Trevali lowers costs at Santander mine

Trevali Mining’s (TSX: TV; US-OTC: TREVF) Santander zinc-lead-silver mine in Peru keeps beating expectations, and the company says it’s one of the lowest-cost operating mines in the country’s Central Mineral Belt.

Trevali acquired the past-producer — located 215 km northeast of Lima — in 2007, and put it back into production in January 2014.

The junior uses Glencore’s (LSE: GLEN) 2,000-tonne-per-day mill, which it bought on a lease-to-own basis, to process Santander’s ore. Glencore also has a life-of-mine offtake agreement on Santander and the firm’s 3,000-tonne-per-day Caribou zinc-lead-copper-silver mine in northern New Brunswick. Caribou is currently undergoing commissioning.

“Santander continues to improve, with first-quarter record throughput helping to reduce fixed costs — beating our estimate — and down a substantial 17% quarter-over-quarter,” Raymond James analyst Alex Terentiew writes.

Payable production for the first quarter included 13.7 million lb. zinc, 6.4 million lb. lead and 221,324 oz. silver. Compared to the same period of 2015, zinc output increased 9%, while lead and silver output both fell 13%.

The mill, however, processed a record 209,188 tonnes in the first quarter and remains above design recoveries, with recoveries averaging 89% zinc, 88% lead and 76% silver.

Quarterly sales totalled 23.3 million equivalent lb. zinc — up nearly 4% from a year ago — and generated US$20 million in revenue, which is relatively in line with the first quarter of 2015. The higher sales were offset by lower average realized metal prices of US82¢ per lb. zinc, US82¢ per lb. lead and US$15.32 per oz. silver.

Despite the lower year-to-year prices, site cash costs fell 28% to US28¢ per zinc equivalent lb. zinc. Cash costs per tonne milled dropped 34% year-over-year to US$32.22, due to higher zinc production and the company’s “site-wide business initiatives.”

Cost per tonne milled is down 17% from the previous quarter’s US$38.70, and below 2016’s cost guidance of US$40 to US$43. Trevali has trimmed its annual guidance  12%, or US$5 per tonne to US$35­ to US$38.

“Following the impressive cost reductions, in part aided by a 60% decrease in power costs and improved pricing on bulk fuel, Trevali has reduced its yearly on-site cost guidance,” Terentiew writes.

Meanwhile, Trevali is completing a 3,000-metre underground drill program at Santander to convert its inferred tonnes to a higher resource category and to follow up on the 2015 holes that tested the deeper levels below the defined resources in the Magistral zones.

At the Caribou operation, underground production for the first four months of 2016 averaged 2,062 tonnes per day grading 6% zinc, 2.8% lead and 2.4 oz. silver per tonne (74.6 grams per tonne). The firm intends to ramp up Trevali to commercial production of 2,500 to 2,700 tonnes per day by the end of June.

It also aims to bring up recoveries to design levels of 84% zinc and 65% lead. The average recoveries for April were 74% zinc and 57% lead.

Trevali reported net earnings of $827,000, or nil per share, in the first quarter, which is relatively in line with analysts’ average earnings estimate of a cent per share. Santander generated a $4.2-million income, helping push up the company’s cash position to nearly $27 million. Trevali also completed a $15-million equity raise in March.

Terentiew has bumped up his 90¢-per-share target to 95¢, “as lower cost assumptions at Santander more than offset our lower steady-state zinc recoveries at Caribou,” he explains. The analyst has an “outperform” rating on Trevali.