Trevali Mining Hits A Jackpot
Summary
- Trevali Mining will acquire 75% of Puma Exploration's Murray Brook deposit.
- Murray Brook contains 1.234 billion lb of zinc equivalent (using the current metals prices).
- The current market value of the contained metals is $1.852 billion.
- Trevali will pay only $0.0063 per 1 lb of zinc equivalent.
Last Friday Trevali Mining (TREVF) announced that it entered into a LOI with Puma Exploration (PUXPF) for the acquisition of an option to acquire an interest in the Murray Brook Deposit. Trevali should provide up to $5.81 million (C$7.5 million) to Puma. Puma should use the money to complete the acquisition of the Murray Brook Property from its former owners, Votorantim and El Nino (ELNOF) and to repay a recent C$2 million loan. After the deal is completed, the Murray Brook deposit will be 75% owned by Trevali and 25% owned by Puma and the Murray Brook East property will be 51% owned by Trevali and 49% owned by Puma. Trevali will also participate on a private placement and it will purchase units worth $387,597 (C$500,000), at a price of C$0.12/unit (each unit consists of 1 common share of Puma and 1/2 of a warrant).
The Murray Brook Project contains measured & indicated resources of 659.9 million lb zinc, 225 million lb lead, 69.1 million lb copper, 12.1 million toz silver and 111,000 toz gold. At the current metals prices of $1.5/lb zinc, $1.1/lb lead, $3.1/lb copper, $16.75/toz silver and $1,335/toz gold, there are 1.208 billion lb of zinc equivalent. Further 26.027 million lb of zinc equivalent are contained in the inferred category. The current market value of the contained metals (measured + indicated + inferred) is almost $1.852 billion. 
Source: Author's own table, using data from Trevali Mining.
Moreover, it is very probable that the resource estimate will keep on growing. A Puma's news release from last April states that the deposit is still open at depth and according to Puma's president:
The potential to grow the Mineral Resource is significant according to the drill ready targets located along strike and toward the Caribou Mine.
During the autumn drill campaign, hole MB17-01 intersected 405 meters grading 3.3% zinc, 1.1% lead, 0.3% copper, 0.95 g/t gold and 42 g/t silver. The whole 405 meters long intersection included several higher grade intervals, 21 meters (from a depth of 285 meters) grading 7.07% zinc, 3.57% lead, 1.6 g/t gold and 62 g/t silver or 17 meters (from a depth of 357 meters) grading 10.04% zinc, 3.23% lead, 0.56% copper 2.58 g/t gold and 119 g/t silver. Hole MB17-03 intersected 10 meters grading 6.6% zinc, 1.7% lead, 1.15% copper, 71 g/t silver and 0.53 g/t gold and 13 meters grading 1.47% copper and 0.62% zinc.
The deal is very positive for Trevali that will acquire more than 925 million lb of zinc equivalent (75% of Murray Brook) for $5.81 million (C$7.5 million). It equals to $0.0063, or slightly more than 1/2 cent per 1 lb of zinc equivalent. The 75% share in the deposit will be acquired almost for free, moreover, it is only 15 kilometers to the south-west of the Caribou mine (map below) which means that also the development of the deposit should be relatively inexpensive, as the Caribou mine facilities may be used to process the ore.
Source: Puma Exploration
Trevali was able to negotiate extremely favorable terms, as Puma Exploration hasn't enough money to complete the acquisition of Murray Brook from Votorantim and El Nino. The schedule of payments to Votorantim and El Nino is captured below (the values are in CAD). On February 26, Puma announced that it paid C$2 million to Votorantim, however, it had to borrow the money from a third party. It is no surprise, as according to the 2017 financial statement, Puma held cash & cash equivalents worth only C$503,025, as of February 28, 2017. As its share price remains at very low levels, the equity financings are able to provide only relatively small amounts of money. It is highly probable that without Trevali, Puma wouldn't be able to complete the acquisition of Murray Brook. Although the deal is great for Trevali, it isn't bad for Puma, as holding 25% of the project is better than holding nothing. Moreover, as the ore from Murray Brook will be probably processed at the Caribou Mill, the CAPEX to develop the deposit should be much lower. As the costs should be divided between the two partners proportionally, Puma should be able to finance its share more easily, although a meaningful share dilution is almost sure.
Source: Puma Exploration
Besides the Murray Brook deposit acquisition, Trevali will also form a strategic exploration alliance with Puma. The alliance will include all of the properties held by Trevali and Puma in the Murray Brook area, excluding Caribou and Restigouche. According to the news release, 6 properties covering an area of 8,987 hectares should be included in the alliance, however, the names of the properties haven't been announced. All of the included properties will be 51% owned by Trevali and 49% owned by Puma.
Conclusion
After the proposed deal is completed, Trevali will own a 75% stake in a relatively big polymetallic deposit, located close to its Caribou mine. The ore from Murray Brook will be most probably used to expand the Caribou mill life. If the exploration in the Murray Brook area is successful, I can imagine also an expansion of the Caribou facilities. Murray Brook will further support the long-term potential of Trevali Mining. The best part is that Trevali will acquire the new resources almost for free, as 925 million lb of zinc equivalent will be purchased for $5.81 million, or for $0.0063/lb. Such a deal is like hitting a jackpot.
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
This article was written by
I am an associate professor at the University of Economics in Bratislava, Department of Banking and International Finance. My dissertation was focused on commodity markets and my habilitation was focused on the calendar anomalies. I have more than 15 years of investing experience. My investments mostly focus on small- and mid-cap companies in the resource sector. Since May 2019, I have been preparing regular monthly reports focused on the precious metals royalty & streaming industry. Based on positive feedbacks and numerous inquiries, I decided to launch a Marketplace Service named "Royalty & Streaming Corner", which provides an in-depth analysis of this exciting market segment, as well as investment ideas from the mining industry.
Analyst’s Disclosure: I am/we are long TREVF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (32)
"...that is, portfolios of shares showing the worst total return performance over a three or five year period subsequently significantly outperform portfolios of shares made up of prior period „winners‟, and the market portfolio, over the long horizon. This out-performance is remarkably high: extreme prior losers outperform extreme prior winners by 5-10 per cent per year. Studies from around the world have drawn similar conclusions."
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TV has a good balance sheet, quality brownfield projects, a good market so things could only get better...
Actually there is some new zinc supply coming soon so that may be a factor also. A quote from my article:
"Zinc price could fall back sharply due to oversupply. That's possible, but zinc is currently heading into deficit. Ivanhoe Mines (OTCQX:IVPAF) will develop the very high-grade Kipushi and bring on significant production volumes, along with the Vedanta Resources (OTCPK:VDNRF) Gamsberg mine expansion. Together they might add ~1mtpa into a 13.5mtpa zinc market, or an ~8% increase. This is within the next two years, so it's only a mild concern. However, this new supply could be absorbed by increasing market demand and the zinc price would not be too affected."
https://seekingalpha.c...
