Trevali Mining Corp (TREVQ)

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Today Conference Call Transcripts Trevali Mining's (TREVF) CEO Mark Cruise on Q2 2016 Results - Earnings Call Transcript Aug. 12, 2016 2:22 PM ET | Q2 2016 Earnings Summary Trevali Mining Corp. (OTCQX:TREVF) Q2 2016 Earnings Conference Call August 12, 2016 10:30 AM ET Executives Steve Stakiw - VP, IR & Corporate Communications Mark Cruise - President & CEO Anna Ladd - CFO Analysts Orest Wowkodaw - Scotiabank Stefan Ioannou - Haywood Securities Brad Bloomer - Evergreen Capital Operator Good morning. My name is Kelly and I will be your conference operator today. At this time, I would like to welcome everyone to the Trevali Mining Corporation Second Quarter Financials and Earnings Conference Call. After the presentation, there will be a question-and-answer session. [Operator Instructions] Thank you. I will now turn the call over to Steve Stakiw. Please begin, sir. Steve Stakiw Thank you, Kelly. Good morning everyone and welcome to Trevali Mining's Q2 2016 financial results conference call. Trevali's quarterly financial results were issued yesterday and are available both on our website and on SEDAR. Additionally, a corresponding news release was also issued with our financial results to review the main points of our second quarter specifically, another strong operational quarter at our Santander Zinc-Lead-Silver Mine in Peru and the commissioning our Caribou zinc mine in New Brunswick leading to the declaration of commercial production as of July 1, the start of the third quarter. Our presenter today is Dr. Mark Cruise, Trevali's President and CEO; and accompanying Mark for the question-and-answer portion of this call is Anna Ladd, Trevali's Chief Financial Officer. I will now turn the call over to Mark Cruise. Mark Cruise That's great, thank you, Steve and good morning everyone. I appreciate you dialing in, I know it is summer and people are busy. As you're aware, Trevali released the financial results for the Q2 which ended on June 30, 2016, yesterday. Reading the highlights were our EBITDA for Q2 rose $8.2 million although we didn't result a modest net loss of $335,000. Santander, our zinc operation income increased for Q2 to $5.2 million on strong concentrate sales revenues of $28.9 million. Our cash cost at Santander remained at the lower end of guidance at $0.32 per pound zinc equivalent or to translate that into U.S. $35.64 per ton milled. And as always, we do recommend you read the news release in conjunction with our financial statements which are available on our website and on SEDAR. And really, our concentrate revenue is up 7% from Q1, our EBITDA again was $8.2 million and with the income from Santander, $5.2 million which was up 25% from Q1 reflecting strengthening zinc prices as we progress through 2016. Our cash position currently is $14.5 million. And really, Santander continues to forward record throughput and we previously released production results for the quarter and we put through almost 220,000 tons which resulted in £15.2 million of payable zinc, £5.6 million of payable lead, and 2,200,000 ounces of payable silver. Realized prices in U.S. for the commodities during the quarter was $0.89 per pound for zinc, $0.78 per pound lead, and $17.09 per ounce silver. And recoveries remain above design at 89% for zinc, say 87% for lead, and 73% for silver. And certainly our macro production at Santander does remain in line with guidance. So our £57 million, £60 million of payable zinc grading at approximately 50% comp, £22 million to £25 million of payable lead and concentrate grading about 56% to 58% lead, and somewhere between 800,000 to 1,000,000 ounces of payable silver for the year. And average head grades for the quarter were almost 4.2% zinc, 1.39% lead and 1.3 ounces per ton silver, and that resulted in production of 16,600 tons of zinc concentrate, 4,865 tons of lead silver concentrate, and that concentrate grade is 55% lead and 43.7 ounces per ton for silver. Revenues on the back of sales of £15.2 million of zinc, £5.7 million of lead, and 2,200,000 ounces of silver, whilst U.S. $22.4 million. And I've said the cash cost came in line. And we also released some more exciting and exploration results from our Santander project during the quarter and on our newly discovered Oyon zone, drilling is ongoing but just to reiterate that all zones of Santander do remain open for expansion and drilling is ongoing as well. So really guidance at Santander, it is in steady state, it's our third year of production, and nameplate is 2,000 tons per day due to onsite efficiencies and site is really processing, somewhere between 2,400 to 2,5000 tons per day consistently, so little above 15% to 25% above design capacity, and we see that ongoing throughout this year and going forward as