Aris Mining Corp (ARMN) 2023 Q4 法說會逐字稿

Good morning, everyone, and welcome to Aris Mining's year-end 2023 operational and financial results conference call. We will begin with an overview from management, followed by a question-and-answer period.

Please note that the company's presentation that management will refer to during the call can be found in the Events and Presentations section of Aris Mining's website at arismining.com. Also, Aris Mining's 2023 and year-end financials have been filed on SEDAR+ and EDGAR and can also be found on their website. (Operator Instructions) The conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Mr. Neil Woodyer, Chief Executive Officer. Please go ahead.

Thank you, operator, and good morning, everyone. Before we go through our results, I'd like to draw your attention to the cautionary statements on slide 2, as we will be making several forward-looking statements today.

Starting on slide 3. In 2023, after the merger between GCM Mining and Aris Gold, we restructured the operations team and introduced new operating procedures across the company. The new team achieved consistent quarter-over-quarter increases in gold production, improved cost controls, and significantly enhancing our community and ASM relationships to strengthen our position in 2024 and for the future as we expand the business.

With strong gold production results, significant growth in mineral reserves and resources, and two expansion projects now in construction, we are on plan to double our production to reach 500,000 ounces in 2026.

At the high-grade Segovia operations, we achieved consistent operational improvements throughout the year. Segovia produced 202,000 ounces of gold at a process grade of 10.4 grams per tonne, with all-in costs per ounce of $11.73. It achieved production and cost guidance.

In '23, our total operations generated cash flow to support our growth, $159 million in adjusted EBITDA, $75 million in free cash flow. This cash flow funded most of our $84 million of investment in expansion projects. And we ended the year with a strong cash position of $195 million.

Doubling our gold production to a target of 500,000 ounces in 2026 would be achieved from two expansion projects. The new lower mine at Marmato was permitted in July. Construction started in Q3, and it continues on target.

And we're expanding the processing facilities at Segovia. In November '23, we announced significant increases in the high-grade mineral resources and reserves at Segovia, naturally leading to the conclusion that plant should be expanded, and that expansion is now underway.

On the corporate front, we listed our shares on the New York Stock Exchange, American, in September. In addition to improving our profile and accessibility for US investors, we also welcome the increased regulatory standards as we demonstrate Aris Mining commitment to good corporate governance and good stewardship of our social operating licenses.

Now to hear more details of our 2023 performance from Richard Thomas, our Chief Operating Officer.

Thank you, Neil. Moving on to slide 4. We achieved our consolidated guidance with a total gold production of just over 226,000 ounces of gold. Segovia finished the year with strong form and produced over 61,000 ounces (sic - see slide 4, "54,719 ounces") of gold in quarter four, which was the strongest quarter in 2023, as we built on the momentum through our steady quarter-over-quarter increases in gold production.

For 2023, total production was over [202,000] ounces. Segovia's process plant is regularly achieving [2,000] tonnes per day capacity. So now, we have (inaudible), which supports the plan to expand our capacity, as Neil mentioned earlier.

44% of Segovia's operation sales in 2020 were sourced from material mined by our partner operator miners. This is an important part of our business, where we are able to require additional high-grade material for our processing facility.

This production was realized at all-in sustaining cost of $1,242 per ounce during 2023. The strong relationships that we have with our partner miners help us grow our coal production while adding social purpose to our business with several benefits to us, the community, and the environment.

With that summary of our operational performance in 2023, I will hand over the call over to Doug Bowlby, our EVP and CFO, to discuss our financial results in more detail.

Thanks, Richard. We're now looking at slide 5. The operational improvements at Segovia resulted in strong revenues of $434 million for the year, and we managed to consistently maintain all-in sustaining cost margins in the mid-30% range.

We generated cash flow from operations of $75 million, which largely funded $84 million invested in expansion projects at Marmato and Segovia and holding costs and some studies at our Toroparu project in Guyana. Note, the actual spend at Toroparu was reduced to only $1.7 million in Q4 as we focus on our expansion projects at Marmato and Segovia.

