduled to close down. I think that really could start the bull rally for zinc.

ZIN: On that note, I’ve been hearing rumblings that big miners like Teck Resources (TSX:TCK.B,NYSE:TCK) are reopening zinc mines they’ve closed. Is that a concern for you?

MC: I think it needs to be put into context. Teck has announced Pend Oreille, which is a 2,000-tonne-per-day mine. It’s small like our Santander mine, it’s not going to impact the market. Brunswick 12 was about 250,000 to 300,000 tonnes of zinc per year, about 2 to 3 percent of the world’s supply. Lisheen in Ireland is the fifth-largest zinc mine in the world, and it’s closing down late this year, into the first quarter of next year, and it’s about 170,000 tonnes. Century is about 550,000 tonnes.

That’s really why the fundamentals look so good. At the moment there are no major tier-one zinc mines getting built or commissioned. And as we know from all commodities, for these very large projects that cost billions of dollars it takes five years — I’d argue eight to 10 years — just to build a very large mine, and none of them are being permitted, none of them are being built at this point in time. That’s why both ourselves and our partner Glencore (LSE:GLEN) are so bullish on zinc going forward.

ZIN: Back to Santander it’s already in production, but I understand you’re still pursuing exploration there as well. What’s the goal with that?

MC: All of our deposits remain open for expansion — at Santander there are four new zones of mineralization, and they all remain open. The idea is to get cash flow going — that’s critically important for us, for our shareholders. Once we’re very comfortable with commercial production, the idea is to maintain a steady exploration program. Certainly the idea would be to at least replace mined material on an annual basis, but I think we can do better than that.

ZIN: Have you had any recent exploration success at Santander?

MC: Late last year in the fourth quarter we found a very high-grade lead-silver-zinc zone called Rosa at the Magistral North deposit. That still remains open for expansion, but what’s interesting there is the lead-silver grades are about two, three times higher than the currently defined resource, which is pretty significant. For example, our Santander NI 43-101 lead grades were about 1.5-percent lead and 40 grams silver, whereas at the Rosa zone we’re getting 3- to 4-percent lead and up to anywhere between 3 to 6 ounce silver.

At Santander, if one of the zones does something, empirically, the other ones always follow suit. With that in mind, we went looking for other high-grade feeder zones at Magistral Central, the central deposit there, and we discovered the Fatima zones. So instead of one high-grade feeder, now we’ve got two of them there, and we’re currently drilling that from underground. We’ve got five holes testing it at depth. We need to wait for the results to come back, but so far it is behaving exactly like Rosa. It looks like it’s pretty significant vein and replacement mineralization.

ZIN: What different operating challenges and advantages do Canada and Peru present?

MC: In Peru we’re at elevation, we’re effectively at 4,500 meters. It’s pretty high, so obviously that’s tough on people, it’s tough on equipment. We had to build a mill, so it was a complete mill rebuild at elevation; the real challenge was finding skilled people to do the construction. We’re over that now, so it’s not an issue anymore. But that was a real challenge.

In New Brunswick we’re close to a major town, Bathurst, and we’re on a paved highway within 4 kilometers of the property. We also already have a pre-existing power line — we had to build one in Peru — and in terms of the mill, everything’s physically there, so it’s a restart. It’s a lot easier technically and financially in that we’re just doing slight modifications as opposed to a complete rebuild in Peru.

As well, the mining sector’s been hit pretty hard in North America, so people are available, which is huge as well. Contractors are available, and we anticipate having a faster, smoother and easier time in New Brunswick compared to Peru, although Peru went well.

Operations wise, they’re similar types of deposits in that they’re zinc-lead-silver. We have more copper and gold in New Brunswick, but the deposits are broadly similar from a mining perspective, and they do remain open.

ZIN: And in New Brunswick you have agreements in place with the First Nations?

MC: Certainly the Mi’kmaq have been great supporters, and we’ve liaised very closely with them. We have impact benefit agreements in place, and we’ve done very successful mining training programs with First Nations students — that was for our Halfmile operation, we’re restarting that for Caribou in addition to a plant operators program.

The whole idea is that we’re there for the long term, we want to be a good neighbor. They’ve been great supporters of the company, and it’s worked out very well for both sides. Everyone gets to learn.

ZIN: Is there anything you’d like to add?

MC: I think the key thing is that there are not many new zinc mines being built anywhere in the world, period, and we are a unique story. Mainstream media attention into zinc deficits or potential zinc deficits is increasing, and we are a go-to name for zinc.

We’re relatively small now, with one operating mine, but hopefully this time next year we’ll have two mines up and running and will start to become a pretty significant player in the zinc space. That’s the goal, and so far, so good. We’ll just have to steer a steady course.

 

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

Editorial Disclosure: Trevali Mining is a client of the Investing News Network. This article is not paid-for content. 

Interviews conducted by the Investing News Network are edited for clarity. The Investing News Network does not guarantee the accuracy or thoroughness of the information reported. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence. 

Related reading: 

Trevali Achieves Commercial Production at Peru-based Santander Mine

Trevali Positive on Caribou PEA; Expects Good Zinc Outlook to be “Beneficial”