Trevali Mining's Q2 2021 Results - Earnings Call TranscriptTrevali Mining's (TREVF) CEO Ricus Grimbeek on Q2 2021 Results - Earnings Call Transcript Aug. 07, 2021 6:13 PM ETTrevali Mining Corporation (TREVF) Q2: 2021-08-04 Earnings Summary EPS of $0.00 misses by $0.01 | Revenue of $101.11M (136.84% Y/Y) misses by $19.44M Trevali Mining Corporation (TREVF) Q2 2021 Earnings Conference Call August 5, 2021 1:00 PM ET Company Participants Brendan Creaney Chief Financial Officer Ricus Grimbeek President and Chief Executive Officer Derek du Preez Chief Technical Officer Conference Call Participants Stefan Ioannou Cormark Securities Operator Good day, ladies and gentlemen, and welcome to the Trevali Mining Corporation Second Quarter 2021 Financials and Earnings Conference Call and Webcast. [Operator Instructions] I would also like to remind everyone that this conference call is being recorded. I would now like to turn the call over to Brendan Creaney. Please begin. Brendan Creaney Thank you, Jenny. Good day, everyone, and thanks for taking the time to join the call this morning. Before we get started, I would like to direct your attention to our forward-looking language on Slide 2. Our discussion today will contain forward-looking information about the companys future performance. Although forward-looking statements are based on what management believes to be reasonable assumptions, actual results may turn out to be different to these forward-looking statements. For a complete discussion of the risks, certain uncertainties and factors, which may lead to actual operating and financial results being different from the estimates contained in our forward-looking statements, please refer to our latest MD&A filed on SEDAR for the year ended June 30, 2021. Id also like to mention that this conference call is being recorded, and a replay webcast will be available one hour after todays call. In conjunction with this conference call, there is an accompanying PDF presentation available on the Events section and the Corporate Presentation section of Trevalis website under the Investors tab. The link to our live webcast is also on Trevalis website under Events. Moving to Slide 3. The main presenters today are Ricus Grimbeek, Trevalis President and CEO; and he will be accompanied by Derek du Preez, Trevalis Chief Technical Officer, and myself, as Trevalis Chief Financial Officer. Ricus, over to you. Ricus Grimbeek Thank you, Brendan. And starting on Slide 4. The company ended Q2 on a strong footing and continues to be well-positioned to take full advantage of the opportunities provided by the positive momentum in the zinc market. We are pleased with our overall operational results having safely achieved production of 87.3 million payable pounds of zinc at a C1 cash cost of $0.84 and an all-in sustaining cost of $0.97 per pound. Our safety record improved through stronger engagement and increased risk control awareness during Q2 lowering our recordable injury rate from 30.3 Q1 to 5.2 in Q2. We thank all of our workforce for their contribution to this improvement. We had a strong production performance with Rosh Pinah catching up from a slow first quarter and Perkoa mill was debottlenecked which supported the operation running at a higher throughput. Caribou contributed its first full quarter of production since being restarted in the first quarter. Ramp-up delays were experienced and we will discuss this later on the call. Weve increased the production guidance range for 2021 at both Perkoa and Rosh Pinah and decreased it for Caribou while Santander is expected to expected zinc production remains the same, however silver production has increased. Guidance for the full year 2021is now forecast to be between 330 and 355 million pounds of zinc at an all-in sustaining cost between $0.94 and $0.98 per barrel, which at current zinc prices will ensure we capture a robust margin and will translate in meaningful cash flows. Adjusted EBITDA of $32 million is a 31% increase over Q1 2021. We reported adjusted earnings of $0.01 per share. Net debt increased for the quarter, but this was LME based as we as there was a buildup of receivables at the quarter end. By the end of July net debt reduced to $92.4 million. Turning to Slide 5 Ill take through the operations in detail. At Perkoa, payable production for Q2 2021was at 40 million pounds. The site achieved an average mill throughput of 100 tons per hour for the month of April and May, which we will discuss further in this presentation. For the month of June, we experienced some logistical issues with getting material into the Port of Abidjan, which resulted in equipment mobilization delays as well as high electricity costs due to on-site availability of our HFO generators. This resulted in reduced production and higher cost for due. Since then the mobile equipment has arrived on site, and we are again producing at higher throughput rates. In terms of HFO generators, weve supplemented the power with outer generators, and we are working through the maintenance of the HFO generators, which we expect to be at full capacity at the end of August. We continued on C3 deposits, and we are at a point in the program where we need to move from surface drilling to underground drilling to get the right positioning for our next ore. We need to wait for the decline to be developed as part of the normal mining activities in order to do this work. In the meantime, weve moved our exploration activities to regional targets close to the mine for Q3. Rosh Pinah completed the quarter with strong production and unit cost compared to Q1 2021 producing 19.6 million pounds of payable zinc at a C1 cash cost of $0.51 and all-in sustaining cost of $0.77 per pound, which was supported