Second-half should see higher production rates and EBITDA Looking forward to second half:
- second half zinc production should average 96 million pounds a quarter, versus 81 million per quarter in the first half, assuming total production in F21 is 355 million pounds,
- EBITDA of $31 million will increase sharply with higher production and lower AISC per pound, which explains why Management was so optimistic about the second half
- COVID 19 constraints slowed on boarding of employees at both RP and Caribou mines. These problems have been resolved explaining the higher production rate in the second half
- a 10% increase in the mining rate at Perkoa, their most productive asset, is good news in the long term
Over the medium term Trevali could develop two low cost producers:
- a green light for RP 2 would lower costs and increase production, leading to a meaningful increase in profitability
- the introduction of new milling technology at Caribou could improve metal recoveries, reduce transport and off-site refining charges, recover copper and gold and open up the potential of reprocessing tailing. Metal production would go up and costs would go down, converting Caribou from a marginal producer to a long term low cost producer
Selling zinc forward to lock in a profit margin, fund restarting a mine, or fund capital expansion projects is a prudent thing to do. Corporations are fiduciaries, responsible for the long term health of the assets and not speculating on next quarters metal prices. Looking back to the eighties, Peter Allen at LAC was criticized for selling gold forward to fund capital projects. A number of those mines are still in operation 40-years later.