View
213
Download
1
Category
Preview:
Citation preview
Equity's Fair Value (US$ million)
Share's Fair Value (US$)
Share's market price (US$)
Shares Outstanding (million)
Shares Outstanding - Fully Diluted (million)
Market Capitalization (US$ million)
Fair Value's Appraisal
Negotiation: Main Stock Exchange
Secondary Stock Exchange
Range 52 weeks (US$)
YTD Change
Equity Research - Junior Mining
Alberto Arispe Bazán
Overweight +TREVALI MINING CORP (LSE:TV)
387.42
2.66
1.23
145.62
174.29
116%
Halfmile & Stratmat
LSE (TV)
29.35%
Trevali: A new production story
INVESTMENT RECOMMENDATION:
Santander
Ruttan, Huampar
Others
KALLPA SECURITIES SAB initiates Trevali Mining Corp.’s coverage (Trevali),
recommending to overweight + its shares. We give a US$ 2.66 fair value per share,
which was obtained taking into account only Halfmile & Stratmat mine and
Santander project, which contribute to Trevali’s value in US$ 2.05 and US$ 0.52
respectively. The US$ 2.66 fair value is 116% greater than its US$ 1.23 market
value as of closing of February 1st 2012.
In December 2011, we visited Halfmile & Stratmat when they were still projects in
77%
20%
-
3%
$ 2.05
$ 0.52
-
$ 0.08
Contribution to Fair Value $ 2.66
179.11
TSX (TV)
0.72 - 1.77
Alberto Arispe Bazán
aarispe@kallpasab.com
Telephone: 511 627-5225
María Belén Vega
mvega@kallpasab.com
Telephone: 511 627-5220
Chart 1. Contribution to Fair Value -
-
A.
B.
-
Halfmile & Stratmat mine is Trevali's main asset, and its
development contributes in 77% to Trevali's fair value.
Highlights.-
Trevali has two main mining units:
The announcement of Halfmile’s start up of operations ,in January 2012,
proved Management’s skills in taking a project in development stage into a
producing mine. In addition, Santander’s start up of operations in Q3 2012
represents an important short – term catalyst.
In December 2011, we visited Halfmile & Stratmat when they were still projects in
development and construction stage. Weeks later, in January 2012, Trevali
announced the expected start up of operations of Halfmile & Stratmat poly-
metallic mining deposit, located in the well known mining district of Bathurst,
north of New Brunswick, Canada. Currently, Trevali has 2 main assets: Halfmile &
Stratmat, an ongoing mine, and Santander, a project in construction stage whose
start up of operations is estimated in Q3 2012.
Purchasing Trevali represents a leverage on zinc, a metal that we believe will
show an interesting upside in the next years as the supply for this metal
decreases due to the shutdowns of important mines producers of zinc (see
the section – Bets on zinc).
Halfmile & Stratmat – Canada, a poly-metallic underground mine
currently in production @ 2K TPD (tons per day) and willing to expand its
production to 4K TPD, with an estimated annual average production of
177M Lb Zn + 52M Lb Pb + 4.79M Lb Cu + 686K Oz Ag throughout its 14
years of life of mine (LOM).
Santander – Peru, a project in construction stage (fully funded) @ 2K TPD
and willing to expand its production to 4K TPD, with an estimated annual
production of 142M Lb Zn + 36M Lb Pb + 1.1M Oz Ag throughout its 9
years of LOM.
77% 20%
4%
0% 20% 40% 60% 80% 100%
Halfmile & Stratmat Santander OtrosOtros
represents an important short – term catalyst.
Valuation Report Junior Mining - Trevali Mining Corp.
Chart 2. Trevali's estimated production -
-
Table 1. Main projects -
Total R. 2
-
Santander
Ruttan 3
Huampar
Halfmile &
StratmatOngoing Mine
Construction
Exploration
Zn, Pb
Zn, Ag
Cu, Zn
StageProject B Lb ZnEq1
2.23
1.70
4.48
Trevali has total resources (indicated + inferred) of 8.41 B Lb Zn Eq, as shown
in Table 1.
The development of the projects Huampar (poly–metallic) and Ruttan (copper
and zinc), which are not included into this valuation, represent and
interesting catalyst for the fair value. It should be noted that Huampar was an
operating mine during 1956 – 1991, processing a total of 2.5MT @ 1.6 g/t Au,
185 g/t Ag, 3.8% Pb and 5.0% Zn with a production level of 250 TPD, a level
that was increased to 400 – 1000 TPD in the following years.
Currently, Trevali is carrying out a drilling campaign in Santander in order to
determine the size (depth) of the mining site. In accordance with
Management, the results are encouraging and it is expected new resource
estimations in S2 2012.
Trevali has Xstrata (Halfmile & Stratmat) and Glencore (Santander) as
strategic partners for the development of its main developed mining units.
(see the section – Strategic Alliance with Xstrata and Strategic Alliance with
Glencore ). With both mining units together into production, Trevali will
become a medium mining producer with an annual production of 279M Lb Zn
+ 78M Lb Pb + 1.49M Oz Ag, approximately.
1. For the calculation of zinc equivalent pounds (Lb Zn Eq), used
Development Ag,Au,Zn -
Metals
0
2
4
6
8
10
0
50
100
150
200
250
300
350
400
2012 2013 2014 2015 2016
Zinc Lead SilverM Lb Zn, Pb M Oz Ag
-
3. Ruttan is mainly a copper and zinc project.
Source: Trevali
1. For the calculation of zinc equivalent pounds (Lb Zn Eq), used
prices were US$ 20, US$ 2.50 and US$ 0.8 for an ounce of silver, a
pound of copper and a pound of zinc respectively.
