Trevali Mining's (TREVF) CEO Mark Cruise on Q4 2015 Results - Earnings Call Transcript

| About: Trevali Mining (TREVF)

Trevali Mining Corp. (OTCQX:TREVF) Q4 2015 Earnings Conference Call March 31, 2016 10:30 AM ET

Executives

Steve Stakiw - Vice President of Investor Relations and Corporate Communications

Mark D. Cruise - President and Chief Executive Officer

Anna M. Ladd - Chief Financial Officer

Analysts

Operator

Good morning, ladies and gentlemen and welcome to the Trevali Mining 2015 Annual Financial Conference Call. At this time, all the lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session with instructions provided. 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 2015 annual financial results conference call. Trevali's audited annual 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 2015 and year-end performance, particularly ongoing operations and production at our Santander Zinc-Lead-Silver Mine in Peru. 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’ll now turn the call over to Mark Cruise.

Mark D. Cruise

That’s great, thank you Steve and good morning everyone and hopefully all is going well with you. And as you are aware we reported our 2015 annual financial results yesterday and at a high level at Santander mine operation had an income of $6.7 million on concentrate revenue sales of $106 million and ultimately resulted in a loss of $14.3 million or $0.05 per share.

And we strongly recommend that certainly all the releases are read in conjunction with our audited financial statements and MD&A analysis and they are available on our website and on SEDAR as Steve has previously mentioned. And certainly all figures are referred to our Canadian unless otherwise stated.

Really looking to Q4 highlights, we did have record quarterly production form Santander mill and where with the guy is processed nearly [205,000] (Ph) tonnes of feed. Quarterly production was about 13 million pounds of payable zinc, 6.3 million pounds of payable lead and 220,000 ounces of payable silver.

Probably more important, Q4 site cash cost were $0.32 per pound of payable zinc equivalent and that equates to about $38.70 per ton milled. Certainly making us one of the lower cost underground producers in the [central] (Ph) minerals belts of Peru. And unfortunately commodity prices were certainly depressed to put a [model] (Ph) in Q4 and it did results in a net loss from Santander mine operation of approximately $2 million.

Moving on to our 2015 annual highlights, I would say to have the concentrate sales of $106 million, EBITDA of $12 million and income from Santander mine operations of $6.7 million. And as stated that did result in a net loss of $14.3 million. And our annual production at Santander was 778,100 tonnes of feed and that did produce 54.1 million pounds of payable zinc and 30 million pounds of payable lead and 1.1 million ounces of payable silver, and that’s certainly significantly exceeded our 2015 guidance in particular on lead and silver.

Our provision to realized commodity selling prices for Santander 2015 production was $0.84 per pound zinc, $0.77 per pound lead and $15.67 per ounce silver. And as you are aware our concentrates are both our partners Glencore International Benchmark terms under our long-term off-take agreements. And the mills continue to operate extremely well in 2015 and we continue to obtain higher design recoveries at 90% for zinc, 89% for lead and 77% for silver.

Really moving on and looking at the associated tables and discussing them on a year-to-year basis, Santander continue to have a very positive year compared to 2014. Certainly our tonnes, mined and mill decreased by approximately 8% and 9% respectively and also the mill recorded modest gains for recoveries, which are already ahead of design levels. This did result in increased zinc and lead, silver concentrate production on an annual basis and ultimately this translates into additional payable metal units.

So approximately 9% to 10% more and to 101 million pounds payable zinc equivalent in 2015 versus 89 million pound zinc equivalent in 2014. Site also achieved this fall decrease in cash cost by that 11% to 42.65 on an annual basis certainly lower than guidance of $48 to $51 per tonne. And probably more important is worth pointing that site cash cost actually decreased to 38% to 39% per tonne in the second half of 2015 and as previously stated one of the lower cost underground operations in the central mineral belt the Peru.

Unfortunately commodity prices did not cooperate, so obviously a discrepancy on annual realized prices versus 2014 and particularly in Q4 when zinc sell below $1,500 per tonne or $0.66 per pound of zinc equivalent. That said annual revenues were approximately $83 million, which realized the metal prices stayed $0.84, per pound zinc $0.77 lead on $15.67 sliver.

