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Trevali Reports 2019 Third Quarter Results; Another Record of Quarterly Zinc Production, Confirms Guidance and Outlines Future Plans

Trevali Reports 2019 Third Quarter Results; Another Record of Quarterly Zinc Production, Confirms Guidance and Outlines Future Plans

VANCOUVER, British Columbia, Nov. 05, 2019 (GLOBE NEWSWIRE) -- Trevali Mining Corporation (“Trevali” or the “Company”) (TSX: TV, BVL: TV; OTCQX: TREVF, Frankfurt: 4TI) today released financial and operating results for the three and nine months ended September 30, 2019. A strong focus on operational improvements delivered a second consecutive record of quarterly zinc production at 106.8 million pounds and further cash cost and all-in-sustaining cost reductions over the prior quarter, firmly positioning Trevali to meet, or potentially exceed 2019 production targets. All financial figures are in U.S. dollars.

FINANCIAL AND OPERATIONAL HIGHLIGHTS FOR THE THIRD QUARTER
(Compared to second quarter 2019, unless otherwise noted)

  • Excellent safety performance with a 71% reduction in Total Recordable Injury Frequency year to date compared to the same period of the prior year.
  • T90 business improvement program officially launched. Targeting $50 million of annual sustainable efficiencies and reduction in AISC1 to $0.90/lb by the beginning of 2022. $30 million has been identified as of September 30, 2019.
  • Second consecutive quarter of record zinc production with 106.8 million payable pounds at a C1 Cash Cost1 of $0.84/lb and an AISC1 of $0.96/lb and all operations performing well.
  • 2019 annual production and cost guidance confirmed. Potential for annual production to exceed the top end of the range and AISC1 trending to the middle of the range despite higher smelting and refining charges announced earlier this year as part of the annual benchmark update.
  • Rosh Pinah RP2.0 feasibility study on track with initial investment decision by the end of Q1 2020. Trade-off studies narrowing down on optimized configuration for mining, processing and infrastructure. Engaged AMC Consultants, Knight Piesold, and DRA Global on the study.
  • Exploration spend increased on positive results year to date from a minimum of $8.4 million to $11.7 million, with $7.6 million spent and 28,000 metres drilled year to date. Drilling of 18,000 metres planned for Q4 2019 to identify new mineral resources within trucking distance of existing operations.
  • Adjusted EBITDA1 of $22.5 million during Q3 2019 underpinned by sales volumes of 111.1 million pounds of zinc payable and reduction of 7.6 million pounds of inventory.
  • Robust Q3 2019 and year to date cash flow with operating cash flows before working capital changes of $8.8 million and $43.9 million, respectively.

Ricus Grimbeek, Trevali’s President and CEO commented, “Production is up and costs are down quarter over quarter. We had our second consecutive record of quarterly zinc production and we are moving our operations down the cost curve. We are in a great position to reconfirm our annual guidance with potential to exceed on production. More importantly we have line of sight over the long term which is going to be transformative for Trevali.

A major part of that is our newly launched T90 program which targets $50 million in pre-tax annual sustainable efficiencies and reduces our AISC1 down to $0.90 per pound by the beginning of 2022. We will accomplish this through operational improvements, standardization, and the deployment of technology. This plan will give us the platform to scale and additional improvements beyond T90 are undoubtedly in front of us as it opens the door to the reduction in cut off grades and extended mine lives at our operations. I’d also like to thank all our employees and contractors for an excellent quarter.”

This news release should be read in conjunction with Trevali’s quarterly consolidated financial statements and management’s discussion and analysis for the three months ended September 30, 2019, which is available on Trevali’s website and on SEDAR. Certain financial information is reported herein using non-IFRS measures. See Non-IFRS Financial Performance Measures below and in Trevali’s accompanying Q3-2019 Management’s Discussion and Analysis.

1 See “Use of Non-IFRS Financial Performance Measures”.
(in United States dollars, tabular amounts in thousands except where noted)

Q3 2019 Results Conference Call

The Company will host a conference call and presentation webcast at 01:00PM Eastern Time on Wednesday, November 6, 2019 to review the operating and financial results. Participants are advised to dial in five minutes prior to the scheduled start time of the call. A presentation will be made available on the Company’s website prior to the conference call.