well. And really -- during the quarter the key news was obviously declaring commercial at the very end of the quarter, already Q3 at Caribou, and really for Q2 we processed the 186,000 tons of feed, grading 5.9% zinc, 2.7% lead and 2.5 pounds of silver. Recoveries for Q2 were 77% zinc, 57% lead, and 31% silver. So at this point in time, Caribou continues to ramp up to full design capacity and that will be ongoing throughout Q3 and onwards towards the end of the year. So I think that's pretty much it at a high level for the quarter and I'll hand it back to Steve, and will certainly open the floor for questions. Steve Stakiw Yes. Operator, we'll open up the call for questions. Question-and-Answer Session Operator [Operator Instructions] Your first question comes from the line of Orest Wowkodaw of Scotiabank. Your line is open. Orest Wowkodaw Hi, good morning. I was wondering if you could give us some color on the CapEx spend in the quarter. It's quite a bit higher than what it thought just given where you are with Caribou, especially versus what we saw in Q1. And as a follow-up, just what we could expect for total CapEx in the back half of the year? Thank you. Mark Cruise Certainly, we'll hand to Anna Ladd, our CFO. Anna? Anna Ladd So the $21 million outflow on the PC certainly have few questions from analysts. I'm going to walk through that because it actually relates more to an accounting exercise as opposed to actual sort of expenditures incurred. So the $20 million outflow in PP&E on the cash flow statement relates to the timing of movement in working capital line items. So specifically accounts payable and accounts receivable. With respect to the actually PP&E expenditure, so CapEx, it actually did not materially increase in Q2. Only the timing on which we made the cash payments related to the obligation which again is what the statement of cash flow captures. Not when the actual obligations were incurred, but when we actually pay for this obligation. I'm going to walk through the accounting math at a very high level, certainly therefore too solid [ph] with anyone after the call in detail. Our accounts payable balance in Q1 was approximately $29 million. In Q2, the ending balance was $15.7 million. So the majority of that variance of $13 million, so another was expenses already incurred, not yet paid, related to CapEx and Caribou we paid down. So hence, we also see the corresponding decrease in the cash balance from Q1 to Q2 but we're $22.2 million in Q1, in Q2 we were at $9.3 million. We add to that, the accounts receivable for Caribou concentrate increased, so in other words, we didn't collect as much cash as we would have expected from our pre-production sales, if yet to come, to offset the AP which we paid down in the second quarter. So when you actually look at CapEx for the company, so expense -- again, not necessarily paid, you look to note line of our financial statements and specifically the line item addition. In the further note nine, you'll see that the added additional flow -- why added additional disclosure to this quarter like broke out kind of what the pre-production revenues were for Caribou. So as of June 30 year-to-date, it sits as follows; approximately $5.4 million of that relates to Santander, and the net would be $41.9 million addition, less the $5.4 million at Santander, less the $30 million in pre-production revenues and we sit at about approximately $6.3 million, that's the net capital addition from a purely sick asset to Caribou. Now the timing and when we pay for the division and when we collect the preproduction revenue, they're going to watch in Q3, right, so that's expenses incurred and that's different than cash flow. So one is a key figure which is found on Page 10 of our MD&A is our working capital, and it wasn't a mature working capital from Q1 to Q2, probably $2 million movement. Hopefully that sort of explains a little bit of it and I'm happy to talk offline. So going forward, our capital expenditures at Caribou, we expect them to be about $1.5 million per month, and Santander remain unchanged, though it's been about $2 million to $3 million each quarter. Orest Wowkodaw Thank you. Operator Your next question comes from the line of Stefan Ioannou from Haywood Securities. Your line is open. Stefan Ioannou Thanks very much. And Orest got my first question, but just -- maybe just looking at -- obviously it's good to see the operating cost at Santander sort of still trending the lower ended guidance but I just -- they were down at $32 a ton in Q1 and now they are $35, $36; is there -- are there any specific line items behind that increase? I mean again, there is still not high cost but they have increased over Q1. Anna Ladd No, there really isn't on the sudden increase, it's just movements of different items being captured. There