Trevali expands geographic footprint to Africa as zinc tide rises

VANCOUVER (miningweekly.com) – Canadian base metals producer Trevali Mining is expanding its geographic footprint into Africa with the $400-million acquisition of diversified mining and marketing company Glencore’s 80% interest in the Rosh Pinah mine, in Namibia, and 90% interest in the Perkoa mine, in Burkina Faso.

HSBC global metals and mining research analysts said that while the transaction has little or no impact on Glencore's valuation, it does potentially expand its zinc optionality at no cost and provides early cash flow.

"The acquisition of Rosh Pinah and Perkoa is a historic event and unique opportunity for Trevali shareholders and sets the stage for a multi-asset, low-cost global zinc producer. The assets provide strong upside to shareholders in the current strengthening macro zinc environment through scale of production, as well as an attractive package of exploration ground,” Trevali president and CEO Dr Mark Cruise stated on Monday.

The Vancouver-based miner, which bills itself as the only pure-play zinc producer in the world with existing operations in Peru and Canada, will pay for the acquisition with $244-million in cash and $156-million in shares. Trevali will also pay Glencore $30-million to repay an existing debt facility.

Under the terms of the transaction, Glencore will increase its direct ownership in Trevali from 4% to 25% and its board membership to two seats.

Following the transaction, Trevali will have output of about 230 000 t/y of contained zinc, with Glencore maintaining the offtake from all four of Trevali’s mines.

The transaction is subject to customary regulatory approvals and is expected to close by July.

EXPLORATION SUCCESS
Trevali also on Monday announced that it had intersected significant massive sulphide mineralisation about 350 m outside the current Caribou mine resource, in New Brunswick.

Drill hole BR-1017 was designed to test the about 200-m west-northwest down-dip extension of drill hole BR-1014A (that intersected 50.9 m grading 5.08% zinc, 1.76% lead, 0.37% copper, 59.66 g/t silver and 1.63 g/t gold. The hole intersected 7.1 m of massive sulphide at a downhole depth of 812.5 m (vertical depth of about 725 m) grading 4.91% zinc, 2.06% lead, 0.37% copper, 77.92 g/t silver and 2.52 g/t gold.

Further, drill hole BR-1018 was designed to test the northwest down-plunge extension of the “Caribou Mineral Horizon” that remains relatively underexplored, the company said. The hole intersected 32.1 m of sulphide mineralisation at a downhole depth of 808 m (vertical depth of about 770 m) grading 3.36% zinc, 1.28% lead, 0.74% copper, 37.41 g/t silver and 0.94 g/t gold, within which several higher-grade intervals occur including 12.95 m of 4.77% zinc, 2.02% lead, 0.43% copper, 51.14 g/t silver and 1.57 g/t gold.

Trevali on Monday said down hole geophysics from both holes suggests strong continuity of mineralisation in the area around BR-1014A. Follow-up drilling is under way with the goal of defining the limits of mineralisation and bringing this zone of mineralization into the geologic resource.

“These significant, deeper massive sulphide mineralised intercepts at our Caribou zinc mine continue to demonstrate the resource expansion potential of the deposit. The ultimate mine life at Caribou has yet to be defined and we remain greatly encouraged by the results that clearly demonstrate the deposit remains open at depth,” Cruise said.

Trevali is busy completing its 2016/17 winter drill campaign and will release the results as they become available.

FINANCIAL RESULTS
Trevali last week reported its financial results for the year ended December 31, with full-year profit of C$12.2-million, compared with a loss of C$14.3-million in 2015.

The company reported record concentrate sales revenue of C$198.2-million, up 86% from 2015, boosted by record zinc output of 61.26-million pounds at Santander, up 13% year-on-year, at the lowest yearly cost of $34.17/t milled, which was below the cost guidance of $35/t to $38/t milled.

The Caribou mine produced 36.71-million payable pounds of zinc in its first period of commercial production, for a total output of 97.96-million pounds of zinc.

Trevali’s total zinc-equivalent payable pounds produced in 2016 was 148.18-million, up 46% over the 101.65-million pounds produced in 2015.

BULLISH OUTLOOK
Zinc had outperformed its base metal peers in 2016, rising 70% in 2016 alone to about $3 000/t. Price-induced cuts, planned closures and Glencore’s unexpected strategic cuts resulted in a record drop in global mine output in 2016.

Mine cuts have created a zinc concentrate shortage and disrupted concentrate flows. The growing deficits in China and the rest of the world have depleted concentrate stocks and forced treatment charges lower.

About 500 000 t of additional mine closures and steady demand growth will create the need for 2.25-million tonnes of new mine capacity by 2021.

Global demand for zinc is expected to rise 2.4% a year between 2017 and 2021, pulling the price northwards towards historic highs around $4 000/t.

Trevali expects to produce between 63-million and 65-million pounds of zinc from the Santander mine this year, at site cash costs of between $35/t to $40/t milled. The Caribou mine is expected to produce between 90-million and 93-million pounds of payable zinc this year, at site cash costs of $55/t to $60/t milled.