Update: Trevali Mining Earnings 'Weak' But Don't Impact The Long-Term Investment Thesis

| About: Trevali Mining (TREVF)


Trevali Mining reported weaker revenue and earnings on lower production at its Santander Project.

This should be a temporary measure as management is modifying Santander's operations.

Despite this weakness costs on a per-tonne basis are lower than I expected last August.

A pullback in zinc and in Trevali shares is warranted, but I haven't sold my position and I like the shares under $1.

Trevali Mining (OTCQX:TREVF) just reported its second quarter earnings. If you look at the "headline" numbers you'll see a decline in revenue from the first quarter to $20 million from $24 million, reflecting lower production and lower ore grades. Specifically, zinc equivalent production fell from 25 million pounds to 21 million pounds as ore grade fell from 4.47% to 4.2% for zinc, from 1.66% to 1.42% for lead, and from 1.7 gpt. to 1.44 gpt. for silver. But this lower ore grade should be temporary as management is modifying the mine plan in order to access thicker zones of mineralization in the second half of the year.

Investors will recall that I recommended shares of Trevali Mining about a year ago, and the thesis is playing out largely as planned. The Santander Mine, while showing a quarter over quarter production decline is also a new producer that can generate operating profits. In addition to preparing for increased production in the second half of the year management also recently discovered new zones of mineralization that can potentially add to the mine's resource base. The company also has a pipeline of several "small" yet inexpensive projects that management should have little trouble financing.

Given the run-up in shares over the past year I would be hesitant to buy more at the current price of $1.13/share--60% higher than my initial recommendation price of $0.70/share. We have seen weakness in silver prices, and the zinc market has just run up from about $0.90/lb. to well over $1/lb., and we should see a pullback soon. However investors should keep in mind that these metals are in long-term bull markets. The company's primary metal--zinc--is expected to be in a supply deficit in the near future and prices have to rise in order to incentivize additional production. I continue to like the stock and believe that the shares should be purchased if they fall below $1/share.

Disclosure: The author is long TREVF.

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