isn't anything specific on that one. Stefan Ioannou Okay. And I guess is there anything -- I mean just given where the guidance sits, should we anticipate cost will continue to increase over the latter half of the year then? Mark Cruise No. I think we'd like to think we'll end the year at the lower end of that guidance, but I mean that is why we give guidance ranges but I mean $35 to $36 per ton seems achievable based on where we are now, what we're seeing going forward. Stefan Ioannou Okay, sure. So obviously I think the guidance is anything bit conservative, then that's good. Okay, and just on Caribou, can you give us maybe little bit of color as to how things went through July in terms of where you guys at with recoveries and stuff now in the zinc side of things? Mark Cruise Yes, now listen as guided, I mean we are continuing to ramp up and we are skilled; putting forward to some recommendations in the mill to boost efficiencies. And so really some of the key things happening this quarter which we previously signaled is, we are modifying the lifters in the SAG mill, and that's actually happening at this point in time, MOU is just added on the site, last -- actually this week, sorry, I'm still in this week. So they are putting those new lifters in and we pretty much just finished the pumping upgrades as well. And so certainly I think by the end of August, the majority of recommended improvements that will be implemented in the mill. Certainly we are seeing -- and listen, it's a ramp up, it's an ongoing process but certainly we are seeing at the moment, our lead recoveries are hovering around at 62%, so from kind of high 50%, and we're producing a 43% concentrate. So both lead recovery and concentrate quality have increased and obviously we're still optimizing the mill as well. Regarding zinc, we're seeing similar kind of 81.5% to 82% recovery, so up a couple of percentage points, and again the concentrate quality has increased as well from about 48% to 50%. And so really, as we keep going forward, we'll hopefully keep dialing in those 1% or 2% incremental improvements not till we hit that kind of 84%, 85% recovery for zinc, and the fact that we lead pretty much there, kind of 62% to 65% lead, depending on the head grade. So things are going well and the team is doing a great job. Really with the current commercial, it's just getting everything bedded in at this point in time, so we're pretty confident and comfortable from where it's going from a technical perspective. Stefan Ioannou Okay, great. And are you guys sort of comfortable with where you had on the grand side or you're still sort of tinkering with that? Mark Cruise Well, once that these new lifters and the great from the SAG mill end, it will improve grind size, grind size from the primary SAG is actually -- it has been averaging down anyway over the months, so basically it's currently 35 micron. And with this new SAG design, that's going on, unlike say they are physically putting in those grades, yesterday and today, and it should get us into that 30%, 35% kind of range consistently. But nonetheless, even before putting those grades and recoveries are coming up anyways, just based on the work you guys have been doing, and certainly the pumping improvements seem to be in a component to that. The middle is a lot more stable and certainly with the fine grind, the stable mill is a happy mill and that boosts our recoveries. Stefan Ioannou Okay, great. And maybe just one more question, just back at Santander; obviously nice discovery with Oyon and Mantle [ph], earlier this year and you're sort of proving that. Do you think it might actually get some high grade into the mill this year or is it sort of looking more like sort of next year-ish? Mark Cruise No, I think realistically it's going to be Q1 of next year. Stefan Ioannou Okay. Mark Cruise I'll be down there next week, I'll get an update but I think realistically Q1 of next year. Stefan Ioannou Okay, great. Thanks very much guys. Mark Cruise No worry, Stefan. Thank you. Operator Your next question comes from the line of Alexander Mac [ph] of FDA. Your line is open. Unidentified Analyst Do we still believe in the shortage of zinc in the coming years, sent to remind the little -- last zinc in January, going through our curtailed projection in November. But LME stocks remain above 400,000 tons, yesterday it increased by 30,000 tons. Mark Cruise Yes, certainly. Mark here, I can answer that one. I mean, I think what we're seeing based on the fundamentals, obviously our partner Glencore buys are concentrates all of us, so literally every week or several times a week we're getting closer and smelters looking for zinc concentrates. And stepping back, and we pay international benchmark but if you look at spot prices, so that tells you what the market is doing for