2. Total resources include indicated and inferred resources. Advances in Santander.- In February 1st 2012, Trevali published Santander’s
update, which announced that infrastructure construction is on track and will
be completed in Q1 2012. In addition, the permit for the mine’s construction
will be ready by late February and the Environmental Impact Assessment (EIA)
will be completed before Q1 2012. Finally, it was mentioned that the
underground mine’s construction will start in April 2012 and that the
processing plant has a 40% progress.
www.kallpasab.com Trevali Mining Corp.
Valuation Report Junior Mining - Trevali Mining Corp.
Chart 3. Trevali's portfolio diversification Project portfolio.-
i.
ii.
iii.
Mine currently in production
Location: Province of New Brunswick, Canada
Metals: Zinc, lead, copper and silver
Operator: Kria Resources (100% owned by Trevali)
Source: Trevali
Chart 4. Bathurst Mining Camp - Strategic location i. Halfmile Lake Central (312.1 ha),
ii. Halfmile Lake South (485.3 ha); and,
iii. Halfmile Lake North (307.1 ha).
Halfmile & Stratmat, a mine currently in production
Huampar and Ruttan, projects in exploration and
1. Halfmile Mine
Trevali, unlike other mining companies, has a geographically diversified portfolio.
Trevali’s project portfolio is composed by the following units:
Description.- Halfmile mine is a poly–metallic (zinc, lead, copper and silver)
deposit Volcanic Massive Sulphide (VMS) type, located in the mining district of
Bathurst Mining Camp (BMC), New Brunswick – Canada. The mining deposit
covers 1,104.8 hectares(ha.) and it is divided into 3 mineralized zones:
Santander, a project in construction stage (start up of operations –
Source: Trevali
Table 3. Resource estimation
Resource estimations - Halfmile
Technical Report NI 43-101 - Wardrop (2009)
Halfmile @ 5% Zn Eq Cut-Off
Classification MT Ag (g/t) B Lb ZnEq1
Indicated 6.2
Inferred 6.1
Previous explorations and resource estimations.- Exploration activities
(geophysical studies, ground - soil electromagnetic studies and diamond drillings)
were carried out between 1950 and 2001 by predecessor companies such as Texas
Gulf, Noranda and Falconbridge.
iii. Halfmile Lake North (307.1 ha).
ii) Inferred resources of 6.1 MT @ 6.69% Zn, 1.83% Pb, 0.14% Cu and
20.51 g/t Ag for a total of 1.30 B Lb Zn Eq.
i. Indicated resources of 6.2 MT @ 8.13% Zn, 2.58% Pb, 0.22% Cu and
30.78 g/t Ag for a total of 1.73 B Lb Zn Eq.
1.73
1.30
30.8
20.5
1. For the calculation of zinc equivalent pounds (Lb Zn Eq),
used prices were US$ 20, US$ 2.50 and US$ 0.8 for an ounce
of silver, a pound of copper and a pound of zinc respectively.
Excellent location.- BMC district has 45 VMS deposits with high zinc-lead grades
and it is home of the mines Brunswick # 12, Brunswick # 6, Caribou, Wedge, Heath
Steele, among others. It should be noted that the mine is located 60 km southwest
of the city of Bathurst, 40 km from Brunswick # 12 mine – an important zinc
producer that belongs to Xstrata Public Ltd. (Xstrata) – , and 20 km west of Heath
Steele mine. The project benefits itself from belonging to this well known mining
district due to qualified manpower, developed infrastructure (water and energy)
and quick access to the mine with asphalted roads in good conditions.
Acquisition of Kria Resources (Kria).- In 2008, Kria Resources (Kria), Trevali’s
subsidiary, signed an agreement with Xstrata for the acquisition of Halfmile &
Stratmat’s mining rights. In accordance with the agreement Xstrata received i) a
US$ 18 million payment; and ii) Trevali’s common shares valued in approximately
C$ 7 million.
In February 2009, Kria published a resource estimations report in compliance with
Canadian classification standards NI 43 – 101, prepared by Tetra Tech Wardrop
(Wardrop). The study showed a cut – off grade of 5% Zn Eq:
Zn %
8.1
6.7
Source: Trevali, Wardrop (2009) 20.51 g/t Ag for a total of 1.30 B Lb Zn Eq.
www.kallpasab.com Trevali Mining Corp.
Valuation Report Junior Mining - Trevali Mining Corp.
Chart 5. Visit to Halfmile Mine - Dec 2011
Source: Kallpa Securities SAB
Chart 6. Brunswick #12 - Facilities
Halfmile, a mine currently into production.- In January 2012, Trevali announced
Halfmile's start up of operations. The mine operates at a level of 2K TPD with an
annual estimated production of 177M Lb Zn + 52M Lb Pb + 4.79M Lb Cu + 686K Oz
Ag at an average cost (cash cost) of US$/MT 55.25. In addition, Trevali announced
its plan to increase the production level to 4K TPD in 2014 when incorporating
Stratmine as Halfmile’s satellite mine.
For mineral processing within the first two years of operations, Kria will use
Brunswick # 12’s processing plant (see the section – Strategic alliance with
Xstrata), recently after an agreement was accorded between both parties in
January 2012. However, Trevali is analyzing the possibility of acquiring a mineral
processing plant in order to reduce its costs and to operate at the desired level of
Wardrop elaborated a Preliminary Economic Assessment (PEA), published in
October 2010, in regard with the development of an underground mine and the
production of zinc, lead and bulk concentrates in Halfmile. The study
demonstrated that the project had an internal rate of return (IRR) of 16.24% and a
net present value (NPV) of C$ 139 million at a discount rate of 8%. In addition, it
estimated a necessary capital investment of C$ 324 million and income before
taxes of US$ 587 million throughout an estimated 20 years of LOM. Finally, the
study indicated the potential in developing Halfmile & Stratmat project which will
generate an IRR of approximately 22%.
i.
ii.
