Dundee re-rates TV; raises target this morning to $2 Dundee Capital Markets
Trevali Mining Corporation (TSX:TV)
New target: $2.00 (increased from $1.50)
Joseph Gallucci
Zinc - Where You Want To Be:
Zinc's time has arrived. Prices traded at 52-week highs in early October, reaching a peak of $1.09/lb. Year-to-date zinc is up 37% heading for its largest annual price gain since 2009 following the closure of the massive Century and Lisheen mines. We believe that to take advantage of the current zinc bull market, which we believe will last for the next 2-5 years, producers who are currently generating positive free cash flow zinc leverage are the best vehicle. We believe TV is the best pure-play vehicle, while LUN, NSU and TCK.B also offer significant leverage to rising zinc prices. Lead is similar to zinc in terms of its supply issues and as such we believe that lead prices will follow zinc.
Trevali Mining:
With positive zinc fundamentals taking hold and our short-medium term forecasts increased we have raised our target on TV to $2.00/sh (from $1.50/sh).
We are maintaining our BUY, Top Pick rating on TV and raising our target to $2.00/sh (from $1.50/sh) based a 6.0x 2017E EV/EBITDA multiple (from 5.0x). With our bullish zinc thesis beginning to take hold and Caribou already cash flow positive after only one quarter of commercial production, we believe TV deserves a higher valuation multiple.
Upcoming Catalysts:
Successful Caribou operation: With commercial production at Caribou declared in July, what TV really needs now is to get a few "boring" quarters under their belt, showing that they have the operation fully under control. Optimization work is ongoing, primarily focused on continuing to bring zinc recoveries up towards PEA design levels (~84% vs current ~80%). We believe ramp-up is going extremely well at Caribou - the operation is already cash flow positive, after only one quarter of commercial production.
Santander mill expansion decision: The continued strong operating performance and positive drill results are supportive of a mill expansion to 4,000tpd (from 2,000tpd) at Santander. We conservatively model a 4,000tpd expansion taking place in 2019, with a capex of $25M spread over 2017-2018. TV will make a decision on whether or not to pursue the expansion in 2017.