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Trevali Mining loses $2.51-million (U.S.) in Q1 2021
2021-05-13 19:24 ET - News Release
Mr. Ricus Grimbeek reports
TREVALI REPORTS FIRST QUARTER 2021 RESULTS; REDUCED NET DEBT BY $12.4 MILLION.
Trevali Mining Corp. has released its financial and operating results for the three months ended March 31, 2021. The company reported quarterly production of 74.8 million pounds of zinc at an all-in sustaining cost (1) (AISC) of 99 cents per pound. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1) for the quarter was $24.5-million primarily due to business improvement initiatives, the increase in the zinc price and reduction in benchmark treatment charges for 2021. All financial figures are in United States dollars.
Financial and operational highlights for the first quarter 2021
Total recordable injury frequency (TRIF) in Q1 2021 increased to 13.3 compared with a full year 2020 TRIF of 4.5. The increase in recordable injuries during Q1 2021 was addressed by improved safety risk management, evidenced by a reduction in cases during March and April.
Zinc payable production of 74.8 million pounds for Q1 2021. Strong performances from Perkoa and Santander offset with one-time operational challenges at Rosh Pinah.
C1 cash cost (1) and AISC (1) of 89 cents/pound (lb) and 99 cents/lb per pound, respectively, negatively impacted due to the strengthening of the Namibian dollar and one-time operational challenges at Rosh Pinah partially offset by reduced treatment charges.
Successful restart of the Caribou operations on March 25, 2021, on time and budget, reconfirm guidance at lower end of 2021 production range due to slower than expected ramp-up.
Reconfirm consolidated 2021 production and cost guidance as production expected to increase with Caribou at full production and costs expected to decrease across the portfolio as per plan.
2021 annual treatment charge benchmark rates for zinc finalized at $159/per tonne, which are referenced in sales terms, representing a 47-per-cent decrease from the prior-year benchmark.
Q1 2021 revenues increased 6 per cent over the prior quarter to $72.0-million despite a decrease in sales volumes, due to the average LME zinc price of $1.25 per pound.
Adjusted EBITDA (1) of $24.5-million an operating cash flows before working capital of $15.5-million for Q1 2021, both supported by improved commodity prices.
Improved liquidity with net debt (1) of $92.6-million as at March 31, 2021, reduced by $12.4-million from Dec. 31, 2020, with further reductions expected over the remainder of 2021.
Ricus Grimbeek, president and chief executive officer, stated: "The team delivered a good quarter producing 74.8 millions pounds of payable zinc and achieved operating cash flows before changes in working capital of $15.5-million. Strong production and cost performances at Perkoa and Santander were offset by one-time operational challenges at Rosh Pinah. Caribou was restarted on time and budget with a slower than expected ramp-up. With improvements at Rosh Pinah in place and Caribou reaching full production we are well positioned to deliver on our annual guidance.
"We reduced our net debt (1) position by $12.4-million supported by tailwinds in the form of a high zinc price and reduced annual treatment charges for 2021. Given the strength in the zinc market and forecast performance from the business, significant cash generation is expected to continue and is weighted to the second half of the year due to timing of sales.
"With our strengthening financial position and the upcoming delivery of the RP2.0 feasibility study later this year, we have begun discussions with our lending syndicate and other global financial institutions on securing project debt financing to support the company's growth plans."
This news release should be read in conjunction with Trevali's quarterly consolidated financial statements and management's discussion and analysis for the three months ended March 31, 2021, which are available on Trevali's website and on SEDAR. Certain financial information is reported herein using non-IFRS (international financial reporting standards) measures; see non-IFRS financial performance measures in Trevali's accompanying management's discussion and analysis for the three months ended March 31, 2021.
