Trevali Mining Corp

TSX:TV

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen. Welcome to the Trevali Mining Corporation Q2 2018 Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I would now like to turn the call over to Steve Stakiw, Vice President of Investor Relations and Corporate Communications.

[Steve Stakiw]

Thank you, operator. Good morning, everyone, and welcome to Trevali Mining's Second Quarter 2018 Financial Results Conference Call. Trevali's Q2 financial results were issued yesterday and are available both on our website and filed on SEDAR as well. Additionally, a corresponding news release was also issued with our financial results to review the main points, specifically production and sales from our 4 mines; Santander, Caribou, Rosh Pinah, and Perkoa. In addition, there is an accompanying presentation also available for this call. It can be viewed both on our website under the Investors Presentation section or on the webcast version of this call as well. Our presenter today is Dr. Mark Cruise, Trevali's President and CEO. And accompanying Mark for the question-and-answer portion of the call is Gerbrand Van Heerden, Trevali's Chief Financial Officer. I would now like to turn the call over to Mark Cruise.

[Mark Daniel Cruise, President, CEO & Director]

Thank you, Steve. And good morning, everyone. Before we get into it, I'm sure as you all have seen this morning, I regret to announce that we did have a fatality of one of our contract miners at our Perkoa site yesterday. Clearly, management and the teams' thoughts and condolences are with the family at this point. And we are fully investigating the incident and that's ongoing at this point in time. So a little bit of a -- bad news to kick things off. We'll start running through the presentation here. Just to note, as Steve mentioned, but hopefully, you've all copies of the news release in front of you and the presentation that kind of summarizes the results. And as always, certainly recommend reading this in conjunction with the full statements -- the financial statements and the MD&A which are lodged on SEDAR. And there will be the normal cautionary language regarding forward-looking statements on Slide 2 there, those of you who are following along by paper. Really, Slide 3, just thought we'd kick off with a bit of a snapshot of where we are commodity-wise, supply and demand for zinc as our main commodity. Really, kind of -- well, a disconnect between current fundamentals and pricing. Obviously, the price is the price regardless. But certainly, from what we're seeing out there, zinc supply does remain highly constrained, and we are seeing ongoing drawdowns of metal stocks, and spot TCs are largely flat on a month-to-month basis and, obviously, clearly, very strongly in favor of the miners. And so very, very tight on the supply side as well. And interestingly, there has been some media discussion regarding potential for bigger mining companies trying to push the smelters to increase their pay abilities in 2019. Again, that is a very positive signal for the supply getting into the end of this year and into 2019 as well. So certainly, it suggests anyway of the strengthening price environment. Really, as I said, or [ Matt ] said, there is a disconnect recently. And clearly, global trade war chatter is playing on the entire commodity sector, and zinc is no different in that regard as well. But that said, certainly our margins do remain healthy even in this current price environment, call it, $1.20. So a little bit over $2,500 per tonne. And our all-in costs are $0.85. So that's a bit of a -- where we see things -- zinc going. But certainly, we anticipate strengthening zinc prices modestly as we get in towards the end of the year. Now getting into the nuts and bolts a bit on Slide 4. You'll see a bit of a snapshot of some of the kind of key points to come out of the financial results. Our cash flow does remain very robust. Our quarterly EBITDA was $59 million. Our net profit was $23 million. And that really translates into $0.03 per share. And we did have some negative price adjustments just between when we shipped and when the commodity arrived at the smelters. So a little bit of negative price adjustments during the quarter. And we're working on trying to manage that better going forward. Nonetheless, this does translate into an operating cash flow of $134 million and certainly strongly on track for our 2018 cost guidance, and certainly very material improvement Q-to-Q on the cash cost of the various operations right the way through. Production-wise, we did previously announce those results. Just to reiterate, we produced about 104 million pounds payable zinc, 10 million pounds of payable lead and 330,000 ounces or a little bit more of payable silver during the quarter. And again, I think there's a graph later on in the presentation, firmly on track for 2018 production guidance as well. Really, this all translates, how does this look into our balance sheet. We're sitting on working capital of about $160 million, and our total cash position is approximately $104 million. And we did reduce our debt by $8 million. So about $16 million year-to-date. So certainly, continue to pay down debt and maintain healthy working capital and cash position as well. And we do continue to, I guess, do