Trevali on the path to production

In the last few months Trevali Mining (TV-T) has expanded its resource base, changed its name, closed a $10-million financing, and listed on the Lima Stock Exchange. Now, it’s working to get two mines into production over the next 12 months.

Trevali’s shares jumped 16% one day after providing a construction update on its Halfmile zinc-lead-silver-copper deposit near Bathurst, N.B.

The company started development work on Halfmile in March, and says the project should be off the ground by September and ramp up to 2,000 tonnes per day over the following months.  

Trevali plans to boost the processing rate to 4,000 tonnes per day in 2013/2014, and place its nearby Stratmat polymetallic deposit online as a satellite mine to Halfmile.

Halfmile-Stratmat would run at the increased rate for another 17 years based on its current resources. Stratmat has an inferred resource of 5.5 million tonnes at 6.11% zinc, 2.59% lead, 54.21 grams silver and 0.40% copper. Using a 5% zinc-equivalent cut-off, Halfmile has an indicated resource of 6.2 million tonnes grading 8.13% zinc, 2.58% lead, 30.78 grams silver per tonne and 0.22% copper, with another 6 million tonnes in inferred at lower grades. 

Trevali completed building a 3-km access road for Halfmile, secured major underground mining equipment and began drilling and blasting on the portal excavation.

The miner is also finalizing a toll mining and offtake agreement with Xstrata (XTA-L), which owns 7% of Trevali.

Trevali says it would be custom-milling at Xstrata’s Brunswick #12 complex in the last quarter of 2011, for about three years.  

Steve Stakiw, Trevali’s manager of corporate communications, says the mill is scheduled to close within the next three years, but adds the company has a few alternatives when it does.

“While Trevali will be moving ahead on a full feasibility for a stand-alone mill facility, ultimately what we would like to do is acquire Brunswick #12, once it closes,” Stakiw says, noting currently there is no formal discussion taking place with Xstrata.

Trevali’s other options would include using another mill in the area.  

The company scooped up the Halfmile and Stratmat deposits when it acquired Kria Resources in April 2011, by paying Xstrata US$5 million. Kria had optioned the properties from Xstrata, and between 2008 and 2011 made cash payments of $13 million, including shares and warrants. However, it had a final payment of US$5 million left. 

As part of the acquisition, the company bought all of Kria’s outstanding shares and changed its name from Trevali Resources to Trevali Mining. Kria shareholders received 0.2 of a Trevali share for each share held.

The miner also acquired Kria’s past-producing Ruttan copper-zinc mine in northern Manitoba.

Ruttan was one of the larger copper producers in the Flin Flon area, operating from 1973 to 2002, before shutting down due to sliding metal prices.

While the company advances its Halfmile-Stratmat project, it’s also bringing its Santander zinc-lead-silver project in Peru online.

In 2009, Trevali teamed up with Swiss-based Glencore International to dust off Santander, and get it back into shape and active by late 2011.

Spanning 44 sq. km in the Central Peruvian polymetallic belt, some 215 km from Lima, the mine is expected to churn through 2,000 tonnes a day before ramping-up to a 4,000-tonne-a-day operation by 2013.

Adam Low, an analyst at Raymond James, wrote in a research note that “Trevali has the very unique opportunity to bring not one, but two mines (Halfmile and Santander) into production over the next twelve months.”

He adds that these projects also share the “rare trait of requiring minimal initial capital, as both will utilize toll milling from existing processing plants at the outset.”

The company expects capital expenditure to get Santander into production at $15 million, and $20 million to $25 million for Halfmile, says Stakiw.

Under the partnership agreement, Glencore would provide a 2,000-tonne-per-day processing plant and contract mining in exchange for life-of-mine offtake of all the metals produced at Santander.

Stakiw points out that the agreement will be at International Benchmark Terms, so Glencore would pay Trevali the London Metal Exchange’s average prices for the shipping period.

The junior says the strategic partnership with Glencore “mitigates both financial and technical risks.”

Glencore bought concentrates from Santander when it previously operated between 1958 and 1992.

Stakiw notes Santander would give Glencore a high-grade concentrate that the major can store, blend and sell to smelters around the world. 

“It’s a very clean concentrate,” Stakiw says. “It gives them a very high-grade product to work with.”

Glencore is currently moving a mill from its Rosaura mine, about 60 km away, to Santander.

“The mine exhausted its reserves,” Stakiw explains. “But the mill was in really good condition. It’s about a seven- to eight-year-old mill.”

He adds the company is building the mill in a “4,000-tonne-per-day footprint,” which means the crushing circuit would be able to process 4,000 tonnes per day, if the company ramps up production.

Some 17 km west of Santander, Trevali is upgrading the Tingo run-of-river hydroelectric generating station. Tingo has been operating since 1958 and would service Santander’s power needs. The company plans to enhance the generating capacity from 1.6 megawatts to 8.8 megawatts.

Because the work could take a year, the company has secured access to power off the Peruvian National Energy grid, Stakiw says.

“That would basically bridge us, until we get our own facility up and running. At 2,000 tonnes per day, we would need about 4 megawatts to power the mill, camps and pumps for the underground mines.

“With the surplus capacity, we will be able to sell it to the national grid, and have another revenue stream coming off of that.”

To help with the shift from explorer to producer at Santander and Halfmile, the company added new faces to its management team in May. It replaced chief financial officer Michael Kinley with Anna Ladd, and brought on Paul Keller as vice-president of operations, Dayle Rusk as vice-president of exploration and Daniel Marinov as chief geologist.

It also wrapped up a $10-million financing in April, by closing the remaining $3.85-million, non-brokered portion of the private placement.

In total, the company issued 5.2 million shares at $1.90 apiece. Trevali says the net proceeds would go towards building its Santander mine, and continued exploration in Peru, among other costs.

Also in April, the miner initiated a debt facility with German bank WestLB for up to US$30 million to help advance Santander. The company expects to finalize the debt facility within the next month.

Trevali is currently drilling at Santander and plans to release an updated resource estimate by year-end.

To date, three holes hit high-grade mineralization on the Santander Pipe zone.

Hole 166 cut 11.2 metres of 94.9 grams per tonne silver, 7.24% zinc and 0.49% lead; hole 168 hit 26.8 metres grading 24 grams silver, 0.83% zinc and 0.30% lead; and hole 169 intersected 7.1 metres of 135.9 grams silver, 14.15% zinc and 0.74% lead. All three holes also hit minor grades of copper mineralization.

Trevali’s Huampar silver mine, also in Peru’s Central Peruvian polymetallic belt, saw past production of 2.5 million tonnes averaging 185 grams silver per tonne, 1.6 grams gold per tonne, 5% zinc and 3.8% lead.

The company signed an agreement to acquire 100% of Huampar in May from a private Peruvian mining company. Huampar has a historic, non-compliant resource of 874,412 tonnes of 1.3 grams gold, 209 grams silver, 3.31% lead, 3.63% zinc and minor copper mineralization.

Trevali says the mine infrastructure is in good shape. Huampar came with a 600-person camp and a fully permitted 400-tonne-per-day processing plant.

By 2015, the company plans to expanding production to at least 175 million lbs. zinc. 

Low of Raymond James comments that 69% of Trevali’s forecasted metals revenue would be generated by zinc, with the remaining 20% from lead, 7% from silver and 4% from copper.  

He has an outperform rating on the stock with a 6- to 12-month target price of $2.40. 

Following the update on Halfmile, Trevali shares gained 21¢ to close at $1.50 on June 17.

At presstime, shares traded 1¢ less.