Source: Kallpa Securities SAB
Xstrata's Brunswick # 12 facilities, located 40 km from
Halfmile. In Brunswick #12's plant will take place the
processing of Halfmile's minerals for the production of
concentrates.
processing plant in order to reduce its costs and to operate at the desired level of
production.
For the development of operations in Halfmile, Trevali has Xstrata as an strategic
partner. The agreement’s most notable terms are:
Toll Mining (Mining Lease) - In December 2011, Xstrata and Trevali signed
a 20 year agreement for the provision of the services of grinding,
processing and production of concentrates (zinc, lead, copper and bulk)
for Halfmile’s minerals and the subsequent treatment of mining waste in
Brunswick # 12’s processing plant. The plant has a processing capacity of
10K TPD and it is expected that it will end its operations (shutdown) in
2014 – 2015. With both units Halfmile & Stratmat, Trevali’s operations
will reach a level of production of 4K TPD, lesser than Brunswick # 12’s
10K TPD.
Off-Take – Trevali ensured Xstrata the sale of 100% of the concentrates
produced by Brunswick # 12’s processing plant as long as the Toll Mining
agreement is in place.
Strategic Alliance with Xstrata.-
www.kallpasab.com Trevali Mining Corp.
Valuation Report Junior Mining - Trevali Mining Corp.
Chart 7. Stratmat - Exploration Camp
Project/Halfmile’s satellite mine
Location: Province of New Brunswick, Canada
Metals: Zinc, lead, copper and silver
Operator: Kria Resources (100% owned by Trevali)
Source: Kallpa Securities SAB
Chart 8. Halfmile underground mine - Entrance
Source: Kallpa Securities SAB
Description.- Stratmat, Halfmile’s satellite mine, is a mining VMSdeposit type,
which is divided into 3 zones: a) Boundary Deposit, b) S – 1 Deposit, and c) Main
Zone. As Halfmile, it is located in the well known mining disctrict of BMC, Canada.
It should be noted that it is located approximately 45 km southeast of Bathurst, 55
km northeast of the city of Miramichi and only 15 km of Halfmile mine. The mining
site covers 828.6 ha.
Previous explorations and resource estimation.- The mine was explored by
Xstrata and predecessor companies (Cominco and Noranda) since the 60’s.
Particularly during the 80’s and 90’s, intensive exploration activities were carried
out when Heath Steele mine was still in operations. Of the three mining deposits,
only Boundary Deposit has been exploited; however, S-1 Deposit represents the
highest mineral exploitation potential of the entire project.
2. Stratmat
In February 2009, Trevali published a resource estimation report in Stratmat, in
compliance with Canadian classification standards NI 43 – 101, prepared by
Wardrop. The report showed a cut – off grade of 5% Zn Eq: Inferred resources for
5.52 MT @ 6.11% Zn, 2.59% Pb, 0.4% Cu and 54.21 g/t Ag for a total of 1.45B Lb Zn
Table 3. Resource estimations
Resource estimations - Stratmat
Technical Report NI 43 - 101 - Wardrop (2009)
Santander @ 3% Zn Eq Cut-Off
Class MT Zn % Pb (%) B Lb ZnEq1
Inferred
Construction & production stage
Source: Trevali, Wardrop (2009) Location: Province of Huaral, Department of Lima, Peru
Metals: Zinc, silver and lead
Operator: Trevali Peru S.A.C.
Chart 9. Santander Camp - Overview
Source: Trevali
Description.- Santander project, currently in construction stage, is a poly-metallic
mining deposit of Carbonate Replacement Deposit (CRD) type. The mining site is
developed over 4,455 ha. located in the province of Huaral 215 km northeast of
Lima – Peru, at an average altitude of 4,200 meters above sea level. Santander has
5 mining deposits: i) Magistral Norte, ii) Magistral Central, iii) Magistral Sur, iv)
Puajanca Sur and v) Santander Pipe. It should be noted that Santander has good
accessibility and qualified infrastructure (concentration & processing plants and
Tingo hydroelectric power plant) for its expected start up of operations in Q3
2012.
We must emphasize that the works currently conducted by Trevali in Santander
correspond to new mining deposits, but not to the extension of the old mine. Of
the latter, Trevali will only reprocess mining tailings still containing zinc grades that
are attractive and economic for the production of concentrates.
3. Santander project
1.45
1. For the calculation of zinc equivalent pounds (Lb Zn Eq),
used prices were US$ 20, US$ 2.50 and US$ 0.8 for an ounce
of silver, a pound of copper and a pound of zinc respectively.
5.52 MT @ 6.11% Zn, 2.59% Pb, 0.4% Cu and 54.21 g/t Ag for a total of 1.45B Lb Zn
Eq. In late October 2011, Trevali announced an in-fill drilling campaign, which
consists in approximately 5K meters of diamantine drillings in order to improve the
resource category from inferred to indicated. Trevali’s operating plan points out to
run both units Halfmile & Stratmat together in order to increase the production
level from 2K TPD to 4K TPD.
5.5 6.11 2.59
are attractive and economic for the production of concentrates.
www.kallpasab.com Trevali Mining Corp.
Valuation Report Junior Mining - Trevali Mining Corp.
