Aris Mining Corp (ARMN) 2024 Q3 法說會逐字稿

Good morning, everyone and welcome to Aris Mining Q3 2024 operational and financial results call. We will begin with an overview from management followed by a question-and-answer period. (Operator Instructions) And the conference is being recorded.

Please note that the accompanying presentation that management will refer to during today's call can be found in the events and presentation section of Aris Mining website at arismining.com. Also Aris Mining second quarter 2024 financials have been filed on SEDAR+ and EDGAR and can also be found on their website.

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

Thank you, operator and hello, everybody and thank you for joining our Q3 earnings call. Before we begin, please note precautionary statements on slide 3 regarding forward-looking statements. On slide 3, I'll give an overview of our operational and financial highlights after which Richard Thomas, our COO will discuss our performance and our growth projects at Segovia and Marmato.

And then Richard Orazietti, our CFO will review the financial results and Oliver Dachsel will then update you on the funding and growth strategy. So looking at slide 3, I'm pleased to report a strong third quarter. In Q3, we produced 53,600 ounces of gold, which is up 9% over Q2. Higher gold prices, increased production and cost controls helped us achieve a 37% increase in all in sustaining margin in Segovia, reaching $44 million compared to $32 million in Q2.

For the 12 months ended September 30, we generated adjusted EBITDA $147 million and adjusted net income of $43 million. In August. we announced the Segovia high grade exploration results, increasing our resources. And in October, we announced the replacement of our reserves.

Segovia is operating it is 2,000 tonnes per day design capacity with expansion underway to 3,000 tonnes. Phase one of the expansion is completed and the contract mining partners are now delivering to new facility. Phase two is on schedule to be finished late Q1 next year.

And Marmato construction of the Lower Mine is on track and by the end of September, the project had reached its 25% spend level milestone. And on the November 6, we received $40 million cash installment from Wheaton for the project.

Last month, we strengthened our cash position by refinancing our $300 million notes with a new five year $450 million at 8% notes, extending the debt maturity to October 2029. We're well funded to execute our growth strategy and to continue to target an annual gold production rate of approximately 500,000 ounces by the second half of 2026.

And lastly before I hand over, I just encourage you to read our '23 sustainability report, which was published in August and it is available on our website. And now over to you, Richard.

Thank you, Neil. Moving on to slide 4. In the first nine months of this year, our mines produced [153,591] ounces of gold. Segovia contributed [166,106] ounces of gold, while the Marmato Upper Mine produced 17,485 ounces of gold.

At Segovia, we produced 7% more material in Q3 than compared to Q2, that is a slight improvement in grade for the full year 2024. Segovia is on track to produce between 185,000 and 195,000 ounces.

If you go to slide 5, please, I'd like to draw your attention to the graph on the top of the page. I realized gold price increased by 6% in the quarter to $2,457 per ounce in quarter three, while our early sustaining costs declined 2% to [$1,540] per ounce, resulting in all-in sustaining cost margin of [$117] per ounce.

Now focusing on the lower half of the page, as Neil mentioned, the combination of higher gold price increased production and effective cost control led to all in sustaining cost margin at Segovia reaching $44.1 million, and 37% increase convertible to quarter two.

It is also worth noting that despite the purchase and processing cost for high grade mill feed delivered by off-title CMPs resulted in an increase of $1,790 per ounce in quarter two to $1,854 per ounce in quarter three. Due to the higher gold price, the statement of our business and the strong sales margin of $4.9 million in Q3, up from $2.8 million in Q2.

Let's continue to slide 6. Processing plants expansion has progressed well. A schedule and phase one is now complete with the newly expanded receiving area for our CMPs fully commissioned and handed over to operations.

The new facility began processing material in October. Phase two which involves installing second mill in the former contract receiving area is underway and scheduled for completions by Q1 next year following a ram up period to reach approximately 3000 tonnes a day in the second half of 2025.

The total cost of this expansion is still estimated at $15 million, with $8 million spent on September 30, of this year. Concluding my remarks on slide 7, I'd also like to update you on the construction project at Marmato Lower Mine.

