Teal Valley T.TV

M Partners: Buy rating and $1.50 target for Trevali Mining

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According to M Partners:

https://is.gd/aRmXH6

TREVALI MINING CORP. (TV - TSX, $0.57)

CARIBOU SITE VISIT: THROUGHPUT AHEAD OF ESTIMATES; RECOVERIES IMPROVING

Rating: Buy

12-Month Target: $1.50

Caribou commissioning progressing well; more work remains. Yesterday we visited Trevali's Caribou mine in New Brunswick. Generally speaking our tour of the mining and milling operations, along with the update released earlier this week, suggests the ramp-up is progressing, with throughput ahead of our estimates and recoveries slightly behind, but showing good progress.

Estimates adjusted to reflect the current pace of ramp-up. Based on our visit we have adjusted our ramp-up assumptions for Caribou (Figure 1). We now assume Caribou reaches 3,000 tpd in Q1 2016E (was Q1 2017E). As well, we have reduced our recovery assumptions during the ramp-up, based on the progress to date; however, we still expect Caribou to achieve the recoveries contemplated in the PEA. We continue to model Trevali achieving commercial production at Caribou in Q1 2016E.

Recoveries improving; better grades likely to help. The commissioning update from earlier this week highlighted meaningful MoM improvements for zinc, lead and silver recoveries. With the company now achieving consistent grind sizes for both the lead and zinc circuits, further improvements are likely as the flotation reagents are adjusted. As is typical, the company was processing lower grade ore during the early part of commissioning, which would have impacted recoveries. We expect that as head grades move towards LOM levels, recoveries should improve.

Mining rate improvements now key to consistently achieve 3,000 tpd. While on site the mill was operating at 3,000 tpd, but as can be seen by recent stockpile declines the mine is not keeping up with the mill. This was partially intentional as the stockpile was approaching capacity and the focus had been almost exclusively on the mill. With the mill approaching designed capacity, management plans to shift focus back to the mine and with significant development in-place we expect the mining rate to increase near-term.

Focus expected to remain on recoveries with subsequent updates. Trevali plans to continue providing monthly commissioning updates for Caribou, which are likely to be key for the stock price. For the next update in early October, we are going to be looking for continued recovery improvements and verification that the current throughput level is maintained.

We are maintaining our BUY rating and our one-year target price to $1.50 per share. Our target price is based on 5.0x our next twelve months EBITDA estimate of $115.7MM (was $111.4MM). Trevali currently trades at 0.29x NAV and 2.7x our 2016E EV/EBITDA estimate versus peers at 0.43x and 4.3x. With Santander at steady-state, we expect that the company's progress at Caribou will be a key driver of the stock price. As Trevali ramps up zinc production, we believe it should trade at a premium to peers because of its unique leverage to a favourable macro environment for zinc.

POTENTIAL CATALYSTS AND EVENTS

Q4 2015 - Ongoing Caribou commissioning updates (early October)

Q4 2015 - Q3 2015 operating and financial results

Q1 2016 - Commercial production at Caribou

Late 2015 - Stratmat/Halfmile PEA