Conference call dial-in details:
Date: Wednesday, November 6, 2019 at 01:00PM Eastern Time
Toll-free (North America): 1 (877) 291-4570
International: +1 (647) 788-4919
Webcast: http://www.gowebcasting.com/10255

    YTD Q3’19 YTD Q3’18 YoY Q3’19 Q2’19 Q3’18 Q3'19
vs
Q2'19
Q3'19
vs
Q3'18
Zinc payable production Mlbs  312.6    304.2 3 %  106.8    105.2    101.6   2 % 5 %
Lead payable production Mlbs  36.5    32.0 14 %  13.6    11.4    9.2   19 % 48 %
Silver payable production Moz  1.1    1.0 10 %  0.4    0.3    0.3   33 % 33 %
Revenue $ 294,644   342,584 -14 %  87,135   82,297    73,095   6 % 19 %
Adjusted EBITDA1 $  86,500   159,381 -46 %  22,487   17,558    21,249   28 % 6 %
Net (loss) income $ (31,578 ) 21,184 -249 % (16,131 ) (31,563 )  (30,846 ) -49 % -48 %
Net (loss) income per share $  (0.04 )  0.02 -300 %  (0.02 )  (0.04 )  (0.04 ) -50 % -50 %
C1 Cash Cost1 $/lb  0.88    0.73 21 %  0.84    0.86    0.72   -2 % 17 %
AISC1 $/lb 1.01   0.88 15 % 0.96   1.00   0.87   -4 % 10 %
Sustaining capital expenditure1 $  36,253   40,440 -18 %  11,975    13,796   14,751   -13 % -19 %
Exploration expenditure $  7,607    4,885 56 %  2,576    2,547    1,739   1 % 48 %
                                 

Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

Revenue amounts in the table above, including previous and comparative year-to-date and quarter amounts have been restated to reflect the change in accounting policy set out in Note 3 of the condensed interim consolidated financial statements for the three and nine months ended September 30, 2019.

T90 PROGRAM

T90 is a newly-launched transformative improvement program which will ensure that we move our operations down the cost curve. We are targeting $50 million in pre-tax annual sustainable efficiencies which will be achieved over the next two years culminating in a reduction to consolidated AISC1 to $0.90/lb by the beginning of 2022. T90 captures a number of projects, programs, and initiatives but largely consists of improvement opportunities unique to each operating site, deployment of standardization and best practices to ensure “one company runs four orebodies,” deploying technology to improve productivity as well as decision making, and the Rosh Pinah RP2.0 expansion project (“RP 2.0”).

T90 business improvement program officially launched

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/0ce28557-dd04-4df2-af2e-1193eefb072c

Investments will be required as part of T90. Material investments identified to date include RP2.0 and the digitalization program.

During Q3 2019, $30 million of efficiencies were identified and are at various stages of implementation.

Financial and Operational Summary

The following table sets forth selected consolidated financial and operating information for each of our eight most recently completed quarters:

  Q3’19   Q2’19 Q1’19 Q4’18 Q3’18 Q2’18 Q1’18 Q4’17
Revenues 87,135   82,297   125,212 121,764     73,095   151,593 117,895 282,272
Zinc sales (Mlbs) 111   93   125 124     76   114 89 139
EBITDA1 12,945   (7,443 ) 46,674 (271,499 ) (22,401 ) 58,785 58,546   56,275
Adjusted EBITDA1 22,487   17,558   46,455 39,416   21,249   83,039 52,427   51,787
Net (loss) income (16,131 ) (31,563 ) 16,116 (251,778 ) (30,846 ) 23,454 28,575   25,174
Net (loss) income per share – basic and diluted (0.02 ) (0.04 ) 0.02 (0.29 ) (0.04 ) 0.03 0.03  0.03
Adjusted (loss) income per share1 (0.02 ) (0.03 ) 0.03 0.01   (0.04 ) 0.04 0.02  0.03
                         

Revenue amounts in the table above, and comparative quarter amounts, have been restated to reflect the Company’s change in accounting policy.

