Resource Sector Digest: An Update On Trevali Mining - Seeking Alpha

We are thinking zinc again in this week's Resource Sector Digest (Vol. 114 - October 13, 2017). Brought to you by Itinerant and The Investment Doctor.

In case you missed out on previous editions of this newsletter, simply click here, here or here to catch up.

Setting The Scene

The acquisition of majority interests in two African mines from Glencore (OTCPK:GLNCY) has promoted Trevali Mining (OTCQX:TREVF) from junior to mid tier status, expanding the portfolio from two to four producing mines. The company is the only listed zinc mining pure play, and as zinc has arguably been the strongest performer among base and precious metals year-to-date, the company has moved into the focus of many resource sector investors.

Last week's publication of PEA results for the Halfmile-Stratmat project in Canada's Bathurst mining camp, followed by the release of Q3 results, was promptly discussed on the Itinerant Musings chatboard.

Let's add some color to these snippets in the following.

Mill performance at Caribou still deserves attention, a topic which we discussed in detail during commissioning mid-last year. Metallurgical recoveries are still lagging the PEA targets and investors might be well advised to model mine output on currently achieved metrics. Mining rates are improving on the other hand, presumably as a result of shifting from contractor to owner mining. In fact, Q3 mine performance was on par with the record quarter so far, and mining rates exceeded milling rates after several quarters of stockpiled ore supplementing mine output in order to fill the mill. Costs still have some room for improvement, both on a unit cost and on a per-lb basis, and management acknowledged that in the earnings call.

Overall, we see a mine slowly but surely ramping up towards steady state at Caribou. Q4 will provide a litmus test for this asset as low temperatures have aggravated metallurgical issues in the past, and we will be keeping a keen eye on mill performance in the next quarterly report.

The Santander mine in Peru reported a rather average three-month period on the other hand. Mining rates lagged mill throughput once again, but grades seem to be improving as new production levels at Magistral South and Central are finally providing mill feed. Addressing lingering water management issues will be essential as the company moves deeper into these ore bodies.

The two African mines Rosh Pinah and Perkoa only reported one month of production - too little data to get a handle on their performance under the new stewardship. The balance sheet has improved greatly as a result of the debt restructuring that took place during the acquisition of these two mines. Working capital stands at $135.5M, and the new repayment schedule appears manageable.

Free cash flow was only just positive this year so far despite the favorable zinc and lead price environment, and that will have to improve going forward if Trevali wants to stay on top of the mentioned debt and also maneuver into a position to finance further growth. However, we are not too concerned at this stage as capex spending should taper off, and the two new African mines Perkoa and Rosh Pinah should be able to generate additional free cash flow in coming quarters extrapolating from historical performance under its previous owner.

We mentioned further growth, and that means expansion plans at the Bathurst camp first and foremost. Trevali owns several projects in the vicinity of the operating Caribou mine, and the Halfmile-Stratmat PEA relates to one of them. The PEA studied two scenarios, and the one treating Halfmile-Stratmat as a satellite to the existing mill showed better economics. This comes with the caveat included in the chatboard snippet earlier in this piece and loops back to the discussion of metallurgical performance of the Caribou mill.

Our outlook remains tentatively bullish for Trevali.

News Release of the Week

News release of the week goes to MAG Silver (MAG) for releasing the results of the PEA update for the Juanicipio project in Zacatecas State, Mexico. The junior is developing this large underground silver deposit in a JV with Fresnillo (OTCPK:FNLPF), and the latest study has incorporated the new zones discovered over the past couple of years. Project scale and economics are quite remarkable, but should be mostly priced in at the current market capital of $900+M (already accounting for the new shares to be issued in the promptly announced $44M placement at $10.47 per share).

