Santander SaleIt is now clear what TV management meant when they tweeted on 20th October "Trevali is looking to capitalize on this upward trend. Watch this space for more to come!".
They were hinting that rising zinc prices have given them an opportunitiy to off-load the Santander mine. As per their thinking, if zinc prices had remained below $1.30/lb with a strong possibility of averaging below $1.30 in 2022, it would have been difficult for them to find a buyer and they would have been stuck with closing costs. This is evident from the clause in the sale agreement that states "A contingent payment of US$2.5 million in the event that the LME average zinc price for 2022 is equal to or greater than US$1.30 /lb".
This means that the deal has been structured with the assumption that zinc will average slightly below $1.30/lb in 2022.
TV will get CAD$1 million cash upon closing, subject to positive or negative adjustment to the extent that there is more or less than US$7.5 million of working capital remaining in Trevali Peru at closing.
TV is leaving behind a working capital of US$7.5 million. To me this seems to be a bad deal because of the following reasons:
- I anticipate the zinc price to average much higher than $1.30/lb in 2022
- They have anticipated very high mine closing costs. The difference between what they are getting and what they are giving away is huge. On one hand, they are getting $5.6 million dollars ($1 million + $4.6 million as calculated by Krams). On the other hand, they are giving away (i) a working capital of $7.5 million + (ii) Depreciated value of fixed assets + (iii) profits they could have earned from closing date in Q4 2021 to end of mine life in H2 2022.
If someone can explain why this is a good deal, I will appreciate.
TIA