Trevali lowers Caribou guidance, shares down 17%

Trevali Mining Corp. [TV-TSX, TREVF-OTCQX, 4T1-Frankfurt, TV-LMA] on Tuesday said it has downgraded the production guidance for its Caribou mine in New Brunswick due to challenging rock mass conditions. However, the company said increased zinc production from its Perkoa operation in in Burkina Faso, West Africa, should help to partially offset any metal production losses at Caribou. As a result, the company said it remains on track to achieve its 2018 consolidated zinc production guidance of 400 million to 427 million pounds.

Trevali is a zinc-focused, base metals mining company. It operates the wholly-owned Santander mine in Peru, the wholly-owned Caribou mine in the Bathurst Mining Camp of northern New Brunswick, the Rosh Pinah mine in Namibia and its 90%-owned Perkoa mine in Burkina Faso.

Trevali bought the Rosh Pinah and Perkoa mines, in addition to a basket of other assets, from Swiss metals trading giant Glencore PLc. The US$417.86 million acquisition was completed in August, 2017.

A Scotiabank analyst said the update is negative for the shares. “Given the ongoing operating issues, [the analyst] still believes Trevali remains a “show me” story,” Scotiabank said.

On Tuesday, the share price fell 17.46% or 11 cents to 52 cents. The trading volume of 14.2 million made Trevali one of the most actively traded stocks on the TSX, Tuesday. The shares are currently trading in a 52-week range of $1.75 and 48.5 cents.

In a press release, Trevali said the Caribou mine was well positioned after the second quarter of 2018 to achieve its production targets this year. However, as part of an ongoing technical review, several key operational changes were required to ensure the safety of employees, equipment and to maintain production targets in the long term (2019+) due to challenging wall rock mass conditions.

During early to mid-October, adverse conditions were experienced in two mining zones, resulting in the cessation of retreat mining and the subsequent loss of some production from the remaining 2018 mine plan.

The company said management has strategically slowed the mining rate in order to accelerate mine development in the fourth quarter of 2018 through the first quarter of 2019 to build more optionality and stability in the mine to deliver safe, strong and reliable results in 2019.

Consequently, 2018 zinc and lead production will be adversely affected, and guidance for Caribou has been revised downwards. The company is guiding the market to anticipate 70-75 million pounds of zinc production this year, down from the earlier target of 86-90 million pounds. Lead production is now forecast to be 23.0-25 million pounds, down from 27.1-28.4 million pounds. Silver production guidance this year remains unchanged at 627,000-658,000 ounces.

“It is incredibly disappointing that the Caribou mine has been forced to slow down, however this was a necessary step in order to ensure the safety of our workforce and enhance the long-term economics of the mine,” said Mark Cruise, Trevali’s President and CEO.