Chart 10. Operations in Santander
Source: Trevali
Table 4. Resource estimation
Resource estimation - Santander
Technical report NI 43-101 - Golder (2010)
Santander @ 3% Zn Eq Cut-Off
Class MT Zn % Ag (g/t) B Lb ZnEq1
Indicated 5.9 3.9
Inferred 4.8 5.1
i) Indicated resources of 5.9 MT @ 3.86 Zn, 1.35% Pb, 0.08% Cu and 44
g/t Ag for a total of 0.9B Lb Zn Eq.
Acquisition of Santander’s concessions.- In December 2007, Trevali, through its
subsidiary Trevali Peru S.A.C., signed an agreement with Minerales Santanter
S.A.C. for the acquisition of exploitation rights for a period of 50 years.
Sequentially, Trevali started up exploration activities that confirmed the deposit’s
exploration potential, which is still opened for future extensions.
In 2010, Trevali published a technical report of resource estimation in compliance
with Canadian classification standards NI 43 – 101, prepared by Golder Associates.
The study showed a cut – off grade of 3% Zn Eq:
0.9
0.7 21.0
1. For the calculation of zinc equivalent pounds (Lb Zn Eq),
used prices were US$ 20, US$ 2.50 and US$ 0.8 for an ounce
of silver, a pound of copper and a pound of zinc respectively.
Previous explorations and resource estimations.- Santander is an old mine and
zinc producer. The discovery of lead-zinc mineralization in the mining deposit
occurred in early 1900, then sporadic exploration programs were conducted until
1958 when St. Joe Lead Corp. started operations. The production continued until
1992, when the mine closed down due to the fall in the international prices of
metals. It should be noted that during its years of operations (1958 – 1992), the
mining exploitation was open – pit as well as an underground mine with an
average level of production of 1K TPD and an estimated total production of 8 MT
@ 1.3B Lb Zn, 0.5B Lb Pb and 5M Oz Ag.44.0
Source: Trevali and Golder Associates (2010)
Chart 11. Glencore - Rosaura processing plant
i.
ii.
Source: Trevali
Chart 12. Santander - Tingo hydroelectric power plant
Source: Trevali
ii) Inferred resources of 4.8 MT @ 5.08% Zn, 0.44% Pb, 0.07% Cu and 21
g/t Ag for a total of 0.7B Lb Zn Eq.
Lease-Milling plant: Trevali agreed with Glencore to purchase in advance
100% of the processing plant @ 2K TPD for the production of Zn, Pb & Ag
and Cu & Ag concentrates. Thus, Trevali will pay approximately US$ 15
million in the rate of 6.00 US$/MT processed, and subject to the start up
of operations in Santander.
Off-Take Agreement: Trevali assured Glencore the sale of 100% of the
concentrates produced in the processing plant throughout the LOM at
market prices.
Strategic Alliance with Glencore.- For the development of operations in
Santander, Trevali has Glencore as its strategic partner. The most notable terms in
the two agreements signed are:
g/t Ag for a total of 0.9B Lb Zn Eq.
Tingo hydroelectric power plant – Santander.- Tingo hydroelectric power plant,
located 17 km southeast of Santander is operated by Trevali Renewable Energy,
Trevali’s subsidiary. The power plant provides energy since 1958 and it is expected
that the power plant will provide Santander mine with economic and reliable
power. Currently, Trevali is developing an extension of the power plant’s capacity
from 1.6 MW to approximately 10 MW. It is estimated that Santander will require
energy for approximately 4 – 5 MW, so Trevali plans to sell power surpluses to
third parties in order to generate potential cash flows. The effect of a potential
income from energy sales to third parties has not been included into this valuation
report.
www.kallpasab.com Trevali Mining Corp.
Valuation Report Junior Mining - Trevali Mining Corp.
Chart 13. Huampar Camp
Exploration stage
Location: Perú
Metals: Gold, silver and zinc
Operator: Trevali Peru S.A.C.
Source: Trevali
4. Huampar
i) To construct a Smelting plant.
ii) To carry out Huampar’s mineral processing at Santander’s facilities,
given the proximity of both projects (80 km)
Description.- Huampar mining project includes a poly – metallic deposit (gold,
silver and zinc) located in the southern zone of the poly – metallic belt of central
Peru, 80 km northeast of Lima and 80 km south of Santander mine. The mining site
is developed over 43 mining concessions covering a total of 1,450 ha.
Management has announced that the next project in line to start up operations is
Huampar. For this purpose, Management has outlined 2 possible scenarios:
Acquisition of Huampar’s concession.- In 2011, Trevali signed a Memorandum of
Understanding (MOU) with Nueva Condor Inc. (NCI) with a validity of 4 years and
according a purchase option for 100% of the mine’s rights. In accordance with the
agreed terms, NCI will receive: i) a US$ 50 thousand payment when signing theagreed terms, NCI will receive: i) a US$ 50 thousand payment when signing the
agreement, ii) one million Trevali’s shares when executing the purchase option, iii)
3% Net Smelter revenue (NSR) per year; and iv) US$ 100 thousand per year.
Previous explorations and resource estimations.- Huampar is an old mine. The
exploitation of several poly – metallic veins (Finlandia, Condor Pasa, etc.) were
carried out between 1956 and 1991 when lack of energy forced the mine’s
shutdown. During this period the mine processed a total of 2.5 MT @ 1.6 g/t Au,
185 g/t Ag, 3.8% Pb and 5.0% Zn at a production level of 250 TPD. The mine
continued its operations sporadically between 1997 and 2000 at a production level
of 400 TPD and advanced feasibility studies increased its production to 800 – 1000
TPD. The mine operations ceased in 2000 due to a lack of development and to the
low prices of commodities. It should be noted that the mine’s existing
infrastructure is well maintained and it includes a mining camp for 600 people.
