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TM: Production Results & FY25 Guidance

What you need to know:
• Trigon announced May 2024 underground production highlights, building upon great results in April (announced May 23rd).
• TM also announced production guidance for the remainder of its FY25 highlighting a year well above our expected targets.
• We note to readers the 5-to-1 share consolidation took place on June 4th and this research note reflects the new share count and our target price.
• The Safi-Silver spinout is expected to occur in the next couple months, marking a good buying opportunity prior to the date of record.

This morning, Trigon Metals Inc. (TM:TSXV) announced production highlights for the May 2024 underground production at its Kombat Mine in Namibia. The Company also announced guidance for the remainder of its fiscal year (FY25), showing production estimates well ahead of our bullish estimates, setting Trigon up for a highly profitable FY2025. We are maintaining our BUY rating and target price of C$3.50/share on TM.

Trigon announced continued strong production highlights in May of 29.7Kt of underground ore mined at an average grade of 2.16% Cu, leading to the production of 386t of Cu. This compares to April which was previously reported on May 23rd mining 16.5Kt at 2.11% Cu. We remind readers of the substantial production growth and grade increases from the first three months of 2024 to April and May due to the new production from the underground and scaling back of the open pit (see our note for more commentary here and Figure 1 below). We note that the open pit is still operating, and the full production numbers will include this in the full quarterly results. We look forward to the fiscal Q1/25 production and financial results (ending June 30, 2024), as this will be the first full quarter that Trigon will have meaningful production from the underground where we expect copper production as well as cashflows to improve significantly.


Figure 1: Underground Production Highlights
(Source: Company Documents)
FY25 Guidance
TM also announced underground production guidance for FY25 and FYQ1. Underground production for the year is expected to be between 250-280Kt, in line with our estimates and ore grade of 1.95%-2.3%, much higher than our estimates of 1.5%. Due to the elevated grade, copper production guidance is 12.1-13.4Mlbs Cu which would also significantly beat our estimates for the year. C1 cash costs are guided to be between $2.80-3.15/lb Cu. We will look to update our modelled estimates after seeing the full FYQ1 results. Comparing FY25 guidance to Q1 guidance, we see a modest increase in the copper production run rate as the TM continues to scale back the open pit. This is also shown in the cash cost decreasing with time as higher-grade underground material is mined; see Figure 2 below for a breakdown. We believe if TM can execute on this plan, it will finally give investors the conviction they need to propel the stock to new levels, while providing enough cashflow for the Company to fund future growth initiatives including the mill expansion.