At Santander exploration continue to deliver in 2015 and while we did scale it back towards the towards the second half of the year due to market conditions, it did result in significant discovery success, in particular Magistral South and Central, which have now merged at mid to lower levels. We do have some exciting new developing areas of Magistral North that have been released as well.

So certainly, we are following up on them in the first half of this year and then contingent on results we may continue drilling them out or we will see where we lie at that point in time. So going forward, Santander operations do continue at steady state and we’re typically pushing 2200 tonnes to 2300 tonnes per day through.

So a little bit of 12% higher than the design and really to reiterate the 2016 production guidance for Santander is approximately 52 million to 55 million pounds of payable zinc and concentrate grading 50% by 22 million to 25 million pounds of payable lead in concentrate grading 56% to 58% lead and somewhere between 800,000 to a million ounces of payable silver.

And site cash costs we’re estimating at this point in time somewhere between $40 to $43 per tonne and milled on site. And as mentioned, we have started a very modest exploration program which largely to convert ongoing inferred tonnes into measured and indicated. And obviously follow-up on some recent exploration successes particularly on Magistral North the deeper levels and the chase up the recently discovered Rosa and Fatima at mainly lead silver veins which did result in us delivering a bit more of lead and silver to the mill in 2015 versus pound.

And that's clearly where we are at Santander. In Canada obviously we continue to focus on ongoing commission of Caribou mine and mill and obviously moving to achieve design throughputs and recoveries in concentrate quality and that will be ongoing between now and effectively the first half of 2016. We will continue to provide regular updates and also we do declare commercial production and we will be giving a Q1 commissioning update sometime early to mid April.

So that's pretty much it from me. So Steve, I'll hand it back to you. If there is any questions we’re happy to fill them at this point in time.

Question-and-Answer Session

Operator

Thank you [Operator Instructions] The first question is from [Stefan Ioannou] (Ph). Please go ahead.

Unidentified Analyst

Great, thanks very much guys. Just wondering is there anything more you can elaborate just on Caribou, are we going to be seeing another sort of I guess March months update very shortly here or can you just give us some insight, because I guess last time we heard from you it was sort of third week of February. We had some data and things seem to be improving significantly on a bunch of fronts. But my one big question would just be on the grinding size, the were some talk about optimizing the grind side how is that going?

Mark D. Cruise

Yes. So certainly I mean we have broadening giving monthly update as you are aware Stefan. So we will be giving - I mean we’re at the end of the month now, so we will be giving effectively the Q1 commissioning updates in early to mid April and we continue to focus on the zinc sale which we previously stated or the zinc recoveries. And one of the I guess improvements of our highlight was improving our primary grind. So we have been working towards that but it is an ongoing process. So certainly what we have done is we've ordered smaller media, three quarter inch steel balls and they have yet to arrive from China.

So there has been probably some modest improvements but obviously until the media gets there, which are scheduled to happen in April, we are not going to see any dramatic improvements. And the second thing we also did was modify the great design in the SAG mill and again that has been ordered and they are going to be onsite sometime in probably later half of the quarter, so probably think later May to June. But like I said, we will be addressing all that like I said early to mid April probably the first week in April effectively we’ll have a Q1 update and discussions around that.

Unidentified Analyst

Okay, great and I mean I'll jump back into the queue for a second. Thanks.

Mark D. Cruise

No worries Stef.

Operator

Thank you [Operator Instructions] The next question is from [Dave Brown] (Ph). Please go ahead.

Unidentified Analyst

Thanks for taking my question. You have a copper circuit that you are going to be setting up sometime this year have. Have you been accumulating feed for that circuit since you started operating in [indiscernible].

Mark D. Cruise

No, so really the one good thing actually - essentially the Caribou deposit itself is very homogenous, so there are seven zones without getting too technical, but typically run off mill feed grade at that point [0.35.4%] (Ph) copper. So at this point in time, we just want to fully derisk the zinc and lead circuits and as mentioned the lead circuit is pretty much there, we are focusing on the zinc.

