Trevali Mining Corp

Good day, everyone, and welcome to the Trivalli Mining Corporation third quarter 2021 financials and earnings conference call and webcast. After the speaker remarks, there will be a Q&A session. If you would like to ask a question during that time, please press star 1 on your telephone keypad. You may press star 1 at any time during the call to enter the queue. I would like to remind everyone that this conference call is being recorded. I would now like to turn the call over to Brendan Creaney, Tribali's Chief Financial Officer. Thank you, sir. You may begin.

Thank you, April, and good day, everyone, and thanks for taking the time to join the call this morning. Before we get started, I would like to direct your attention to our forward-looking language on slide two. The discussion today will contain forward-looking information about the company's future performance. Although forward-looking statements are based on what management believes to be reasonable assumptions, Actual results may turn out to be different to these forward-looking statements. For a complete discussion of the risks, uncertainties, and factors which may lead to actual operating and financial results being different from the estimates contained in our forward-looking statements, please refer to our latest MD&A filed on CDAR for the period ended September 30, 2021. I would also like to mention that this conference call is being recorded, and a replay webcast will be available one hour after today's call. In conjunction with this conference call, there is an accompanying PDF presentation available on the events section and the corporate presentation section of Trivali's website under the investors tab. The link to our live webcast is also on Trivali's website under events. Moving to slide three, our main presenters today are Rickus Grimby, Trivali's president and CEO, and he will be accompanied by Derek Dupree, Trivali's chief technical officer, and myself as Trivali's chief financial officer. Rickus, over to you.

Thank you Brendan, and starting on slide four, our safety records saw an increase in recordable injuries However, the severity of injuries declined. There were 13 recordable injuries reported, with 70% of these injuries being medical treatment cases, which resulted in an immediate return to work. Importantly, high potential incidents continued to decline in 2021, with a 35% reduction year over year. The third quarter was marked by a relatively stable zinc price, with the metal price averaging $1.36 a pound. We achieved production of 82.4 million payable pounds of zinc at a C1 cash cost of $0.84 and an all-in sustaining cost of $0.99 per pound. Rospina and Pocoa delivered another strong performance, both increasing their production over the previous quarter. Gabo contributed positive EBITDA, increasing from a previous quarter, but production was negatively impacted due to poor ground conditions localised to a specific area in the mine. Work to mitigate the impact and allow for further flexibility in the mine plan has progressed well, and we will speak to this in more detail later in the presentation. Santander was also impacted early in the quarter due to lower production caused by mobilisation of a new mining contractor. Adjusted EBITDA for the company was at $20.5 million and was impacted by decreased production during the quarter and the timing of sales due to shipping delays at Pacoa and Rospina. We've decreased our net debt by $27 million to $82 million, which is driven largely by the collection of receivables that built up at the end of the second quarter. 2021 production guidance is being reconfirmed at the lower end of the range and cost guidance at the higher end of the range. Guidance is expected to be adjusted for the sale of Santander post-closing of the transaction. Since the third quarter ended, the zinc price has been extremely volatile. The price increased rapidly to a high of $1.74 a pound in mid-October and has since receded to about $1.50 a pound, where there is fundamental price support. We are well positioned to take advantage of the opportunities provided by the positive momentum in the zinc market. Turning to slide five, we announced the sale of Santander Mine to Cerro de Pasco Resources on November the 8th. This divestiture of Santander is consistent with our disciplined capital allocation strategy of focusing on corporate debt reduction and preparing to make an investment decision on RP2.0 expansion project at Roche Prieta. We thank the team at Santander for their commitment and dedication and we wish them continued success as part of Cerro de Pasco. We will work closely with the team to ensure a smooth transition. Total consideration to Trevali for the sale of Santander is 10 million shares in Cerro de Pasco, resources subject to certain escrow provisions. We will also receive $1 million Canadian in cash, subject to adjustments to the extent that there is more or less than $7.5 million of working capital remaining in Santander at closing. Trevali will also receive a net smell to return royalty equal to 1% on the areas of the Santander mines outside of the current defined resources at Magistral and Santander pipe deposits. Lastly, a contingent payment of $2.5 million payable to Trevali in the event that the LME average zinc price for 2022 is equal to or greater than $1.30 per pound. We expect the transaction to close in a fourth quarter. In addition to the sale, Trevalier has provided the TSX notice of the intent to proceed with share consolidation on a 10 to 1 basis, reducing the number of issued and outstanding shares from 989 million shares to 98.9 million shares. The company anticipates the completion of the consolidation by the 1st of December 2021. Trevalier will continue to trade on the TSX and all other exchanges. At Pakoa, payable zinc production for Q3 2021 was £40.9 million, a 3% increase over the Q2 due to a higher zinc head grade and partially offset by lower milk throughput caused by lower all-stock fire levels. Mine production was impacted by underground development due to equipment and operator availability. Full-year guidance remains unchanged. At Ras Pena, the operation continued with a very strong throughput this quarter, producing 19.7 million pounds of payable zinc at an all-expanding cost of 88 cents per pound. Our ongoing focus on execution at Raspina is continuing to bear fruit, with higher throughput rates expected for the remainder of the year. A smaller lead shipment in Q3 reduced the by-product credits relative to the last quarter, which led to a higher unit cost. Within the quarter, we also published positive results for the IP 2.0 feasibility study, which we will cover in more detail later in the presentation. At Santander, zinc production was 8.2 million pounds, reduced at an all-in sustaining cost of $1.36 a pound. Production was impacted due to a slow ramp-up of the mining activities following the mobilization of a new mine contractor, as well as lower zinc head grades due to lower grade stoves being mined. Mine production rates have recovered towards the end of the quarter, with target productivities being met. As previously mentioned, we've announced the divestment of Santander, which we expect to close in the fourth quarter. At Caribou, the operation produced 13.5 million pounds of zinc at an all-in-sustaining cost of $1.10 per pound. Caribou was impacted by temporary suspension of mining in a localized area where we experienced poor ground conditions, which we will speak to in further detail on the next slide. We also continue to study the potential to extend Caribou's mine life beyond the initial two-year restart plan through conventional mining and milling methods. And in parallel, we are also continuing the rapid oxidative leach project with FL Schmidt. I move to Derek to provide more detail in operational and other growth projects.

