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:

• Update on Rosh Pinah Expansion: Recently, the company reported that it has received non-binding expressions of interest from several financing companies, royalty companies, other mining-focused lenders etc. This was after the company’s decision to secure a project finance option for the Rosh Pinah mine The company also planned to refinance both its existing Corporate Revolving Credit Facility and Glencore Facility, maturing in September 2022. Notably, the company recently received indictive support from Glencore, Rosh Pinah's concentrate offtaker, wherein the firm would provide assistance of USD 33 million financing package as subordinate debt. Additionally, as per the management, the company would finance a USD 20 million fund from internal cash flows, which would be required for infrastructure update of the Rosh Pinah mine.

• Operational update:

1. For FY21, the company reported total zinc production of 322 million pounds, slightly below adjusted guidance of 325 to 350 million.
2. The company reported that it would restart its operation in Caribou Mine with an initial two-year mine plan with potential to extend the mine life. Notably, the company commenced Pilot Testing of FLSmidth's Rapid Oxidative Leach Technology at Caribou mine, while results are expected to be published in H1FY22.

• Cash flow turned positive: At the end of 9MFY21, the company reported a positive cash flow of USD 81.6 million, as compared to an operating cash outflow of USD 28.7 million in pcp. This was supported by a net income of USD 7.1 million, as compared to a net loss of USD 193.8 million in pcp. A positive cash flow would support the company’s overall liquidity.

Risk: 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. Moreover, one of the operating mines is located in Burkina Faso, Western Africa, and the country is going through political unrest and hence remains as a major concern. The extension of the scenario is likely to halt the company’s mining activities for a brief time frame.

Q3FY21 Financial Highlights: (in thousands of USD)

Q3FY21 Income Statement Highlights (Source: Company Report)

• In Q3FY21, the company reported its revenue of USD 79.8 million, surged from USD 50.1 million in pcp, primarily due to the 28% increase in the zinc price and the 47% decrease in 2021 zinc treatment charge benchmark.
• Gross profit surged to USD 7.6 million from USD 3.2 million in pcp, primarily driven by a higher revenue, partially offset by higher production and distribution expense.
• The quarter was marked by lower General and administrative costs followed by a decline in Interest expense.
• Net income jumped to USD 5.7 million from USD 1.1 million in pcp.
  

Valuation Methodology (Illustrative): Price to Earnings-based

Analysis by Kalkine Group

Stock Recommendation:

For FY22, the company is expecting its zinc production of 247 – 280 million pounds, while production of lead is expected in between 36 to 41 million pounds. Additionally, the company’s silver production is expected within the range of 688 to 778 thousand ounces in FY22. We have valued the stock using the P/E based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have industry (Metal & mining) median on an NTM basis. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the last traded price of CAD 1.22 on January 31, 2022.

One-Year Technical Price Chart (as on January 31, 2022). Source: REFINITIV, Analysis by Kalkine Group 

 Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

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