Revenues increased by 6% from Q2 2019 despite the 15% decrease in quarterly London Metal Exchange (“LME”) average zinc prices owing to a 19% increase in quarterly zinc payable sales. After declining significantly during May and June 2019, the spot price of zinc was range bound between $1.00 and $1.11 per pound during Q3 2019. The $0.08 per pound decline in the average 3-month future price of zinc from June to September, combined with the timing of sales year-to-date, resulted in a Q3 2019 settlement mark-to-market of ($10.9) million. Refer to the settlement mark-to-market summary on page 6.

Agreement of the 2019 zinc concentrate smelting and refining benchmark terms during the quarter have not had any impact on results as the expected outcome was accrued.

Net loss in Q3 2019 was $16.1 million or ($0.02) per share, compared to net loss of $30.8 million or ($0.04) per share, over the same period a year ago. The decrease in loss per share in Q3 2019 can be attributed to increased revenues from higher sales volumes, in addition to significantly lower negative settlement mark-to-market as the average 3-month future price of zinc declined by $0.29 per pound from June to September of 2018, compared to the decrease of only $0.08 per pound during the same period in 2019. Concentrate inventories built-up at Rosh Pinah during Q2 2019 due to elevated moisture levels and at Perkoa due to port congestion was reduced in-line with expectations. Additional improvements to shorten the working capital cycle are still targeted. A new zinc concentrate filter press at Rosh Pinah continues to be on track for installation by the end of 2019 and is expected to reduce the volatility of concentrate sales volumes.

The Company’s mining activities are conducted throughout the year, and there are no notable variations due to seasonality. The Company saw a step up in all metrics in Q4 2017, which was the first full quarter of operations following the acquisition of the Rosh Pinah and Perkoa mines. 

EBITDA1 was higher and net loss reduced for Q3 2019 compared to the corresponding quarter from 2018 despite higher smelting and refining charges and overall lower zinc prices as the negative zinc settlement mark-to-market during Q3 2019 amounted to $11 million compared to a negative zinc settlement mark-to-market of $40.3 million during the same period in 2018.

    YTD Q3’19 YTD Q3’18 YoY   Q3’19 Q2’19 Q3’18 Q3'19
vs
Q2'19
Q3'19
vs
Q3'18
Production                    
Ore mined t 2,359,496   2,250,284   5 %   824,935   762,189   652,904   8 % 26 %
Ore milled t 2,412,079   2,317,271   4 %   838,543   803,969   753,123   4 % 11 %
Zinc head grade   8.1 % 8.2 % -1 %   7.9 % 8.2 % 8.4 % -4 % -6 %
Lead head grade   1.4 % 1.4 % 0 %   1.5 % 1.4 % 1.3 % 7 % 15 %
Silver head grade (ozs/t)  1.4    1.2   17 %    1.3    1.3    1.3   0 % 0 %
Zinc recovery   86.8 % 87.0 % 0 %   87.1 % 86.5 % 87.0 % 1 % 0 %
Lead recovery   66.4 % 63.0 % 5 %   69.6 % 64.2 % 59.0 % 8 % 18 %
Silver recovery   45.8 % 42.0 % 9 %   45.9 % 45.2 % 40.0 % 2 % 15 %
Zinc payable Mlbs 312.6   304.2   3 %   106.8   105.2   101.6   2 % 5 %
Lead payable Mlbs 36.5   32.0   14 %   13.6   11.4   9.2   19 % 48 %
Silver payable Moz 1.1   1.0   10 %   0.4   0.3   0.3   33 % 33 %
Sales                    
Zinc payable Mlbs 329.6   279.2   18 %   111.1   93.2   75.5   19 % 47 %
Lead payable Mlbs 32.8   29.2   12 %   10.6   12.1   8.1   -12 % 31 %
Silver payable Moz 1.1   0.9   22 %   0.3   0.4   0.3   -25 % 0 %
Cost per unit                    
C1 Cash Cost1 $/lb 0.88   0.73   21 %   0.84   0.86   0.72   -2 % 17 %
AISC1 $/lb 1.01   0.88   15 %   0.96   1.00   0.87   -4 % 10 %
                                   

Quarterly zinc payable production increased by 2% to 106.8 million pounds, marking the second consecutive record production quarter for Trevali and a 5% increase from the comparative quarter in 2018. Ore tonnes milled at Caribou, Rosh Pinah and Perkoa improved sequentially, with overall lower grades as planned because of lower grade material being milled at Rosh Pinah, partially offset by improved grades at Perkoa and Santander, attributed to continued enhancements in dilution control and access to higher grade areas recently developed in accordance with the mine plan, respectively.