Thank you, Rikus. Turning to slide seven. In quarter three, Caribou experienced an increase in ground activity following the mining of a stope adjacent to a fault. Scopes have been monitored to this fault in the past with no impact, but an increase in stress concentration in the remnant areas is causing increased ground activity that is isolated to this area. We have completed the development of a bypass to re-establish access to this area. The condition of the fault zone and the final extraction method is being reviewed. In addition, we are adding two production levels within the lower levels of the north limb, opening up more stopping areas and adding flexibility to the mine schedule. While they impacted production during the quarter, Calibre is expected to deliver on its production guidance for the year, based on the actions taken. Moving to slide eight, I will go into more detail on the work being done at Ras Pino. Positive results from the RP 2.0 feasibility study were announced on August 10, 2021. We spoke of the pre-feasibility study that was published a year ago. feasibility study had many improvements over the feasibility study, with mineral reserves increasing to 12.4 million tons at 6.41% zinc at 1.36% lead and 20 grams per ton of silver. A 21% increase in free cash flow to $290 million and a 10% increase in NPV at an 8% discount rate, $256 million, using an average zinc price of $1.17 which is well below the current spot price of around $1.58. All-in sustaining costs after commissioning marginally increased from 65 to 67 cents per pound of zinc produced. Project capital increased by 19% to $111 million, largely due to a change in foreign currency assumptions, specifically around the Namibian dollar. Project financing is ongoing and we have received non-binding expressions of interest from several financial to date, and we will provide an update to the market on further financing efforts and RP2.0 activities in due course. Moving on to slide 9. In early August, we announced the pilot testing program for FL Smith's Rapid Oxidative Leads Process, or ROL for short. This returned strong early results, leading to the pilot plant being shipped to the Carabo site to conduct further testing with run-of-mine ore and tailings materials. If viable at Karibu, the technology has the potential to increase metallurgical recoveries, reduce precipitate or metal on site, including copper and gold, and reduce or eliminate concentrate freight costs and treatment charges. The next phase of the testing program is an essential step in evaluating the economic viability of the process with the potential to enhance the value of the in-situ material and tailings at Karibu, as well as our additional deposits in the Bathurst region. An NR43-101 preliminary economic assessment is anticipated following the successful completion of the second stage of the power plant program work that's currently underway. I'll hand it to you, Brendan.

