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ckruel

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cum, tv

posted on Jan 17, 2013 09:40AM

Top Picks:

Copper Mountain Mining (CUM-T | BUY, Target Price $5.25): Copper production at an attractive valuation; near-term ramp-up de-risking on the horizon.

Trevali Mining (TV-T | BUY, Target Price $2.50): The “go-to” name for zinc leverage on the TSX; entering production in 2013.

Updating Estimates to Reflect a Higher Zinc Price Forecast;

Maintaining Buy Rating and Increasing Target Price to $2.50

We have updated our estimates to reflect a higher zinc price forecast. We forecast

2013-2015 zinc production of 56 million lbs, 215 million lbs, and 288 million lbs,

respectively.

We have updated our estimates to reflect changes to our mine plan assumptions.

Following the acquisition of the Caribou complex in late 2012, we anticipate the

company to fast-track development of the Caribou deposit at a capital cost of $15

million. As a result, we have removed the company’s Stratmat project from our

financial model and ascribed nominal in-situ value of $0.02 per lb of contained zinc

equivalent.

Our revised 2013E-2015E EPS estimates of $0.02, $0.25 and $0.42 compare to

our previous estimates of $0.03, $0.25 and $0.38, respectively. Similarly, our

revised 2013E-2015E CFPS estimates of $0.04, $0.39 and $0.65 compare to our

previous estimates of $0.06, $0.39, and $0.62, respectively. Our revised 8% NPV

modestly increases to $4.91 per share (from $4.62 per share).

Valuation

Trevali Mining Corp. is currently trading at 48.5x and 29.0x our 2013E EPS and

CFPS estimates, which compares to the consensus mid-tier base metal producer

peer group average of 18.8x and 11.9x, respectively. The company is also trading

at a 77% discount to our 8% NPV of $4.92 per share.

Recommendation

We are maintaining our BUY recommendation and increasing our target price to

$2.50 per share (from $2.40). Our 12-month target price is based on an average

4.0x multiple to our forecast 2013E EV/EBITDA ($0.19) and our 8% NPV of $4.92.

Our Buy rating is supported by the company’s exposure to zinc, near-term

production growth profile, and strong takeover potential.

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