Business overview
Trevali is a global base-metals mining company, headquartered in Vancouver, Canada. The bulk of the company's revenue is generated from base-metals mining at its three operational assets: the 90-per-cent-owned Perkoa mine in Burkina Faso, the 90-per-cent-owned Rosh Pinah mine in Namibia and the wholly owned Santander mine in Peru. In addition, Trevali owns the Caribou mine, Halfmile and Stratmat properties, and the Restigouche deposit in New Brunswick, Canada, and the past-producing Ruttan mine in Northern Manitoba, Canada. The Caribou mine was placed on care and maintenance on March 26, 2020; on Jan. 15, 2021, the company announced that the operations were being restarted and full zinc payable production resumed on March 25, 2021. Trevali also owns an effective 44-per-cent interest in the Gergarub project in Namibia, as well as an option to acquire a 100-per-cent interest in the Heath Steele deposit located in New Brunswick, Canada. The shares of the company are listed on the Toronto Stock Exchange (symbol TV), the OTCQX (symbol TREVF), the Lima Stock Exchange (symbol TV) and the Frankfurt Stock Exchange (symbol 4TI). For further details on Trevali, readers are referred to the company's website and to Canadian regulatory filings on SEDAR.
T-90 overview
In November, 2019, Trevali launched the T90 business improvement program which originally targeted a reduction in AISC (1) to 90 cents per payable pound of zinc produced by the beginning of 2022 through achieving annual sustainable efficiencies of $50-million.
In response to market conditions as a result of the COVID-19 pandemic, the scope of cost benefits under the T90 business improvement program has been accelerated and expanded. As of the end of 2020, the company has implemented $51-million of annualized efficiencies.
Given improvements to the zinc market, the decision to restart the Caribou mine was made in January, 2021, with the expectation that the operation will generate significant cash flow over its initially planned two-year mine life. Additionally, the decision was made to restart underground development at Santander after having suspended activities during the second half of 2020, which will contribute additional positive cash flows. While both the restart of Caribou and the capital investment at Santander are expected to impact the T90 target in 2021, the forecasted AISC (1) is well below the current zinc price and the average hedged price for the company's zinc concentrates, and as such is expected to contribute positively to cash flow during the year.
For 2021, the company's AISC (1) guidance range is 90 cents to 97 cents per pound of zinc produced. As per Trevali's annual guidance published in January, 2021, production costs are expected to be higher in the first half of the year relative to the second due to one-time costs attributed to the restart of the Caribou mine, underground capital development at Santander as well as no byproduct sale at Rosh Pinah in the first quarter. As per plan, there are three byproduct sales expected at Rosh Pinah for the remainder of the year, one in each quarter.
For 2021 the company is focusing its efforts on several key priority initiatives to ensure the implemented efficiencies are sustained, whilst continuing to further build a culture of continuous improvement. Trevali's key initiatives for 2021 across its operations include:
Metal recovery optimization;
Increased mill throughput;
Reducing mining dilution;
Reducing mining operating cost; and
Energy savings.
The following results have been achieved for Q1 2021:
Santander achieved an average zinc recovery of 93.4 per cent compared with 90.6 per cent for the previous quarter;
Perkoa achieved an average mill throughput rate of 100 tonnes per hour against an average of 89 tonnes per hour for the previous quarter. This higher mill throughput rate is expected to be maintained for the remainder of 2021; and
A solution to improve operational efficiencies by optimizing plant feed blend ratios at Rosh Pinah was developed in Q1. Two machine learning models using silo composition and blend ratios are utilized to predict plant feed and resulting concentrate quality. The goal for Q2 2021 is to embed the use of the machine learning models into the short-term planning cycle and to automate data sources and model updates.
Consolidated quarterly production remained consistent with the prior quarter at 74.8 million pounds of payable zinc but decreased by 24 per cent as compared with Q1 2020 as Caribou's operations were on care and maintenance during the bulk of Q1 2021 with full operations resuming on March 25, 2021.
C1 cash cost (1) and AISC (1) for Q1 2021 both increased by 2 per cent as compared with the prior quarter primarily due to a decrease in byproduct credits as Q4 2020 benefited from one of two annual lead concentrate sales at Rosh Pinah, which was partially offset by the lower benchmark zinc concentrate smelting and refining charges (impact applies to 2021 production only). AISC (1) for Q1 2021 reduced compared with the corresponding quarter of 2020 due to the decrease in C1 cash cost (1) and sustaining capital deferrals.