In November 2011, Trevali announced that all the mine’s levels are characterized
on having excellent mineralized bodies and that the mineralization intensity of
base and precious metals suggests the existence of an excellent exploration
potential. Currently, Trevali has decided to prioritize the drilling objectives as part
of a program of expansion and confirmation of future resources.
www.kallpasab.com Trevali Mining Corp.
Valuation Report Junior Mining - Trevali Mining Corp.
Chart 14. Ruttan, Manitoba - Canada
Construction stage
Location: Province of Manitoba, Canada
Metals: Copper, zinc
Operator: Kria Resources
Source: Trevali
Table 5. Resource estimation
Resource estimation - Ruttan
Technical Report NI 43-101 - Wardrop (2008)
Ruttan @ 1% Cu Eq Cut-Off
Class MT Cu % Zn % B Lb ZnEq1
Inferred 20
Source: Trevali and Wardrop (2008)
5. Ruttan
1. For the calculation of zinc equivalent pounds (Lb Zn Eq),
used prices were US$ 20, US$ 2.50 and US$ 0.8 for an ounce
of silver, a pound of copper and a pound of zinc respectively.
2.23 1.471.17
Description.- Ruttan project is a mining deposit of the type VMS with a copper –
zinc exploitation potential. The mining site is located approximately 21 km from
Leaf Rapids village, in the northeast of the province of Manitoba, Canada and it
covers a total of 1,994 ha. Ruttan mine was discovered in 1968 and it was
operated between 1973 and 2002 by Sherritt Gordon Mines Ltd. (1973 – 1987) and
by Hudson Bay Mining and Smelting Ltd. (1988 – 2002). It is estimated that during
this period (1973 – 2002) the total production was 55 MT @ 1.23% Cu and 1.41%
Zn.
Acquisition of Ruttan.- Trevali has the option of acquiring 100% of Ruttan for 4%
NSR. In addition, Trevali can acquire 2% NSR for US$ 3.5 million.
Resource estimation.- In 2008, Trevali published the technical report for Ruttan in
compliance with Canadian classification standars NI 43 – 101, prepared by
Wardrop. The report showed a cut – off grade of 1% Cu Eq: inferred resources for
19.75 MT @ 1.47% Zn and 1.17% Cu for a total of 2.23B Lb Zn Eq.19.75 MT @ 1.47% Zn and 1.17% Cu for a total of 2.23B Lb Zn Eq.
www.kallpasab.com Trevali Mining Corp.
Valuation Report Junior Mining - Trevali Mining Corp.
The Operations in Halfmile underground mine started in January 2012 with a production level of 2K TPD, which will increase
to 4K TPD when incorporating Stratmat’s resources into the mining plan. The first two years’ mineral processing, 1.28 MT,
will be carried out throughout Xtrata’s Brunswick # 12 plant (see – Strategic Alliance with Xstrata ). However, with the
increase in the mining level and after Brunswick # 12’s shutdown, in order to process the remaining 14.18 MT, we assume
the acquisition of one of the adjacent processing plants for the production of concentrates, plants such as Heath Steel and
Caribou among others. The model’s main assumptions are described below.
Trevali’s fair value is obtained using resource estimation in compliance with Canadian requirements NI 43 – 101 and data provided
by Management. As previously mentioned, of Trevali’s mining units only Halfmile & Stratmat and Santander are subject to be valued
using the proposed methodologies. Thus, the equity value is composed only by i) Halfmile & Stratmat’s Discounted Cash Flow (DCF)
valuation, ii) Santander’s DCF valuation, and; iii) In Situ valuation of those resources from Halfmile & Stratmat as well as from
Santander that are not included in the mining plan (and valued as In Situ resources).
i. Halfmile & Stratmat’s valuation
We value Halfmile & Stratmat’s total resources using the DCF methodology as well as the In Situ methodology. Thus, from a total of
17.87 MT of existing resources, we value:
A. 15.47 MT @ 7.57% Zn, 2.35% Pb, 0.22% Cu y 40 g/t Ag for a total of 4.11B Lb Zn Eq , included in the Mining Plan (DCF).
B. 2.40MT @ 6.11% Zn, 2.59% Pb, 0.40% Cu y 54.21 g/t Ag for a total of 0.63B Lb Zn Eq , as resources (In Situ).
A. Halfmile & Stratmat’s valuation (DCF) - US$ 290 million
Trevali – Valuation
290.01
49.00%
85.00%
177.47
52.05
686.71
4.79
55.25
255.00
15.47
7.57%
2.35%
40.00
0.80
2K TPD
4K TPD
90.00%
85.00%
Halfmile & Stratmat
Operator
Start up of operations
Life of mine (LOM)
Average Zn grade
Average Pb grade
Annual average Pb prodution (M Lb)
Halfmile & Stratmat's Valuation (US$ million)
Production level - Toll Milling
Plant capacity
Average Ag grade (g/t)
Mineral - Mining plan (MT)
Average Pb recovery
Average Ag recovery
Total CAPEX 1/
(US$ million)
Annual average Ag prodution (K Oz)
Zinc price - Long term (US$/Lb)
Average Zn recovery
Underground Mine
Trevali - Kria
Q1 - 2012
14 years
Zn, Pb-Ag, Cu-Ag
Table 6. Halfmile & Stratmat mine: Main assumptions
Cash Cost (US$ / MT)
Annual average Zn prodution (M Lb)
Average Cu recovery
Annual average Cu prodution (M Lb)
Concentrates
Lead price - Long term (US$/Lb)
Copper price - Long term (US$/Lb)
Silver price - Long term (US$/Oz)
0.80
2.50
20.00
Source: Kallpa Securities SAB
290.01Halfmile & Stratmat's Valuation (US$ million)
1/ It includes the acquisition of a processing plant @ 4K TPD.
www.kallpasab.com Trevali Mining Corp.
