Trevali Mining – Good Start to Caribou

- November 15th, 2016

Trevali Mining Corporation (TSX:TV) research update:
Event : Trevali reported Q3/16 financial results, production results were reported on October 13.
Impact: Positive. Still room for improvement as Caribou ramps up to 3,000 tpd, but a good start to the first quarter of commercial production.

November 15th, 2016Trevali Mining Corporation (TSX:TV) research update:
Event 
Trevali reported Q3/16 financial results, production results were reported on October 13.
Impact
Positive. Still room for improvement as Caribou ramps up to 3,000 tpd, but a good start to the first quarter of commercial production.
Analysis
 Performance ahead of estimates. Trevali reported Q3/16 EPS of $0.01 and CFPS of $0.08, ahead of consensus estimates of $0.01 for EPS and $0.04 for CFPS. In Q2/16, the company reported EPS of $0.00 and CFPS of $0.04 (All dollar values are C$ unless noted otherwise).
 Cash flow doubled with the addition of Caribou. As a result of the contribution from the first quarter of commercial production at the Caribou mine, most financial metrics nearly doubled QoQ, including revenues ($57.5m v. $28.9m in Q2/16), cash flow from operations ($32.3m v. $16.4m in Q2/16), and EBITDA ($14.8m v. $8.2m in Q2/16). Performance was driven by higher zinc sales (41.6m lbs v. 24.2m lbs in Q2/16) as well as higher lead and silver sales, supported by stronger zinc prices (US$1.03 v. US$0.89 in Q2/16) as well a higher lead and silver prices.
 Balance sheet improved. Cash improved to $16.9m from $14.5m in Q2/16, while total debt fell to $110.9m from $114.9m.
 Higher production but higher costs with Caribou. The Caribou mine boosted overall zinc production to 32.4m lbs (15.2m lbs in Q2/16), lead production to 9.7m lbs (5.7m lbs in Q2/16), and silver production to 362.8m oz (222.2m lbs in Q2/16). However, consolidated cash cost also increased to US$46.73/t (US$35.64/t in Q2/16) as Santander costs of $36.33/t were complemented by costs of US$58.88/t at Caribou. Zinc production at Santander improved by 9% QoQ, while lead and silver declined slightly, and cash costs per tonne and per pound were up marginally. As a result of Caribou, cash cost per equivalent payable pound of zinc produced was higher – US$0.40/lb v. US$0.28/lb in Q3/16, but still respectable. For the quarter, the income from Caribou and Santander mining operations was $3.2m and $7.4m, respectively.
 Guidance maintained. Santander production guidance remains at 57-60m lbs of payable zinc and 0.8-1.0m oz of payable silver. During Q3/16, the company lowered payable lead guidance to 20-23m lbs of payable lead as mining operations focused on the zinc-rich Magistral Central and South zones. Cash costs remain an estimated US$35-US$38/t milled. Caribou remains on track to produce 37-41m lbs of payable zinc; 14-15m lbs of payable lead; and 380- 420k oz of silver in H2/16. Head grades remain unchanged. Costs are expected to modestly decrease.
 We maintain our Buy rating. We are encouraged by the first quarter of commercial production at Caribou, supported by ongoing strong performance at Santander. We look for continued improvement of operations along with further drilling success at Santander, in a rising zinc price environment. At a valuation of 4.1x 2017 CF and 3.3x EV/EBITDA, the share price remains attractive relative to Canadian base metals producer peers.
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