The increase in revenues in Q1 2021 to $72.0-million is attributable to the 6-per-cent increase in zinc price and the reduction in benchmark zinc concentrate smelting and refining charges as compared with Q4 2020; payable sales volumes are consistent. The 39-per-cent increase in revenues compared with the corresponding quarter in 2020 is due primarily to the 29-per-cent increase in zinc price as well as increased lead and silver revenues which are partially offset by a 20-per-cent decrease in payable sales volumes.
Q1 2021 adjusted EBITDA (1) of $24.5-million increased from $20.1-million in Q4 2020 primarily due to the 5-per-cent increase in the average zinc price and decrease in treatment charges, partially offset by the 2-per-cent increase in operating costs (AISC (1)). The difference between EBITDA (1) and adjusted EBITDA (1) during Q1 2021 is primarily the Caribou mine restart expenses with the remaining adjusting items limited to minor offsetting gains and expenses. In contrast, comparative quarters included significant items such as impairments, restructuring costs, hedging losses and larger settlement mark-to-market amounts.
Market outlook
Management of the company believes that the outlook for the zinc market continues to improve. The commodity market is in the early stages of responding to COVID-19 impacts from 2020 and adapting to constraints posed by virus variants and the need for adjusting of mine operating practices to manage health risks. Meanwhile, there are signs of strength in global manufacturing. The April flash manufacturing Purchasing Managers' Index (PMI), an index of the prevailing direction of economic trends, increased for the eurozone to a new record high of 63.3, up from a reading of 62.5 in March. The flash manufacturing PMI for Japan came in at 53.3 in April, up from 52.7 in March. This marks the third consecutive month of expansion in manufacturing activity, as measured by the PMI, since the onset of the pandemic and the highest since April, 2018. Chinese manufacturing companies also witnessed improvement in operating conditions in March. Production and new orders continued to expand, albeit at mild rates. Thus, at 50.6 in March, the headline seasonally adjusted general manufacturing PMI was down slightly from 50.9 posted in February. China's new export business meanwhile returned to growth, as global economic conditions continued to recover from the COVID-19 outbreak.
The annual benchmark treatment charge rate for zinc concentrate has been agreed to in Asia and Europe at $159 per tonne. This is 47 per cent lower than the $300 per tonne benchmark rate for 2020 and is notable given that it is the second lowest rate in more than 10 years. Trevali's concentrate offtake agreements reference the annual benchmark treatment charge rates. Although market expectations are for zinc concentrate supply to expand in the coming months, the company believes that the low annual benchmark reflects continuing tightness in the concentrate market resulting from industry disruptions that are anticipated as COVID-19 protocols are strengthened to counter virus variants, even as pending vaccination programs advance.
During Q1 2021, the London Metals Exchange (LME) zinc price averaged $1.25 per pound, continuing its improvement from its pandemic low of 82 cents per pound reached back in March, 2020. This compares with an average LME zinc price of 96 cents per pound in Q1 2020 and $1.19 per pound in Q4 2020. Trevali anticipates that the continued disruption to mine production may provide fundamental support for zinc prices in the medium term as management believes demand will outweigh supply as global economic activity accelerates.
LME exchange inventories increased to 270,500 tonnes at March 31, 2021, versus 202,075 tonnes on Dec. 31, 2020. Similarly, Shanghai Futures Exchange zinc stocks rose to 113,125 tonnes versus 28,581 tonnes at Dec. 31, 2020. These levels are marginally higher than February, but at 10 days, unchanged in terms of days of global consumption. This inventory level is well below historical averages of 18 days of global consumption and is also supportive of an increase in zinc prices.
Corporate developments
Between March and August, 2020, the company obtained waivers of the financial covenants under the terms of its revolving credit facility to Aug. 31, 2020. On Aug. 6, 2020, further amendments to the facility and a new credit facility with Glencore Canada Corp., an affiliate of the company's largest shareholder, Glencore PLC, were announced.
On Aug. 25, 2020, the company announced a positive prefeasibility study (PFS) for Rosh Pinah mine expansion (RP2.0) which presented a mine plan to increase production capacity at Rosh Pinah by 86 per cent and significantly reduce operating costs.