Valuation Report Junior Mining - Trevali Mining Corp.
Table 7. Sample of mining companies and zinc producers
Main project
Aquila Resources Inc. Back Forty USA
Baja Mining Corp. Boleo Project Mexico
Canada Zinc Metals Corp. Akia Canada
Canadian Zinc Corp. Prairie Creek Canada
Capstone Mining Corp. Cozamin Mexico
Lithic Resources Inc. Crypto Project USA
Lundin Mining Corp. Nerve Corgo Portugal 3.63
(US$ million)
43.58
307.32
72.04
96.23
1298.65
3.61
2946.08
Market Cap. 1
Of Halfmile & Stratmat’s total resources, 17.87 MT, our assumptions include only 15.47 MT within the mining plan.
Therefore, 2.40 MT remnant resources are valued In Situ. For the In Situ valuation, it is necessary to determine the zinc
equivalent resources to be valued. Thus, we value 0.63B Lb Zn Eq (corresponding to 2.96 MT in resources In Situ).
Company Location
Resources
(B Lb Zn Eq)
3.00 1.45
Investors constantly value a company determining the price of its shares in secondary markets. Thus, to obtain the value
that market assigns to zinc junior mining companies, we obtain the market capitalization of a sample of companies
comparable to Trevali taking into account the metals they produce, the size of their resources and even their projects’
development status. This sample is detailed in table 7.
1.33
1.46
1.28
5.63
0.18
23.05
81.15
B. Halfmile & Stratmat’s valuation (In Situ) – US$ 9 million
2.00
23.12
4.95
7.52
Market Cap. /Lb Zn
Eq (US$ cents)
Lundin Mining Corp. Nerve Corgo Portugal
Selwyn Resources Corp. Selwyn Project Canada
Zazu Metals Corp. Lik Project USA
Zincore Metals Inc. Yanque Peru
1. Prices as of closing of February 1st. 2012.
Source: Kallpa SAB, Bloomberg and companies
We value Santander’s total resources using the DCF methodology as well as the In Situ methodology. Thus, of a total of 12.32 MT of
existing resources, we value:
Finally, we value Halfmile & Stratmat’s remnant resources, 0.63B Lb Zn @ 1.78 CAD$/Lb for a total of US$ 9.01 million. It should
be noted that we include an additional discount of 20% to the value of the In Situ resources. With that discount the In Situ value
is 1.4 US$/Lb.
B. 9.22 MT @ 4.31% Zn, 1.02% Pb, 0.08% Cu and 35.61 g/t Ag, for a total of 1.39B Lb Zn Eq , incorporated in the Mining Plan
– Underground mine (DCF)
A. 1.66 MT @ 2.74% Zn, for a total of 0.1B Lb Zn Eq , incorporated in the Mining Plan - Tailings (DCF)
C. 1.44 MT @ 4.31% Zn, 1.02% Pb, 0.08% Cu and 35.61 g/t Ag, for a total of 0.22B Lb Zn Eq , as resources (In Situ)
3.63
0.12
0.74
2.02
1.78
5.63
0.12
7.06
1.99
2946.08
69.67
52.43
40.16
Average
Maximum
Minimum
81.15
56.06
ii. Santander’s valuation
www.kallpasab.com Trevali Mining Corp.
Valuation Report Junior Mining - Trevali Mining Corp.
A.
1.7
9.0
Operator
Start up of operations
Life of mine (LOM)
Concentrates
Average Zn grade
Production level
Santander mine operations will be developed in two stages: i) reprocessing the old mining tailings (1.66 MT); and ii)
underground mine: extraction and production of concentrates (zinc, lead, etc. - 9.22 MT). Glencore, the project’s operator,
will start up operations in Santander in Q2 2011 with an average level of 2K TPD that will increase to 4K TPD in 2015 (see -
Strategic Alliance with Glencore). We assume that Trevali repays Glencore 100% of the advance sale in regard with the
acquisition of the concentrate plant for US$ 15 milion in 2015 and that Trevali carries out a US$ 15 million additional
investment in order to increase the production level from 2K TPD to 4K TPD.
Santander
Mining tailings
A. Santander’s valuation (DCF) – US$ 73.2 million
Table 8. Santander - Main assumptions
Average Zn recovery
Cash Cost (US$ / MT)
Glencore
Q3 - 2012
Zn
2.74%
70.00%
35.55
Underground mine
2.5 years
Mineral - Mining Tailing Plan (MT)
1.5K TPD
Annual average Zn production (M Lb)
9.0
B.
Cash Cost 1/
(US$ / MT)
Total CAPEX 2/
(US$ M)
Santander's Valuation (US$
1/ Cash cost includes the payment of 6.00 US$/MT processed in regard with the US$ 15 million payment for the acquisition of the
concentrate plant.
2/ Capex includes the costs of the processing plant's capacity expansion from 2K TPD to 4 TPD for US$ 15 million.