what we consider disciplined capital deployment. During the quarter, we purchased an extra 10% of Rosh Pinah for about $25 million. We continued to invest in our Bathurst Mining Camp and various exploration initiatives at the sites, which we will kind of take a look at as we run through it as well. Some of those other initiatives. Santander mill, we'll see a dramatic improvement quarter-to-quarter, Q1 to Q2, as those mill performance upgrades were finished. And certainly, Santander is running at 2,500 tonnes per day consistently at the moment. And that really did build on the operations strong Q2 performance. At the Perkoa, really, the big thing is working on a more fuel-efficient system for power generation there. And certainly, the heavy fuel oil project is modestly ahead of schedule, and we did invest an additional -- well, $6 million during the quarter to purchase those generators just to make sure that we'd remain on track for that as well. And we are finalizing our Rosh Pinah independent study looking at our production initiatives at Rosh P, made -- entity moving from 2,000 to 3,000 tonnes per day. And that report remains on track for finalization at the end of this month. So that's kind of the highlights there. And looking on now Slide 5, really, the consolidated results. Really, it's broken into 3 main kind of belts there. On upper kind of level, there is the financials. Certainly, revenues you can read the numbers, but revenues and income from operations all increased by roughly 16% on a quarter-to-quarter basis. So for Q2, you can see about $134 million, income from mining ops, $46 million, $23.5 million net income. And obviously, that translates into our $0.03 per share. If we go on an annual basis, clearly, a little bit skewed because we didn't have the African asset this time last year. But what it does show is the very astute acquisition of both Perkoa and the Rosh Pinah operations, so we're pretty pleased with that. And they continue to drive cash flow generation for the company. And as we unlock more value in them, hopefully, there's a lot more to come. Really on the production results from previous results on the operations, mine and milled payables all increased on a quarter-to-quarter basis. And more importantly, really, certainly been a big push by Gerbrand and the financial team. Total cash costs, all-in sustaining costs and site operating costs, all decreased on a quarter-to-quarter basis. And then again, this is what gives us the confidence that we are on track and we will hit our cost guidance for 2018. Sales-wise, payable metals sold increased for all 3 commodities, zinc, lead and silver. You can see on a concentrate per tonnage and on a payable pounds. So payable pound sales 114 million zinc, 13 million lead and 370 -- call it, [ 5,000, 100,000 ] ounces of silver. And that resulted in, again, the revenues of $134 million. So that's kind of where we are on sales and the consolidated results. So that's kind of top level. And now we'll delve down and in a bit more detail into the operations. And we'll start looking at our Perkoa mine. Really, it's a location slide, rather, on Page 6, largely unchanged. As most of you probably know, we are in Burkina Faso. We are one of the -- well, the only base metal mine, and one the only base metal mines in West Africa, and one of the only underground mines in the country as well. We own 90% and the Government of Burkina owns 10%. Underground operation, 2,000 tonnes per day. On Slide 7 you can see the operational review snapshot. Really strong production quarter-to-quarter. Certainly, sector-leading mine head grades and recoveries. And that resulted in us producing about 46 million pounds of payable zinc. And really, that's a strong foundation going and continuing into the second half of the year. We did increase annual guidance by about 10 million pounds when we put out our production numbers a few weeks back there.Cash costs during the period decreased versus Q1. There were a few one-offs within that decrease, nonetheless, very confident that the site will operate and within its cash guidance for the period. And really, Perkoa is first, really, primary business initiative for the year with the installation of those more fuel-efficient generators. And like I said, they have been purchased, projected modestly ahead of schedule. So that's kind of -- things are working well operationally there as well. And the revenue for the quarter, really, on the bottom of the slide there was $62 million. So that's really where we are at Perkoa.Moving to Namibia, Rosh Pinah, which will be on slide 8, for those of you following by paper. Really draw your attention to this slide in that we now own 90% versus the 10%, following the purchase of the additional ownership from our Namibian partners during the quarter. And really this kind of all ties into our bigger picture, kind of medium-term plans for Rosh P and our kind of potential expansion study, which is ongoing at this point in time. The operational review is summarized in the next slide, Slide 9. Production was about 21 million pounds of zinc, 2 million pounds lead, and some silver by-product. Really, not -- doesn't take out that much lead and silver. And as previously discussed, we typically have 2 shipments per year in Q2 and Q4. Head grades were 7.7% zinc