Issue link: http://resourceworld.uberflip.com/i/638235
22 www.resourceworld.com f e b r u a r y / m a r c h 2 0 1 6 treVAli miNiNG corp. [TV-TSX, Lima; TREVF-OTCQX; 4TI-FSE] is a growing zinc producer with operations in Peru and Canada which is poised for an exciting 2016 despite many challenges. The com- pany is currently cash flow positive and growing from one mine to two. At the time of writing, Raymond James rates Trevali as an "Outperform" and has a target price of $0.90, compared to a current market price of $0.45. The stock has traded in a wide range in 2015, with a high of $1.24 and a low of $0.24. At its current price, Trevali looks to be a compelling value for the fol- lowing reasons: Since the summer of 2015, Trevali's share price has declined markedly. The market selloff was coincidental with the market retreat in the share price of Glencore Plc, a high profile multi-national base metals producer. I think it is because Glencore is, in several ways, linked to Trevali, and the Glencore share price decline has had a spillover effect on Trevali's share price. The market is concerned that Glencore may demand repayment of a financing of Trevali (but it can't), may not buy Trevali's concentrates (but it needs them), and may sell its 5% stake in the equity (but it is immaterial to Glencore). Moreover the Glencore financing, which permitted Trevali to buy a mill in Peru from Glencore, is being repaid on a production-based fee that is charged per tonne of concentrate that Trevali produces from that mill. Due to weak zinc prices, Glencore has suspended the fee for 12 months. Additionally, in late December Trevali extended and expanded a debt facility, by deferring an amortization pay- ment from August 30, 2016 to August 30, 2017. The debt is $61 million in total, and by extending the facility, it gives the company flexibility in dealing with the potential startup of its new mine. Repricing of 6.5 million five-year war- rants from $1.26 to $0.475 was part of the amended debt facility. In summary, the financing basis of Trevali appears sound at the present time. Key to the thesis that Trevali will per- form well in 2016 is the startup of the Caribou Mine in New Brunswick. This is a lead-zinc deposit in which the lead and zinc minerals are very fine grained, making it difficult to produce, clean, lead and zinc concentrates. A previous operator of this mine, Blue Note Mining, solved this issue in 2008 by implementing a fine grinding treatment on the ore, but unfortunately got caught up in the financial crisis of 2008 and had to suspend operations at Caribou. Trevali has issued several press releases indicating good progress in starting up Caribou. It uses a fine grinding technol- ogy called an Isamill successfully, and I am optimistic the company will declare that full commercial production status will be achieved in the first quarter of 2016. If it is successful in operating Caribou, there are other similar deposits in the area including the Stratmat deposit, and Half Mile Mine within the company's portfolio of assets that could provide scope for future growth. Supply curtailment in the zinc market is another factor which should contribute to a recovery in the price of zinc in 2016. The current zinc price does not seem to reflect fundamentals for the supply of, or the demand for zinc but rather reflect the overwhelming negative sentiment within the commodities sector, and on the other hand, the bullish trend of the US dollar. I am thinking that year-end 2015 may be the culmination of a bullish US dollar trend and traders may take some profits at this time. If this scenario develops, as I am anticipating, Trevali will be in a position to book impressive profits in 2016, and its modest market value may entice new investors to take positions in a uniquely leveraged play to zinc. n This article expresses the opinions of author, and not necessarily those of Raymond James Ltd. Statistics and factual data and other information are from sources RJL believes to be reliable but their accuracy cannot be guar- anteed. As an investment in MAG Silver is not suitable for all investors, a recommendation would only be made after a personal review of an individual's financial objectives. Raymond James Ltd., member – Canadian Investor Protection Fund b r o k e r ' s p i c k s A l f S t e w a r t Trevali Mining advancing toward Caribou Mine production TSX.V:ICG OTCQX:ICGQF integragold.com