Trevali Mining Corp

Good day, everyone, and welcome to the Trivalli Mining Corporation first quarter 2022 financials and earnings conference call and webcast. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star one on your telephone keypad. You may press star one 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 Craney, Trivalli's Chief Financial Officer. You may begin your conference.

Thank you, Erica. 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. Our 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 March 31, 2022. I'd 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 Trevally's website under the investors tab. The link to our live webcast is also on Trevally's website under events. Moving to slide three, I will be presenting the Q1 results with Derek DePriest, our Chief Operating Officer. Note that our CEO, Rick Escrumbik, is on site at Percoa in Burkina Faso supporting the efforts on the ground as we are at the critical phase of the search and is unable to attend today's call. Moving to slide four, we announced on April 16th that we experienced a flooding event at our Percoa mine in Burkina Faso. In the early morning of April 16th, an unprecedented heavy rainfall event occurred. After flooding stopped, the water level in the mine settled at approximately level 520, which is 520 meters from surface. The total depth of the mine is to level 710. While most workers were able to successfully evacuate the mine, eight workers, all of whom were working below the 520 level, remain unaccounted for. We are continuing our search to locate the eight missing workers, and we are imminently close to reaching the refuge chamber located on level 570. It is an incredibly trying and difficult time for everyone involved, especially the families and communities. Management has been working with representatives from the Burkina Be, Minister of Mines and Quarries, and multiple national, regional, local authorities, as well as the mining community in Burkina Faso, in our search efforts, while crews have added additional pumping and piping capacity to facilitate dewatering and search efforts. We have mobilized a tremendous amount of equipment and expertise in our response, We are providing support to and are in regular communication with the families of the missing workers and community to ensure they have what they need in these difficult times. Production and cost guidance for Pocoa has been suspended, and we are conducting a detailed investigation process to fully understand the incident before we determine how best to safely proceed. I, on behalf of Tribali, thank everyone in the Tribali team, but particularly the group at Pocoa, our mining contractor Burncut, and the Burkina Faso government who continue to work tirelessly in the search efforts. Turning to slide five, we achieved payable production of 62.3 million pounds in the first quarter at a C1 cash cost of $1.06 per pound and an all-in sustaining cost of $1.22 per pound of zinc. We note that inflationary pressures will likely add to unit cost volatility this year. Production and cost performance by operation is shown in the table on the bottom right of the slide. At Roche, Pena, and Caribou, production guidance is unchanged. We report adjusted EBITDA of $41.4 million in Q1, which was helped along by a strong average zinc price of $1.70 per pound for the quarter. Net debt increased slightly to $81.8 million in the quarter versus $78 million in Q4, largely due to receivables, which increased by $43.7 million in the quarter, some of which settled subsequent to quarter end. As of April 30th, net debt has reduced to $62.7 million. I'm pleased to announce that we've executed a mandate agreement to arrange a senior secured project finance facility of up to $110 million with Standard Bank towards a potential financing package to refinance existing debt and RP 2.0 project funding. We have also received fulsome, non-binding expressions of interest from several streaming and royalty companies. Although these are clearly positive steps, the Pocoa flooding event has created some uncertainty around the amount and timing of financing. Lastly, the RP 2.0 EarlyWorks program is tracking well on cost and schedule. Now over to Derek for an update on our operations.