So at this point in time, effectively while copper there is in the system either reports to the zinc concentrate where it's not a penalty element and obviously the smelters like it because they take it for free, or it goes to the tailings. So there isn’t a kind of high grade zone, we can set aside. And there is modest feeder zone, we haven’t been mining that in fairness, but predominantly it kind of report to the zinc con or some will go to the tailings.

So certainly all things been equal and it is something we would like to put in place by the end of the year or as soon as possible hopefully sooner, but it is contingent on getting the zinc circuits and the zinc recoveries where they need to be first. Really because we just want to the [met team] (Ph) to focus on that because obviously our primary product is zinc. And really the copper is defiantly value add, invested all your money in mining and in milling, but really the main driver for the economics is clearly the zinc circuits. So that’s what we are focusing on at this point in time.

Unidentified Analyst

Okay thank you. My second question is just from your breakeven cost seems to be about $0.80 overall and correct me if I’m wrong with that. If you were to include the payments you have to have to make on interest, do you know what is your breakeven cost would be approximately?

Anna M. Ladd

This is for Santander are we talking about or for…

Unidentified Analyst

I would say everything.

Anna M. Ladd

For everything?

Unidentified Analyst

Yes.

Mark D. Cruise

Certainly I mean it’s okay. At Santander are all-in, so effectively [indiscernible] cost is about $0.66 to $0.70 per pound zinc equivalent at Santander. And we are still commissioning at Caribou and so approximately Anna…

Anna M. Ladd

Yes, so at Santander I can tell with interest in payment, it is going to come up to $0.80. In Caribou it's going to be a little higher. To be honest with you, we are still commissioning, so those type of costs actually aren’t accumulated to that level of detail. We are obviously going to start doing that once we hit commercial production in Q2, but is going to be bit higher than Santander, I can tell you that.

Unidentified Analyst

Okay, well that’s helpful. Thanks very much. That ends my questions.

Mark D. Cruise

Thank you.

Operator

Thank you. The next question is from [Joseph Gallucci] (Ph). Please go ahead.

Unidentified Analyst

Good morning guys. A question on cost for Santander, I mean you have done a good job bringing them down. What do you think is left in terms of optimization, can we expect more costs coming down this year and then to follow-up on that just given that now you have been operating it for almost two-years, are you looking at any sort of expansion and if so what would that look like?

Mark D. Cruise

Yes Mark here Joseph, morning. So certainly, guys had a great year of what they could control at Santander, certainly internally we are aiming for approximately 5% cost savings in 2016 and the stretch target is at 10% cost savings. Certainly what will help us in that regard is, we are pushing a little bit higher in designed tonnes for the mill. So obviously that helps, because our fix cost don’t change.

We have noticed that power costs have dropped dramatically in Peru, there is excess power available and certainly we are currently in the process of finalizing our next three-year long-term power purchase agreement. So we should see power cost drop by 25%, broadly speaking. And so certainly that will help at the Santander level and obviously the TCs so what the smelters charges have dropped dramatically this and which is reflecting tightening concentrate market. So International Benchmarks TCs for 2015 were $245 per tonne and this year they have dropped to about $188 per tonne. So certainly that will all help and driver cost lower at Santander.

Regarding potential expansion of this and certainly it is a forward-looking statement, but the amounts of tonnes we can find at Santander is directly proportional to their drilling budget. So every year the guys have successfully replaced what we've mined and grown the resources very modestly, but it really is direct function of drill budgets. And certainly our replacement costs are expected to be about $0.01 per pound zinc equivalent, so incredibly effective expression.

Really any talk of expansion clearly has to wait until we get Caribou derisked first and then it does in fairness need approximately about pretty decent $5 million choler of resource expansion program. So there is few pieces that need to fall into place. But hopefully let's see how things are doing, but hopefully have something we can kick off later this year, but probably more realistically its probably 2017 events I suspect.