during the quarter. So pretty typical kind of, call it, 7%, 8% run a mine head grades. In the second half of the year, production will be accessing higher-grade stopes, certainly, typically, in the 10% to kind of 11% range. That's what we're processing at the moment. But nonetheless, we did decrease guidance by about 9 million pounds while we continued to focus on improved underground performance, both short and long term and really focus on mine planning, production, drill blast improvements and really taking a lot of the lessons learned from our other operations and just working with the team and rolling them out there, and again, trying to get those operational efficiencies, which will certainly help the foundation if we do ever look to boost production in greater amounts 2019, 2020 onwards.And really, that does kind of lead into that kind of Rosh P study. And like I said, on track for August. Cost did decrease during the quarter. And really, some of this was reflected in one of our biannual lead silver sales. But overall, it will average out over the year and, certainly, well, a lot of comfort that the mine does remain on track for its annual cost guidance. And the revenue from the operation was $21.6 million for the period. Moving to -- well, up to Canada, Bathurst Mining Camp operations and to our Caribou Mine. Really, as you're aware, kind of change of strategy or more an evolving strategy for the camp. And the way we look at it is, Caribou just happens to be a currently operating mine, but we do control 6 other deposits in the camp. And the advanced project team has been working -- continuous to work on them diligently in the background, trying to look at what's the optimal scheduling through the Caribou mill. And so really, that is ongoing throughout the year. But specifically for the quarter, what did we produce? We did see material improvements on both mined and milled tonnes versus prior quarters. And certainly, very positive in that, basically they increased by about 28,000 tonnes and 12,000 tonnes respectively, mined and milled. And certainly, this resulted in more metal produced, which helps drive the costs lower as well. And those costs decreased, you can see the total cost -- cash cost OpEx of about $0.64 and the all-in sustaining cost of $0.81 per pound. And the site OpEx of $60 per tonne is comfortably within guidance for the operation that we provided to the market. And rounding up, revenues were $30 million. Moving to Santander now on Slide 12. Obviously, these you're aware, so our original operation had nameplated 2,000 tonnes per day. But we are consistently running in the 2,000, 3,000, but to be honest closer to 2,500 tonnes per day once we modified and kind of did that critical maintenance in H1 on the mills. And that's going to be continuing for the remainder of the year. Production, so as a result of that in Q2, looking on the next slide, production and mill throughput in particular was materially higher than the first quarter. And again, this was planned, and that's why we continued mining during Q1 at full nameplate to build up that nice big stockpile. And so you can see production was 198,000 tonnes and milled was 223,000 and a bit of change. Really, like I said, the mill is running at 2,500 tonnes, and that resulted in a minor increase in annual zinc production for the operating unit by about 1 million pounds over the course of this year, but certainly positive nonetheless. Fairly kicking out a lot more metal. So that resulted in our costs dropping materially from Q1, obviously recognizing that Q1 was skewed and that we're only running at 25% production rate -- or 75% production rate effectively. So really, a more normal Santander quarter is how I would view it. And total cash operating costs of $0.64 and all-in sustaining of $0.90, and site operating cash costs of $40 per tonne. And that resulted in revenues of the -- for the period for -- of $20.6 million. So even though it is about 15% of our production, pretty healthy cash-generating profile for our lowest grade and smallest operation. So where does that leave us sitting kind of midway through the year? On Slide 14, you can see, and I think this was in the production news release, we just reiterate it there again. So you can see our annual production guidance on the top of that slide. It's broken down by operating unit and the cost per tonne as well. In the bar graph below that, you can see in blue line is the midpoint -- midrange, sorry, guidance range for the year. And obviously, on a quarter basis on the bar is where we sit in relation to that. So you can see after -- we always planned Q1 was going to be our lowest production quarter, ramping up Q2 and then increasing -- modestly increasing into Q3 and into Q4 as well. And we remain firmly on track and nicely placed midway -- midpoint of our guidance range as well. So certainly within striking from where we are. So that's kind of where we are on the quarter production-wise. Clearly, another big thing, certainly we do focus a lot on is our exploration. We see this as definitely a NAV generator. So I'll give you a bit of a snapshot. There was a kind of a verbal kind of one page at the back of the news release on that, and we'll kind of dive into a little bit more details on where we are as well. I think we're probably a little bit unique. We do see it as a fundamental tool to drive value for the business. Our team -- our exploration team is incredibly cost effective. We do discover zinc at 1970s prices versus industry average, which is typically 3 to 4x this as well. Really, each mine is clearly unique, and we do have a bespoke exploration program and strategy for our 3 minor operating units. For example, in Rosh Pinah, it's feeding into that Rosh Pinah 3,000 study, driving the discoveries to drive production gains through the operating unit. Really, in the Bathurst Mining Camp, kind of as mentioned, we're looking to unlock the value of our deposit pipeline. 