If you have been around the commodity markets for a while, you know how the juniors and midcaps cash in.
When there is a bull in a particular commodity, that's when the big dogs are interested in acquiring new assets, for which they almost always overpay. Those assets are sometimes bought from each other, but usually from the smaller players, whose management then takes the proceeds and acquires new assets at cheap prices once the bull is over. They can then develop and sell them to the majors at the next cyclical high.
One of the reasons for this is that finding deposits vs. drilling them up and taking them through feasibility in preparation for production vs. actually mining them are three quite separate skill sets. And of course each of the three stages carries a separate set of risks.
(Of course there are particular companies that are good at two or even all three of these stages. BTO is successful at both developing and mining, But even in this case the most likely eventual destiny for BTO is to be bought out, no doubt at the peak of the cycle and at inflated prices.)
So when a little fish sells a deposit they have prepared for production to the big fish, or sells them a produing asset, they have offloaded the biggest risks of all, which have to do with the actual mining. It is very hard to make money mining, as we all know by all the money losing miners out there.
So in a normal deal at tis point in the cycle, a junior like Trevali would be selling deposits and mines to Glencore at inflated prices, making good profits while offloading all that mining risk to Glencore
But in this case, Trevali mamagement does what they are told to do by Glencore, i.e. buy mines at inflated prices at the peak of the zinc cycle. Not only that, Glencore has instead offloaded the mining risk to Trevali shareholders.
The true nature of this deal will be exposed once zinc prices drop, as they inevitably will before too long.
Trevali remains an avoid for me.