So they need to fall into place first, but that said I mean, all the Magistrals remain open for expansion and the guys had some pretty exploration success last year. Obviously this year we are pretty confident we will be able to pull out some pretty nice intercepts as well. And what we do know at Santander is at this point in time, based on the data we have and that’s all out there publically is that the grades are increasing as we are getting deeper and minimization is merging or getting - we are getting more tonnes per vertical meter, which certainly step is us up for the potential to expand going forward.

But that said, like I said, it does need more expression just to convert those inferred into higher resource category just to make sense. If you do go to that 4,000 tonne per day or whatever would make sense, you have got enough of the run way in front of you.

Unidentified Analyst

Appreciate that color Mark, thanks and just maybe just one follow-up question on the TCs since you mentioned them or maybe Anna can talk to it. You guys would you provide us sensitivity or just give us would that quantum that drop from 245 to call it 190 or what does that do to your Santander all-in cash cost?

Anna M. Ladd

It would probably a drop it I don’t know. I'm going to say maybe by about 5% to 10% right now Joseph. Until I get the quantum I don’t actually factor that until actually see the actual charges right but that's the ball park we are looking at.

Unidentified Analyst

Okay perfect. That's it from me. Thanks guys.

Mark D. Cruise

Okay. Thanks Joseph.

Operator

Thank you. The next is a follow up question from Stefan Ioannou. Please go ahead.

Unidentified Analyst

Okay thanks very much guys. I know that's a good color on the exploration and Santander. Just wondering you mentioned in the MD&A that you are going to be doing first of all about 2,000 years of drilling at Santander then the first half of this year. So what is the sort of budgeted figure for that in terms of dollars?

Mark D. Cruise

It is very modest this year and we’re looking out of $700,000 and so it's all underground, it's basically chasing the known zones deeper. So very low risk and obviously we do have geophysical support, which we tested late last year and obviously hit on the back of that. So it's just chasing it deeper. So to be honest we are going to hit, I don’t know what we are going to hit, but obviously we will release the results, but we are encouraged that there is lot of upside left.

Unidentified Analyst

Okay and then just in terms of spending at Caribou in terms of capital type stuff. I think somewhere in the [MD&A] (Ph) there was a mentioned 4.5 million left to go this year on everything there?

Anna M. Ladd

Yes. So that's our pre-production capital to get us to commercial production right. So we haven’t optimized everything [indiscernible] commercial production. So that's sort of our pre-production spends if you will and then on top of that there is ultimately ongoing mine development expense.

Unidentified Analyst

Okay and that includes sort of 1.5 million to get the copper circuit finished off or okay.

Anna M. Ladd

It's not in that number.

Unidentified Analyst

Okay, so copper circuit is not in that number, okay so that’s the lead okay.

Anna M. Ladd

That's pre-production, yes.

Unidentified Analyst

Okay, got you. Is there I mean just from a technical point of view is there a hard definition of what commercial production is going to be or how are you guys going to define that?

Anna M. Ladd

They really isn’t, I mean you can look to the cash flows in Canada where they say, if you kind of run the mill 60-days at 70% capacity then that’s usually a termination, but there are other obviously technical factors that need to be considered. You got to achieve your define recoveries and you have to have a salable con right. So we look at everything and we also consult with our auditors PWC where there is also a financial definition through IFRS. So it's a combination of things.

Unidentified Analyst

Sure. Okay, fair enough. That’s great.

Mark D. Cruise

So, really I mean the last remaining piece especially is the zinc recoveries and we’re getting the throughputs, we’re producing saleable cons and so it's obviously getting the zinc recoveries a little bit closer to design.

Unidentified Analyst

Okay, great. Thanks very much, guys.

Mark D. Cruise

No worries Stefan.

Operator

Thank you. The next question is from [Alex Terentiew] (Ph). Please go ahead.

Unidentified Analyst

Good morning, guys. I apologize I joined the call a little bit late so I may have missed some earlier comments - well I know I missed some earlier comments, but on Caribou, can you just give us a little bit of on update there. Has the fine grinding stared, I mean I know you are ordering some other balls to get the fine grinding, you are going down to 30 microns and just wondering where about you are in that process right now?