6 deposits, all remain open, 1 operating mill. So how does the exploration team advance them? We can hand it over to the advanced project team, and obviously, result in that long life of mill strategy that we're pursuing in Bathurst. Really, Santander so that's our original asset. We are looking to find the grade within what is a very large CRD system. And certainly, kind of some interesting stuff coming out of there. But certainly, a lot of similarities to some of the larger systems approved in Central Mineral Belt. So with that recognition, there should be some very nice high-grade cores or jewels within that, and that's really the main focus of the team this year as well. And Perkoa, clearly, a lot of production comes out of that. And we had some pretty stellar results, chasing the deposit deeper where it still remains open. We'll take a look at that. But then during the quarter as well more exciting, we're getting increasing conviction in proof of concept that we definitely are a first mover in a frontier or emerging volcanic massive sulphide camp. So certainly that's quite exciting. And really the next slide kind of speaks to that a bit. And what value did the guys add during the quarter? Really, the original target here was we might have had 700,000 tonnes a year. If we can find about 1 million tonnes, we'll replace what we mine, and then maintain that rolling mine plan and add a little bit more. And we've actually increased that target for the team, they've kind of hit we feel, probably perhaps exceeded that original goal during the quarter. We completed about 3,000 meter underground resource expansion program and certainly hit some incredibly high-grade mineralization about 250 meters below the current mine plan. And you can see some of the holes are summarized there, but 9 meters at 26% zinc, it does remain open. The alterations suggests we're perhaps just getting into what is a feeder zone, which suggests at least another 400 to 500 meters depth potential on it. And so we did increase the guys target. We think at least 2 million tonnes is within sight, maybe a bit more. We are mobilizing in a second drill rig. And then, like I said, the mineral system analysis suggests a lot more to be found down the mine deposit itself. And more medium term, recognizing the value and creating value in the regional belt, which was the other half of the slide. We did -- we have generated -- basically been following up on a lot of ground targets. We are seeing, if you recall -- plus there's the geophysical anomalies every 5 to 6 kilometers, you only ever see these in productive VMS belts. And good analogies being either the Bathurst belt, Matagami some of the well-known Canadian belts, which do have kind of prospectivities of the kind of core plus 40 million tonne range. We did an initial test of one of the first targets on that and certainly positive proof of concept, the AF1 target. We saw -- well, [ leading ] intersect large volumes of VMS alterations of quartz, sericite and pyrite, within which, more importantly, we're starting to hit semi-massive to massive sulphide-bearing, zinc-bearing occurs. Narrow at the moment. Interpretation is we're at the top of a VMS system. And we're trying to vector-in on where the guts of that system may lie. And we have mobilized-in a specialized geophysical crew to do some downhole geophysics, just trying to -- when wet season's over, better go back into the target and continue to chase it as well. Elsewhere to the north of the deposit, we're seeing significant areas of stacked gossans under transported cover. So previously not recognized, and really bringing in air-core drilling. Certainly, in the right geological setting. Very encouraging, and certainly, similar geochemical profile, sort of the core deposit prediscovery as well. We are kicking off some research as well with the Natural History Museum and The Royal School of Mines in the U.K. And again, that will feed out into our knowledge of the belt. So early days yet in the regional. But so far, everything we're doing is kind of reaffirming our conviction and certainly positive proof of concept that we may have a -- quite a significant productive belt on our hands. That's where we are in Perkoa. Santander exploration, really, what are we doing so far this year? Value-add, really. Continue to chase the Magistral deeper, really down to another 300 meters deeper in the current mine plan. So it'll replace what we mine, add some new tonnes, so pretty vanilla kind of sustaining exploration so far in the guide.And we have been also drilling that emerging pipe target, really, which is more medium-term, I guess, potential. And we are seeing nice