Trevali and Glencore to push forward at Santander

Vancouver – Trevali Resources (TV-C, TREVF-O) is set to join the ranks of producers with its Santander silver-lead-zinc project getting the go-ahead from a joint-venture between Trevali and commodities colossus Glencore International.

The partners have been studying possible production at the Peruvian property since signing a memorandum of understanding (MOU) in May, 2009.

The green light means that, as per the MOU, Glencore will provide and operate a 2,000-tonne-per day concentrate plant in return for a fee and that it will purchase Santander’s life of mine concentrate. According to a toll agreement the MOU also states Trevali can eventually acquire the mill, if it so chooses, from Glencore.

The prices agreed to in the agreement have not been disclosed.

The general outline of the mine plan sees production starting from substantial tailings generated by the past-producing Santander mine which was operational between 1958 and 1993. Trevali has so far pegged the tailings’ indicated resource estimate at 1.7 million tonnes grading 2.74% zinc for 100 million lbs. contained zinc.

The joint venture then expects to transition into hard rock mining where resources stand at 5.3 million indicated tonnes grading 3.34% zinc, 1.27% lead and 38 grams silver per tonne. As far as that goes, Trevali anticipates it will first develop open pits on two of three of the project’s deposits, Magistral North and South, and then move underground.

Glencore has also agreed to provide a US$2 million convertible financing. Trevali says it will use the funds to further explore, delineate, develop and operate the project.

The financing bears interest at 2.5% plus LIBOR and will be repayable over three years starting either six months after commercial production begins or 20 months following drawdown of the financing, whichever comes first.

Glencore can elect to convert the financing into Trevali shares two years after drawdown. The conversion would be based on a then 30-day trailing and volume weighted share price with a minimum price set at 45¢ a share.

Trevali will maintain its overall ownership of the Santander project which comes in the form of exclusive rights to the property for 50 years with an automatic half-century extension.

During the 35 years of production the Santander mine produced about 8 million tonnes of ore grading at least 7% zinc, between 1% to 4% lead and 60 grams silver. According to Trevali operators shuttered the mine largely due to hyperinflation and a downturn in metal prices in the early 1990s.

Seeing potential to restart the mine again Trevali acquired the project in late 2007 and moved quickly to produce resource estimates. Drilling close to a hundred drill holes in 2008 it outlined mineralization from surface to a vertical depth of 350 or so metres, below which mineralization remains open.

In addition to its lease agreement on the property, Trevali has also acquired the rights to the Tingo hydroelectric dam, only 17 km away from Santander. Trevali has plans to upgrade capacity of the dam from 1.2 megawatts to 8.8 megawatts both to meet Santander’s power needs and to sell excess generation.

On news of the production plans Trevali’s share price dropped 16.5% or 13¢ to 66¢.