34.0
48.40
73.2
2K TPD
4K TPD
82%
74%
58%
143.0
36.1
1,168
Average Zn grade
Average Pb grade
Average Ag grade (g/t)
Average Zn recovery
Average Pb recovery
Average Ag recovery
35.6
Q3 - 2012
Glencore
Zn, Pb-Ag
Santander Mine
Operator
Start up of operations
Life of mine (LOM)
Concentrates
Underground Mine
9 years
9.2
3.90%
1.02%
Cash Cost (US$ / MT)
Annual average Zn production (M Lb)
Annual average Pb production (M Lb)
Annual average Ag production (K Oz)
Production level (2012 - 2014)
Production level (from 2015 onward)
Underground Mine
Mineral - Mining plan (MT)
www.kallpasab.com Trevali Mining Corp.
Valuation Report Junior Mining - Trevali Mining Corp.
Many analysts bet on zinc in the next years after expecting that zinc supply will have a strong contraction. Approximately 15% of the
zinc supply would disappear as a consequence of the shutdowns of the most important zinc mines such as Century (Minmetals),
Brunswick (Xstrata), Lisheen (Vedanta), among others, mines that would cease to operate from 2014. This will cause that, between
2012 and 2015, approximately 1.29 MT of zinc will be withdrawn from the market, which will generate a deceleration in the
production of this metal with an estimated increase of only 6% in 2012 and 3% in 2013. While the contraction of the zinc offer will
not be notorious in 2012 due to a lesser demand generated by the financial crisis in Eurozone; from 2013, the market will start to
discount the lesser production in a higher metal price. We are bullish with zinc. We believe that this will be an important catalyst for
Trevali, which will have two mines into production in 2013: Halfmile & Stratmat and Santander.
Bets on zinc.-
Of Santander’s total resources, 12.32 MT, our assumptions include only 10.88 MT within the mining plan. Therefore, the
1.44 MT remnant resources are valued In Situ. For the In Situ valuation, it is necessary to determine the zinc equivalent
resources to be valued. Thus, we value 0.22B Lb Zn Eq (corresponding to 1.44 MT of resources In Situ).
Using the methodology previously proposed, we value 0.22B Lb Zn Eq @ 1.78 CAD$/Lb for a total of US$ 3.14 million. In
addition and as previously mentioned, we are conservative and include a 20% discount on the price of a pound of zinc In
Situ.
B. Santander’s valuation (In Situ) – US$ 3.14 million
www.kallpasab.com Trevali Mining Corp.
Valuation Report Junior Mining - Trevali Mining Corp.
Production Project's development stages
A. Halfmile & Stratmat
Lead (M Lb)
Copper (M Lb)
Silver (K Oz)
B. Santander
Zinc (M Lb)
Lead (M Lb)
Silver (K Oz)
Halfmile & Stratmat - Model Santander - Model
Income Income
Cost of sales Cost of sales
Gross profit Gross profit
Operative expenses Operative expenses
EBITDA EBITDA
Depreciation Depreciation
EBIT EBIT
Resource estimation - Halfmile Resource estimation - Santander
Technical Report NI 43-101, Wardrop (2009) Technical Report NI 43-101, Golder (2010)
2012 2013 2014 2015
Santander @ 3% Zn Eq Cut-Off B Lb B Lb Halfmile @ 5% Zn Eq Cut-Off
2.6 2.6 5.2 5.2
397.8 397.8 795.6 795.6
128.0 128.0 105.1 178.6
96.1 96.1 192.3 192.3
28.2 28.2 56.4 56.4
2012 2013 2014
Zinc (M Lb)
21.4 21.4 21.4 45.1
692.8 692.8 692.8 1,458.6
2012 2013 2014
99.80 102.88 207.60
-35.36 -35.36 -59.09
64.44 67.52 148.51
15.74
-2.90 -2.90 -2.90
61.54 64.62 145.61
-41.50 -42.50 -43.50
20.04 22.12 102.11
53.55 55.33 49.68
-24.96 -24.96 -20.64
28.59 30.36 29.04
-2.20 -2.20 -2.20
26.39 28.16 26.84
-11.00 -11.38 -11.10
15.39 16.79
Halfmile Santander
Ruttan, Huampar
Pre-
Feasibility
Drilling
Deposit
Discovery
Scoping
Study
EISStart-upConstruc
tion
Production
Feasibility
MT Zn % Pb % MT Zn % Pb %
Indicated 1.7 Indicated 0.9
Inferred 1.3 Inferred 0.7
Valuation Components TV - US$ Million Valuation Components TV
Mine/Project Method. Value Disc V. D/ Disc.
A. Halfmile & Stratmat DCF
B. Halfmile & Stratmat In Situ
C. Santander DCF
C. Santander In Situ
C. Cash -
Debt Fair Value
Equity Equity's Value - US$ Million
Cash position Shares Outstanding - Million
Share's Fair Value - US$
Market Price - US$
Potential Upside - %
Main Shareholders Board and Management
290.01
11.34
73.21
3.92
Santander @ 3% Zn Eq Cut-Off B Lb
Zn EqAg g/t
6.3 8.1 2.6 30.8
6.1 6.7 1.8 20.6
B Lb
Zn Eq
Halfmile @ 5% Zn Eq Cut-Off
Capital structure
Shares Outstanding - Million
Shares Fully Diluted - Million
Options Outstanding - Million
1x
1x
0.8 x
0.8 x
3.00
35.00
15.00
145.62
28.67
3.14
12.00
290.01
9.07
44.0
4.9 5.1 0.4 21.0
387.42
145.62
2.66
1.23
116%
Geology
Finance
Position
President & CEO
Chairman
CFO
Director
Director
Director
Name
Mark Cruise
Tony Holler
Anna Ladd
Mike Hoffman
Anton Drescher
Charles Melbye
Background
Finance
Mining
Finance
Mining
174.29
5.9 3.9 1.4
Ag g/t
73.21
US$ million
10% 4%
50%
36%
Directorio &
Gerencia
Xstrata Canadá
Fondos/Insitucion
es
Otros
Board &
Management
Xstrata-Canada
Institutionals/
Funds
Others
0,772 0,1971
0,0387
0% 20% 40% 60% 80% 100%
Halfmile & Stratmat Santander OtrosOthers
Mining
Mining
Paul Keller
Dayle Rusk
Director
Operations VP
Explorations VP
Paul Klipfel GeologyOtrosOthers
www.kallpasab.com Trevali Mining Corp.