Zinc payable sales in Q3 2019 were 111.1 million pounds, a 19% increase from Q2 2019 and 47% above Q3 2018 due to a quarterly production record at Perkoa and reversal of the higher moisture content related concentrate build-up that occurred at Rosh Pinah. The increased sales volume, releasing 8.4 million pounds of zinc payable valued at $8.8 million, using September 30, 2019 spot price, offset partially by a further reduction in the price of zinc during the quarter, positively impacted revenues in the quarter. Cost per unit during the quarter reduced compared to Q2 2019 despite higher sales volumes because of increased production volumes that reduce the per unit cost which are calculated on a payable production basis, overall lower costs as cost efficiencies are realized and a price-related increase in by-product revenues. YTD costs are positively impacted by the decreasing cost trend and increased production. YTD costs in the prior year are lower as they benefited from lower zinc concentrate smelting and refining rates and the release of provisions.

A reconciliation of Adjusted EBITDA1 from Q2 2019 to Q3 2019 is provided in Figure A. The $4.9 million increase in Adjusted EBITDA1 is the net result of increased sales volumes, at a lower average zinc price per pound during the quarter, as well as improved costs.

Figure A: Adjusted EBITDA1 reconciliation Q2’19 vs Q3’19 is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/a2914636-0e28-4ab9-8271-26da39f15365

The increase in Q3 2019 and Q2 2019 C1 Cash Cost1 from Q3 2018 mainly resulted from the increase of industry benchmark zinc concentrate smelting and refining charges from $147 per tonne in 2018 to $245 per tonne in 2019 (equates to an increase of approximately $0.10 per pound). Relative to Q2 2019, the improvement in C1 Cash Cost1 reflects higher production volumes, reduced costs due to the continuous focus on operating efficiency as well as increased by-product revenue attributed primarily to higher silver prices since Q2 2019. AISC1 in Q3 2019 was $0.96 per pound, a $0.04 per pound reduction from the prior quarter for the same reasons that benefited C1 Cash Cost1 in addition to lower sustaining capital expenditures.

Expansionary capital during Q3 2019 related primarily to the filtration and grinding upgrade project at Rosh Pinah.

OUTLOOK

Commodity Markets

Despite economic headwinds in recent months weighing on global zinc demand, which is forecast by Wood Mackenzie to contract by 1% in 2019, we believe the fundamental outlook for the zinc market is supportive of higher prices. Refined zinc inventories are at historically low levels and supply continues to be constrained as smelter production in the first three quarters of 2019 has been well below market expectations at the start of the year, which called for annual growth of over 6%. Zinc smelters globally continue to underperform due to the ongoing impact of production cutbacks in the face of the environmental regulations at Chinese smelters and several production issues at smelters in the rest of the world. Most recently the temporary suspension of operations at Teck’s Trail facility due to equipment failure and the temporary suspension of operations at Vedanta’s Skorpion smelter in Namibia. As a result, 2019 global refined supply growth is now forecast by Wood Mackenzie at just 2.5%. Should the latest smelter production growth rates materialize, the remainder of 2019 and beyond is still forecast to see another deficit in the refined zinc market. Additionally, the current zinc price volatility and weakness may limit supply growth from marginal and restarting operations, helping to remove additional supply. Consequently, exchange inventories of zinc are forecast to remain at depressed levels for the remainder of the year, providing fundamental support to the zinc price.

OPERATIONS REVIEW

Consolidated Revenues

In addition to our operating results, financial performance is directly affected by several factors, including metals prices, foreign exchange rates and input costs, including energy prices. The average LME metal prices are included below, the Q3 2019 average zinc price decreased 15% compared to the previous quarter; however, the price has been improving since August 2019.