We commence construction of the new Marmato Lower Mine in Q3 2023, following the receipt of environmental permits in July this year. The Lower Mine will act access wider porphyry mineralization below the Upper Mine, with both mines estimated to do combined 162,000 ounces of gold per year at a 20-year mine life.

As you can see from the pictures on the slide, the site access road and portal face were completed in Q2 and the contract commenced development on October 8. Both the SAG mill and the ball mill fabrication are progressing on schedule for completion before the end of this year.

As of September 30, the estimated cost to complete the Lower Mine construction is $235 million of which $132 million will be funded by existing stream financing commitments. As Neil had mentioned, you received the first $40 million stream financing project milestone on November 6. Further payments of $40 million and $42 million are expected upon reaching 50% and 75% of the construction, respectively, and this is expected to happen in '25.

With that. I'd like to hand over the call to our CFO, Richard Orazietti.

Thank you, Richard. We're now looking at slide 8. As Neil said at the outset, we had a strong third quarter, especially compared to the second quarter of 2024. Gold revenue of $131.6 million was up 15% quarter over a quarter driven by higher realized gold price of $2,447 per ounce. And higher gold sales of approximately 54,000 ounces, up 9%.

Income from mining operations of [$38 million] was up 28% quarter over quarter, which reflects the upside in gold revenue partially offset by higher cost of mill feed procured from our contract mining partners and higher social contributions both due to gold price appreciation.

Despite the strong income from mining operations, we incurred a net loss of $2.2 million, primarily due to a $12.8 million loss on financial instruments. The evaluation of a warrant liability caused by increase in Aris Mining's share prices from CAD5.17 to CAD6.26 per share during the third quarter resulted in a noncash expense of $11.4 million.

We further incurred a $3.9 million loss on our gold linked notes due to the impact of gold price appreciation on the gold premium component of the notes. On an adjusted basis to better reflect the underlying performance of our business adjusted EBITDA of $43 million was up 19% quarter over quarter and adjusted earnings were $12.9 million, reflecting the improved operational performance.

Now moving on to slide 9. I'd like to discuss some of the key line items of our cash flow statement operating cash flow of $17.2 million, which was $9.6 million a quarter of a quarter due to higher all in sustaining margin of $40.4 million, bolstered by the increase in gold and by product revenues.

[VAT] receivable and a buildup of inventory, mainly materials ore stock pile continue to draw on cash flow during the third quarter. Post Q3, Colombian tax authorities accredited us with $29.6 million for the 2023 VAT amount owed. This was partially offset by $16.2 million of corporate tax rate paid for the year.

As Neil and Richard Thomas discussed earlier, we're in a significant investment period, and we spent $45 million in growth and expansion projects during the quarter as well as $115 million for the first nine months of this year, financing cash flow to service our debt were approximately $7 million for the quarter.

This was offset by $4.3 million in proceeds from warrant and option exercises during the quarter. For the nine months to date, we received approximately $29 million in proceeds from warrant and option exercises. In summary, net cash flow for the third quarter was $41.4 million, which resulted in a cash balance of $80.3 million at quarter end.

Subsequent to the quarter end, we proactively enhanced our financial position, liquidity and ability to fund our growth and sustaining projects to the recent debt offering and financing from Wheaton Precious Metals that Neil alluded to earlier.

I would like to turn over the call to my colleague, Oliver Dachsel, to walk you through the recent action to improve our financial position.

Thank you, Richard. On slide 10, we have summarized these financing transactions that have occurred in October and November as a result of which our performer cash balance has increased from $80 million as of September 30, this year to $266 million.

Let me walk you through the adjustments. As Neil had mentioned, we refinanced our existing $300 million notes with a new five year $450 million note offering in October. After transaction related fees and expenses, we added $132 million of net proceeds to our cash position on October 31, upon closing of this financing transaction.

And as previously mentioned, we achieved the 25% spend threshold at the Marmato Lower Mine. And on November 6, we received the corresponding $40 million stream funding installment from Wheaton, we also received VAT fund of $30 million from the Colombian Tax Authority while paying $16 million of income tax for a net inflow of $14 million.