Thank you, Brendan. Turning to slide six for our operations update. At Rospina, payable production declined to 17.1 million pounds of zinc from 21.1 million pounds in quarter four. primarily due to a 13% decrease in air grade as per our guidance and aligned with the mine plan. The lower oil and sustaining cost of 80 cents per pound decreased 35% as a result of the lead shipment that was delayed from December into January due to the unavailability of ships at the time, reflecting a tight shipping market. We will discuss the early works program on the RP2.0 project in detail later on in the call. but we spent 1.8 million in the quarter on the expansion. As announced at the end of March, our consolidated proven and probable mineral reserves tonnage increased by 28% year over year, with Rospina contributing significantly to the increase. At Berkowa, we achieved a strong production result of 36.3 million pounds of zinc in the quarter due to higher grades. The all-in sustaining cost declined to $1.16 per pound from $1.36 per pound in the fourth quarter. As mentioned earlier, we have suspended production and cost guidance at Pakawa due to the flooding event which took place on April 16th. At Karibu, production volumes were negatively impacted in Q1 by low-stope availability as a result of the geotechnical challenges encountered in the second half of 2021. that impacted stope availability during the quarter. Caribou delivered 9 million pounds of zinc at an all-in sustaining cost of $2.27 per pound versus 10.2 million pounds at an all-in sustaining cost of $1.44 in Q4 2021. Productivity enhancements are underway. Improvement in development meters during Q1 are anticipated to translate to an increase in the number of available production stoves for the balance of 2022 which will result in a more stable production rate. While the first quarter was weaker than anticipated given the increase of available production steps, we reconfirm our production guidance of 60 to 68 million pounds of zinc with higher levels of production anticipated in the second half of the year. Putting production aside, we continue to advance studies for conventional mine life extension beyond 2022 in parallel with investigating the potential to apply FL Smith's rapid oxidative leach, abbreviated as ROLL technology at Caribou. A PEA is underway for the ROLL technology, and it's anticipated to be completed by the end of June 2022. Moving to slide 7, we are providing an update on Caribou. Recall that Caribou was restarted in Q1 2021 with a two-year production plan. The restart of the mine occurred on time, however production performance was challenged in the ramp-up and was further impacted in the second half of 2021 due to the temporary suspension of mining in a localised area because of poor ground conditions. Mine resequencing and productivity challenges persisted into Q4 2021. Limited oil availability in 2021 due to low equipment availability, development productivity, and additional ground control requirements have been factored into the schedule for 2022, with production expected to be higher in the second half of the year. To provide information to support mine planning, an extensive ground monitoring campaign was conducted in a quarter. A seismic system was installed that is now being used to proactively manage ground activity and testing has been conducted to identify alternate types of support. We have also adopted a mix of mining methods to optimize recovery and provide more mining flexibility and implemented just-in-time development whenever possible in parallel lenses to limit ground deformation over time. We have two studies underway regarding extending mine life at Karibu. One is looking at a conventional mine life extension, and another one is investigating the potential to use FL Smith's roll technology to unlock further value in the gold and copper that's lost in the conventional flotation process. A PEA on the roll technology is planned for completion by the end of the first half of this year. A decision on the conventional mine life extension is expected around the same time. Our guidance of 60 to 68 million pounds of payable zinc production at Caribou in 2022 remains unchanged. This compares to the 40.6 million pounds produced last year. Moving to slide 8, we are highlighting our early works program on the RP 2.0 expansions. In parallel with project financing initiatives, we continue to advance certain aspects of the $111 million RP2.0 expansion project in order to maintain the project schedule and mitigate the risks associated with the project as outlined in the feasibility study filed on August 17, 2021. The Early Works Program, which has a 2022 capital budget of $20 million, is expected to be financed from internal cash flows and progress at The end of Q1 included delivery of mobile equipment to site has commenced. Upgrade of the bulk power supply system in collaboration with Nampower has commenced. Tender adjudications and purchase orders have been placed for the selected long-lead items for the Pace backfill plant. Adjudication of tender for earthworks and civil construction is in the final stages. Engineering design for the processing plant upgrade has progressed to a state that allows us to commence with inquiry preparations for long-lead items. We would like to reiterate that the project is tracking well and is on time and on budget. With that, over to you, Brendan.

