NR: DUNDEE: BUY, High Risk, Top Pick TV Announces $5MM Flow-Through Financing
Financing Provides Funds to Further Exploration in NB
Bottom Line: We estimate that after yesterday's financing and accounting for the $30MM in mezzanine debt from RMB, TV will have roughly $41MM in cash at its disposal. Its strong cash position and near-term production profile puts the company in an enviable spot compared to many juniors on the market. Given its position, we believe that TV offers a unique opportunity for inexpensive near-term zinc leverage.
Trevali plans to use the $5MM raised for drilling and resource expansion at their Stratmat deposit in New Brunswick. This will give the company the ability to progress exploration and permitting of another operation in New Brunswick. Importantly, the activities at Stratmat are independent from the budget outlined for the RMB funds and does not signal that this budget has increased.
Trevali is our Top Pick in the junior mining space based on its strong zinc leverage and unique relationship with Glenstrata. We rate TV with a BUY and have a target price of $2.80/share (unchanged) based on a 0.9x multiple (unchanged) to our NAV of $2.98/share (down from $3.02/sh).
Financing Details
TV has raised $5MM in a private placement through the issue of 5,000,000 flow-through shares at a price of $1.00/share (a 6% premium to yesterday's close). The funds are scheduled to close before March 28th 2013 and there is a 4-month lock-up on the issued shares. TV has also agreed to pay a 4.5% gross-proceeds commission to the underwriters.
Our NAV has decreased slightly to $2.98/share from $3.02/share after accounting for the financing.
Use of Funds- Exploration at Stratmat, RMB Budget Unaffected
Trevali intends to use the funds received in order to progress their exploration and development activities in New Brunswick. Drilling and exploration work at the Stratmat deposit will be the focus of this flow-through as TV has expressed interest in furthering what they see as a very promising asset.
We note that the activities for which the funds from yesterday's financing are intended are not earmarked in the RMB budget. The RMB funds ($60MM total) are to be put towards commissioning the Caribou Mill (~$18MM), UG pre-production development at Halfmile (~$17MM), Caribou Mine restart (~$15MM) and to pay off the Sprott bridge loan ($10MM).
Reminder - First Portion of RMB Debt Deal Delivered
In February, TV announced the approval of the first $30MM debt portion of their arrangement with RMB Resources. The debt was initially structured to bear interest at LIBOR+5.5% over a 5-year term. RMB has agreed to provided TV with the full $30MM in debt on a mezzanine basis, at a higher interest rate of LIBOR+8.5%, until technical studies are completed in April 2013 at which point interest on the debt will drop to the initial LIBOR+5.5% for the remainder of the 5-year term. The debt comes with a 5% arrangement fee and 3M TV warrants with a $1.25/unit strike price, exercisable until June 30, 2015.
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