    YTD Q3’19 YTD Q3’18 YoY   Q3’19 Q2’19 Q3’18 Q3'19
vs
Q2'19
Q3'19
vs
Q3'18
Revenues                    
Zinc revenue $  379,754   380,583   0 %    116,771   108,233   84,997   8 % 37 %
Lead and silver revenue    49,061   47,600   3 %    17,198   16,221   12,471   6 % 38 %
Smelting and refining costs    (134,171 ) (85,599 ) 57 %    (46,834 )  (42,157 )  (24,373 ) 11 % 92 %
Net revenue $ 294,644   342,584   -14 %    87,135   82,297   73,095   6 % 19 %
Average zinc LME price $/lb 1.18   1.37   -14 %    1.06   1.25   1.15   -15 % -8 %
Average lead LME price $/lb 0.90   1.06   -15 %    0.92   0.86   0.95   7 % -3 %
Average silver LBMA price $/oz 15.83   16.10   -2 %    17.02   14.89   14.99   14 % 14 %
Sales quantities                    
Payable zinc Mlbs  329.6   279.2   18 %    111.1   93.2   75.5   19 % 47 %
Payable lead Mlbs  32.8   29.2   12 %    10.6   12.1   8.1   -12 % 31 %
Payable silver Mozs  1.1   0.9   22 %    0.3   0.4   0.3   -25 % 0 %
                                     

Revenue amounts in the table above, and comparative quarter amounts, have been restated to reflect the Company’s change in accounting policy.

All Trevali’s zinc and lead concentrate sales contracts provide final pricing in a future month based primarily on quoted LME monthly average zinc and lead prices. Trevali recognizes revenues at the time of shipment based on estimated final pricing, with mark-to-market adjustments made each subsequent period until final pricing on the date of settlement. Concentrate smelting and refining charges and freight, included within smelting and refining cost, are negotiated at market-related rates.

Zinc sales volumes increased by 19% during the quarter which helped offset the lower zinc price and increased smelting and refining rates, with YTD revenues before smelting and refining costs in line with those in the prior year.

Settlement mark-to-market

    Zinc Lead
Spot 3-month future price as at June 30, 2019 $/lb 1.13   0.87
Provisionally priced metal – June 30, 2019 Mlbs 150.8   2.8
Average 3-month future price for June 2019 $/lb 1.13   0.86
Average Q3 LME price $/lb 1.06   0.92
Provisionally priced metal – September 30, 2019 Mlbs 151.5   3.5
Average 3-month future price for September 2019 $/lb 1.05   0.94
Spot 3-month future price as at September 30, 2019 $/lb 1.05   0.95
         

Trevali estimates that each $0.05 change in the zinc price per pound realized from the September 30, 2019 provisional price recorded of $1.05 per pound would have an average effect of approximately $7million on 2019 revenues.

The negative $11 million settlement mark-to-market for zinc in Q3 2019 primarily reflects the decrease in the estimated final pricing at September 30, 2019 compared to the average zinc price during Q2 and Q3 2019, while also impacted by the timing of sales and the quantity of provisionally priced metal at various stages during the quarter. 

PERKOA MINE, BURKINA FASO

    YTD Q3’19 YTD Q3’18 YoY   Q3’19 Q2’19 Q3’18 Q3'19
vs
Q2'19
Q3'19
vs
Q3'18
Production                    
Ore mined t 570,516   546,448   4 %   195,058   184,566   171,739   6 % 14 %
Ore milled t 550,108   539,334   2 %   189,445   187,191   183,367   1 % 3 %
Zinc head grade   14.4 % 14.7 % -2 %   14.9 % 14.8 % 14.5 % 1 % 3 %
Zinc recovery   90.8 % 92.5 % -2 %   92.1 % 90.3 % 90.0 % 2 % 2 %
Zinc concentrate grade   50.0 % 50.6 % -1 %   50.8 % 49.3 % 49.9 % 3 % 2 %
Zinc payable Mlbs 133.5   136.4   -2 %   48.3   46.3   44.4   4 % 9 %
Sales                    
Zinc payable Mlbs 144.1   129.8   11 %   48.5   41.1   38.4   18 % 26 %
C1 Cash Cost1 $/lb 0.89   0.77   16 %   0.77   0.89   0.79   -13 % -3 %
AISC1 $/lb 0.95   0.84   13 %   0.82   0.96   0.84   -15 % -2 %
FINANCE                    
Revenues, net $ 118,615   145,046   -18 %   34,861   30,779   33,438   13 % 4 %
Mine operating expenses   81,404   72,001   13 %   22,116   25,473   21,945   -13 % 1 %
Adjusted EBITDA1   37,211   73,045   -49 %   12,745   5,300   11,493   140 % 11 %
Other expense (income) and impairment   19,176   31,268   -39 %   8,972   6,488   18,255   38 % -51 %
EBITDA1    18,035    41,777   -57 %    3,773    (1,182 )  (6,762 ) -419 % -156 %
Depreciation, depletion & amortization    27,933    26,514   5 %    9,954    8,141    7,104   22 % 40 %
EBIT1 $  (9,898 )  15,263   -165 %    (6,181 )  (9,323 )  (13,866 ) -34 % -55 %
                               