by a lead, silver sale during the quarter. We have two additional lead, silver sales planned for 2021. Each for one for each quarter. The ore stockpile is being replenished, which supports our blending efforts to manage micro quartzite feed to the mill. We have advanced the very exciting Rosh RP2.0 Feasibility Study and are on track for imminent publication this quarter. At Santander, zinc production was at 12 million pounds produced at a C1 cash cost of $1.03 and an all-in sustaining cost of $1.04, and was supported by strong silver production. At the beginning of 2021, Trevali indicated that mining operations at the Magistral deposit were expected to be complete by the end of the year, and Santander would move into an exploration phase to focus on the discovery and definition of new mineralization to complement the existing Santander Pipe mineral resource. Given the current strength in the zinc market and operational results to date, we made a decision to increase underground development in 2021, which extends the mine life into the first half of 2022. As a result, unit costs are expected to be modestly higher in 2021 given the additional 3,000 meters of development now scheduled, while zinc and lead payable production guidance is being reaffirmed with payable zinc guidance being increased. Drilling of a deep geophysical anomaly below the defined Magistral and Santander Pipe ore was completed with no significant results. Regional drilling targets bordering the Volcans Romina deposits are being pursued at the moment. Caribou produced 15.7 million pounds of zinc at a C1 cash cost of $0.80 and an all-in sustaining cost of $1.01 impacted by a byproduct credit delay, and I will pass it over to Derek to go through further detail of our plans for Caribou for the next quarter. Derek du Preez Thanks, Ricus. Moving to Slide 6. The initial restart of Caribou was completed on time restart and on budget as announced last quarter. However, ramp-up has been slower than expected due to lower than planned ore stockpile levels caused by challenges related to the COVID-19 pandemic. These include the initial onboarding of personnel, the availability of underground equipment and delays related to supply chain logistics. All these issues have since been resolved, the planned ore stockpile levels have not been achieved, and the mill is therefore, expected to run at the throughput of between 2,100 and 2,500 tons per day for the remainder of 2021. As a result, annual production guidance for 2021 is being revised down to 28 million to 53 million pounds of zinc, 16 million to 17 million pounds of led and 428,000 to 477,000 ounces of silver. C1 cash cost and all-in sustaining cost guidance is being reduced despite the lower production due to successful cost containment and savings programs. The Q2 all-in sustaining cost represents a reduction of over 30% where we were operating at before going into care and maintenance despite the lower volumes. This clearly demonstrates the success of our cost savings program. C1 cash cost is forecast to be lower due to contract equipment costs increased as capital leases, whereas this was previously expected to be expensed. C1 cash cost and all-in sustaining costs are guided lower to $0.66 to $0.70 and $0.92 to $0.96 respectively. We have made good progress on the longer-term plan for Caribou and its anticipated that the decision will be made by the end of 2021 on whether to proceed on pursuing additional underground development to extend the conventional mine life beyond the current two-year mine plan. Staying on the Caribou on Slide 7. Im very excited to discuss an additional opportunity, which has the potential to not only unlock significant value for Caribou for the wider Bathurst Mining Camp. Earlier this week, we announced the pilot testing program for FLSmidths Rapid Oxidative Leach process or ROL for short. If viable at Caribou, the technology has the potential to increase metallurgical recoveries, produce precipitate or metal on site, including copper and gold, and to reduce or eliminate concentrate freight costs and treatment charges. It could further be applied to both tailings at Caribou and fresh ore out of the mine. Weve had some promising results to date with laboratory test work at FLSmidths facilities down in Salt Lake City. The next phase of the testing program is an essential step in evaluating the economic viability of the process with the potential to enhance the value of the in-situ material and tailings at Caribou as well as the surrounding deposits in the Bathurst region. If the pilot program is successful, we would move to prepare a PEA and NI-43-101 technical report. For additional information on the ROL, please visit our website to read the full news release dated August 3, 2021. We will be updating the market regularly as we advance this program further. Ricus Grimbeek Thank you, Derek, and I just want to reiterate how excited I am about this the potential of this ROL technology. We said a year ago that we are going to be studying alternatives for Caribou, and this is the first phase of starting to tell the market what we are seeing. The potential seems really significant, and I really look forward to seeing the results, and we will be coming back to you very soon with the results of the first term pilot program. Derek du Preez Thank you, Ricus. Moving to Slide 8, I will go into more detail on the work weve done to optimize the Perkoa mill. The Perkoa operation has historically achieved a throughput of 89 dry metric tons per hour. Some modifications we were able to first achieve 95 tons per hour then increasing to 108 tons per hour. The best average throughput was achieved in May with 105 toes per hour with a head grade of 