high-grade zones emerging from this, and really a lot of that's due to the team's innovation to effectively use directional drilling in the country. I believe we're one of the first companies to do so. And we should have some assays out from that pipe drilling in the next couple of weeks. But certainly, visually, it's kind of in line with previous drilling. But we are seeing a growing high-grade zone below the old pipe workings there as well. Taking a step back and a bit of a pause then for the [ guys ]. We know we do have a large system. It's the correct age, and we are starting to see evidence of your related intrusions. And again, you only ever see these in the very large CRD or replacement systems in Peru as well. And we've gone back to first principles. We've done that very successfully in Perkoa. And we'll see, we're doing it very successfully in Rosh Pinah. And just going back in with open eyes and really trying to map and track the fluid pathways on the large Santander property. We've got about 44 square kilometers. Really, 17 kilometers of productive mineral fairway. Taking that multidisciplinary approach, geology, geochem, geophysics, and really trying to hone in on where are the real high-grade zones within there? They definitely have to be there, and that really is a bit more of a kind of sniping kind of aspect to the exploration campaign. Well, I mean, I think we can find as much inferred tonnes as we kind of require for current head grades. But really, okay, can we get a bit smarter, do it a bit faster and find the high-grade zones within that? And that's really the aim for the rest of this year for the regional stuff, for outside of the Magistrals and probably -- and rolling into next year. Next Slide is Bathurst mining camp. Really, more facilitating advanced engineering studies, to be honest. Really, during the quarter, focused on Restigouche and completed a lot of their resource confirmation drilling, really, in line with historic, giving us a bit more detail to allow more detailed mine planning, see what may make sense with the Restigouche satellite to bolster production through the Caribou mill. We did -- just started towards the kind of the latter half of the quarter on a 10,000-meter discovery program underground at Caribou. And really, that's following up on last year's successful program where we found 4 million tonnes in the northern limb. We're targeting the eastern limb. And the target is, we think at least 2 million tonnes should be a reasonable goal to achieve this year at Caribou. And again, replace what we mine, modestly increase the life of mine at Caribou as well. More medium term, recognizing the value and creating more and more longer-term value. And quite a lot of work on the Murray Brook option with partners at Puma. Really conducted quite a bit of metallurgical test drilling and geotechnical. The samples -- the met samples are at the lab. And obviously, on the base of that, we'll continue to move it forward and, hopefully, schedule it through the Caribou mill sooner rather than later as well. But so far, encouraged by what we're seeing at Murray Brook. And the deposit itself does also remain open. So we are doing some exploration, I guess, around the fringes of the currently defined deposit to see what more may be out there as well and really testing the belt, which has never really been tested, between Murray Brook and Caribou, it's about 10 kilometers strike. That was always held by different interests, so this is the kind of the first time that we've been able to look at it as a whole picture as well and see what may be there. And then finally, exploration-wise, moving to Rosh P. Focused on the extensions -- northwest extensions, the western ore fields where we're currently mining and continue to expand that zone. And we'll have some assays out in the next month or so. And certainly are -- visually starting to hit some pretty high-grade mineralization intersected down dip. The assays are pending as well. It is a very big deposit. It does remain open. Really, I think exploration, because it was so easy, it was probably taken a bit for granted. And it's always had an 8-year life of mine. It's always been very easy to replace what they've mined. But really, we're looking at it now, and really more with a, what if eyes. And so what can this mine do, if we find what we can think we can find as well and how will that bolster production? And really, that's kind of the value recognition and creation. Again, we've looked at deposits from first principles. And the Eastern ore field, which was for most of its 50-year history was the bulk of mining came from there. It was largely considered geologically closed-off predominantly. And we've done so many retargeting there and certainly coming up with some compelling targets. And really, we're kicking off a 10,000-meter underground program for that in the second of the year as well. And we have hired a dedicated exploration team to run that just because, obviously, the production guys need to focus on production. And -- but I think a lot more tonnes to be found at Rosh P as well. So I think that's pretty much it from me at this point in time. Quite happy to hand it back to Steve and hand it to the floor, and between myself and Gerbrand, to answer any questions that you may have.

