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Trevali proving Zinc is golden
Commodity Online | March 20 2017
UPDATED 14:48:58 IST

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Trevali Mining Corp. (TV:TSX; TV:BVL; TREVF:OTCQX) announced on March 13th its agreement to purchase a portfolio of zinc assets from Glencore International Plc (GLEN:LSE), "which includes "80% interest in the Rosh Pinah mine in Namibia, a 90% interest in the Perkoa mine in Burkina Faso, an effective 39% interest in the Gergarub project in Namibia and an option to acquire 100% interest in the Heath Steele property in Canada."

Dr. Mark Cruise, president and Chief Executive Officer of Trevali stated, "The acquisition of Rosh Pinah and Perkoa is a historic event and unique opportunity for Trevali shareholders, and sets the stage for a multi-asset, low-cost global zinc producer."

Glencore will increase its stake in Trevali to 25% from 4% and will gain an additional seat on Trevali's board, bringing Glencore's seats to two. Glencore will also have the offtake from all four of Trevali's mines.

The acquisitions extend Trevali's zinc reach globally, adding mines in Africa to its ongoing operations in Canada at Caribou and in Peru at Santander.

In a Mar. 13 report, Paradigm Capital analyst Jeff Woolley stated that the Santander mine is "generating positive cash flow and its second mine, Caribou, now commercial," is moving Trevali into a path for growth.

Woolley's 2017 forecast has Trevali's "payable production of 178Mlb Zn (+19% y/y) and 216Mlb ZnEq (+10%y/y) at a cash cost of US $0.53/lb Zn or US $0.72/lb ZnEq." Woolley concluded that "Trevali remains our most leveraged name to benefit from the improving zinc and lead pricing environment and a Top Pick for those seeking financial exposure to these commodities."

In Paradigm's Mar. 7 report, Woolley detailed the production increases taking place at Santander, highlighting that "the zinc grade appears to be increasing at depth in the Magistral Deposits with the anticipated head grades mined/milled rising to 5.0–6.0% Zn by 2018 from the current 4.0–4.5%. The higher head grade translates into an increase in our 2018/2019 production forecasts to 75–80Mlb Zn (payable) versus 65Mlb in 2017."\

Cormark Securities analyst Stefan Ioannou outlined high expectations for the company in 2017. In a Mar. 13 report, he stated, "With zinc production from two established mines expected to ramp up to ~200 MMlb per annum by 2020, we believe Trevali is poised to become a (the) marquee 'pure-play' zinc producer in a market facing a significant near-to medium-term supply issue. Bottom line, we believe Trevali should be considered as a core position underpinning any investment strategy looking for zinc exposure."

Ioannou went on to support his position with some numbers from Santander and Caribou, highlighting that "the Magistral deposits at Santander remain open at depth, where zinc grade appears to be increasing. Additional drilling in 2017 will facilitate longer-range mine planning, including a potential mill expansion." He also pointed out that "Caribou's H2/16 operating cost profile, in the context of ongoing ramp-up considerations, caught us by surprise—an average onsite operating cost of US$56.39/t milled (including US$54.79/t in Q4/16) came in well below our expectations (+US$75/t milled) and Trevali's H2/16E guidance (US$64-68/t)."

Source: Streetwise Reports

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