Thank you, Derek. On slide nine, I would like to update you on the latest developments on our financing initiative, but with the caveat that the Pacoa flooding event has added some complexity and uncertainty related to the size and timing of the financing package. Recall that our key objective is to secure project financing for the RFP 2.0 expansion project and refinance existing corporate debt, which matures in September 2022. Prior to the Percoa flooding event, we had targeted approximately $200 million for a comprehensive financing package for the company, and we're considering several opportunities, including project finance debt, subordinated debt, a silver stream on Rashpina's silver production, and other financing sources. As a result of the flash flooding event, the total amount of the financing package and timing of completion is not as clear cut as it once was, and the $200 million target can no longer be relied upon. Regardless, we have made significant progress on our financing, specifically we have mandated Standard Bank to arrange a $110 million senior secured financing facility. Standard Bank has agreed to seek credit approval to provide up to 100% of the amount of the loan facility and to arrange an export credit agency-backed equipment financing facility for a significant portion of the $110 million loan facility. This component extends the tenor of the facility at favorable interest rates to us. As a reminder and announced previously, our off-taker and largest shareholder, Glencore, has provided conditional support for $33 million for our expansion plans. We appreciate this support. We have also received attractive non-binding expressions of interest from several streaming and royalty companies in the order of $40 to $50 million in addition to support from mining-focused alternative lenders. Like the RP 2.0 project, the financing initiative is tracking well. We will continue to keep the market updated as developments are made. Moving to slide 10, the average LME zinc price during Q1 2022 was $1.70 per pound compared to $1.53 per pound in Q4. Q1 2022 revenue increased by 3% to $93.1 million compared to Q4 and is attributed to the following. Approximately an 11% increase in the LME zinc price, a higher lead payable sold due to the timing of shipments, which was partially offset by lower metal zinc sales volumes and higher freight smelting and refining charges. C1 cash costs and all unsustaining costs of $1.06 and $1.2022 per pound, respectively, 3% and 5% decreases from the prior quarter, are due to higher byproduct credits, which more than offset higher treatment and freight charges and the impact of inflationary costs. Net debt increased to $81.8 million in Q1 versus $78 million in Q4 2021, while receivables increased by $43.7 million, a significant amount of which were collected in April, which reduces the net debt position to $62.7 million as of April 30th. 2022 annual treatment charge benchmark rates for zinc finalized at $230 per ton, with an escalator of plus 5% for an LME zinc price above $1.72 per pound. This compares to 159 per ton in 2021. Excluding the impact of the escalator, treatment charges rose approximately 45% year-over-year. These charges represent approximately 35% of our C1 cash costs. As I mentioned earlier, we expect further volatility on our operating unit costs at Roshpina and Caribou, reflecting higher raw material costs, energy costs, sink treatment charges, freight rates, and the increase in commodity prices that in many cases result in higher price-linked royalties at our operations. Finally, we generated positive adjusted earnings per share of $0.07 for the quarter versus $0.01 in Q4 2021. Moving to slide 11. Q1 2022 receivables increased by $43.7 million over Q4 2021 to a total of $96.1 million due to the following. An increase in open metal sales and the re-evaluation price of zinc, which increased from $1.52 to $1.80 per pound. This increase to receivables occurred while zinc inventory levels remained relatively flat versus the prior quarter. By the end of April, we collected 61.4 million in receivables, which contributed to reducing our net debt to 62.7 million on April 30th. We continue to see a tight global shipping market, and we expect periodic delays to sales in 2022. On slide 12, I would like to speak about the zinc price trend. This is a longer-term zinc price chart starting in 2008, It is a volatile market with rare periods of price stability that you can observe by looking at the zinc price in the 2012 and 2015 time period due to China's influence in managing the market. As prices weakened in 2015 to 2016, the industry curtailed production, and then when fundamentals improved, we witnessed a significant price increase into 2018, which attracted speculators and new supply of zinc concentrates. This led to a price correction in 2019 and a brief recovery before COVID-19 hit and drove the zinc price down to 82 cents per pound in March of 2020. 2021 started the year with concentrated shortages, mainly due to COVID constraints, and zinc prices recovered, and now we start this year with low global inventories and zinc smelter curtailments due to higher energy prices, and a zinc price that is now traded above $2 per pound a month ago, but has recently retraced to $1.60 a pound. More on this in the next slide. On slide 13, you can see the impact of stock levels and price in the top right-hand chart, which shows LME and Shanghai inventory and zinc price since 2007. Current themes in the refined zinc market include high energy prices in Europe continue to be among the biggest issues impacting the refined zinc metal market. Smelter output in Europe, 16% of global output, is being cut in the near term, with two smelters being placed on carry maintenance from January 2020-2022 due to higher power costs. Refined zinc inventories remain low by historical standards and are expected to sufficiently meet global demand for eight days. Observe also that the LME inventory level for zinc has crept lower in recent weeks, while Shanghai levels have remained essentially flat. At some point soon, we expect to see more metal move from the Asian inventory to Europe to satisfy demand. Lastly, these issues have very recently been overshadowed by rising interest rate risks along with recession risk. Spot zinc premiums remain elevated, by approximately 20 cents per pound in Europe and approximately 26 per pound in the USA. We believe this low inventory, high spot premium dynamic is supportive for zinc prices in 2022. However, rising interest rates may add pressure to the zinc in the short term, as evidenced by the recent price decline to $1.60 per pound. Moving on to the concentrate market and treatment charges. The lower right-line graph on the slide shows benchmark treatment charges. imported spot treatment charges into China, and domestic treatment charges into China from 2017. The 2022 annual zinc benchmark treatment charge rose 45% to $230 per ton versus $159 per ton last year and $300 per ton in 2020. Notably, the 2022 benchmark settlement includes an escalator of plus 5% for an LME zinc price above $1.72 per pound. From a base treatment charge of $230 per ton for every $0.20 per pound increase above an LME zinc price of $1.72 per pound, Trevally's cost impact is approximately two cents per pound of payable zinc produced. Concentrate inventory of Chinese smelters is reported to be low, and Chinese smelters are talking of bringing forward maintenance shutdowns if they can't purchase important concentrate at an economic treatment charge. Less refined zinc production through this period supports an elevated zinc price, in our opinion. Turning to our final slide, slide 14, our search efforts continue at BRCOA, and we will provide stakeholder updates as appropriate In the meantime, we have suspended production and cost guidance for 2022 until we can determine how best to safely proceed. We reduced net debt by $19.1 million to $62.7 million as of April 30, 2022. We are advancing well on project financing with mandating of a senior secured financing facility for up to $110 million with Standard Bank, plus non-binding offers from streaming and rural companies for $40 to $50 million, and Glencore conditional financing for $33 million. Percoa's current status creates uncertainty around the amount and the timing of a potential comprehensive financing package. The RP2.0 Early Works program is tracking well on cost and schedule, with $2.4 million of the $20 million budget expended at the end of April and with Early Works expected to be funded from internal cash flows. Consolidated proven and probable mineral reserve tonnage increased by 4.9 million tonnes, a 28% increase year-over-year across the asset portfolio and effective December 31, 2021. The continuation of caribou's rapid oxidative leach NI43101PEA technical report is expected by the end of H1 2022 and a mine life extension decision in the coming months. We will continue to provide further updates as we progress throughout the year. With that, Erica, over to you for questions.

