Trevali Achieves Commercial Production at Caribou Mine

Zinc mine closures have become more common in the last few years or so, and fears of a supply shortage have seen the zinc price soar after a difficult start to the year.
The zinc price entered 2016 at just $0.69 per pound. However year-to-date it’s steadily climbed 39.77 percent to $0.95 as of July 7 at 2 p.m. EST. The price increase has helped the metal outperform copper, aluminum, and iron ore.
Mine closures in Australia and Ireland last year, coupled with continued support by mine depletions and producers’ reorganization, has given a boost to the zinc price, as outlined in the June 2016 FocusEconomics report.
But, wait: in the middle of zinc mines closing left and right, questions of whether or not temporary shutdowns will reopen, and no new ones on the horizon, there is one spec of hope.

Sole primary zinc producer on the TSX

Trevali Mining (TSX:TV), a zinc-focused base metals mining company with operations in Peru, announced on July 7 that it had achieved commercial production at its Caribou Zinc mine in New Brunswick.
According to Trevali’s news release, the Caribou mine is operating consistently as intended and demonstrated by its June performance results.
Mark Cruise, Trevali’s president and CEO, commented that commercial production at the Caribou mine represents a milestone achievement for the company’s second operating zinc mine. Cruise added that the success strengthen’s the company’s position as the only current primary zinc producer on the TSX who is poised to benefit from the zinc price rallying.
“This achievement, during a time of challenging market conditions, is a testament to the professionalism, dedication, attitude and hard work of our Caribou team including our valued contractors and partners,” he stated in the news release. “Based on our experience at the Santander mine, I remain extremely confident ongoing optimizations at Caribou will continue to build upon these foundations during the remainder of 2016, exemplified by Caribou zinc recoveries in early July already averaging 82 percent.”

Zinc market rally

In a July 7 research note from Haywood Securities, Stefan Ioannou writes that Trevali’s commercial production should coincide with an anticipated zinc market rally in the second quarter of 2016.
Ioannou adds that the company’s model includes 89 million pounds of payable zinc production averaging total cash cost of $0.90 per pound throughout 2016, but increasing to 107 million pounds at $0.60 per pound in 2017.
Of course, with Trevali’s two zinc mines now in commercial production, it no doubt means that zinc output will increase. Ioannou’s note suggests zinc production is expected to zoom up to 170 million pounds per year by 2019, which will make Trevali a “marquee mid-tier pure play zinc producer in a market facing a significant medium-term supply issue.”
Ioannou added that they Haywood Securities would not be surprised to see Trevali garner a premium market valuation on the back of higher zinc pricing. Overall, he gave the company a “buy” rating with a $0.75 price target. Shares of Trevali have gained 23 percent in the past five days to reach $0.63.

Future of zinc price

Haywood Securities’ note suggests higher zinc prices in the second quarter of 2016 will be driven by supply pressure, but of, course that only time will tell.  “We maintain a bullish medium-term outlook on the zinc price,” the report says, and that their market outlook is underpinned by a number of recent key mine shutdowns.
Similarly, analysts surveyed for FocusEconomics’ June 2016 report expect zinc prices to gradually rise in 2017, to an average of $2,060 per metric tonne in the fourth quarter.
That being said, with zinc production ready to go up again and prices to continue surging ahead, things are looking more hopeful for the zinc market.
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