Zinc may not have the sex appeal of gold, but Trevali Mining (TV-T) had one of the better stories to tell during this week’s Prospectors and Developers Association of Canada (PDAC) convention in Toronto, which was dominated by anxieties about access to capital and declining stock prices.
By zeroing in on an under-served niche in a commodity with strengthening fundamentals – a small-cap miner of zinc – Trevali has put itself in an enviable position.
The company is about to start production at the first of two zinc-lead-silver mines that will be up and running by the end of the year, just as the reality of the world’s aging zinc mines starts to hit home.
Several zinc mines, including the world’s largest — Century in Australia – will close in the next couple of years, and there’s nothing to replace them, says Trevali president and CEO Mark Cruise.
“There’s no new major mines coming onstream that can impact the market — that’s just the reality,” said Cruise, in an interview at the Investors Exchange this week. “Zinc prices have to strengthen.”
Zinc is currently under US90¢ a lb., but in December, Scotiabank economist and commodity market specialist Patricia Mohr forecast an average price of $1.01 per lb. in 2013, and said it could go as high as US$1.50 per lb. by 2016.
Trevali will start production at its Santander mine, a past-producer located 215 km northeast of Lima, in Peru, at the end of the month. And with its Halfmile mine in New Brunswick’s Bathurst mining camp slated to come onstream in late 2013, the company is projecting production of around 300 million zinc-equivalent lbs. per year by 2014, and 400 zinc-equivalent lbs. annually by 2015.
“In the next four to five years, we’ve got a very good chance at being the next HudBay or the next Lundin, building on these mines,” Cruise says.
The plan is to increase production at both operations – from 2,000 tonnes per day to 4,000-5,000 tonnes per day in 2015 at Santander, and with a new 4,000- to 5,000-tonne-per-day mill in New Brunswick in 2016, to supplement the 3,000 tonne-a-day Caribou mill, which it acquired last year for $23.8 million worth of stock.
At that point, Cruise fully expects that with the elimination of smaller zinc miners Farallon and Breakwater in recent years, Trevali would become a takeover target.
“We’re going to be a target, whether we like that or not,” he said when asked about the possibility. “If you’re looking to grow your zinc business, whether you’re a smelter, a mid-tier or a major mining company, you have to look at us.”
Cruise adds that all recent transactions have been for fully de-risked zinc mines. “We’re not quite there yet, but this time next year, we certainly will be.”
Formerly a zinc specialist with Anglo American, Cruise could see the strength of zinc’s fundamentals before Trevali was listed in late 2010.
“The majors gave up looking for zinc effectively in 1990,” Cruise says. “The last major new Tier 1 zinc discovery was 1995, that was BHP (Billiton’s) Cannington. So we just looked and said listen, the copper space is expensive for a small company looking to get in, and there’s a lot of competition there. We looked at zinc and said no one’s looking for it, no one’s finding it and no one’s building it, so we thought there was a good space for a small company with an experienced management team to fill that void.
On the strength of those fundamentals, its assets and its management team, Trevali has found the funds in a difficult market to advance its projects.
The junior has a strategic partnership with Glencore International, which is in the midst of a merger with Xstrata. That includes a life-of-mine concentrate offtake agreement (at International Benchmark prices) at Santander, where Glencore has provided the mill at no cost, and will operate it and serve as contract miner.
Trevali has also secured US$60 million in debt financing (a $30-million loan and a $30-million prepaid precious metals facility) from an arm of South Africa’s FirstRand Group and a US$20-million working capital facility with Glencore in November.
Santander contains indicated resources of 6.3 million tonnes grading 3.62% zinc, 1.3% lead, 0.07% copper and 43 grams silver per tonne, for 500 million lbs. zinc, 180 million lbs. lead, 10 million lbs. copper and 8.7 million oz. silver. Inferred resources add 13.9 million tonnes grading 4.62% zinc, 0.4% lead, 0.11% copper, and 21 grams silver per tonne.
Halfmile contains indicated resources of 6.2 million tonnes grading 8.13% zinc, 2.58% lead, 0.22% copper and 31 grams silver per tonne for 1.1 million lbs. zinc, 356 million lbs. lead, 30 million lbs. copper, and 6.2 million oz. silver.
Both operations have long expected mine lives of more than a decade. The company also has the Caribou and Stratmat deposits in the Bathurst camp, as well as the Ruttan deposit in Manitoba.
Trevali shares recently traded at 97¢ in a 52-week range of 74¢-$1.59. The company has 200 million shares outstanding.