Thanks, Derek. Moving to slide 10, the average LME price for zinc during the quarter was $1.36 a pound, up 3% over Q2, and was generally stable over the time period. Revenue was $79.8 million, down 23%, due to payable zinc sold from decreased production levels and timing of shipments, partially offset by the increase in the zinc price. Approximately two-thirds of the decrease was from production levels and timing at Caribou and Santander, and one-third of the decrease was due to the inventory buildup and timing of sales at Percoa and Roshpina. Adjusted EBITDA was $20.5 million, largely due to the same reasons mentioned for revenue. C1 cash costs and ASIC were consistent with Q2 2021, increasing modestly 1% for C1 cash costs and 2% for ASIC. Net debt decreased by $27 million to a total of $82 million in the quarter, which was largely attributable to the collection of settlement receivables outstanding from Q2 2021. Moving to slide 11, as mentioned on the last slide, inventory levels increased over the previous quarter. Inconcentrate inventories increased over Q2 levels due to three shipments being delayed, two from Percoa due to congestion at the port of Abidjan, and one in Rashpina due to availability of ships at the port of Luderitz. These shipment delays increase zinc inventories in the third quarter, which impacts sales quantities, revenues, EBITDA, and net income. The increase in inventory is worth approximately $8.4 million, assuming the average third quarter LME zinc price of $1.36 a pound that was mentioned earlier, and is higher if using the spot price of approximately $1.50 a pound as per today. We continue to see a tight global shipping market, and we expect this trend to continue for the remainder of the year. Over to you, Rickus.

Thank you. On slide 12, we speak to the zinc market. The zinc price started at the third quarter at $1.32 per pound and ended the quarter at $1.35 per pound and traded in a tight 7 cents per pound range or approximately half the range of the previous two quarters. After the third quarter closed, in the early weeks of October, the Alameda cash zinc price rallied to $1.74 per pound on the back of zinc smelter curtailment, largely due to electricity cost pressures in Europe, and power availability issues in China. Since then, the price has receded to around $1.50 a pound in our view. In our view, the price increased through $1.40 a pound and now above the level is underpinned from a global economy that appears to be in expansion mode and zinc production volumes that have disappointed. Expectations for supply growth have been optimistic. It's notable that the International Lead and Zinc Study Group reduced its expectation for global refined zinc surplus for 2021 to be 217,000 tonnes on October 7th, versus the previous expectation of 353,000 tonnes announced in April. Confirming the tightness in the zinc market, it is instructive to take a closer look at the zinc exchange inventories. On slide 13, you can see the impact to stock levels. LME stocks have been sliding since April and are now down 31% from January, despite China releasing 180,000 tons of zinc from the strategic reserve across all market auctions. As just mentioned, although the market expectations are for zinc concentrate supply to expand in the coming quarters, the anticipated rate of increase continues to decline, according to WITMAC and the International Lead in Zinc Study Group. This has implications for treatment charges. According to WITMAC, the indicative spot treatment charges for September is at $80 a tonne, SIF into China. Spot terms have ranged from $75 to $85 per tonne in September and are well below the Chinese spot averages of $285 and $209 per tonne in 2019 and 2020, respectively. Despite Zinc Smell's electricity supply uncertainty, we have not witnessed spot treatment charges depart from recent levels. In summary, we see fundamental support for the zinc price in the medium term as management believes demand will outweigh supply as global economic activity expands and infrastructure spending and green initiatives make an impact. Slide 14, our financial position continues to strengthen. We anticipate production over the remainder of the year. At the current zinc price, the trend is expected to continue. In Q3, we reduced net debt by $27 million. This, together with the pending sale of Santander, strengthens our balance sheet and creates flexibility in discussions with capital providers to support funding requirements for our high-return RP2.0 expansion project, which we will increase throughput and reduce cost and structure of Raspina. With our improving financials, a backdrop of the high zinc price, The anticipated financing of RP 2.0 expansion project, the next phase of ROL program at Caribou, we are excited about the company's future prospects. We look forward to providing you with further updates as we progress throughout the year. With that, operator, over to you for questions.