[Steve Stakiw]

Thanks. So operator, we'll open it up for questions, please.

[Operator]

[Operator Instructions] And we have no questions in the telephone queue at this time. [Operator Instructions] Your first question comes from the line of Pierre Vaillancourt with Haywood.

[Pierre D. Vaillancourt, VP & Senior Mining Analyst]

Just Mark, if you could clarify. I mean, it was a disappointing quarter for Rosh Pinah in that it fell below expectations. So where are you looking to come out as you implement these optimization measures?

[Mark Daniel Cruise, President, CEO & Director]

Yes, sure, Pierre. No, it's a good question. I mean, I think it's a combination, just the background. I mean, for most of its history, has been semi-state run. Really, it started its exit -- it is on its journey to kind of move to kind of more modern, I guess, or kind of international mining kind of abilities and standards. And we are working on that. Really, where we've been seeing challenges, and in fairness, most of its history, mining and the team has mined in the Eastern ore fields, which are a smaller part of your deposits. The Western ore field, which mining only started in the last year, it's a new mining method and more of a block cave or sublevel block caving, very large stopes. And so we've had to implement some ground control cable bolting, very standard, but it just takes time to train the teams. And really then just improving the drilling and blasting practices. They're drilling bigger holes through those bigger stopes just to make sure they're straight, make sure the QA/QC's there and just modifying the blast patterns really as required. So more active management of the deposit rather than the cookie-cutter approach. So that's where we're seeing a lot of the requirements, just on trucking, upskilling the team on the ground control cable bolting. And in fairness, we've done this before. Peru was exactly the same. We were the first company ever to use cable bolts in Peru. And again, it was just leading to lower costs, more efficient and safer mining methods. So we're -- we've done it before, and it just does takes time to bring the trainers in there. And -- but we do have our Peruvian team in there. We've got 2, 3 teams of our Peruvian drill blast specialists on-site, and they're working there. And I mean, the response has been good. I mean, that's probably one of the first times that anyone has done quite advanced training, I guess, with the mining team there. And certainly, the response is positive. And we are seeing -- it's moving in the right direction. Never works as fast as you hope, but that's really the main focus. So it's fundamentally underground and upskilling the team. And then working on the long-range mine planning, but that's -- we're handling that from corporate.

[Pierre D. Vaillancourt, VP & Senior Mining Analyst]

So relative to the guidance that you provided, where -- I mean, at this rate, where can you take it to? So this year, I believe it's 95 million to 105 million pounds of zinc. Where do you think that can go?

[Mark Daniel Cruise, President, CEO & Director]

Yes, I mean -- I -- well, from first principles, what the Western ore field deposit's telling you, if you step back, you should be able to mine than at 5,000 to 6,000 tonnes per day. Now there's CapEx requirements, there's all types of engineering requirements required, but that's what the ore body can take. It's a very large, massive sulphide ore body. Stope sizes are in the 30,000 to 60,000 tonne range. And so when you blast, you're dropping a lot of payables on that ground. So there's no issues there. I think short-term and, really, it ties into our Rosh P 3,000 study. The study will be out at the end of the month. But clearly, kind of the title kind of gives it away. We certainly feel, with training, that it should be possible with the current workforce, current fleet, to go from 2,000 to 3,000 tonnes per day, and with the bulk of that tonnage coming from the Western ore fields. So that's all -- it's kind of short, medium term, where we think it can go.

[Operator]

And we have no further questions in the telephone queue at this time. I will now turn the call back over to the presenters.

[Steve Stakiw]

Once again, thank you, everyone, for dialing in and participating in our conference call this morning. As a reminder, an archive of this presentation will be posted on our website, if anyone would like to review that. And as usual, if anyone has any follow-up questions, please feel free to give us a call or e-mail us. Thanks again, and have a great day.

[Operator]

Thank you to everyone for attending today. This will conclude today's call, and you may now disconnect.