Thank you. The floor is now open for questions. There will now be a Q&A session if you would like to ask a question during this 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. Your first question comes from the line of Brian MacArthur from Raymond James. Your line is open.

Good morning, good afternoon. My question has to do with the hedging book. Can you just quickly go through, you talk about how Obviously, there's 21 months originally at $1.25 at Caribou, but now we're behind on the deliveries, as I read this, at 20.6 million pounds. Does that mean going forward you still have – have you been booking any pounds at the $1.25 the last quarter? Let's put it that way. And then secondly, does that mean going forward there's the original amount that's due over the next nine months at $1.25 and then an additional – 20.6 million pounds are going to be sold at 125. Can you just go through that for me, please?

Yeah, thanks, Brian, for the question. So, yes, you're precise on the fact that, yes, we have 20 million pounds of zinc that's currently in deficit as it relates to our fixed pricing at Caribou. We have production guidance of 60 to 68 million pounds of zinc at Caribou for the rest of the year, and that remains unchanged. So we do expect to be continuing to reduce that deficit over the remainder of the year. And just in relation to the remaining deficit that you can do the math on based on our production guidance and that 20 million current deficit, we are investigating alternatives to settle the production shortfall on the fixed pricing arrangement, but not limited to potentially extending the mine life beyond 2022 as described in the conventional mine life extension discussion or just financially settling the difference.

Right. So if I looked at this going forward, originally you would have had on a monthly basis about 49 million pounds over the next nine months at 125. So now basically you're saying you add the 20.6 to that. So effectively all of Caribou going forward for the rest of the year is sold at 125. I mean, effectively everything's going to be sold at 125. Is that right? Plus a little bit from somewhere else to make up the difference?

You've got it right, Brian. That's correct.

And just to be clear, did you book, so that's the cash basis, but for an accounting basis, because I was trying to figure out this quarter, was everything sold at the average realized price this quarter so that the effect of the hedge book didn't have any impact on this quarter? Is that right or was part of it, was there also a hedge factor in this quarter as well too, please?

Yeah, we settled the caribou production at $1.25, so that just flows right through our revenue line. And then the deficit, we've been rolling forward through, roll forward costs that are fairly minimal.

Great. Thanks very much, Brendan. That's very helpful. Thanks, Brian.

Your next question comes from the line of Oris Wakoda from Scotiabank. Your line is open.

Hi, yes, good afternoon. I'm curious if you can provide us a bit more detail on the financing package or potential package related to the expansion at Rajpi. And you've alluded to that there could be some uncertainty here because of what's happening at Perkoa. Can you give us a bit of color, like, Was Percoa going to be used as some kind of security for that package, or is it just an issue of sort of the state of your balance sheet or your go-forward financial metrics that's more the issue?

Yeah, thanks, Oris, and appreciate the question. So as mentioned, we were targeting a financing package for $200 million, and so a big portion of that financing package So in simple terms, you're thinking about $100 million of that is for RP2.0, and the other $100 or so is for the existing debt. And so when we're looking at that package, the organic cash flow is expected from Percoa. We're going to be a significant portion to pay down that $100 million of existing debt. And so with it being offline currently, and given the fact it's too early to comment on a return to production deadline, At Percoa, that number that we were trying to solve for, for $200 million, is in question. And then the timing of putting the package together, as described earlier on the call with all those component parts, is just uncertain at this time.

I see. And your credit facility, I think, matures in the third quarter of this year?

Yes, in September of 2022, as well as our Glencore facility that we have outstanding for $13 million.