As a reminder, if you would like to ask a question, please press star, then the number one on your telephone keypad. Again, that is star, then the number one. And we'll pause for just a moment to compile the Q&A roster. Your first question is from Craig Hutchinson with TD Securities.

Hi there, guys. Just on Roshpina, are all the permits in place? And could you guys go ahead with that project subject to financing almost immediately?

Hi, Craig. Great to hear from you. At Roshpina, all the permits are in place. You know, we're just waiting for the financing so we can press the go button. So if you have no, and I can ask if Derek wants to comment on that, but from where we look, everything is in place.

And just in terms of financing, are you guys looking at alternatives such as streaming as well as a potential source of financing, or is it just that at this point?

I'll let Brendan talk about the structure that we've got in place and what we're thinking about. Brendan, over to you.

Thanks, Greg. We're looking at the full suite of potential products in terms of our financing, but we're very much focused on debt financing here as our primary source of funding.

And also, as we said in the presentation, Craig, we ended up, we've already got quite a number of financial institutions that have come to us with proposals.

Okay. Any long lead items you guys are looking at purchasing sort of over the short term or are you waiting for the full finance package?

Sorry, Craig, I didn't catch that.

Sorry, I was just wondering if you guys are going to purchase any long lead items associated with Roshpina just to kind of keep the schedule tight, or are you guys going to wait until the full financing package is in place?

Yeah, I think, you know, it's always great to wait for the full financing to be in place, and I think that would be our A option, but we also have to keep an eye on those long lead items because, you know, we want to make sure this project gets delivered in a time when we believe the prices will be high.

Okay, maybe one last question. In terms of Santander, when do you guys anticipate the deal closing? When would it be effective? Is it effective at the start of Q4, the end of Q4?

Yeah, so we announced that on November 8th, and so we're moving to close that as soon as possible, but it will be within Q4 is the expectation. Okay.

Thanks, guys. Thanks, Greg.

Again, if you would like to ask a question, please press start and the number one on your telephone keypad. Your next question is from Stefan, I don't know, with Cormark Securities.

Thank you very much, guys. I'm just curious, just with the ongoing work at Caribou in terms of both some of the new processing technology and just extending the mine life, I think previously there was sort of maybe some anticipation that we might know if a real push to push Caribou beyond the two-year period current reserve was going to happen or not by the end of this year. Is that still the case, or are you still waiting to sort of see how some of this pilot plant testing goes and other things?

Stefan, great to hear from you. Absolutely, we are studying the expansion or the extension of mine life at Caribou. And to just make it quite clear, that is for the current processing and mining efforts, no change. So the role is in In parallel to that, so the success of that project is not the one that will determine whether we can extend the current two-year mine life.

Okay. And in terms of just formally pulling the trigger on using the standard method, that caribou proper, is that something we might hear on by the end of this year, or is it still kind of a work in progress over the next quarter or two?

Yeah, I think, you know, early first quarter we'll be able to make an announcement on that. So, you know, we are progressing really well with that.

