Caribou Mine commentsCaribou mine shut-down March 26, 2020 (and its restart less than year after that)
- Mine assets written down by $42.5M leaving a $12.6M net carrying value (also wrote down Halfmile-$41.8M and Heath Steele-$14.2M) – not much left (so a very small depreciation component) and nowhere to go but up
- Care & Maintenance costs to September 2020 total $5.6M (approximately $3M per quarter (possibly less) and will be eliminated over the two-year period)
- The shut-down restructuring costs (termination of employees and management (possibly significant – number of Rosh Pinah staff had been transferred to Caribou in 2018)) not determinable in the financials (the 2020 Q3 financials report $5.4M in restructuring costs but this amount may include other mines).
The Caribou restart is based on a two-year mine life to December 2022
- Two years to ramp-up and optimize operations may be challenging
- There does not seem to be any clear indication what ore bodies are economically available in 2023 and beyond
- $7m start-up costs not included in C1\AISC
- No estimated shut-down costs after December 2022 provided
Redpath is the mine operator - its costs are (?) included in the C1\AISC (although Redpath will have its own profit margin, it makes sense to use an operator on the short-term – probably most former senior management no longer at Caribou after the shut-down). Trevali had removed its Glencore affiliate mine operator at Santander in 2018(?) for cost and operational efficiencies – so this is the opposite approach for Caribou this time
C1\AISC includes two key assumptions
- By-product revenues – lead and silver – but Trevali has not disclosed its price assumptions
- Refining and Treatment charges – very significant but Trevali has not disclosed its cost assumptions for 2021 or 2022 – a very big risk for all
Trevali has “benefited from the engagement of the provincial government” – there may be some financial support from government? This needs more clarity
“An affiliate of Glencore plc has agreed to purchase 115 million pounds of payable zinc, which represents approximately 80% of the forecasted zinc production from Caribou, at an average price of $1.25 per pound. These agreements are for the period from March 2021 to December 2022”
- What does Glencore know about the future of the zinc market and price - it is willing to commit to this production volume at a set price?
This appears to be a good deal for Trevali (except for my concerns noted above) but this may be an even better deal for Glencore…