Valuation Report Junior Mining - Trevali Mining Corp.
Appendix: Disclaimer
Analyst’s certification
This document is for informative purposes only. Under no circumstances it should be used / be considered as an offer of sale or an application of
purchase of shares or any other securities mentioned in this document. The information herein has been obtained from sources which are believed
to be reliable, but Kallpa Securities SAB does not guarantee the trustfulness or accuracy of the content of this report, or the future market values of
shares or other securities mentioned in this document. The views and opinions expressed in this document constitute our opinion at the time of this
The analyst that prepared this report hereby certifies that: i) the opinions and views expressed in this valuation report, in regard with the issuer and
the company’s overview, reflected his/her personal opinion and ii) No part of his/her salary compensation was, is or will be related directly or
indirectly to the recommendations expressed in this report.
The economic compensations of the analyst who prepared this report are based in several factors, including but not limited to Kallpa Securities
SAB’s profitability and the profits generated by its different areas, including investment banking. In addition, the analyst does not receive any kind
of economic compensation from the companies he/she covers.
This valuation report was prepared by Kallpa Securities SAB’s employees that maintain the position of Senior Analyst. Persons involved in the
elaboration of this report are authorized to maintain shares.
The analyst who prepared this report has recently visited the project’s facilities.
Share prices in this report are based on market prices as of closing of the day prior to the publication of this report, unless it is strictly stated.
General statement
Definition of qualification ranges
shares or other securities mentioned in this document. The views and opinions expressed in this document constitute our opinion at the time of this
report and are subject to change without any notice. Kallpa Securities SAB does not guarantee analysis updates before any change in the
circumstances of the market. The products referred in this document may not be available for purchase in some countries.
Underweight - < - 40% > + 40% Overweight +
Underweight -20% a -40% +20% a +40% Overweight
Neutral -20% a 0% +20% a 0% Neutral
The fundamental value calculated by Kallpa SAB is based in one or more valuation methodologies commonly used by financial analysts, including
but not limited to discounted cash flows, In Situ valuations or any other applicable methodology. It should be noted that the publication of a
fundamental value does not imply any guarantee that the value will be achieved.
The range assigned to each company covered by the analyst in these reports is based on the analysis/monitoring Kallpa Securities SAB has been
developing for the company. In some cases, the analyst can express his/her short-term points of view to traders, vendors and some Kallpa Securities
SAB’s clients but this point of view may differ in time by market volatility and other factors.
Kallpa Securities SAB has 5 qualification ranges: Overweight +, Overweight, Maintaining, Underweight and Underweight - . The analyst will assign
the coverage one of these ranges.
Kallpa Securities SAB does not maintain Trevali’s shares within its portfolio.
Kallpa Securities SAB is sponsor of the company at Lima Stock Exchange’s Venture Capital and receives an economic compensation for the
performing of that function. In addition, Kallpa Securities SAB has actively participated in the company's private placements in the last two years.
Kallpa Securities SAB has reasonably designed policies to prevent or to control the exchange of non-public information used by areas such Research
and Investment, Stock Market, among others.
www.kallpasab.com Trevali Mining Corp.
Valuation Report Junior Mining - Trevali Mining Corp.
KALLPA SECURITIES SOCIEDAD AGENTE DE BOLSA
Position Telephone Email
Alberto Arispe General Manager (511) 627 5225 aarispe@kallpasab.com
Enrique Hernández Head Trader (511) 627 5221 ehernandez@kallpasab.com
Eduardo Fernandini Trader (511) 627 5223 efernandini@kallpasab.com
Javier Frisancho Trader (511) 627 5222 jfrisancho@kallpasab.com
Jorge Rodriguez Trader (511) 627 5222 jrodriguez@kallpasab.com
Hernando Pastor Representative (511) 627 5224 hpastor@kallpasab.com
Jose Antonio Avendaño Representative (511) 652 6452 javendano@kallpasab.com
Daniel Berger Representative (511) 652 6453 dberger@kallpasab.com
Ricardo Carrión Manager (511) 627 5226 rcarrion@kallpasab.com
María Belén Vega Senior Analyst (511) 627 5226 mvega@kallpasab.com
Marco Contreras Analyst (511) 627 5226 mcontreras@kallpasab.com
Ricardo Barrera Assistant (511) 627 5226 rbarrera@kallpasab.com
André Richter Assistant (511) 627 5226 arichter@kallpasab.com
Equity Research
Management
Trading
Corporate Finance
André Richter Assistant (511) 627 5226 arichter@kallpasab.com
Elizabeth Cueva Manager (511) 627 5227 ecueva@kallpasab.com
Alex Rodriguez Analyst - Securities (511) 627 5227 arodriguez@kallpasab.com
Alan Noa Analyst - Treasury (511) 627 5227 anoa@kallpasab.com
Operations
www.kallpasab.com Trevali Mining Corp.
Recommended