Okay. And just maybe just looking back at Santander, just, you know, looking at maybe a bit more color on, say, the decision to switch mining contractors there sort of, you know, late in the project sort of reserve life there. and especially now in the context that you actually proceeded to sell the mine anyways. Could you just give us a little bit more color on why that even happened in Q3?

Yeah, Stefan, that's a great question. And, you know, so, you know, in life you don't really want to make life more difficult for yourself. And honestly, if you look at that, you would say, geez, why do you guys do that? So we do those things because we have to. And if you look at sometimes, you know, a mine's got – after 18 months worth of life left and and the the contractors are starting to lose um productivity and they start moving up some of their the a team away um and and the you know because they are there's quite a demand for for contractors in in peru to on a mining side um you know and after a number of conversations the people don't don't step it up then um you know you have to make a change so it was it was a risk mitigating um step and it's and and as we said you know We actually ramped up during COVID, and COVID, as you know, in Peru was quite a substantial impact. And if you think what's happening in the rest of the world, where people are struggling to get people to work in restaurants, you can imagine trying to ramp up a wine with a new contract and during those times, it's not that easy. But what we've seen is over the last month, the productivity rates have really recovered and we are actually above where we want to be. From my point of view, actually, great kudos to the management team and very, very proud of the Santati team for the tough job that they did for the last quarter.

Okay, great. That's understandable. Maybe just one last one for me. Obviously, now going from four mines down to three, obviously, I get the sense that the near-term growth is still very much RP 2.0 focused, but does that accelerate your thinking or opportunistic looking to have four mines back in the portfolio at some point? Or how's that sort of plan and strategy, I guess?

Yeah, that's a good question. Because, you know, I think what you'll see is, and you'll see the commentary around, you know, the sale of Santander, our focus is the capital discipline is to get Raspina built. We want to find a way to to build this company around quality assets. You know, ones where we can be low down the cost curve and in a number of assets is not the important thing. For me, it's quality of asset and sustainable margin is what we want to build this business around. So, you know, we're going to, you know, the old string to grow strategy, but, you know, I think we really need to build a strong, strong base. And RP2.0 is an amazing, strong base that we can build this business around. And then secondly, the role technology at Caribou, if that works out, will be another great addition to this business that will totally shift the base for us. So those are the two operations that we really see longer term we want to focus on. And that will give us the springboard where we can then launch and buy similar quality assets. I'm not going to buy anything just for the sake of getting more operations into the company. It's all about quality. And for us, We're shrinking to get to quality, and then we'll add quality after that. Okay. Okay, great.

Thanks very much, guys.

Your next question is from Brian McArthur with Raymond James.

Good afternoon. A couple of questions. So, Joy, just going back to Craig's question about the effective date for Santander, because you talk about, you know, restating production. So if you close December 1st, say, for example, Are you going to book two months of production this quarter, and then the working capital test will be done as of that day? Is that the right way to think about it? Ron, yes, absolutely.

That's spot on.

Perfect. And the second thing, the 130 kicker for the average of LME, is that just a pure kicker? average for the year, you either hit it or you don't. There's no scaling in there, depending on what the price average is?

Yeah, that's correct. It's a binary thing. It's yes or no.

Perfect. My third question, just on provisional, I see you priced it at $137. But again, I forget, and I should know this exactly when the boat settled. I don't know whether they're going to Europe or Asia. There's different times. Are you going to be able to capture... You know, are any of those boats settled that you're going to get the 150, 170, or can you give any guidance exactly timing on when those boats, obviously the price has moved to your favor from a provisional pricing point of view?

Yeah, no, it's very challenging to give you a number there. The quotational periods are different for each of the shipments, and so it's very difficult to give you an answer, but all I can say is it is currently higher than the $1.36 in the previous quarter. Fair enough.

And the final point I was just going to ask, following on the last comment, the focus is obviously RP2 and Caribou. For Percoa, obviously, I don't know if there's any update on exploration that you'd like to share about maybe extending life. But if you're not successful there, are there any major lot closure liabilities or anything you'd have to deal with there if you went down and closed that?