I see. Should we be concerned that you may run into a liquidity issue if it takes longer to sort out the future of Percoa here, or are there already discussions ongoing for some kind of extension on the maturity?

Yeah, we're currently in discussions with our existing RCF lenders as well as Glencore on possible arrangements around the full comprehensive financing package. So, we were already well in conversation with them before the Percoa flooding event on April 16th. So, we continue to have those conversations in and around in a potential extension to the existing debt.

Okay, okay. And then finally for me, I realize The focus at Percoa is on search and rescue, rightfully so, but I am curious on when you think or when the company thinks it may be in a position to be able to assess the future of Percoa and whether there is a viable plan to restart or not from a timing perspective.

Yeah, Orest, I really appreciate that question, and it's absolutely on everyone's mind, but it's too early to comment on a return to production as our focus is on the search for our mining colleagues or missing colleagues, the dewatering efforts, and investigating the event. Okay. Okay, well, best of luck. Thank you. Thanks, Orest.

Your next question comes from the line of Stefan Aonuf from Coremark Securities. Your line is open.

Great. Thanks very much, guys. I mean, I always say a lot of moving parts, and maybe just a bit further to Aura's question, just looking at the future of the company, obviously, Roshpina, the expansion there, is one of the bright spots. But beyond that, you know, Caribou still seems a bit uncertain. Percoa is a big question mark now. Do you have a sight line or do you have any time right now or capacity to think about maybe other potential bolt-ons to get this back up to more than a quote-unquote one-mine operation or where are you on that sort of front from a growth point of view?

Yes, Stefan, great question. Of course, we're always looking at external opportunities outside the organic portfolio, but right now we're very much focused on things on the ground at Perco and Burkina Faso, and secondly, getting our financing and balance sheet in order, and those are our two key priorities. Sure, sure.

Okay, thanks very much, guys.

Again, if you would like to ask a question, you may press star 1 on your telephone keypad. Your next question comes from the line of Craig Hutchison from TD Bank. Your line is open.

Hi, good morning, good afternoon. Just a question on Caribou with respect to geotechnical issues. I know you guys are obviously doing some improvement and development to advance some of your stoves there to try and get ahead of things. When this issue happened, I think back in 2018, there was a plan to try and get about six months ahead, if I recall, in terms of development so you'd have feed to the mill Can we expect a similar push here, maybe a boost in CapEx to try and catch up and get ahead of things? And maybe just any color on kind of what we should expect in terms of, you know, mining rates here in Q2 or for the balance of the year would be helpful.

Yeah, thanks, Craig. And maybe I'll just take the first part of the question and pass it to Derek to provide some of the color. We're definitely looking at the Caribou mine life extension decision. I mean, as you recall, we did restart Caribou with a two-year mine plan up to the end of December of this year. And so I can say that that business case is being looked at very closely. And so there is potentially additional capital as part of that plan. It's pretty modest and minor, but that is definitely something that's being considered. And Derek, I'll let you ask or provide some more color on some of the technical questions from Craig.

Perfect, and thanks for the question. Most of Q1 of this year and also towards the end of last year, the focus was on doing additional development to provide additional mining flexibility. A lot of oil production for the first quarter also came from or development. We're now in a position that we've got a lot more faces and stopes available, more to the level that we need to provide consistent throughput to the mall going forward. So as they are previous comment, the guidance that we put out is definitely reconfirming no chance to that guidance. And we've got the flexibility to for the rest of the year, based on the development we've done already in Q4 and in Q1 of this year.

Thank you for that. And, Roshpina, just in terms of the feasibility study capital last year, I think it was 111, can you give us a guide in terms of what percentage you have kind of committed or have visibility on at this point on that original budget?

Yeah, thanks, Craig. And so with RP 2.0, we have, as per our presentation, we've expended $2.4 million of the $20 million early works. And Derek, maybe I'll call on you just to provide the committed number if you have it handy.

Yes, thanks, Brendan. In addition to that, we've committed $3 million additional to that.

And so you're still confident, even in this inflationary environment, that number really hasn't moved much?

Yeah, we continue to assess the inflationary pressures related to the cost of RP2.0. And it's premature to provide a detailed assessment of that capital estimate update. And it's something we're looking at and obviously very focused on, given the volatility in the wider market. Understood. Thanks for taking my questions.

That concludes the question and answer portion of the call, and the call is now turned back to the management for any closing comments.

Thank you, Operator, and thank you to our investors who have participated in the call today. This does conclude our first quarter results conference call. We look forward to providing you with further updates as they come available. Thank you so much, and good day.

This concludes today's call. You may disconnect your line.