Teal Valley T.TV

Dundee: Buy, Top Pick rating and $1.80 target price for TV

[hockeyguy123]

According to Dundee Securities:

https://app.box.com/s/3evmnde21bhi3mxby17g

Trevali Mining Corp.

May 14, 2014

BUY, High Risk, Top Pick

Dundee target: C$1.80

Bathurst is Back!

Caribou PEA Highlights Stand-Alone Operation in New Brunswick

Increasing our Target Priced Based on Positive Caribou PEA

We view Trevali's Caribou PEA very positively. After making the necessary adjustments to account for the release, our NAV has increased to $2.02/share from $1.86/share. The increase stems from Caribou's potential to operate on a stand-alone basis which effectively gives Trevali two operations in New Brunswick instead of one (Halfmile/Stratmat and Caribou). We are increasing our target price to $1.80/share (from $1.60/share) based on our updated NAV and maintaining our 0.9x target/NAV multiple. Our target price also represents 5.0x EV/EBITDA in 2015E (in line with our coverage universe at 4.0x-6.0x).

Stand-Alone Potential of Caribou Creates New Mining Camp in NB

Caribou's PEA has shown that the Caribou deposit - adjacent to the Caribou Mill - has the potential to operate as a 3,000tpd stand-alone operation in New Brunswick which would allow the 4,000tpd Halfmile/Stratmat project to also operate on a stand-alone basis later on down the road (recall that the company's initial plan was to feed the Caribou Mill with ore from the nearby Halfmile mine at a trucking cost of $15/tonne). This effectively provides Trevali with two operations in the province and a greater degree of flexibility on development options and eliminates the $15/tonne in trucking costs that would have stemmed from the previous operational plan. Below we highlight our updated production forecast post-the Caribou PEA release. We estimate that Caribou will start production in Q2/15 with a ~7yr mine life and that Halfmile/Stratmat will follow in 2018 and operate for 11 yrs. We believe our estimates are conservative and mine LOM can grow.

Trevali Remains our Top Pick based on Valuation and Zinc Fundamentals

With production now underway at Santander in Peru and mill construction progressing in New Brunswick at Caribou, Trevali should have two producing operations on line and fully ramped-up by the time we expect improving zinc fundamentals to buoy prices in 2015. We are increasing our target price to $1.80/share (from $1.60/share) based on Caribou's positive PEA that highlights an additional stand-alone operation in New Brunswick. Our target price is based on a 0.9x multiple (unch.) to our updated NAV. Our target price also represents 5.0x EV/EBITDA in 2015E (in line with our coverage universe at 4.0x-6.0x). Despite our 2015 EBITDA estimate having fallen from what we had previously modeled (our previous model consisted of higher-grade Halfmile ore feeding the Caribou mill), TV is still trading significantly below peers at 2.91x EV/EBITDA in 2015, below peers at 4.3x.