Trevali Mining Corporation (TSX: TV) is a is a natural resource company engaged in the acquisition, exploration, development, and production of mineral properties in Peru and Canada. The group explores for zinc, lead, silver, and copper deposits.

Key Highlights:

• Higher revenue: During Q1FY22, the company stated an increase of 29.4% in its net revenue to USD 93.11 million against the net revenue of USD 71.95 million in Q1FY21. The total sales from zinc were USD 106.53 million in Q1FY22, which was 17.3% higher than USD 90.8 million during Q1FY21. The total payable zinc declined by almost 12% in Q1FY22 vs Q1FY21, but the higher average zinc LME price rose substantially by 36% in the similar period (Q1FY22) as compared to Q1FY21, clocking the higher sales figures. Below are the numbers stating the zinc production across various mines, Cash cost, and AISC (All-in Sustaining Costs) for Q1FY22.

Source: Company presentation

• Improved operating efficiency: In Q1FY22, the group reported a dip in ASIC (All-in Sustaining Costs) to USD 1.22/lb (USD/ pound) from USD 1.29/lb in Q4FY21. The C1 cash cost also declined to USD 1.06/lb in Q1FY22 from USD 1.09/lb in Q4FY21. Further, the company is tightening its safety measure for its workers which is depicted in the declining trend of Total Recordable Injury Frequency (TRIF) in Q1FY22 to 3.5 as compared to 6.2 in Q4FY21, the same is stated below.

Source: Company presentation

• Higher adjusted EBITDA: The group reported higher adjusted EBITDA of USD 41.42 million in Q1FY22 whereas the adjusted EBITDA for Q1FY21 stood at 24.49 million USD. On account of the higher average sales price realized in Q1FY22 which was partially offset by the rising costs, the group managed to attain a higher adjusted EBITDA during Q1FY22. Below is the breakdown of how each of the major mines contributed to the increased adjusted EBITDA in Q1FY22.

(in Millions of USD)

Source: Refinitiv, Analysis by Kalkine Group

Risks associated with investment

The company’s major revenue portion is driven by zinc, and any unfavorable changes in the zinc prices for a sustainable period will impact the revenues negatively. To add, the company is facing other risks such as a slow down in the economy, rising costs, foreign exchange volatility, changes in the mining laws and ESG norms, etc.  

Financial overview of Q1FY22 (Expressed in thousands of USD)

Source: Company Filing

• For Q1FY22, the group reported an increase in net revenue to USD 93.11 million as compared to USD 53.65 million in Q1FY21. During Q1FY22, the average Zinc LME price rose to 36% and average lead LME prices surged to 15%, as compared to Q1FY21, resulting in higher revenue.

• The mine operating expenses for Q1FY22 were reported at USD 75.57 million, against USD 45.85 million in Q1FY21.

• The operating profits witnessed a steep rise during Q1FY22 at USD 15.98 million against USD 5.11 million in Q1FY21. This was driven majorly by lower general and administrative expenses in Q1FY22 as compared to Q1FY21.

• The group reported net income and total comprehensive income of USD 20.05 million in Q1FY22 as compared to the net loss and total comprehensive loss of USD 2.51 million in Q1FY21.          

Valuation Methodology (Illustrative): EV to Sales based

Analysis by Kalkine Group

Stock Recommendation:

The company showed a major turnaround by reporting a net income of USD 20.05 million in Q1FY22, from the net losses of USD 2.51 million in Q1FY21. Further, the declining C1 cash costs, AISC, and reduced Total Recordable Injury Frequency, in Q1FY22 as compared to the previous quarter (Q4FY21), shows how well the company is managing its operations and costs. On the valuation front, the stock is measured on the EV/ Sales based multiple, and the stock is trading at 0.3x as compared to the industry average (basic materials) of 2.5x, implying that the stock is deeply undervalued and has headroom to catch up with its peers. We have considered Atico Mining Corp., Magna Gold Corp., etc as the peer group for the comparison. 

Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the last closing price of CAD 0.63 on May 16, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as of May 16, 2022). Analysis by Kalkine Group

Note- The reference data has been partly sourced from REFINITV

Technical Analysis Summary

Disclaimer

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