Mark D. Cruise

Alex you are going to have to buy Stefan a copy, I've a answered that one already. So at a very level and we will be giving the kind of Q1 commissioning update in early April and we have ordered the smaller media and a three quarter inch steel balls, they will be arriving in April from China. So certainly that will help on the grind and then the modified great design will be kind of late May early June. So certainly they need to be onsite before we can get the grind there.

What I will say though, we continue to get a massive support from our partners Glencore, so we continue to have an input from their corporate technical services team and some of their professionals from Australia have been at on site again as well. But like I said, we are seeing incremental improvements, there is more work to be done and we will be giving a detailed update like I said, early April basically on Q1 commissioning.

Unidentified Analyst

Okay, so just want to clarify this. So the balls to arrive in April, but the grades in May, so it's really not until may until you can really test the benefit of that grinding then?

Mark D. Cruise

Yes. Well hopefully the balls will start to see step improvements and then ultimately the grade should get us there and then one thing we have found out at Caribou due to the fine and feed sizes, it just does take a bit longer, it’s not like Santander where its big course mineralization. So when you make changes, it just takes a little bit longer to get it tweaked and what have you, so certainly that's why we're anticipating and the plan is to hopefully get it there in this quarter our Q2, we’re heading into Q2. So it will be ongoing during the quarter and we will continue to give those monthly updates.

Unidentified Analyst

Okay, alright. Thank you.

Mark D. Cruise

No worries.

Operator

Thank you. The next question is a follow up question from Dave Brown. Please go ahead.

Unidentified Analyst

Yes my question concerns the processing cost for the zinc concentrate. You've mentioned that the costs has dropped from 245 to 190. I'm just wondering how much of that cost reduction is due to lower energy prices and that's presumably a temporary cost reduction for the process. So I'm just wondering how much of that's going - that price is going to bounce back with the prices of natural gas and coal going back up. Thank you.

Mark D. Cruise

Yes. No problem, No David its nothing to do with energy, it's actually to do with concentrate and global concentrate in country supplied. So these are the annual negotiations between the smelters and the miners typically held by third-party. So generally it Korea Zinc or some of the other big miners like Glencore and the big Asian smelters or what have you. So really obviously with the closer of the big Century mine in Australia and the Lisheen mine in Ireland, basically the end of 2015 and kind of stretched into January.

I think arguably to say in 2015 the concentrate market was balanced to modestly the oversupplies, broadly speaking. We are now moving into deficit and because of that we are seeing smelters are scrambling to try and get concentrate, there is just not as much available. So in Q4, even though commodity prices were very low in zinc in particular what the Chinese smelters were charging to process feed on the spot market was kind of approaching $130, $140 per tonnes, so maturity lower, because they are trying to encourage feed into China.

Really that has been reflected in the international benchmark this year, so we are getting into tightening concentrate supplies and I think general consensus is they are going to increase the tight towards the end of the year. So really the smelters to high speeds and have had to offer discounts effectively compared to 2015 to the miners. Certainly general feeling is those TCs should continue to drop for the next probably three to five-year period, because we are not seeing any new majors zinc mines getting develop. So there is no maiden resource of concentrate going to become available over that timeframe.

So certainly I would say, short to medium term we should be in an environment of decreasing TCs, so you probably want to be a miner versus a smelter or if you are an integrator it doesn’t really matter, you will take the profits somewhere else for them. Certainly, you should favor the miners in the next short to medium term period.

Unidentified Analyst

Okay thanks very much.

Mark D. Cruise

You are welcome.

Operator

Thank you. There are no further questions registered at this time. I would like to turn the meeting over to Mr. Stakiw.

Steve Stakiw

Thank you operator. Thank you everyone again for dialing in and participating in our conference call this morning. As usual, if anyone has any follow-up questions, please feel free to ring through or e-mail us. Thanks again and have a great day.

Operator

Thank you Mr. Stakiw. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.

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