Mackie Research: Buy rating and $1.30 target price for TVAccording to Mackie Research:
Trevali Mining Corporation
Rating: BUY
Target: $1.30
Operating Well, But Cash Now The Question
EVENT – Q1/14 Financials Released
Financial results: Trevali Mining reported Q1/14 revenue of $24.1 million on sales of 12. million lbs of zinc, 5.2 million lbs of lead, and 250kozs of silver. Q1/14 productio numbers of ~14.6 million payable pounds of zinc, 5.4 million payable pounds of lead an 268,600 payable ounces of silver were pre-released in April (see note dated April 15 2014). Net income of $0.6 million or $0.00/share was slightly below our estimate of $0.01/share and consensus of $0.03/share. Cash on hand at the end of the quarter of $27.6 million was below our estimate of $36 million.
Preliminary cash costs: The company reported a site cash cost of US$0.33 per pound of payable Zinc Equivalent produced at its Santander operation in Peru. On a site cash cost per pound of payable zinc net of by-products basis, this translates to ~US$0.37/lb, whic is in line with our estimate of $US0.37/lb.
IMPACT – Mixed, Funds Remain Tight For Development
Source of funds a concern: While the inaugural quarter of operating results from the company’s Santander mine in Peru was largely positive, we remain concerned with the company’s ability to pay for its ongoing exploration and development programs. Income from Santander operations was only $3.9 million and the company exited the quarter with a working capital deficit of $4.3 million. The company’s cash position of $27.6 million was well below our estimate of $36 million largely due to a timing of sales. Santander produced 14.6 million lbs of zinc in the quarter but only sold 12.7 million. Management suggested this timing of sales trend to continue going forward, indicating lumpy revenue will continue. Therefore, with a $36 million development program at Caribou over the next 12 months, as well as ongoing exploration programs at Santander (new 5,000m program just announced), Stratmat and Caribou, we believe the company will likely require alternative sources of funding.
No changes to estimates, target: We continue to value Trevali using a blended NAV/2015E CF approach. Our 2015E CFPS remains unchanged at $0.25/sh. Our NAVPS remains unchanged at $1.60/sh. As such, our target remains unchanged at $1.30/sh.
Expect plenty of news flow: The company has a busy next 12 months. We anticipate the closing of the debt facility for the Caribou mine and mill complex to occur in the coming weeks. We are forecasting start-up at Caribou to occur in Q2/15 with a six-month ramp- up period. Turning to exploration, drilling remains ongoing at Stratmat and results will be released upon receipt, leading to an updated resource anticipated in Q3/14. The company also has a 5,000m program at Santander set to begin this week.
ACTION – BUY
We maintain our Buy recommendation and target price of $1.30/sh. As Trevali continues to optimize Santander and brings the Caribou mine online, we would expect to see additional increases in the cash flow multiple and stock price. However, we caution investors to be wary of dilutive financings in the coming quarters.