Yeah, that's a good point, you know, and, you know, we always talk about CE3, and what we said we want to do is, you know, do the exploration as cost-effective as possible, so we're still developing the ramp down, and once we're closer to the area that we can put some exploration and drills in, we'll look at doing that again. But, you know, you look at Pakoa, you know, if we can't extend it, then we definitely will be going into a closer... phase if we can't find additional resources there. The reality is it's an underground mine. It's not a massive closure liability. I think we are working with the government, as we always do at all our operations on a regular basis, looking at that. The thing to keep in mind is that there's some really good kit there. There's some really good process plants. There's some really good power generation units and all of those things at the end of mine life could be repurposed or sold. So, you know, and so I don't see, you know, like these massive liabilities. Male Speaker 1 Great.

Thank you very much for answering my question. Very helpful. Male Speaker 2 Thanks, Ryan.

Female Speaker 1 Your next question is from Dalton Barreto with Kencore.

Dalton Barreto Thank you. Hi, Reckless and team. Rick, I'm really intrigued by this concept you brought up here of shrinking to grow. And for the record, I absolutely agree that you have to shrink to quality first and build a base. So my question is this. Once you get to that point, and presumably you're thinking early stages along the next steps, are you committed to zinc, first of all? And secondly, where do you see the center of gravity for this company? Do you see it here in Canada? You know, do you see it in Africa? Just any thoughts around that? Thank you.

It's a good question, you know, and as you know, I think we understand that quality is worth way more than quantity. We know the zinc market pretty well. When I look at the zinc market, it's got some amazing upside potential. When the price runs, it runs like hell, and then when it falls, it falls like a zinc balloon. The really important thing here is to have a quality zinc portfolio where we can survive through the downturns. If we can have a big portion of that, we are currently one of the only zinc plays that you can buy into. So, you know, we wouldn't want to dilute that too much. But having said that, you know, if we can find a way to get into, you know, some copper exposure, that will be amazing. And so what we're doing is shrinking so that we can grow, but it's also then what we've built is an amazing platform that we can bolt operations onto. It doesn't really matter where in the world they are. My preference would be to find a way to leverage our current areas because we You know, we have an ability to operate in Namibia. We know the government officials. We know how to get some labor. You know, people know us there, so it's a lot easier to market ourselves locally. But, you know, after that, it again goes back to the point on quality. If we can find quality assets at the right price, it doesn't really matter where, that'll be great. And if that's in a forward-facing metals like copper... that'll be an added advantage. Because we know, and I think everyone knows, and that's why copper is so expensive, that copper has got a great future. So I think we want to build some of that in there, but still keep a large exposure to the zinc, but with quality assets where we can survive the downturns.

Okay, great. So I wasn't actually thinking copper. The reason I asked the question, Rick, is because I was actually referring to your former employer, and there's some very interesting underground nickel deposits that are starting to emerge in the subway basin. So is that something you would consider?

Again, so forward-facing metals, base metals, absolutely, if it's at the right price. I'm not going to comment on my previous employer, but those type of polymetallic operations are brilliant. And the other thing to keep in mind is that once... once we prove up this role technology, it's going to open up a huge amount of potential for us to, to go into polymetallic operations where there's a problem with recovery. Um, and we know there are quite a few of them around the world. Um, and, and also from a tailings and a cleanup perspective, because, you know, we, when we look at role, we're not just looking at it from fresh, um, current horizons. We actually look at, uh, and we're testing tailings through it and seeing very encouraging results from that. So we, we're going to build a company around, around that. And, um, Yeah, and forward-facing metals, base metals, absolutely where we want to focus on.

That's great. That's all for me. Thank you.

Thanks, Dalton.

And I would now like to turn the call back over for closing remarks.

Thank you very much, and thank you for staying on the call. And to Craig, Stefan, Brian, and Dalton, thank you very much for those questions. Really, really insightful, though. Let's Keep pedals to the metal and then see you guys at the next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.