On Sept. 4, 2020, the company announced the appointments of Nick Popovic and Aline Cote to its board of directors, replacing Chris Eskdale and Dan Myerson as Glencore nominees.
In October, 2020, the company entered into zinc price forward swaps for approximately 25 per cent of forecast zinc production for six months from Oct. 1, 2020, to March 31, 2021, at an average price of $1.11 per pound. In addition, in order to provide downside zinc price protection, zinc price put options for approximately 25 per cent of forecast zinc production across the group were entered into for the same six-month period at $1.04 per pound.
On Nov. 24, 2020, the company entered into a fixed pricing arrangement pursuant to its existing offtake agreement with Glencore for 59.5 million pounds of zinc allocable to production at Perkoa and Rosh Pinah. The tenure of the arrangement is for a nine-month period covering April, 2021, to December, 2021, at a price of $1.23 per pound and extends the existing hedging program which covers the period October, 2020, to March, 2021.
On Dec. 2, 2020, the company closed its marketed offering of 186.53 million units at a price of 18.5 Canadian cents per unit for aggregate gross proceeds of $26.6-million ($34.5-million (Canadian)), which included the exercise of the full amount of the overallotment option of 24.33 million units. Each unit consists of one common share and one-half of one common share purchase warrant entitling the holder thereof to acquire one common share at a price of 23 Canadian cents until June 2, 2022. Glencore exercised its pre-emptive participation rights in the offering to purchase 49 million units.
On Dec. 10, 2020, the company announced the appointment of Brendan Creaney as chief financial officer.
On Jan. 15, 2021, the company announced the planned restart of its Caribou mine which has been on a care and maintenance program since March, 2020. The company has reduced its exposure to commodity price fluctuations during the initial two-year plan by entering into a 21-month fixed-pricing arrangement for 115 million pounds of payable zinc production from Caribou, at an average price of $1.25 per pound.
On Jan. 18, 2021, the company announced the appointment of Jeane Hull to its board of directors effective Feb. 1, 2021.
On Jan. 18, 2021, the company announced preliminary 2020 full year and Q4 production results and 2021 operating, capital and exploration expenditure guidance.
On Feb. 26, 2021, the company announced that it had entered into a binding term sheet that sets out the terms for an exploration joint venture with Arrow Minerals (ASX: AMD), wherein both parties agreed to grant the other reciprocal exploration rights to their exploration permits in the highly prospective Boromo gold belt in Burkina Faso, which the company believes is underexplored for base metals.
On March 30, 2021, the company announced that it has trucked its first ore concentrate from the Caribou mine since announcing the planned restart of operations on Jan. 15, 2021.
On March 31, 2021, the company reported its mineral reserves and mineral resources statements as of Dec. 31, 2020. Proven and probable mineral reserves have increased globally, and grades have reduced marginally due to an increase in net smelter return value resulting from reduced offsite costs and increased metal price forecasting.
In April, 2021, the 2021 annual treatment charge benchmark rates were agreed for both zinc and lead. Zinc treatment charges were set at $159 per tonne and lead treatment charges were set at $136 per tonne, decreases of 47 per cent and 26 per cent, respectively, compared with the 2020 benchmark. Trevali's concentrate offtake agreements reference the annual benchmark treatment charge rates. These rates are retroactive and apply to concentrate produced during 2021, regardless of when the sale occurs.
On April 7, 2021, the company announced it had entered into a 15-year renewable power purchase agreement with Emerging Markets Energy Services Company (EMESCO) for the supply of solar power to the Rosh Pinah mine. The company has previously committed to achieving an overall green house gas (GHG) emission reduction target of 25 per cent by 2025 from its 2018 baseline. This agreement with EMESCO is anticipated to deliver 30 per cent of Rosh Pinah's power requirements during the life of the agreement and reduce GHG emissions at the company level by 6 per cent.
Q1 2021 financial and operational results conference call and webcast
The company will host a conference call and presentation webcast at 1 p.m. ET (10 a.m. PT) on Friday, May 14, 2021, to review the operating and financial results. Participants are advised to dial in five minutes prior to the scheduled start time of the call. A presentation will be made available on the company's website prior to the conference call. Conference call dial-in details:
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