Trevali President and CEO Mark Cruise discusses the rationale and benefits behind purchasing its two African properties from Glencore.
Trevali Mining (TSX:TV) is a primary zinc producer with four commercially operating mines across the American and African continents.
It holds the Santander mine in Peru, the Caribou mine in New Brunswick, Canada, the 80-percent-owned Rosh Pinah mine in Namibia and the 90-percent-owned Perkoa mine in Burkina Faso. Trevali is also looking to develop two more properties in New Brunswick, near the Caribou mine.
In the interview below, Trevali CEO Mark Cruise discusses the rationale and benefits behind purchasing its two African properties from Glencore (LSE:GLEN), a major partner and shareholder in the company. As part of an initiative to grow Trevali’s standing as the sixth zinc producer globally, the company has seamlessly integrated these properties into its production program.
Cruise also offers his views on the zinc market, suggesting that zinc prices look like they will be “stronger for longer” as he does not see any material zinc mines entering the market in the next three to five years.
Below is the video of our interview with Cruise, followed by a transcript that has been edited for clarity and brevity.
Investing News Network: Please explain the rationale for your acquisition of Glencore’s African zinc mines and why Glencore would sell them in a bullish zinc market.
Trevali CEO Mark Cruise: We have had a close working relationship with Glencore since 2010 and they have been a shareholder since 2012. In 2015, we floated the concept of trying to make Trevali a bigger, more meaningful, mid-tier zinc company, and we looked at opportunities with Glencore. Once they acquired Xstrata, they reprioritized their portfolio, which ultimately allowed for the acquisition of their African assets. It’s important to note that the mines were not officially for sale, and Glencore made them solely available to Trevali. We were thrilled with the opportunity and took the time to perform detailed due diligence before ultimately closing the deal in August 2017.
INN: It is clear that the acquisition significantly boosts Trevali’s zinc production profile. Are there additional growth opportunities to increase output?
MC: We do believe that there is incremental room for growth. Short term, the aim is to boost production by 8 to 10 percent per operating unit, which is quite material given where zinc is at the moment. We are the eighth zinc producer globally, and every additional pound we produce is highly beneficial. In the medium term, we are looking to aggressively explore our African and Peruvian assets. Contingent on exploration results, we believe that there might be an opportunity for a step-change increase in throughput as well. However, that is an opportunity we will start focusing on as of next year.
INN: How is the integration process going at the new mines?
MC: The integration has been pretty seamless, particularly given our long operating relationship with Glencore and how we run our two operating mines: the Santander mine in Peru and our Caribou mine in New Brunswick. We are using a very similar operating philosophy with strict financial controls and pointed exploration programs, adding value with the tonnes processed in a timely manner. I believe we are largely integrated at this point, or will be by the end of the year.
INN: What do you see out there for additional M&A opportunities in the zinc space?
MC: We want to continue growing the company; however, there are currently no opportunities that would move the needle for us. That probably applies to the zinc industry as a whole, indicating that the current zinc price will probably be stronger for longer.
We will keep looking and we will keep an open mind; we’re not going to stop looking for opportunities. However, in the short term, what makes sense is to continue growing the company by drilling, which we see as the lowest technical and financial risk.
INN: Has your investor/shareholder base changed following the acquisition?
MC: Yes, it has changed quite dramatically. Before the transaction, our shareholder base was probably between 50 to 55 percent institutional investors. With the closure of the transaction, we are now closer to 70 percent institutional investors. On top of that, Glencore is our largest shareholder, owning 25 percent of the company.
INN: How do you view all the new exploration companies entering the zinc sector?
MC: I believe that it is ultimately healthy for the industry. There’s been a lack of exploration and investment in zinc for more than a decade. Unfortunately, I think what we are seeing is old projects coming back around. Will they lead to new major discoveries? We’ll have to wait and see.
From the point of discovery to building a mine, there’s always a lag time. Even if a new exploration company is successful, they are still a cycle away from producing. That’s just the nature of the beast. It takes about seven to 10 years to build a tier-one zinc mine. That was one of the big drivers when we acquired the Glencore assets. We were looking for zinc production now, to take advantage of the current zinc rally and not have to wait for the next one.
INN: What are your thoughts on the zinc market in general?
MC: I think the market is very tight. I think we’re at the start of an incipient zinc run, and Trevali’s belief is that this one should be stronger for longer. We really don’t see any new zinc mines emerging in the next three to five years that could materially bring oversupply to the market and effectively lower zinc prices.
In terms of what could be a sensible zinc price moving forward, we certainly think $2,700 to $3,000 per tonne makes sense in the long term; we just have to see if it gets there. Within the next three to five years, I think it could possibly hit the $4,000-a-tonne mark like it did in the 2005-to-2008 rally. Whether that’s healthy for the industry as a whole, we’ll wait and see, but we certainly believe in a stronger for longer rally at this point in time.
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