TV Continues Progress at Santander
Trevali has announced significant progress with underground development at the Santander Mine which is nearing concentrate production in Peru. Crushing has begun onsite with initial processing of stockpiled mill feed. Trevali anticipates first Santander concentrate production will commence within the next few weeks as the final components of the processing plant are commissioned. Significant concentrate production is expected from July onwards and initial shipments are expected around late July when sufficient inventory is built. We expect 29MM lbs of zinc production for ~$11MM in EBITDA for 2013.
UG Development Enhances Operating Flexibility and Opens Ore Inventory.
Trevali has already opened up 8 levels with 12 sub-levels in the Magistral North (4 levels and 7 sub-levels) and Central deposits (4 levels and 5 sub-levels). The mine's 9th level is expected to open the Magistral South zone for exploitation; it is scheduled to be in place by month end (see next page for UG mine plan).
Underground connection of the Central and South deposits is expected to be complete in Q3 which will enable further flexibility in mine planning as well as the implementation of a high-speed trackless mining system (i.e. scoop trams and UG haul trucks). Having the three deposits open, each with their own portal-ramp access, will allow TV to greatly reduce the potential for mining bottlenecks while improving ore/grade accessibility when commercial production is reached. After the South deposit is exposed, the next step for TV will be to focus on long-range mine planning and optimization with the joint TV-Glencore-JRC team.
Trevali has also released the initial grade comparison study for Magistral. Reconciliation to the NI 43-101 resource estimate is encouraging and within natural geological error, but full reconciliation will only be complete after concentrate is produced. Essentially, grades and tonnages are matching well with what the company initially predicted (see table on the next page).
Bottom Line - Inexpensive Near-term Zinc Exposure
With production at hand (in the coming weeks) 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 in 2014E. We rate TV a BUY with a target price to $2.00/share based on a 0.9x multiple to our NAV of $2.27/share. Trevali remains our Top Pick in the junior mining space based on its zinc leverage, strong production profile and unique relationship with Glencore Xstrata. TV is inexpensive, trading at 0.25x NAV vs. peers at 0.52x and at $0.01/lb Zn vs. peers at $0.03/lb Zn.
The table above shows the grade reconciliation between the channel samples and the Ni 43-101 report. The grades and tonnes are very similar.
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SECURITY ABBREVIATIONS: NVS (non-voting shares); RVS (restricted voting shares); RS (restricted shares); SVS (subordinate voting shares).
Dundee Capital Markets Equity Research Ratings