Trevali Mining is transitioning to an owner-operator model at its Caribou
zinc mine in New Brunswick, Canada, and analysts note that the company is
positioned to take advantage of strong zinc fundamentals.
Trevali
Mining Corp. (TV:TSX; TV:BVL; TREVF:OTCQX) announced on Feb. 1 that it is becoming an owner-operator at its
Caribou zinc and is investing in a new mining fleet at the mine. The company
stated that it "has committed to an approximately Cdn$20-million
investment through a new partnership with Sandvik Mining to supply and
maintain a full fleet of mining equipment for Caribou Mine operations.
Trevali will operate and manage all aspects of the underground mining
operation and Sandvik will be responsible and accountable for the maintenance
of the fleet."
Dr. Mark Cruise, Trevali's President and CEO stated, "Trevali's new
investment demonstrates our ongoing commitment to the future of the Caribou
Mine and operations in the Bathurst region of New Brunswick," adding
that "The efficiencies realized through this initiative. . .form a
pathway for the Company's long-term, multi-cycle vision for the Bathurst
Mining Camp."
Analyst Joseph Gallucci of Dundee Capital Partners stated in a Feb. 1
research report that "moving to an owner-operator model is a positive
move for TV. . .investing in their own fleet and moving away from contract
mining should lead to cost savings at the mining operation." He also
stated that replacing the current mining equipment "with new machinery
and improved technology should lead to better operational efficiencies as
well."
Gallucci noted that with "Caribou online and cash flow positive, we
believe TV is in an excellent position to capture strong zinc fundamentals.
Our view is that a majority of zinc development plays will not be in
production to catch the cycle, either due to permitting or funding obstacles
(or both)." He names Trevali as a top pick on TV's zinc leverage
"based on current production as well as short-term organic growth."
BMO Capital Markets initiated coverage on Trevali on Feb. 1, rating the
company as an "Outperform." Analyst Alex Terentiew wrote,
"Over the past seven years, Trevali has worked to put its Santander
(H2/13) and Caribou (2015) mines into production, maintaining its objective
of remaining a zinc-focused miner, providing investors with exposure to a
rise in zinc prices that it expected to materialize. . .it was not until the
H2/16 that zinc prices notably began to improve, positioning current
shareholders to participate in a significant rise in cash flow. We believe
Trevali is just starting its operating and financial turnaround and investors
will be rewarded by accumulating shares in the company."
Terentiew noted that Trevali intends to update resource estimates for both
of its mines in Q1/17, "incorporating exploration results and actual
operating experience to its estimates, and may declare reserves, which we
would view as a positive catalyst."
He added that "with zinc accounting for ~70% of the company's sales,
it is the leader in zinc exposure among its covered peers." As the price
of zinc improved, "mining operations aligned with the zinc price, and
cash flow began to improve. We expect significant and rapid improvement in
Trevali's balance sheet over the remainder of 2017, with Trevali turning net
cash positive in Q3/17," Terentiew concluded.
