Teal Valley T.TV

Haywood Securities: Buy rating and $1.25 target price for TV

[stockguru1982]

According to Haywood Securities:

https://personal.crocodoc.com/GMCKmgG

July 8, 2015

Trevali Mining Corp. (TV-T, $0.82)

Rating: Buy

Target Price: $1.25

Return: 52%

Risk Profile: Very High

Santander Delivers Another Solid Quarter – 2015E Production Guidance Reiterated

Valuation

Our target is based on a 1.0x multiple to a fully financed after-tax corporate NAV10% of $1.20 per fully diluted share at Haywood’s long-term forecast zinc price of US$1.15/lb. A change of US$0.10/lb (~9%) in long-term zinc price impacts our target by ~$0.25 per share (~21%), providing investors with strong leverage to the metal.

Risks

Trevali has not published any NI 43-101 compliant technical studies outlining the details of a modern mining operation at Santander. Thus, our formal project valuation is based on conceptual Company guidance and peer-group comparables only. Ongoing/future development at Santander also appears to be taking place in lieu of publicly available technical documentation, in part illustrated by Trevali’s recent initiative to fast-track underground development on four sublevels at the Rosa Zone. Hence, we consider forecast risk as High.

Impact – Positive (neutral to our formal valuation)

Q2/15A production is in line with (modestly ahead of) our modelled expectations (2015E production guidance reiterated). Corresponding Q2/15A financial results are scheduled for release on August 14, 2015 (after market close).

Production continues to progress well at Trevali’s 100% owned Santander zinc-lead-silver mine in Peru. Commercial production was declared in February 2014, and the mine achieved its 2014E production guidance (which was increased in early Q4/14 on the back of strong YTD performance; refer to Radar Screen, April 2, 2015). H1/15A production continues to deliver as Santander’s Q2/15 production profile surpassed solid Q1/15 results on the back of modestly higher mill throughput and average head grades. Q2/15 production highlights include:

- 13.7 Mlb of zinc, 8.7 Mlb of lead, and 290 koz of silver (payable)—up notably from Q1/15A production of 12.5 Mlb, 7.4 Mlb, and 255 koz respectively, and in line with reiterated 2015E production guidance of 48-50 Mlb of zinc, 23-25 Mlb of lead, and 850-950 koz of silver on an annualized basis.

- Santander continues to operate at (above) design capacity. Q2/15A mill throughput averaged ~2,093 tpd (vs. nameplate at 2,000 tpd) with good recoveries (including 90% zinc; versus 2015E average zinc recovery of 87% in our model).

- Increased average zinc, lead, and silver head grades also helped boost Q2/15A production over Q1/15A levels.

- Trevali’s 2015E guidance includes an on-site operating cost of US$48 to US$51 per tonne milled, versus an arguably conservative figure of US$55 per tonne milled in our model (maintained), which translates into a 2015E average total zinc cash cost of US$0.50/lb net of credits at Santander in our valuation.

Following a contemplated ~US$20M mill expansion to +4,000 tpd in +2016 (US$30M/2016 in Haywood model; functional in early 2017; likely funded, in part, by a lease-back agreement with Glencore), Santander is expected to produce ~80 Mlb of zinc per annum.