A workman checks zinc bars ready for dispatch at Xstrata’s San Juan de Nieva refinery in Spain in this file photo.
Trevali Mining Corp.
Monday's close: 0.96, down 4 cents, or 4 per cent.
52-week trading range: 74 cents to $1.67 a share
Annual dividend: none
Analysts' ratings: There were 10 buys, no holds and no sells, according to Bloomberg data. Target prices ranged from $1.50 a share, an estimate by Haywood Securities analyst Stefan Ioannou, to $2.80 a share by Dundee Securities analyst Joseph Gallucci.
Recent history: Shares of the Vancouver-based junior zinc miner with operations in Canada and Peru have shed nearly 40 per cent over the past year, partly on concerns about securing financing for its projects and equity dilution. Junior mining companies have struggled because of investors' aversion to riskier stocks. Trevali acquired the Caribou mine and milling complex in New Brunswick last year from Maple Minerals Corp. in $23.8-million stock-warrant deal to help speed up its zinc projects in the province. Trevali also has manged to negotiate a $60-million (U.S.) debt-financing deal with a unit of FirstRand Group of South Africa. Last week, Trevali got approval in principle for $30-million of the loan to be used to reactivate the Caribou mine later this year. The second part of the financing is expected to be in place by April. Last Friday, the company said that its Santander zinc-silver mine in Peru is set to begin production by the end of this month.
Manager insight: Trevali shares are worth a look because the company is transitioning from being an exploration company to a producer, says Robert McWhirter, president of Selective Asset Management Inc. "Travali's 2013 zinc production is estimated to be 112 million pounds, and it is forecast to more than double to 242 million pounds in 2014."
The industry outlook is also improving because zinc supply is expected to tighten as some large mines close over the next few years, while its price has rebounded to around 93 cents a pound recently from 80 cents last September, he said. There is also the potential "kicker" from zinc's new-found use as an agricultural product because the commodity can increase crop yields when added to conventional fertilizer, he added.
Once the Peruvian mine is operating, Trevali will have an internal source of cash to expand zinc production capacity in addition to increasing power generation at its nearby hydro-electric facility by about 2014, he said. "Electricity is a huge expense...Their costs will drop by 5 cents per pound, which is another $5-million straight to the bottom line."
There will also be more demand for Trevali shares because the company will soon meet investment criteria required by Peruvian pension funds that cannot buy companies only involved in mining exploration, said Mr. McWhirter, who is eyeing Trevali closely for an investment. "Now that the Santander mine is coming into production, the Peruvian pension funds that have large amounts of money can end up investing in it."
The stock, he noted, is also cheap because it trades at 1.5 times enterprise value (EV) to forecast 2014 earnings before interest, taxes, depreciation and amortization (EBITDA). Materials stocks trade at about 3 times EV/EBITDA. The biggest risk is if Trevali's mines don't hit forecast production levels, he said.