13.5% zinc. Some of the modifications made with changing the water inlets and discharge, reducing ball mill sizes from 3 inch to 2.5 inch, reducing the discharge trommel screen sizes and reducing the mill recirculation load and replacing the thickener underflow and tailing pumps with larger pumps. As a result, mill throughput has been sustainably increased from approximately 90 tons per hour to greater than 100 tons per hour without compromising metal recovery. Additional underground mobile equipment has been mobilized to ensure mining rates support the higher mill throughput. With the changes to the mining mill, we have taken the opportunity to revise guidance increasing the zinc payable production for 2021 to a range of 160 million to 170 million pounds at a C1 cash cost of $0.83 to $0.87 and all-in sustaining cost of $0.90 to $0.94 per pound. Brendan, over to you. Brendan Creaney Thanks, Derek. On Slide 9. I would like to highlight the business improvement efforts weve undertaken in the first two quarters of the year. We have been opportunistic with the increasing zinc price being mindful to balance those opportunities with cost containment to ensure we capture an appropriate margin per pound. In Q1, the positive zinc market supported our decision to restart the Caribou mine with a two year mine life. We completed additional underground development at Santander to achieve a full years production. In the second quarter, we continued on with additional development work in Santander, which now extends the mine life into the first half of 2022. In addition, we are studying ways to extend Caribou either through conventional mining and milling or through our recently announced ROL program. Some of these value-added initiatives will increase all-in sustaining costs in the short term. However, at the current zinc price, the margins have expanded as highlighted by the graph on the right side of the page. Our full year 2021 consolidated AISC guidance of $0.94 to $0.98 per pound of zinc relative to the current prices of zinc at $1.37 provides a margin of approximately $0.39 to $0.41 a pound. Moving to Slide 10. The average LME price for zinc during the quarter was a $1.32, a pound up 6% over Q1. Revenue increased to $101.1 million up 41% over Q1 and was due to the first full quarter production from Caribou by-product sales from both Rosh Pinah and Caribou, and a higher zinc price. While Caribou meaningfully contributed to revenue for the quarter, timing of sales did hold back the number somewhat for being higher. C1 cash costs reduced by 6% and AISC was reduced by 2% during the quarter, supported by by-product credits, which more than offset operational cost inflation and a weakening of the U.S dollar. Adjusted EBITDA was $32 million, an increase of 31% relative to Q1 2021 and operating cash flows before working capital was $33.5 million, which was impacted by the timing of receivables, which I will speak to on the next slide. As of the end of Q2, we had a substantial increase to our net settlement receivables, an increase from $32.8 million at the end of the first quarter to $70.1 million as of the end of the second quarter representing approximately $70.2 million zinc equivalent pounds. The Q2 net settlement receivable consisted of three Perkoa shipments at sea, one parcel at port, a late June sale at Rosh Pinah and several trucks from Santander making their way to warehouses higher Caribou receivable after production restarted in late Q1. The buildup in receivables is really just a timing issue. And those were happened to be the logistical movements of our sales as of June 30. Comparing that to the end of the first quarter, two Perkoa shipments at sea, several trucks delivering concentrate from Santander to warehouses and a few final invoices to be paid across the business. Since the quarter ended $50.7 million in net settlement receivables have been collected, and net debt has decreased to $92.4 million as of July 31, 2021. As a reminder, our expected sales and therefore, cash flow generation weighted to the fourth quarter of this year, as it relates to our annual guidance. Back to you, Ricus Brendan Creaney Okay, Brendan. Consistent to what weve expected. We continue to see a run-up in the zinc price. And as of today, it sits at a $1.37 per pound up over 67% from the low of $0.82 back in March of 2020. We believe that the outlook for the zinc market remains robust. The metal sector has performed well as global economic activity increased and pent-up demand struggled to be satisfied due to supply chain supply chain constraints. Although there has been a pause in price increases of late. We believe the structural shift towards a metal-intensive economy environment is still in its infancy. There are several drivers to the shift, including infrastructure spend initiatives, decarbonizing of energy sources, electrification of transportation, technology-related improvements in manufacturing efficiency. Meanwhile global manufacturing is strong. Growth of the eurozone manufacturing sector hit new heights during June, with the headline PMI setting, a fresh survey record for the fourth consecutive month. After accounting for seasonal factors, the PMI improved to 63.4 up from 63.1 in May. Moving to Slide 13. LME exchange inventories decreased to 256,000 tons by the end of Q2 versus 270,000 tons on March, 2021. Shanghai Futures Exchange zinc stocks drop to 35,000 tons versus 113,000 tons at the end of Q1. At eight days of global consumption this inventory level is well below historical averages of 18 days and is also supportive of higher zinc prices. As reported earlier this year, annual benchmark contract treatment charges for zinc concentrate as agreed to in Asia and Europe at a $159 