Trevali Mining picking up steam - Andrew Bell, BNN Blog Trevali Mining picking up steam
https://www.bnn.ca/Blogs/2013/10/08/Trevali-Mining-picking-up-steam.aspx
On Tuesday’s Commodities show we’re talking zinc with Mark Cruise, CEO of Trevali Mining (TV-T 1.17 0.01 0.86%). The company’s stock jumped 51% in the third quarter, putting it on our list of top-performing resource stocks for the three months.
Investors were relieved when the company said “we got our act together” and brought the mill into operation at the company’s new zinc-lead-silver mine in Peru, Mr. Cruise said in an interview Monday. The process took about six months longer than hoped, he said. “We were in the penalty box.”
Mind you, in a tough market for smaller metal stocks, Trevali shares have still sagged 30% in the past year to trade at 89 cents as investors fret that a real rally in the price of the rust-proofing metal is still far off.
Zinc prices have drifted since 2010 as stockpiles rose “sharply in recent years, easing in 2013,” BNP Paribas strategists said a Sept 24 report. “We expect zinc to remain in (slighter) structural surplus through 2014, so there is some way to go before the market really tightens.”
Apart from ramping up production at the Santander mine in Peru - where its assets also include the Tingo Hydroelectric Plant and past-producing Huampar silver mine - Trevali also plans to start mining zinc in Atlantic Canada. It owns the former Caribou mine and mill, Halfmile mine and Stratmat polymetallic deposit in the Bathurst Mining Camp of northern New Brunswick, where it hopes to start production next year. The company also has the Ruttan copper-zinc play 750 km north-northwest of Winnipeg, which was mined from 1973 to 2002.
“With production starting in Peru and development 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 in 2014E-15E,” Dundee analyst Joseph Gallucci said in a Sept. 30 report.
Glencore Xstrata, the world’s biggest producer of zinc and lead, says global zinc demand is climbing at a pace of 5% per year, powered by stronger demand in emerging market auto production and construction.
That works out at around 600,000 tonnes of new zinc mine capacity needed every year. But, meanwhile, mines are closing as their ore bodies age.
Expansions and new projects may add 1.1 million tonnes of zinc to global production by 2016, but that still leaves a gap of 1 million tonnes, Glencore says.
And it predicts that that mine production is likely to fall by total 2 million tonnes in the following five years as significant mines like Lisheen in Ireland and Century in Australia are shut down.
Platts.com last month quoted Daniel Mate, head of the Gencore’s zinc/lead marketing, as saying that "zinc's performance has been poor. Not many people have been making money out of zinc…. the majors have not invested any money."
Haywood analyst Stefan Ioannou has a Buy on Trevali stock with a target of $1.35 US or 52% above Monday’s price. But he also calls the risk “very high,” warning that the company is trying to “initiate zinc production simultaneously in New Brunswick and Peru… Timely execution at Santander and Bathurst will be key to maintaining market confidence.”
Still, he adds, “with zinc production from two mines expected to ramp up to 210 million pounds per annum by 2017, we believe Trevali is poised to become a marquee mid-tier producer in a market facing significant medium-term supply issues.”
To put Trevali’s size in context, 210 million pounds is about 95,000 metric tonnes, meaning that the company is a relatively small player in a global market that will see mine production of about 13 million tonnes this year.
Trevali’s Mr. Cruise says the risk of starting up two mines is reduced by the company’s relationship with Glencore Xstrata, which owns about 8% of the company’s stock (the purchase of that stake last year sparked speculation that Glencore may bid for Trevali.)
At Santander, Glencore has agreed to buy the zinc and lead-silver concentrates from the mine at full market price and also operates the mine, although a Trevali spokesman said “It is important to note that Trevali controls its properties/assets 100%.”
Mr. Cruise also said Trevali can call on experienced personnel in New Brunswick who worked at Glencore Xtrata’s Brunswick big #12 mine, which closed this year. “There were several hundred personnel at that operation and we’ve received a significant number of applications from them looking to work at our Caribou mine/mill operations scheduled to restart next year,” the Trevali spokesman said.