Dundee Capital: Trevali Mining – Record Low Costs At Santander Lead To Q1 Earnings Beat

A recent report by Dundee Capital Research highlighted Trevali Mining Corporation (TSX:TV) and the record low costs at the Santander Mine in Peru.
As quoted in the report:

Q1 earnings beat on lower costs.  TV announced Q1/16 earnings yesterday after market close.    We calculate EBITDA of roughly $7.2M, above our estimate of $4.8M.  Headline EPS was breakeven, in-line with our estimate.  Production results from Santander were pre-released – the beat is mainly due to lower costs. Cash costs per tonne milled came in at US$32.22/tonne in Q1 (DCM $40/tonne), well below 2016 guidance of US$40-$43/tonne and down 34% YoY.  The reduced costs were a result of cost optimization and operational efficiencies, as well as renegotiations of key consumable contracts (fuel, power) for the mine and mill.  The lower benchmark smelting and refining charges have not yet been reflected in Santander’s costs in Q1, meaning there is potential for further upside.  We are extremely impressed with TV’s operating performance at Santander in Q1.  Bottom Line: We are maintaining our BUY, Top Pick rating with a $1.00 target based on a 7.0x 2016E EV/EBITDA multiple.
Cash cost guidance lowered.  As a result of TV’s impressive cost reduction efforts in Q1, TV has lowered their cash cost guidance to US$35-$38/tonne milled for the remainder of the year (from US$40-$43/tonne).  We have adjusted our estimates accordingly – we are modelling cash costs of US$36.50/tonne milled (prev est US$40/tonne).  Production guidance was reiterated, calling for 52-55Mlbs of payable zinc (DCM 53Mlbs), 22-25Mlbs of payable lead (DCM 26Mlbs) and 800-1,000koz of payable silver (DCM 922koz).
Caribou update – continuing to work on recoveries.  Ramp up continues to progress well in New Brunswick, with the metallurgical team focusing on bringing zinc recoveries up to the PEA levels.  Zinc recoveries were 74% in April, up from 71% over Q1.  TV determined that zinc recoveries are adversely affected by the calcium content in the plant process water – i.e. higher calcium content leads to lower zinc recoveries.  The plant reagent mix has been adjusted accordingly, and TV was able to get recoveries up to 80.9% Zn.  We are maintaining our forecast commercial production date of end of June 2016.
Balance sheet – no surprises.  TV ended Q1 with working capital of $21M, including total cash (cash + restricted) of $27M.  From a liquidity perspective, we believe TV has enough cash to see Caribou through to commercial production and cover their liabilities in 2016 (see page 3).  We believe their balance sheet puts them in a good position to capture strong zinc markets in the back half of 2016.

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