Teal Valley T.TV.W

Once again...

[Galvanizer]

The share price is drifting downwards because the market is, once again, not impressed with the most recent results – a $1.4M YTD net income, a $nil EPS (with even more shares added to share float bloat), a reduced production guidance for the current year (management describes it as ‘revised’ instead), increased CAPEX from $50M to $62M and an ever-increasing AISC!
 
The general consensus was that Q1 was a “reset” quarter with all bad things flushed out before the start of next quarter and, that from Q2 onwards, there would be nothing but positive cash flows!
 
During Q2, the company repaid $6.4M on the ‘revolving credit facility’ (this was the Q1 mandated excess cash repayment) but unfortunately the company also needed to borrow another $12.4M on other credit facilities (FS page 3)!  It is not good that “There is no mandatory repayment required related to Q2 2021” (MDA page 16) because this clearly indicates that the Q2 operations did not generate excess cash!!  Even worse (aside from the permanent reductions to the credit facility every time an ‘excess cash’ repayment is made) is that this entire ‘revolving credit facility’ becomes due, in full, by September 2021!!  This is a critical financing issue that seems to be left alone... what is the plan? 
 
AISC is so much more important than C1 (as AISC captures the treatment / refining charges, the lead-silver by-product credits and sustaining CAPEX / lease payments).  For Q2, AISC was reported at Perkoa at $1.03; Santander at $1.04, and Caribou at $1.01 (note that Santander’s Q2 CAPEX totaled a miniscule $0.03M (MDA page 23)).  These are alarmingly high rates given that the lowered treatment charges are included in these amounts.
 
The MD&A no longer discloses the mine operating expenses by sub-categories (mining, processing, maintenance, and general & administrative).  Perkoa reported $4.7M in G&A during 2021 Q1 – that is a massive amount of G&A with no coherent explanation provided!  It is disconcerting that management is no longer providing transparency on this detailed information!
 
The ‘earnings call’ was attended by only one investor analyst (Cormark Securities) and he only asked about the FLSmidth rapid oxidative leach project at Caribou!  The market does not seem interested in Trevali at this time!
 
I did find some interesting information on the rapid oxidative leach process – it originated in 2015.  This link leads to the May 2018 presentation -  Rapid Oxidative Leach (ROL) - A gamechanger (flsmidth.com) (could not locate any other more current information but it does sound like a breakthrough technology producing precipitate within six hours in a 80 centigrade atmosphere).  Whether it is vaible or not is the critical question to be addressed!

The Rosh Pinah expansion project was announced August 2020 with a $93M cost.  Based on many years watching how these projects evolve, I am concernd about the financing options and the bugeting process - the company is not generating sufficent funds at this time to self-finance, the credit facility is due in full by September 2022 and costs across the board have been increasing as the industry begins to expand.
 
We will have to wait for the next quarter to see if Trevali has turned the corner and is capable of generating significant positive cash-flows (I know, i know….  we have heard this time and time again... )!
 
This is still a very long-term hold with a painful lesson learned... when a giant (Glencore) wants to play with your toys (Trevali) maybe it would be better to take your money and run as far away as fast as possible!