We reduced our debt position by $57.4 million during 2023, and we finished the year with a cash balance of close to $195 million.

Now moving to our financial results highlights on slide 6. Our vision when we created Aris Mining in 2022 was to establish a high-grade, profitable gold business that would be able to fund growth through investments in exploration, expansion, and new projects. In 2023, our first full year, we generated $141 million of income from mining operations. We generated $112 million of EBITDA, and we generated $159 million of adjusted EBITDA, when we adjust for items that are not part of our core business or that are non-cash expenses.

We generated $11 million of earnings, equivalent to $0.08 per share on a non-adjusted basis, and $52 million of earnings on an adjusted basis,, equivalent to $0.38 per share.

Now moving to slide 7. During 2024, we plan to spend between $140 million and $150 million on the lower mine expansion project. Construction started in Q3 of 2023, and our activity level has ramped up in 2024. This major expansion project will be funded from our current cash balances, operating cash flow from Segovia, and installments from the $122 million stream financing we have with Wheaton Precious Metals.

The $122 million is divided into three installments, $40 million when 25% complete, $40 million when 50% complete, and $42 million when 75% complete. We hosted the Wheaton team at Marmato in late 2023, so they are close to our project and up to date on our progress.

At Segovia, we plan to spend $11 million on the processing plant expansion to 3,000 tonnes per day, which Richard will discuss in more detail later. This expansion project will be completed by the end of this year or early 2025.

Other uses of cash in 2024 include further debt repayments. We have CAD18 million convertible note that matures in April of 2024, and we're prepared to cash settle that if needed. We also expect to receive some proceeds from the exercise of in-the-money warrants that are expiring in the near term. Our Category B-listed warrants expire in April 2024, and have an exercise price of CAD 2.21 per share. So we're expected to bring in proceeds of approximately USD15 million.

I'll now pass it back to Richard to discuss our 2024 guidance figures and to update you more on our two expansion projects.

Thank you, Doug. On slide 8, you'll see our 2024 guidance figures announced in January. In 2024, we expect to produce between 200,000 and 220,000 ounces at an all-in sustaining cost of between $1,122 (sic - see slide 8, "$1,225") to $1,325 per ounce at Segovia and between 20,000 and 25,000 gold ounces at Marmato.

We expect consolidated production of between 220,000 to 240,000 ounces in 2024. We plan to invest $19 million and $2 million in the exploration activities at Segovia and Marmato, respectively, following our successful exploration program in 2023. We will resume providing all-in sustaining cost guidance for Marmato if the new Marmato lower mine achieves commercial production.

Moving on to slide number 9. In 2023, the Marmato upper mine produced 23,000 ounces from small-scale, narrow vein workings as well as the mechanized transition on operations.

Since quarter two 2023, our total and small-scale partners have delivered approximately [3,000] tonnes of material at an average grade of 6 grams per tonne. The inclusion of this experienced workforce is expected to enhance the overall production of the upper mine whilst expanding our commitment to building responsible and profitable partnerships with artisinal and small-scale miners in Colombia.

Meanwhile, we continue to advance the Marmato lower mine, which will provide access to a wider and large-scale isothermal mineralization below the upper mine, which will allow for more efficient up-mining method in the lower mine.

We received final permits for a lower mine construction in July 2023 and began construction in the next quarter, in quarter three. Work advanced as planned in quarter four, the advancement of the access road at the awarding of long-lead items and the finalization of the design of the new 4,000-tonne-per-day plant -- processing facility. The picture in this slide was taken last week and shows how the access road has progressed.

Moving on to slide 10. What you see here is our timeline for the first gold production at the lower mine. As Doug mentioned, this year, we plan to spend between $140 million and $150 million at the lower mine, and work is focused on construction of the new portals and subsequent (inaudible). Advancement of significant components of the (inaudible) the progress -- the project is on track for first gold pour in late 2025, and ramp-up will continue in late 2025 and continue into early 2026.

