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Trevali Is in Position to Benefit from Strong Zinc Fundamentals

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Trevali Mining is transitioning to an owner-operator model at its Caribou zinc mine in New Brunswick, Canada, and analysts note that the company is positioned to take advantage of strong zinc fundamentals.

Caribou Mine and Mill

Trevali Mining Corp. (TV:TSX; TV:BVL; TREVF:OTCQX) announced on Feb. 1 that it is becoming an owner-operator at its Caribou zinc and is investing in a new mining fleet at the mine. The company stated that it "has committed to an approximately Cdn$20-million investment through a new partnership with Sandvik Mining to supply and maintain a full fleet of mining equipment for Caribou Mine operations. Trevali will operate and manage all aspects of the underground mining operation and Sandvik will be responsible and accountable for the maintenance of the fleet."

Dr. Mark Cruise, Trevali's President and CEO stated, "Trevali's new investment demonstrates our ongoing commitment to the future of the Caribou Mine and operations in the Bathurst region of New Brunswick," adding that "The efficiencies realized through this initiative. . .form a pathway for the Company's long-term, multi-cycle vision for the Bathurst Mining Camp."

Analyst Joseph Gallucci of Dundee Capital Partners stated in a Feb. 1 research report that "moving to an owner-operator model is a positive move for TV. . .investing in their own fleet and moving away from contract mining should lead to cost savings at the mining operation." He also stated that replacing the current mining equipment "with new machinery and improved technology should lead to better operational efficiencies as well."

Gallucci noted that with "Caribou online and cash flow positive, we believe TV is in an excellent position to capture strong zinc fundamentals. Our view is that a majority of zinc development plays will not be in production to catch the cycle, either due to permitting or funding obstacles (or both)." He names Trevali as a top pick on TV's zinc leverage "based on current production as well as short-term organic growth."

BMO Capital Markets initiated coverage on Trevali on Feb. 1, rating the company as an "Outperform." Analyst Alex Terentiew wrote, "Over the past seven years, Trevali has worked to put its Santander (H2/13) and Caribou (2015) mines into production, maintaining its objective of remaining a zinc-focused miner, providing investors with exposure to a rise in zinc prices that it expected to materialize. . .it was not until the H2/16 that zinc prices notably began to improve, positioning current shareholders to participate in a significant rise in cash flow. We believe Trevali is just starting its operating and financial turnaround and investors will be rewarded by accumulating shares in the company."

Terentiew noted that Trevali intends to update resource estimates for both of its mines in Q1/17, "incorporating exploration results and actual operating experience to its estimates, and may declare reserves, which we would view as a positive catalyst."

He added that "with zinc accounting for ~70% of the company's sales, it is the leader in zinc exposure among its covered peers." As the price of zinc improved, "mining operations aligned with the zinc price, and cash flow began to improve. We expect significant and rapid improvement in Trevali's balance sheet over the remainder of 2017, with Trevali turning net cash positive in Q3/17," Terentiew concluded.

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1) Patrice Fusillo compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
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