A Small Cap Mining Stock to Hold- Trevali Mining Corporation

Trevali Mining Corp. (TSX: TV) is a natural resource company engaged in the acquisition, exploration, development and production of mineral properties in Peru and Canada. 

Key Updates:

• Better profitability margins: In FY21, the company reported its gross margin and operating margin of 12.2% and 6.7%, respectively, as compared to a negative gross margin of 15.1% and a negative operating of 104.7%, respectively, in FY20. Moreover, the company reported its pretax margin of 2.8% in FY21, as compared to a negative pretax margin of 118.8% on FY20. This indicates improved cost structure and is a key positive.

• Improved cash cycle days: In FY21, the company reported its cash conversion period of 98.6 days, which is significantly lower than 144 days in FY20. This is impressive as the company is taking lower time to convert its investments to cash flows.

• Cash flow turned positive: In FY21, the company reported its cash flow from operations of USD 107.2 million, as compared to an outflow of USD 16.4 million in FY20 supported by improved working capital management. This is impressive as it would support the overall liquidity of the firm.
  

Risk associated with the Business:

Due to volatility in the international commodity prices, the company might witness a slide in the realization price, which subsequently dampen the overall performance of the company. 

FY21 Financial Highlights:

FY21 Income Statement Highlights (Source: Company Report)

• In FY21, TV posted its sales of USD 0 million, stood higher than USD 162.5 million in FY20. The growth was driven by strong zinc prices as compared to FY20.
• The group reported an operating profit of USD 25.5 million, as compared to an operating loss of USD 34.5 million in FY20. This was driven by higher sales, partially offset by higher input costs.
• The company reported a net loss from continuing operations of USD 3.2 million, stood significantly lower from USD 182.7 million in FY20. This was primarily due to an operating loss as mentioned above coupled with an inclusion of impairments expenses amounting USD 130.2 million in FY20.

   Valuation Methodology (Illustrative): EV to Sales-based

Analysis by Kalkine Group

Stock Recommendation:

For FY22, the company expects to produce 247 to 280 million payable lbs Zinc, 36 to 41 million payable lbs lead and 688 to 778 Koz Payable ozs Silver. The group expects its AISC in between USD 1.03 to 1.13 per pound of zinc. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Sherritt International Corp, Largo Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the last closing price of CAD 1.38 on March 29, 2022.

One-Year Technical Price Chart (as on March 29, 2022). Source: REFINITIV, Analysis by Kalkine Group

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