per ton versus $300 per ton agreed to last year. Trevalis concentrate offtake agreements reference the annual benchmark treatments charges. Although market expected expectations are for zinc concentrate supply to expand in the coming quarters. The low annual benchmark reflected in concentrate. In a recent market update, Wood Mackenzies June in indicative spot treatment, charge was reported at $80 per ton. This is still significantly below the annual benchmark number that further supports our view on the tightness in the supply side of concentrate. We continue to deliver positive and on Slide 14. We continue to deliver positive results in the second quarter and expect further cash flow generation at the current zinc price with all our operations positively contributing towards that goal. The financial results for the first half of the year strengthened the balance sheet, having reduced net debt to $92.4 million as of July 31 and reduction of $12.6 million since the start of the year, which is inclusive of the restart investment made at Caribou. And as mentioned earlier, we expect significant cash flows to come in the fourth quarter. With our strengthening financial position and the imminent delivery of the RP2.0 feasibility study, the ROL program at Caribou as well as other exciting projects that go across the portfolio, we continue discussions with our lending syndicate and other global financial institutions on securing project financing to support the companys growth plans. We look forward to providing you further updates as we progress throughout the year. With that, operator, over to you for questions. Question-and-Answer Session Operator [Operator Instructions] Your first question is from Stefan Ioannou with Cormark Securities. Stefan Ioannou Hello [indiscernible] Ricus Grimbeek Hi, Stefan. Can you hear me? Stefan Ioannou Hello. Operator Im sorry, so the question was withdrawn. Stefan, please go ahead. Stefan Ioannou Hello. Ricus Grimbeek Id say find you can, you can choose your questions like that. Stefan Ioannou Can you hear me now? Ricus Grimbeek Yes, we can hear you. Stefan Ioannou Okay, great. So I dont know what happened there. Yes, just curious what the rapid oxidative leach work. I know its still early days, but can you maybe just give us a sense of sort of even just order of magnitude of capital cost that might be required to implement that in New Brunswick? Ricus Grimbeek Stefan, if as I said earlier, Im very excited by the technology. It is new technology but, we working with a very reputable and strong partner in FLSmidth. Were very excited by the potential that just brings. If you can just imagine Caribou going from because one of the big problems we have with Caribou is the recovery of zinc, the percentage of recovery. If we run really well and we do everything right, we get 80% recovery of zinc. So thats always been one of the bottlenecks at Caribou to make it a really great operation. So, thats where we started looking at different ways and different technology to find a way to get that done. And, and we landed on the ROL technology because, its not just a potential significant increase in recovery, but it also goes it skips the step of concentrate delivery. So that means you go straight from ore tailings. And thats the other very exciting part of this is that, its got the potential to retreat tailings. So you go from that step straight into producing metal. And, we would not just bringing this to the market and making a big splash of this, if we didnt believe that theres a real potential for this. As for your question on capital costs, its very hard at this stage to quantify that. But again, when we look at this, we would not put something forward. If unless we feel that there is some real potential. Stefan Ioannou Okay. No, fair enough. And I just, I guess just thinking out to just, further to that question, obviously you mentioned, considering doing some additional underground development at Caribou to extend the mine life there just in terms of this new process. I mean, is there sort of a minimum threshold number of mine life years youre going to need, and could that conceptually be supplied from Caribou alone or is it something thats going to start pulling in resources from elsewhere in the area? Ricus Grimbeek Yes, I think, Ill point back to our reserve statements. and youll see Caribou has got quite a decent reserve life ahead of it. So, that in itself would be a good supply to this new process, but what we can also see as potential of Halfmile and Stratmat for example, that could also be treated using exactly the same technology and then overlay the tiling that we have, and other potential exciting sources in the area. So, you start adding all of those things together then, it could be a very, very interesting opportunity, not just for Caribou, but for the whole of New Brunswick mining camp. Stefan Ioannou Yes. Okay, great. Great. Well, I look forward to seeing the results. Thanks very much Ricus Grimbeek Thank you. Operator [Operator Instructions] At this time, there are no further questions. Ill turn it back to the speakers. Ricus Grimbeek Thank you very much. And, as we said, and you would have seen from materials, were excited that, we had a really strong first half of the year, very excited for some of the imminent announcements well be making around the feasibility study RP2.0. And then also outcomes for the ROL process. As we also pointed out that the second half of the year is where we expect to be making some decent cash flows after the investments weve made at Caribou. And so yes, exciting times there. Thank you for listening and see you at the next quarter. Operator That does conclude todays conference. You may now disconnect.