Trevali Mining Corp

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. The company's operating segments Perkoa Mine, Rosh Pinah Mine, Caribou Mine, and Santander Mine. Primarily It explores for zinc, lead, silver, copper deposits.

Key Highlights 

• Robust Q3 2021 performance: The company reported decent performance in the Q3 2021, with revenue surged by 59.1% to USD 79.8 million, against USD 50.2 million in Q3 2020, same sort of elevation was also seen EBITDA which grew by 76.1% to USD 27.1 million respectively, while the net income rose hugely to USD 5.8 million compared to USD 1.1 million in the previous corresponding period. The healthy performance was driven by improved zinc prices by 28% and 47% decrease in 2021 zinc treatment charge benchmark.

Source: Company Filing

• Positive macros: The Company's management feels that the zinc market's outlook and pricing movement are both positive. As global economic activity intensifies with infrastructure spending, pent-up demand growth, and metal supply restrictions, the metals sector has fared well and is beginning to reflect investor confidence in an extended positive price cycle.

Source: Company Presentation

• Sequentially reducing debt: The company managed to minimize its net debt by USD 27.0 million to USD 82.0 million in the reported period compared from June 30, 2021, largely due to the collection of settlement receivables outstanding at Q2. We believe reducing debt would help the company in a near term by improving its margin and bottom line.

• Divested Santander Mine: The company recently sold its entire stake in the Santander Mine in Peru, receiving 10 million common shares of Cerro De Pasco, CAD 1 million in cash, and a 1% Net Smelter Return Royalty on certain portions of the Santander Mine site that do not yet have a recognized Mineral Resource. We believe the divestiture of Santander is an element of Trevali's focus on disciplined capital allocation, corporate debt reduction and development of the RP2.0 expansion project at Rosh Pinah.
  

Financial overview of Q3 2021 (In 000 of USD)

Source: Company Filing 

• In Q3 2021, the company’s revenue increased by 59% to USD 79.8 million compared to USD 50.1 million in pcp. Higher commodity prices help the company is achieving higher revenues.
• On the back of higher revenues, the company recorded elevated gross profit of USD 7.6 million against USD 3.2 million in pcp.
• Lower G&A expenses heled in boosting operating profit to USD 6.4 million against USD 1.8 million in pcp.
• Higher other income and mark to market gains improved net income to USD 5.7 million partially offset by higher income tax.
  

Risks associated with investments

The mining industry involves many risks which are inherent to the nature of the business, global economic trends and economic, environmental and social conditions in the geographical areas of operations are few of them. Furthermore, the Company is subject to other risks also like higher energy prices, supply chain challenges and associated manufacturing and production shortages may result in operating cost pressure and price volatility. 

Stock recommendation

The company's operating performance in Q3 2021 was excellent, thanks to an improved zinc prices by 28% and 47% decrease in 2021 zinc treatment charge benchmark. Along the healthy operating performance, the company is also minimizing its debt, which is a key positive as we believe it would help it in improving its margin and bottom line down the time. Furthermore, the management believes that the outlook for the zinc market and its price momentum would remain healthy. Moreover, we believe the company is well positioned to capitalize from rising underlying commodity prices and end FY2021 in good financial shape. On the valuation front, the stock is available at a forward EV/ EBITDA multiple of 1.7x against an industry (Metals & Mining) median of 2.6x. Hence, considering the aforesaid rationales, we recommend a “Speculative Buy” rating in the stock at the closing price of CAD 1.54 on December 10, 2021, with double-digit (percentage term) upside potential.

Technical Analysis Summary:

One-Year Price Chart (as on December 10, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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