The Gold Report - Thu, May 25, 2017

The Zinc Race Is Heating Up and One Company Just Made a Big Move Forward

Trevali Mining added new weapons to its zinc arsenal by acquiring interest in Glencore's African zinc mines.


In a May 18 press release Trevali Mining Corp. (TV:TSX; TV:BVL; TREVF:OTCQX) reported that shareholders voted in favor of the company entering into an agreement to acquire interest in multiple Glencore International Plc (GLNCY:OTC; GLEN:LSE) zinc mines. The agreement included "an 80.08-percent interest in the Rosh Pinah mine in Namibia, a 90-percent interest in the Perkoa mine in Burkina Faso, an effective 39.24-percent interest in the Gergarub project in Namibia, an option to acquire a 100-percent interest in the Heath Steele property in Canada, and certain related exploration properties and assets."

Stefan Ioannou with Cormark Securities stated in a May 19 report that the US$400M Glencore "acquisition will boost Trevali's attributable annualized zinc production profile by 150% with quality assets, to +385 MMlb." Ioannou also pointed out that once the acquisition is finalized, "Trevali will be the eighth-largest zinc producer globally and the most leveraged producer with respect to zinc exposure."

Ioannou concluded that "with zinc production from four mines expected to ramp up to +450 per annum by 2020, we believe the company is poised to become a (the) marquee mid-tier, pure-play zinc producer in a market facing a significant near- to medium-term supply issue. Hence, we would not be [surprised] to see the company garner a premium market valuation on the back of higher zinc pricing/improving sentiment."

Ioanou has rated Trevali a top pick with a target price of $1.85 per share.

In a May 17 report, Paradigm Capital's James Woolley stated, "Trevali's growth story is coming together at a most advantageous time in the market as increasing supply drive zinc prices higher. Trevali's two existing mines are now operating well and generating positive free cash flow, while the recently announced acquisition agreement to purchase two additional mines from Glencore will more than double the production base and elevate Trevali to be the 'go-to' name for investors seeking zinc exposure."

Calling the Glencore transaction "transformative," Woolley concluded that it "will catapult Trevali to be the largest pure-play zinc producer globally, cementing it as the best means for investors to gain exposure to the zinc market. We maintain our C$2.00 target price (based on a 1.25x NAV multiple) and Buy recommendation."

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