Moving on to the Segovia processing facility expansion on slide 11. Whilst November, we announced the expansion of the Segovia operations processing plant from 2,000 tonnes per day to 3,000 tonnes per day. This low-CapEx project consists of the installation of a new ball mill and construction of new receiving facilities for (inaudible) provided by our ASM partners. We expect this project to increase production capacity at Segovia from approximately 200,000 gold ounces per year to approximately 300,000 ounces per year.

The expansion is on schedule for completion in early 2025. The additional 1,000 tonnes per day of processing capacity will be utilized by ramping up owner-operated mining rates and providing additional processing solutions to artisinal and small-scale mining partners.

Now onto Neil for an update and closing remarks.

To summarize what we have discussed today. 2023 was a transition year for Aris Mining, following the Aris Gold and GMC merger combination and the ensuing restructuring of the operations team. We demonstrated consistent operational improvement at Segovia, achieving both production and cost guidance. We also announced substantial growth in mineral reserves and resources at Segovia and finished the year with a strong financial position to execute our growth plans in '24 and '25.

With the new production from Marmato lower mine and the expansion of Segovia processing facilities, we are targeting annual production of 500,000 ounces in 2026, which is more than double our current guidance. Few operating gold producers have the financial strength and profile that Aris Mining offers today, and we look forward to providing the market with further updates as we work towards achieving our ambitious goals.

With that, I'll ask the operator to open the Q&A session.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Kerry Smith, Haywood Securities.

Thanks, operator. Good morning Neil and the rest of the crew here. And congratulations on a good Q4 at Segovia. So I had a couple of questions. Firstly, what is your strategy as it relates to refinancing of the senior notes that are due August of 2026?

Doug, you take that?

Sure, Kerry. Well, when we think out to 2026, by that point, we will be a 500,000-ounce per year producer. It's our expectation. So we'll be in a very strong position to look at different ways to finance the notes. Whether that's a syndicate of banks or whether it's staying in the exchange-traded note market, that will be something we'll look at the environment at the time. But we do expect to have a number of options available to us.

In terms of how much we would refinance, that will again depend on how quickly we ramp up during 2025 and use the additional capacity at Segovia and the cash flow generation. So it's somewhat unknown as to what our needs will be, but we do think we'll be in a very strong position when we get there.

Okay. I guess why I was going to that was probably the timing of the refinancing. Because, as you know, the market gets pretty jiggly on these kinds of notes when they're approaching 18 months to maturity. So I'm feeling like it would need to be dealt with in early 2025 rather than late 2025 or early 2026.

Well, they mature in August of 2026, so that's something we'd be looking in, as you say, maybe late 2025, early 2026, to give ourselves a lot of time.

Okay. Okay. I suggest trying to do a bit earlier, if you could, to be honest, just given what I've seen with other guys that have gone through this. Okay. That's good for that.

And then second question I had was, on the 300,000 ounce your target at Segovia once you get the mill expanded at the end of the year to 3,000 tonnes a day, how long do you think it will take for that transition from, say, 220,000 ounces to get to 300,000 ounces? Is that a couple of years to get the small miners going? Or could it be shorter than that? Or would it take longer than that?

Okay. Neil, I'll take that one. And at the moment, we could be working on where we're going to get the extra 1,000 tonnes a day, of course. We have enlarged the reserves. Our restriction on Segovia is from our own production, of course, as our infrastructure coming through the shop. So we're busy doing projects at the moment to upgrade that infrastructure to be then be able to pose more material ounces in both waste and ore.

We figured that we could do an extra 600 to 700 tonnes per day from our own infrastructure. And remember, we've got four mines. We've got El Silencio, Providencia, Carla, and Sandra K. And then we could just source additional future 400 tonnes from our mining partners. And we're busy engaging with them at the moment to see what their production capacities are and also assisting them to get the additional ore tonnes.