smelters, so the open market prices that continues to drop. So that tells you that smelters are hungry for feed and really summer is always a quiet time, and so actually -- personally I'm actually very pleasantly surprised that zinc is over a $1 during the August period, that wouldn't normally be the case in any normal year. So that certainly bodes well going forward. The one thing that has happened which probably hasn't reached the market yet is that -- certainly India produces a lot of zinc and consumes a lot of zinc, typically it's self-sufficient. And one of the big companies there is having significant production challenges I guess, and their production is down 50%. So that's actually taking a lot of zinc off the market and looks like India as a country will have to start importing zinc going forward which wasn't modeled, which may tighten things up. And so based on everything we're seeing and if what we're hearing from the smelters and the amount of calls we're feeling from the smelters, certainly it looks like zinc prices should continue to at least trend in this level, if not strengthen up in -- towards the end of this year, and certainly significant deposits going forward in 2017. And already the market is anticipating lower TC cost in the international benchmark charges for zinc, and actually for lead as well in 2017 and tells you that the smelters are going to get tighter, so zinc prices are -- gone lead prices should respond accordingly. Unidentified Analyst Okay, thank you. Operator [Operator Instructions] Your next question comes from Irvine Clayman [ph], a private investor. Your line is open. Unidentified Analyst Hi, two questions. First question is when will the higher stock prices be factored into the selling price because our prices are lower than the current spot prices? Anna Ladd So the way the contracts are written, they are actually either the following month settlement in an average month, in the case of Peru, and they always follow an average of the following months when we settle up on the concentrate. So it is a next -- we thought it's more like of an average of when we actually settle up the shipments of concentrate. Unidentified Analyst Okay. So we could anticipate in the next quarter pricing would go up? Anna Ladd Yes. Unidentified Analyst Okay. And the second question relates to the Caribou mine, how many tons were mined specifically in June and July? Mark Cruise Certainly, typically in June we have been ramping up, so June was running at about 2,100 to 2,200 tons per day for June. In July we continue to ramp up and certainly July probably averaged about 2,400 tons per day and the idea is to continue ramping throughout the year to hit our 3,000 tons per day goal certainly by late Q3 into Q4. Unidentified Analyst Thank you. Operator Your next question comes from the line of Brad Bloomer of Evergreen Capital. Your line is open. Brad Bloomer Good morning, gentlemen. You answered already one of my questions, you indicated that recoveries are running 84%, 85% now at Caribou versus 77% in Q2, is that -- did I hear that correctly? Mark Cruise No, I'm sorry. At the moment, they are about 82%, the basic, the design recovery is about 84% to 85%. So we continue as pretty typical during a ramp up period to increase the recoveries and usually one or two percentage points as we continue to get the mill bedded in. Brad Bloomer So what would be, give or take a month, when you would expect to hit your objective there of 84%, 85%? Mark Cruise Listen, certainly I mean, I'm not going to give you specific date, the one thing we do know, it's a pretty temperamental mill with the fine grand, and I'd like to think certainly by the end of Q3 we will be there, maybe a little bit earlier but we'll just continue to monitor and continue to optimize going forward. Brad Bloomer Well, that's not bad, that's not far away, end of Q2. Mark, what is -- what was the realized price -- in Q2 was $0.89 if I saw that correctly. What was it for zinc in July? Mark Cruise What was our realized price in July for zinc? Brad Bloomer Yes. Anna Ladd It will be -- I'm going to say it's around mid-90%, we averaged over the quarter, so it's going to be -- whatever the average will -- I think it's around mid-90s. Brad Bloomer Okay, very good. That's the end of my questions. Thanks. Mark Cruise Okay, thank you. Operator And there are no further questions at this same time. I'd turn the call back over to the presenters. Steve Stakiw Thank you everyone for dialing in and participating in our conference call this morning. As usual, if anyone has any follow-up questions, please don't hesitate to give us a ring or email us. Thanks again, everyone and have a great day. Operator This concludes today's conference call. You may now disconnect.

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