NR - Rosa Vein Beginning to BlossomRosa Represents Un-Modeled Additional High Grade Ore in Peru Trevali has announced that the recently-discovered Rosa Zone at the company's Santander Mine in Peru has been expanded. This zone is higher grade than the current resource and is not part of the existing mine plan, as such it represents upside to our valuation. We believe that the Rosa Zone can potentially be brought into the current mine plan in the near term. With the high grades of this zone, and its near term mining potential, we believe that TV could higher-than-expected cash flows next year.
All grades intersected by the three exploration holes are above the current resource grade with exceptional lead and silver grades (as seen below, intercepts are impressive). This zone remains open for expansion and management believes that the new mineralization could result in another deposit which could add years to the existing mine life. We provide the highlight intercepts below while noting that current resource grades are 3.62% Zn, 1.3% Pb and 1.38oz/t Ag:
• MN-041-13: 5.6m @ 1.50 oz/t Ag, 1.97% Pb and 2.06% Zn including 1.2m @ 4.08 oz/t Ag, 4.79% Pb, and 5.35% Zn
• MN-042-13: 30.1m @ 2.28 oz/t Ag, 3.86% Pb and 4.01% Zn including 7.25m @ 3.36 oz/t Ag, 6.65% Pb, and 6.5% Zn
• MN-043-13: 9.7m @ 4.76 oz/t Ag, 7.89% Pb and 8.29% Zn
Background on Recent Drilling
Through recent drilling TV has intersected high grade Ag-Pb-Zn mineralization at depth and has also discovered several new replacement bodies in the footwall parallel to the Magistral North orebody. Also announced recently was the discovery of three new veins of high grade mineralization in the footwall of the Magistral Norte deposit at Santander. The three zones include Pariatambo, Manto and Rosa. Recent drilling in these new zones has given TV confidence in mine planning and scheduling as TV is ramped up to commercial production. Since the new mineralization is in the footwall and nearby existing underground development, it can be accessed immediately, providing an option for flexibility in the mine plan.
Bottom Line - Top Pick Reiterated and Thesis Strengthened
TV is one of the most inexpensive stocks we follow. With production now underway in Peru and mill construction progressing in New Brunswick, TV should have two producing operations on line and fully ramped-up by the time we expect improving zinc fundamentals to buoy prices by the end of 2014. We expect an imminent re-rating for TV as commercial production is reached at Santander. Trevali remains a BUY and our TOP PICK with a $1.50/share target price based on a 0.8x multiple to our NAV of $1.79/share.
3D View showing Rosa zone with drill holes, Magistral North zone and underground development at Santander
Source: Company Documents
Santander Makes Steady Progress with Target Throughput Reached and 100% Availability in November
Santander in Peru is progressing towards commercial production and in a December 3rd press release; TV announced that it “anticipates declaring commercial production at the Santander Mine shortly”. The mine is already operating at full nameplate 2,000tpd capacity with 100% availability experienced in November. The perfect availability at a full-production rate indicates that TV has a good handle on the operation and that the mill is running with well. November Zn grades were 4.7% for the month with 1.6% Pb and 1.0oz/t Ag. This comes in above our expectation for 4.5% Zn, 1.5% Pb and 0.9 oz/t Ag. The company is feeding mill with mix of UG ore feed, stockpile and high grade tailings. Operations are scheduled to move to 100% UG feed in Q1/14, this is expected to improve recoveries from the 80.3% hit in November back to the more steady-state 85% level hit in October. Also in November, Trevali sold 5,000 tonnes of Zn concentrate (@48.7% grade) to Glencore.
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SECURITY ABBREVIATIONS: NVS (non-voting shares); RVS (restricted voting shares); RS (restricted shares); SVS (subordinate voting shares).