So we're looking at -- we're working through this right now. So I expect by first or second quarter in '20 -- next year, we should be up to the 3,000 tonnes per day. [Segovia] will probably be a bit low; but towards the end of the year, we should be getting an average of 10 grams a tonne. So the whole of 2025 initially to ramp up and then to get the grade up by the end -- by the second and third quarter.

Okay. Okay. So if I understand what you're saying, it will take maybe to mid-second half of 2025 to hit that 300,000 ounce run rate. Is that what you're saying?

Yes.

Okay. Okay. That's helpful. Thank you. And maybe while I got you, just on the CapEx for Marmato for the lower mine, the $280 million that was based on the June 2022 PFS. You've had higher inflation, where the Colombian peso strengthened. Are you still feeling pretty confident in that $280 million number?

We continue updating the numbers as we went through that period. And as we brought the team together there, we also were in a situation where we could start looking at some of the long-term supply contracts with the big items. So yeah, I think we're pretty comfortable with that number, but it's still a very valid number to go forward with. It's -- as I said, it has been updated since the original studies.

And when was that update done, Neil? Just remind me.

The tail end of -- well, middle of last year, we were up -- yeah, (inaudible) last year.

Okay, mid-2023. Okay, okay. And just --

As we kicked off at the end of Q3, we're pretty much up to date at that stage.

Right. Got you. Got you, okay. And the detailed engineering to support the lower mine expansion, what percentage completion are you at today on that detailed engineering, roughly?

I think that's progressing pretty well. We're definitely more than 50% at the moment.

More than 50%, okay. Because it looks like from the chart you have in the deck here that you'll have all that done by Q2, it looks like, the detailed engineering.

Yeah. I mean all the (inaudible) detailed engineering is going well. We had a -- as we're setting down the pieces, we put them all together in our [CB]. That CB model is now 60% completed.

Okay. Okay. And then maybe one last comment, Neil, if you could maybe just give me an update on how you're progressing at Soto Norte. I mean you're trying to juggle (inaudible) there, but just wondering how that process is going.

We've done an awful lot of work over the last 12 months to get the EIA ready for resubmission. And we are pretty much there. We're doing the final checks on this. So at the same time, we've done a lot of work in the social area to make sure there's a much more community and small minor support to the project, and that's been extremely positive as we've gone through the year in doing that.

The other thing we're doing now is we're just looking at it to make sure that the technical side is right and is updated properly, that we are doing the right mine plan, that we are doing the right construction schedule. So over the next few weeks, I think we'll be in a situation to be able to say exactly how we're going forward with that. But it's (technical difficulty) update.

Okay. And when would you expect to submit the amended EIA for that project and -- if you been working on that document for a while now?

We could virtually submit the environmental side now, but we're just making sure that we fully optimized the production plan within it. So a couple of months at the most, I would hope a bit sooner.

Okay. So by mid-year, I guess, would be a reasonable expectation.

Yes. Yeah. If we haven't done it by mid-year, we've kind of screwed up, which I don't anticipate.

Right. Okay. Okay, great. Thank you, Neil and everybody else. Appreciate your comments.

Thanks very much, Kerry. Appreciate it, too.

Don DeMarco, National Bank Financial.

Thank you, operator. And good morning, Neil and team. First off, congratulations on 2023 and your plan to expand production to 500,000 ounces by '26, all through brownfield expansion. Maybe continuing on, one quick question on Soto Norte. Is it too early to provide some potential production trajectory beyond 2026 if Soto Norte is added? So in other words, how much and when, if all goes well, based on what you know at this point?

I feel much more comfortable in doing that in two months' time than I do today. I think we really just need to finish off the work we're doing. And as I say, a large part of the environmental side is effectively finished and sitting on the shelf. And we're just making sure that from a production and operational point of view, we're putting in the right thing. We're double checking. So once that's complete, yes, absolutely.

