It took Trevali Mining (TSX: TV; US-OTC: TREVF) just six months to move its Santander zinc–lead–silver mine in Peru from commissioning to commercial production, and now the Vancouver-based company says it’s ready to develop its zinc-rich polymetallic Caribou mine project in New Brunswick, which it hopes to begin commissioning in the first quarter of 2015.
Santander is an underground mine 200 km northeast of Lima. It is expected to produce payable metal this year of 42 million to 45 million lb. zinc, 15 million to 17 million lb. lead and 700,000 to 720,000 oz. silver. Mill throughput is forecast to reach 670,000 to 690,000 tonnes, with average head grades of 4–4.2% zinc, 1.5–1.7% lead and 1.4–1.6 oz. silver per ton.
While Santander ranks as a small- to medium-sized underground zinc mine given its nameplate capacity of 2,000 tonnes per day, Trevali believes there is potential to expand the mine once the team reaches a comfortable level with the underground conditions.
“There are a lot of exploration targets on the property, and we will have drill rigs turning in the second quarter of this year,” says Mark Cruise, Trevali’s president and CEO, noting that the company’s geologists found a new zone last year called Rosa with similar zinc grades, but higher grades of lead (3–4%) and silver (3–6 oz. silver per ton).
Mineralization at Rosa was not included in the company’s 2014 production guidance, and Trevali plans to drill the vein from underground in mid-year.
Cruise says Rosa is interesting because the last and deepest hole drilled in 2013 returned the best intercept. “It appears to get thicker and the grades seem to get better as we go deeper,” he says. “It’s low-risk exploration in my mind — it’s just expanding the known zones deeper.”
The company is mining three zones — Magistral North, Magistral Central and Magistral South, all of which remain open at depth — and Cruise is convinced there’s potential to find another feeder zone, like that of Rosa in the north zone, in either of the central and southern zones.
Cruise, a specialist in base-metal deposits with 18 years of experience, including a stint on the technical team that developed the 4,500 tonne-per-day Lisheen mine in Ireland, believes Trevali has only scratched the surface at Santander.
“If you look at what’s been found we’re at 28 million to 30 million tonnes, and everything remains open for expansion,” he says, adding that there is an old mine on the property that’s open at depth that they haven’t even gone near, but know that operations ended in mineralization.
“Typically the big systems get bigger . . . we’ve got 44 sq. km on the property and we’ve got 17 km of known productive trend on that property, and we’ve only drilled from surface on about 1 km,” he says. “So there are similar look-alike targets on the property that have never been drilled.”
Trevali has come up with six high-priority targets, the closest being 600 to 700 metres away from the mining operation and the farthest 5 km away, well within trucking distance.
No matter how excited Cruise sounds about Santander, however, it’s Trevali’s three projects in New Brunswick that he says will transform the company into a mid-tier producer: the flagship Caribou milling and mine complex, the Halfmile mine (25 km south of Caribou) and the Stratmat project. The New Brunswick assets will make up two-thirds of the company’s production value.
The Caribou mill, for example, will produce 160 million to 180 million lb. zinc equivalent a year. That’s twice Santander’s 70 million to 80 million lb. zinc equivalent a year. And the three 100%-owned deposits have some of the highest undeveloped primary zinc grades in the world. Like every other commodity, average head grades for zinc have dropped globally from 7% in 2000 to today’s 4–5%, and are still falling, Cruise says. By contrast, the average head grade at Caribou is 7%; at Half-mile, 7–8%; and at Stratmat, 6%.
The New Brunswick deposits also contain above-average lead grades, varying from 2.6–2.9%. By some estimates, average global lead grades are 1–1.5%.
Most importantly, all three deposits remain open at depth.
“That’s what we really love,” Cruise enthuses, “the potential for organic growth is great — you just drill deeper.”
Indeed one of the deepest holes at Caribou returned some of the highest grade and thickest mineralization.
A preliminary economic assessment of Caribou and Half-mile are expected in late March.
At Half-mile, where Trevali did some trial mining in 2012, the geophysics suggest there could be potential for a 15- to 20-million-tonne resource at depth. “There has been some drilling into the anomaly and it returned high-grade mineralization of 9–10% zinc over potentially mineable intervals,” Cruise says. “So we’ll just chase the holes deeper.”
At Caribou all the long-lead items were delivered to site in December, and the company has been dewatering since mid-2013.
Cruise estimates that Caribou will employ 300 people — possibly the largest local employer outside of government in the northern part of the province — which is a benefit after the Brunswick 12 mine shut down in May last year, putting 700 people out of work. As for permitting in the province, Cruise says it doesn’t get much better.
“It’s fantastic, absolutely fantastic,” he says. “The northern part of New Brunswick has a long and deep history and a skill set in mining, and it’s got great local support . . . the mayor of Bathurst, the province and the First Nations all want the employment opportunities and the industry.”
The fundamentals for zinc are improving, as some of the world’s largest zinc mines plan to wind down between now and 2016, leaving Trevali in a desirable position.
LME warehouse inventory levels have decreased from just over 1.2 million tonnes to less than 800,000 tonnes — a 33% difference that represents more than a two-year low.
“There are no big zinc mines being built anywhere in the world at this time and no one has any plans to do so,” Cruise says, noting that the super majors got out of zinc in the mid-1990s and early 2000s to focus on iron ore and copper, while most of the mid-tiers became copper-focused.
“No one has been looking for zinc or finding it and developing assets,” he continues. “Now there are good zinc resources globally but they’re either in politically unstable jurisdictions like Iran, or they’re incredibly remote, like in Canada’s High Arctic.”
Among other things, that means that the costs of developing and building a zinc mine will go up, so zinc prices will have to increase a lot more than their current US92¢ to US95¢ per lb. price before anyone thinks of building them, he says. (Zinc prices touched US$2 per lb. in the 2006–08 rally.)
He also estimates that to permit and build a zinc mine today can take anywhere from five to 10 years.
Adam Low of Raymond James argues that Trevali is “uniquely positioned as the only pure-play zinc producer on the TSX, and in light of a scarcity of equities that offer exposure to zinc.”
Over the last year Trevali has traded between 49¢ and $1.18 per share. At press time on the TSX it traded at $1.14.
“Trevali is one of the most inexpensive stocks we follow,” comment Joseph Gallucci and Iain Farmer of Dundee Capital Markets. “With production now underway in Peru and mill construction progressing in New Brunswick, Trevali should haave two producing operations on line and fully ramped up by the time we expect improving zinc fundamentals to buoy prices in 2014.”
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