Haywood Securities: Trevali Mining – Positioned to Capitalize on Higher Zinc Pricing

A recent report Haywood Securities highlighted Trevali Mining Corporation (TSX:TV) and a target price increased to $1.25.
As quoted in the report:

Positioned to Capitalize on Higher Zinc Pricing in +H2/16
Valuation: Our target price is based on a 5.0x multiple to 2017E cash flow per share (CFPS) of US$0.20 at a forecast zinc price of US$1.00/lb. Acknowledging that Trevali’s base metals-producing peers currently trade at +4.0x CFPS, we would argue the Company’s relatively unique ‘pure play’ zinc production profile stands to garner a premium valuation in the context of improving medium-term (+H2/16) zinc pricing/sentiment.
Highlights:
§  With commercial production now established at two mines, we anticipate stronger Q3/16-to-date zinc pricing stands to drive Trevali’s share price higher, prompting an increased target price of $1.25 per share (from $1.00). Our new target is based on a revised premium 5.0x multiple to 2017E CFPS of US$0.20 at US$1.00/lb of zinc (previously 4.0x; note, peers currently trade at ~4.0x CFPS). This is a multiple we believe prudent given the Company is poised to become a (the) marquee mid-tier ‘pure-play’ zinc producer in a market facing a significant medium-term supply issue.
§  Q2/16A financials were driven by previously reported production of 15.2 Mlb of zinc, 5.6 Mlb of lead, and 222 koz of silver (payable), tracking reiterated 2016E production guidance (including 57 Mlb to 60 Mlb of zinc). Santander’s Q2/16 production profile was underpinned by a third consecutive quarter of record mill throughput (~2,408 tpd). The operation continues to operate well above its 2,000 tpd nameplate capacity, with good recoveries (including ~90% zinc).
§  Santander’s total zinc cash cost averaged US$0.47/lb (payable) net of credits in Q2/16 (compared with US$0.36/lb in Q1/16). The cost increase reflects higher on-site operating costs (US$0.08/lb) and lower by-product credits (US$0.10/lb), partially offset by lower off-site treatment charges (~US$0.08/lb). A Q2/16A on-site operating cost of US$35.64/tonne milled is up from US$32.22 in Q1/16, but still notably below a 2015A average cost of US$42.65 and well within the lower end of reiterated 2016E cost guidance (US$35 to US$38).

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