Now, looking at the waterfall chart in the lower half of the page summarizing the capital requirements of our expansion projects of Marmato and Segovia. As of September this year, the estimated cost to complete the Marmato Lower Mine was $235 million of which $82 million will be funded by the two remaining stream funding installments which we expect to receive next year.

This leaves a net construction budget remaining of $153 million. At Segovia, our remaining construction budget, it's $7 million in total for our two expansion projects only $161 million is remaining to be funded by us.

In addition to our strong cash reserves of $266 million we have additional funding sources, expected cash flow generation from Segovia in Q4 this year and beyond together with potential proceeds from warrant of up to $124 million.

In short, we are well positioned and funded to deliver on our growth strategy, with current cash on hand and expected future funding sources. Well above expected capital expenditure requirements for our expansion projects.

I'd now like to hand the call back to Neil to conclude our prepared remarks.

Thank you, Oliver. Now looking to slide 11 and before we open the Q&A I'd like to re-emphasize the key takeaways we've reported in this third quarter, 9% production increase over Q2 and Segovia operating at (inaudible) capacity.

Segovia generated an all in sustaining margin of $44 million, which is 37% improvement over Q2. On the last 12-month basis, we generated adjusted EBITDA of $147 million and adjusted net income of [$43 million]. And we have a strong pro forma cash position of $266 million.

We're going through a transformational expansion project targeting annual production rate of approximately 500,000 ounces in the second half of 2026.

And with that, I'd like the operator to open the Q&A session.

(Operator Instructions)

Kerry Smith, Haywood Securities.

Thanks, operator, good morning everybody. Neil, I have a couple of questions. Firstly, on your mill expansion at Segovia from 2,000 to 3,000 tonnes a day. How are you making out with the expansion of the CMP program to be able to pull in more tonnage from those small miners to help deliver the extra 1,000 tonnes a day?

Okay. So already -- so come quarter one 2025, we will be ready to receive extra tonnage. The extra tonnage is coming from both increasing production from Aris side as well as our CMP minings.

We have many contract currently 46 of them and we have 41 waiting to be approved. So we've got a pipeline of small miners waiting to be contacted, which we will do from now until the end of quarter one. And this will help us to increase our CMP mining production.

Okay, Richard. And how many tonnes a day are you planning to pull in from the CMPs And once you get to 3,000.

So we are planning to do 1,800 for Aris and the rest will come from the CMP.

Okay. Okay. And then sorry, can you just remind me of 2,000 tonnes a day. What that split is between the CMPs and your own production?

It's 1,200 from us and the rest CMP.

Okay. So 800. So you're looking for 400 tonnes more a day from the CMP then. Okay.

As we ramp up and we expand our operations into go Segovia, our reliance on the CMPs will reduce over time.

Okay. And then if I heard you correctly, you have, I think you said 48 CMP contracts today that you have in place and you have another 41 that are waiting to be ratified if that's the correct word. Is that -- did I get that correctly?

Correct. Waiting for approval. Yes.

And that approval has to come from who? From the federal government or the provincial government.

Yes. Those are approvals are done by Aris.

Okay. Got you. Okay. So it's just a question of you picking the ones that you would like to work with them? That's helpful. Thanks. And then just on Soto Norte, maybe Neil can just give me an update on how all of the discussions are going with all of the stakeholders in terms of trying to get a social license there to be able to push that project along.

So currently -- good morning, my name is Alejandro Jimenez, Country Manager. Currently, we have been engaging with the local community and the miners the area as well as the six [lanes] in the product the province of Soto Norte and the Governor of Santander.

All of them seem very well in line with the vision that the company has regarding the new smaller scale project in Soto Norte. We are continuing to develop the technical and environmental studies and going into Q2 2025.

And during this period, we'll continue to strengthen our bonds with these different stakeholders which at this point have proven to be clear advocates of a project to be delivered by us.

Okay. Okay. That's great. Thank you very much.

(Operator Instructions) And this concludes the question-and-answer session. I'd like to turn the conference back over to Mr. Woodyer for any closing remarks.

Thank you very much operator. And in particular, thank you all of you for joining us. We appreciate your interest and please don't hesitate to reach out to Oliver if you have any further questions. Thank you very much, everybody.

Thank you, sir. This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.