Trevali suspends Caribou mine in New Brunswick

Trevali Mining (TSX: TV; US-OTC: TREVF) has temporarily suspended operations at its Caribou mine near Bathurst, New Brunswick.

The company noted that the global zinc market has deteriorated and that the situation has been exacerbated by the outbreak of COVID-19.

Market conditions, along with high concentrate treatment charges (TCs), make the mine uneconomic, the company said, adding that it is not offering a timeline for a restart.

“We have a capable and engaged team at Caribou, and in the last 12 months we have made incremental improvements to increase production and reduce the cost structure,” Ricus Grimbeek, Trevali’s president and CEO, stated in a news release on March 26. “During the past year, we demonstrated that the Caribou mill can achieve higher throughput then nameplate capacity, while at the same time increasing metallurgical recoveries leading to higher production; however, the significant recent drop in the zinc price limits our ability to generate positive cash flow.”

Trevali estimates one-time costs to place the mine on care and maintenance during April and May will run to US$5 million with ongoing costs of about US$500,000 per month on a cash basis to ensure that the mine, mill and associated infrastructure is safe and secure.

Due to the suspension, the company has withdrawn its 2020 guidance and to further preserve capital has cancelled its program to repurchase its common shares.

The company estimates that the majority of its revenue is generated from its four assets: Caribou; its 90%-owned Perkoa mine in Burkina Faso; its 90%-owned Rosh Pinah mine in Namibia; and its 100%-owned Santander mine in Peru.

BMO Capital Markets downgraded Trevali to market perform after the Caribou announcement and cut its target price to 25¢ per share from 30¢, stating that “there is elevated risk of additional mine curtailments, liquidity pressure, and concerns surrounding covenants in this challenging zinc market.”

Canaccord Genuity reiterated its hold rating and 17¢ per share target price, and said it viewed Trevali’s decision to temporarily suspend Caribou as a “prudent one.”

“We note that this is different from the rash of COVID-19-related temporary shut-downs we have been seeing across the mining sector; management had previously indicated that this decision was likely should the operation not be able to demonstrate a significant step-change in the operating cost profile.”

“We are not surprised by this decision,” Canaccord’s analysts continued in their research note to clients. “Caribou was Trevali’s highest cost mine – the company’s all-in sustaining cost guidance for 2020 was $1.12-$1.24 per lb. versus the current spot zinc price of about 80¢ per lb.

“In addition, we have seen recent headlines indicating Teck and Korea Zinc have agreed on a 2020 TC [treatment charge] benchmark of $300 per tonne, well above the already high 2019 benchmark of $240 per tonne. At current spot prices, we project Caribou to have been significantly free cash flow negative (~$20 million annum) over the next couple of years, despite the decline in the Canadian dollar.”

Canaccord also estimated that given the company’s total liquidity of $236 million, it “has the ability to ride out the currently depressed zinc pricing environment through at least 2022.”

At press time, Trevali’s shares were trading at 8¢ within a 52-week range of 7¢ and 49¢.

The company has 807 million common shares outstanding for a $65-million market capitalization.