VANCOUVER — With $51 million in new debt funding on hand, Trevali Mining (TSX: TV; US-OTC: TREVF) is finding that it’s a good time to rehabilitate an underground zinc mine in New Brunswick.
The Caribou mine and 3,000-tonne-per-day mill complex, located 50 km west of Bathurst, has operated intermittently since 1970. The owner before Trevali spent more than $100 million rehabilitating the mill facility before restarting the mine. The operation ran for 13 months before the global recession and failing zinc prices forced the mine into receivership.
Now zinc prices are at a three-year high and Trevali is getting ready to restart Caribou on its own terms.
A preliminary economic assessment (PEA) of the restart released in May outlines a mine producing 93 million lb. zinc, 32.5 million lb. lead, 3.1 million lb. copper, 730,000 oz. silver and 1,500 oz. gold annually for six years.
Operating costs should average US65¢ per lb. zinc, after by-products and royalties. Copper will be a new by-product at Caribou, as Trevali is adding a copper-recovery circuit to the mill.
That effort is already underway, as is rehabilitation of the underground mine.
“The nice thing is that the sector is still in the doldrums — zinc is doing great, but all the contractors are available,” president and CEO of Trevali Mark Cruise said. “All the big guys bid on the underground development and mining contract and it came in under budget — that tells you how hungry they are for work. And the really nice thing is that you’re getting the ‘A’ teams, because not many of the majors are doing anything.
“Then there’s all the staff available from the closure of Brunswick 12 — pretty much all of our staff are former Xstrata staff who are just incredibly experienced guys and girls,” Cruise continued. “They’re been doing it a long time, they’re used to the rock type, they’re used to the polymetallic mineralization — it’s a huge de-risker, really it is. We’ve got a great ops team out there.”
Brunswick 12 is a nearby underground polymetallic mine that operated for almost 50 years until Glencore (LSE: GLEN) shut it down in early 2013.
Trevali is aiming to commission the new-and-improved Caribou mine before mid-2015. The company took a big step closer to that goal in May when it closed a $51.5-million debt facility. The company sold 52,500 units at $980 a piece, with each unit comprising $1,000 worth of 12.5% senior-secured notes due in five years, and 123.2 warrants exercisable at $1.26 for five years.
“Construction and everything was pending the close of the debt facility, so from mid-June onward we’ve been hard at it out east,” Cruise said. (Trevali is based on Vancouver.)
The debt facility provides more than enough funding to get Caribou up and running. The PEA estimates the restart will cost just $36.3 million. The semi-autogenous grinding mill will be installed soon over about three months. The float cells that make up the new copper circuit will be installed simultaneously and there is enough room within the mill building to accommodate the new copper system.
The underground is still being dewatered and will need some work, but Cruise says the mine is in good condition.
“It was fully flooded,” Cruise said. “We’re at about 45% dewatered. We dewatered all winter but it was through the shaft, so it was pretty slow. Now we’re down to the second level, which is where all the underground infrastructure is installed . . . we’re going to be reinstalling the dewatering pumps, and that will ramp up the pace.”
The company is working from the PEA for now, but Trevali is pursuing other options to enhance the operation. For example, Cruise explained that the conservative PEA assumed the mine would use dry waste rock as backfill. An alternative is to grind the waste rock and mix it with water to create a paste that can backfill mined-out areas.
The paste hardens like concrete and the added stability means miners can remove more of the pillars of remnant ore that otherwise have to be left behind to support the void.
“We’ve got over 9 million tonnes of mineable resource at Caribou, but only 6.1 million are in the mine plan,” he said. “That means we’ve got 3-million-plus tonnes that are not creating value. One way to capture that is with paste backfill: we could be able to recover 1.5 to 2 million additional tonnes, which would extend the mine life one and a half to two years.”
Trevali hopes to have the paste backfill study complete by year-end. Provided the results are positive, the company will update the PEA. Capital costs will rise slightly to cover the expense of a paste facility, but Cruise expects the benefits will outweigh this.
“Operating costs are actually cheaper — what you’re doing is moving a slurry underground, so you pump it down instead of using trucks,” Cruise said. “You increase your overall recovery of your deposit, it’s cheaper opex and you decrease the amount of dilution in any individual stope, so it actually ups your head grade as well.”
The other way to enhance Caribou is to add resources. The deposit at Caribou, which comprises a steeply dipping lens of volcanogenic massive sulphide mineralization, remains open at depth.
Trevali also owns the Halfmile mine 20 km south, which for a short time in 2012 sent ore to Brunswick 12 for processing and is home to 6.3 million indicated tonnes grading 8.1% zinc, 2.6% lead, 0.2% copper and 30.78 grams silver per tonne, plus a similar number of inferred tonnes at a slightly lower grade.
And a few kilometres east of Halfmile is Stratmat, another Trevali property with 5.5 million inferred tonnes averaging 6.1% zinc, 2.6% lead, 0.4% copper and 54.21 grams silver, plus considerable exploration potential.
“Resources are not actually a struggle, but we do like adding value with the drill bit,” Cruise said.
Early this year Trevali drilled one deep hole underneath the Caribou deposit to test for depth extension. The hole probed more than a kilometre underground and as a proof of concept it worked, returning 6 metres of mineralized massive sulphide from 450 metres below the known resource.
“Later this year or early next year we are planning an underground drill program to chase that deeper, but it doesn’t make sense to drill it from surface,” Cruise said. “We’re also pretty aggressively drilling at Stratmat: we’re almost 20,000 metres through a 30,000-metre program. The rationale there is to convert the current inferred resource to a higher confidence category and really to update our PEA, because it is pretty outdated.”
Cruise says ideally Trevali would like to see Stratmat and Halfmile support a second stand-alone 4,000- to 5,000-tonne-per-day facility.
“The nice thing is, though, that even if for whatever technical reason it doesn’t make sense to do that, we mine Caribou out and then start bringing in Halfmile and Stratmat, which would extend the Caribou mine life beyond thirty years.”
Trevali also owns and operates the Santander zinc–lead–silver mine in west-central Peru, which achieved commercial operation in February.
Trevali’s share price has climbed in recent weeks, closing at $1.32 on the last day of July to mark a 30% gain in six weeks. The company has a 52-week trading range of 62¢ to $1.39, and 280 million shares outstanding.
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