Drill Result Summary

• Kirkland Lake Gold (KL) appears to add mine life at Fosterville in Victoria, Australia. The latest intercepts from the Swan zone certainly point in that direction.
• Vendetta Mining (OTC:VDTAF) announced more results from this year's exploration program at Pegmont in Queensland, Australia. The results from Zone 5 were of the usual solid grade and confirmed the company's geological model.
• Harte Gold (OTCPK:HRTFF) reported results from step-out drilling at the Sugar Zone project. 6.8g/t over 6.18m from the Middle Zone stood out from the other results in our opinion.
• Corvus Gold (OTCQX:CORVF) has been drilling at the Motherlode project in Nevada, finding a best intercept of 2.7g/t over 54.9m.
• Barkerville Gold (OTCPK:BGMZF) is drilling 160,000m at its Caribou project in BC, and the corresponding news flow provided for another set of high grade data points last week. We are genuinely looking forward to seeing all these results incorporated into a resource update.
• Balmoral Resources (OTCQX:BALMF) was successful in expanding the Horsefly gold deposit at the Martiniere property with several long low-grade intercepts indicating a halo around some narrower high grade intervals.
• B2Gold (BTG) reported on exploration results at its latest producing gold mine, the Fekola mine in Mali. Results indicate potential for open pit as well as underground resource expansion, and also for conversion of currently inferred ounces into higher confidence classes.
• Algold (OTC:ALGDF) continues to expand the Tijirit project in Mauritania. The latest results emphasize the depth potential of the Eleonore zone. Kinross Gold (KGC) has been drilling not far away at Tasiast Sud, looking for additional ore sources to feed the expanding mill at Tasiast.
• Eastmain Resources (OTCQX:EANRF) has extended mineralization at the Clearwater project in recent drilling. Additional resources would be highly welcome to support PEA work on the project.
• GT Gold (OTC:GTGDF) reported more high-grade drill results from the Saddle gold project in the Golden Triangle. However, 10.18g/t over 6.87m among other similar intercepts was not enough to slow down this former market darling's fall from grace.

GTT data by YCharts

Wheelings and Dealings

Centerra Gold (OTCPK:CAGDF) is proposing to acquire AuRico Metals (OTCPK:ARCTF) for an all-cash consideration of C$310M. A comprehensive summary of the proposed transaction can be found here. AuRico's royalty collection is presumably in play with Osisko Gold Royalties (OR) and Sandstorm Gold (SAND), obvious candidates due to prior involvement.

Millennial Lithium (OTCQB:MLNLF) closed the first tranche of a $30M investment by a Chinese clean energy provider. Apparently this partner is interested in a lithium source, but mention of an offtake arrangement is suspiciously missing in the news release.

Other News

Roxgold (OTC:ROGFF) not only posted a solid first quarter, but also released FS results for the Bagassi South Project, essentially an expansion of the company's operating Yaramokko mine in Burkina Faso.

Tahoe Resources (TAHO) reported Q3 results and the market promptly sold the company off some more. Negative free cash flow was a first in the company's producing history, and combined with ongoing capex spending obviously worried investors. This comment stream provided a venue for discussion.

TAHO data by YCharts

Pretium Resources (PVG) reported on its much anticipated first full quarter of commercial production at Brucejack in the Golden Triangle of BC, Canada. The company generated $47.5M in revenues, but not surprisingly free cash flow remained in negative territory owing to payments associated with the mine completion. Working capital has moved back into surplus as of September 30. It will be interesting to see if free cash flow generation will suffice to manage the project debt and buy back portions of the metal streams while this is still an option.

Eldorado Gold (EGO) has placed its Skouris project in Greece on care and maintenance citing lack of permits from the Greek government as the reason for the move. The company has also filed three lawsuits against the state further escalating the ongoing dispute between the miner and the host of several of its mines and projects.

Argonaut Gold (OTCPK:ARNGF) reported results of a feasibility study on its Magino project in Ontario. Our initial reaction on the Itinerant Musings chat board provided the trigger for some interesting input from other members.

Take care of yourselves, as we would love to see youse all next week for the next issue of this newsletter.

And Before We Go...

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Disclosure: I am/we are long TREVF, VDTAF, SAND, ROGFF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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