Okay. Fair enough. Then another option you have in your pipeline is Toroparu, and there's a potential to draw a stream on that. Could you just give a quick update on Toroparu and whether you have any intention at this point to draw the stream at some point in the future?

The stream's there, available to us, if we meet the usual criteria. So that's nice and safe in there. What we're doing at the moment -- so we're doing additional studies on the road and some of the environmental issues and looking at the power side. Richard has a few studies going on that.

I think when we've got those to the next stage, we'll be able to draw a bit of a circle around this and decide which is the best way to go forward with it. But at the moment, we're in the studying of some of the key elements and making sure we've got those right.

Okay. Thank you. And then a final question then has to do with M&A. I mean, certainly, yourself and others associated with the company are -- have built companies by way of M&A. Could you maybe share with us what the company's intentions or attitude might be towards M&A at this point and if there's any preferred jurisdictions or metals that would come to mind?

Okay. Let me try and answer that. We build by acquisition, improving the assets, and also by building. And that's been our pattern all along. And we've done that now in terms of putting the two operations together, rationalizing the management and the direction of those, increasing all the other things. We've expanded the reserves.

We now got two under production all within a couple of years. And we've got the Soto Norte project we're developing. I think what we have to do now is get through the Soto Norte decision to see how that fits in because -- I think it was Kerry who was talking about financing requirements in the future. We have to make sure we have those properly orchestrated.

We also have to make sure the market really understands. And I think it's not good that we haven't been able to get the story out there quite as clear as we should do, but we are moving fairly rapidly to 500,000 ounces from a couple of sources. And then I think at that stage, we'll be in a much stronger position to look at M&A opportunities.

Where would we look? I think that's another question. I think it would definitely be Latin America. I'm not sure I like the country risk in Canada or the US, so it will be Latin America.

I think we would stay in gold, where gold is involved. I mean, we may bring in some copper or something else, but I think we are primarily a gold company and we will keep to that focus in terms of anything we do down the line.

But I do think we have to recognize that -- we have to make sure we have value for our shareholders. We think we have a lot of value equation coming through the plan that we have now, and we need to be recognized that we're doing those things before we start diluting shareholders. But long term, yes, that's definitely the objective is to grow the company to 1 million-plus ounce, and we're only in the halfway stage or coming up towards the halfway stage now.

Okay. Thank you very much, Neil. That's helpful. And good luck with the rest of Q1.

Thank you.

(Operator Instructions) Taylor Combaluzier, Red Cloud Securities.

Hi, Neil and team. Congratulations on a good Q4. I was just wondering about the uptick in the G&A expense this quarter and what accounts for that and kind of what level do you expect going forward.

Yeah. I had that same question. Doug gave me a very good answer. I can't remember what it was now. So Doug, over to you.

Yeah. There was a bit of an uptick in Q4. I think the annual amount of $17 million is a good number to use for the year. We did add a few additions to our team in Q4, so that's part of it. But overall, $17 million is probably a good number to look at for the future.

Okay. Perfect. Appreciate that. And then my second question, just wondering about the timing for the next set of funds coming from the Wheaton stream for the Marmato build.

Yeah. If we spend $150 million we expect in the year, then we would be on plan to have two installments, both the 25% and the 50% milestones, occurring during 2024. So that would bring in $80 million. So if we are spending $150 million in 2024, $80 million would come in. So that -- actually, the net amount that Aris is investing is roughly $70 million. And then the final installment of $42 million would come in during 2025.

Okay. Perfect. Appreciate that. That's all the questions I have. Thank you, guys. Appreciate it.

Thank you.

Thank you.

Since there are no more questions, this concludes the question-and-answer session. I would like to turn the conference back over to Mr. Woodyer for any closing remarks. Please go ahead.

Thank you, operator, and thank you, everybody, for joining us today. And if you need any more or want any more information, we would be only too pleased to supply it either through Kettina Cordero, our VP of Investor Relations or -- give me a call, and I will do my best to help you through the -- any questions you may have. Very much appreciate it, and thank you very much, everybody.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.