Trevali advances Caribou as Santander delivers the goods

VANCOUVER — Emerging producer Trevali Mining (TSX: TV; US-OTC: TREVF) is a preferred zinc play amongst analysts, and its performance over the first five months of 2015 have gone a long way in solidifying that reputation. The company generated positive cash flow at its reliable Santander zinc-lead-silver mine in Peru during the first quarter, and later this year should deliver initial concentrate sales its revived Caribou zinc-lead-silver mine in northern New Brunswick’s Bathurst mining camp.

Trevali is also raising funds with relative ease despite the languorousness of equity markets. On May 21 the company boosted a proposed bought-deal financing by 53% to bring gross proceeds to $30.6 million. Under an adjusted agreement with Dundee Securities, Trevali would issue 30 million shares priced at $1.02 per share.

The financing should give the company enough money to finish mill commissioning at Caribou and fund a 10,000-metre infill drill program at the mine once it dewaters lower levels of the underground.

During the first quarter Trevali sold 11.8 million lb. zinc, 7.3 million lb. lead and 244,000 oz silver. The company reported sales revenues of nearly $26 million and mine income of $2.2 million, based on-site cash costs of US39¢ per lb. zinc equivalent and US$48.88 per tonne milled. Meanwhile, realized selling prices were US93¢ per lb. zinc, US81¢ per lb. lead and US$16.43 per oz. silver.

“The big difference in the [first quarter] of this year, compared to prior years, was certainly lower commodity prices in specifically lead and silver, and clearly, that obviously had an impact on the bottom line and our site cash costs,” president and CEO Mark Cruise said during a recent conference call.

“Looking on a quarter-to-quarter comparison, this year we’re obviously at full nameplate, and so certainly, we are a little bit over guidance on tonnes milled, as the [Santander] mill continues to operate very efficiently,” he added.

Trevali registered a quarterly net loss of $2.8 million, or 1¢ per share, which was partly attributed to a one-time loss on a litigation settlement.

But the operationally reliable company processed 185,000 tonnes of ore at Santander, mostly from the Magistral North-Rosa and Magistral South zones. The mill performed well within expectations, with average recoveries pegged at 90%  zinc, 90% lead and 80% silver.

Since Trevali has its Peruvian operations humming along at nameplate, its next step is to pull its Bathurst camp assets in northern New Brunswick into the production pipeline. On May 19 the company announced mill commissioning of its 3,000-tonne-per-day circuit at Caribou, soon after underground mining.

Caribou is a sediment-hosted volcanogenic massive sulphide (VMS) deposit, which was most recently in production in 2008. The company has invested $36 million in kick-starting operations at the site, and reported that underground refurbishment is going “exceptionally well.” Trevali has 7 km — within a total 13.3 km of underground development — across 10 of 16 levels and sublevels fully refurbished and available for production operations.

So that it can gather enough feed for commissioning, the company has produced 75,000 tonnes in stockpiles from underground development and production stopes, with another 28,000 tonnes of feed drilled and readily available for blast and mucking, with a new ramp system. Right before shut down, Caribou’s mill production records show recoveries of 71% lead and 83% zinc to produce saleable zinc and lead-silver concentrates.

Trevali’s mine plan is based on measured and indicated resources of 7.2 million tonnes grading 6.99% zinc, 2.9% lead, 0.4% copper, 84.4 grams silver per tonne and 0.89 gram gold per tonne. Inferred resources include 3.7 million tonnes of 6.95% zinc, 2.8% lead, 0.3% copper, 78.3 grams silver and 1.23 grams gold. All resource statements assumed a 5% zinc equivalent cut-off grade.

Average annual payable production over a six-year mine life is expected to total 93 million lb. zinc, 32.5 million lb. lead, 3.1 million lb. copper, 730,000 oz. silver and 1,500 oz. gold.

“We essentially started underground production in the middle of the first quarter, and we’re going to follow the same path we took with the Santander mill commissioning, which was very fast and very successful. So the guys will play around with different head grade, and different bits and pieces,” Cruise said.

“We’re certainly well advanced in commissioning and, any time soon, we anticipate moving to kind of hard commissioning, where we’re actually putting hard feed through those mills. On the milling side, our team was out in Australia with our partners Glencore (LSE: GLEN), getting some advance training.”

Adding to Trevali’s ambitions in the Bathurst camp is the nearby Stramat VMS deposit, which is composed of five discrete mineralized zones running over 2 km. The multi-lens, multi-zone deposit is open for expansion at depth. On May 20 the company updated the resource at the project, where it hopes to establish tonnage to keep a second standalone mill in the region.

Stratmat hosts 2.15 million indicated tonnes grading 0.7 gram gold, 60.7 grams silver, 2.7% lead, 6.8% zinc and 0.4% copper. Contained metals total 50,000 oz. gold, 1.45 million oz. silver, 59.5 million lb. lead, 135 million lb. zinc and 11.1 million lb. copper. Trevali’s resource estimate assumes a 7% zinc-equivalent cut-off grade.

“The main focus is on Caribou commissioning, and so nothing’s going to happen anywhere until Caribou is fully derisked,” Cruise explained. “Once that’s up-and-running, we’ll kind of revert back and see what makes sense in Peru and/or in New Brunswick as well. The idea will be to update the economic study that looks at a joint Halfmile-Stratmat milling solution that opens up areas that may need further work, or that we will need to refocus on.”

Trevali has traded within a 52-week window of 91¢ to $1.41, and closed at $1.05 per share at press time. The company reported $18 million in mid-May, and has 287 million shares outstanding for a $298.4 million market capitalization.