Revenue amounts in the table above, and comparative quarter amounts, have been restated to reflect the Company’s change in accounting policy.

Payable zinc production for Q3 2019 was 48.3 million pounds, a 4% and 9% improvement over the prior and corresponding quarter in 2018, respectively, and a quarterly production record for Perkoa. Production gains have been achieved from higher feed grades, higher plant throughput, and higher recoveries. Feed grades were higher due to the reduction of mining dilution from 15% to 11% while higher plant throughput was realized as a result of more consistent ore feed and improved mill availability. Zinc recoveries were improved as a result of ongoing test work to modify the existing flotation circuit to pre-float iron prior to the flotation of zinc. This also has the benefit of decreasing the iron content in the zinc concentrate which reduces freights costs and smelting and refining penalties.

C1 Cash Cost1 has decreased by $0.02 per pound when compared to the corresponding quarter in 2018 reflecting the lower production costs per pound associated with increased mine production and reduced iron grades in zinc concentrate produced offset by increases to industry benchmark zinc concentrate smelting and refining charges and higher volumes of concentrate trucking. The AISC1 decrease of $0.02 per pound reflects these increased production volumes with sustaining capital expenditure and lease payments in line with capital expenditure during the same period a year ago. C1 Cash Cost1 and AISC1 improved quarter-over-quarter reflecting cost improvements and higher production volumes.

2019 production and cost guidance remain unchanged. This was the first full operational quarter since the heavy fuel oil power conversion plant was commissioned while additional operating cost efficiencies are being targeted in line with the overall Trevali business improvement program. Improved dilution control along with the modifications to the processing circuit to eliminate iron prior to floating the zinc potentially facilitates the processing of additional resources not currently in the mine plan and is expected to, in combination with other cost efficiencies, provide a basis to review, and possibly extend the Perkoa Mine’s life.

ROSH PINAH MINE, NAMIBIA

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    YTD Q3’19 YTD Q3’18 YoY   Q3’19 Q2’19 Q3’18 Q3'19
vs
Q2'19
Q3'19
vs
Q3'18
Production                    
Ore mined t 517,633   468,941   10 %   179,289   168,661   136,810   6 % 31 %
Ore milled t 524,243   492,779   6 %   181,490   171,389   141,860   6 % 28 %
Zinc head grade   8.5 % 8.7 % -2 %   7.2 % 8.8 % 10.9 % -18 % -34 %
Lead head grade   1.1 % 1.1 % 0 %   1.2 % 1.1 % 0.8 % 9 % 50 %
Silver head grade (ozs/t)  0.4    0.4   0 %    0.5    0.4    0.4   25 % 25 %
Zinc recovery   86.3 % 87.5 % -1 %   83.8 % 86.1 % 88.4 % -3 % -5 %
Lead recovery   58.6 % 64.5 % -9 %   74.4 % 50.9 % 48.2 % 46 % 54 %
Silver recovery   40.9 % 36.0 % 14 %   49.8 % 33.1 % 38.3 % 50 % 30 %
Zinc concentrate grade   49.4 % 47.0 % 5 %   49.8 % 48.5 % 47.0 % 3 % 6 %
Lead concentrate grade   41.1 % 34.8 % 18 %   49.4 % 38.6 % 18.9 % 28 % 161 %
Zinc payable Mlbs 71.1   68.7   3