Aura Minerals Inc (AUGO) 2022 Q4 法說會逐字稿

Good morning. Welcome to our conference call. I'm Natalia and today, we have presenting the company's 2022 results. Rodrigo Barbosa, our President and CEO; and Kleber Cardoso, our CFO.

Please note that this presentation contains forward-looking information, which include events that we expect that may occur in the future. No unknown risks, uncertainties and other factors, many of which are beyond our ability to predict our control and could cause actual results to differ materially from those contained in the forward-looking statements. (Event Instructions)

Now I'll give the floor to Rodrigo to initiate his presentation. Rodrigo, please?

Thank you, Natalia, and good morning for all that is with us here. We will today go through the results of 2022, also including the guidance for '23. We will talk about the quarter and also about the full year of 2022. We'll go first on the main highlights of the company, and then our CFO, Kleber, will present in more detail all the results.

So in terms of the year as an executive summary, last quarter, we produced as we were predicting a significant increase compared to the Q3, 67,600 gold equivalent ounces. This is mainly to increase between new upgrades in Aranzazu. We had a 9% increase in production compared to Q3 in Aranzazu.

EPP, we were reaching higher grades at Ernesto pit. So we could increase more than 50% in terms of production. On the other hand, we had a challenging time in San Andres, where we had 13% decrease in production due to a few factors, still some results from the lower productivity that happened on the contractor mine in Q3 that goes to production to Q4.

The leaching cycle has extended a little bit because of the pads. And also, we had some operational challenges that decrease a little bit of production. But we expect now the Q1 2023 to recover slightly. Then also, Q2 and Q3 and Q4 to be in full production in San Andres.

Almas project is very important. Almas project, we continue to evolve and move forward. We are on time, on budget. We are now 92% completed. We expect to start the ramp-up in April this year and then commercial production by July this year.

In terms of EBITDA, we reached $37 million in Q4 and during the full year, it's $134 million, mainly it's lower than 2022, 2021, mostly because of gold and copper price that was below the 2021 and also the challenge in Honduras.

Net income, on the other hand, has with no -- we didn't have non-recurring events as we had in '21. So we increased our net income by 53% compared to 21%. Cash cost in Q4 was $826 for gold equivalent ounces, which is a significant decrease of 15% compared to Q3 due to higher rates we found. We knew that we were mining in Aranzazu, higher grades also in Brazil. And although we had a lower production in Honduras, the team has made a lot of efforts to reduce the cash cost to compensate some lower production.

Very important. Now, we are now disclosing all-in sustaining cash cost that is putting us. For the quarter, was at $1,000 of gold equivalent ounces. For the year end, $1,118, which is, and we will share with all of you the average of the industries. We are now on the second quartile in terms of all-in sustaining cash cost.

In terms of net debt, we continue to improve our position. Although we paid $10 million of investments -- we -- $10 million of dividends, we made $30 million of expansion, CapEx in Almas. We've acquired the new exploration rights in Japones and also in other investments in geology. And we reduced by $4 million, $5 million on net debt position. So we are now at $77 million. We were slightly over $80 million. Kleber will go in more details about this.

Very importantly also, we continue to move forward with the projects to grow, but also paying dividends last year. If you add all the dividends, we paid plus the share buyback. It's a 6% return to our shareholder. In 2021, we had 13.5% of return. We had excess of cash. This year, we are more than -- we paid slightly over our policy about 20% of the EBITDA minus recurring CapEx.

As of yesterday, we also announced the acquisition of mineral rights for copper in the Carajas area, which we expect during the next three, four years to do exploration in order to then in five years to be ready to build up a plant. Although there are risks involved, and we do not know if this will turn to a mine, but we believe it's a very strong potential and for us for order to move, including -- moving to a world-class area in terms of restriction for mining.

We are releasing our guidance as well -- for the 2023, we are now projecting to be between 254,000 to 292,000 gold equivalent ounces. This is an increase compared to 2022, mostly because we are now entering Almas in production. We should see an improvement in Honduras. We don't expect to have the problems that we had during 2022. On the other hand, we have a decrease in production in EPP once we do not project to enter high grades of Ernesto. So we should go back to the normal grades during the year of 2023.

Importantly, in December, we also were recognized as the company of the year in the mineral sector for -- by Brasil Mineral for the growth angle. So markets has been recognizing that we've been growing, not only we grow close to 100% during the last five years, and we project to grow additional 86% in the next three years through our project that goes online now Almas. And then we'll start construction of Borborema by the end of the semester and Matupa when they're all online producing. We should be close to 450,000 ounces of gold equivalent by the end of '25.

In terms of corporate, we continue to invest in Aura 360, a future that has been practicing for all our employees on the day to day, a lot of transparency, ethical values, every decision that we make, we need to understand the impact over the environment, over the communities, over our employees. And if you were considering all the safety standards, ethical values, so that's I would invite you, we already disclosed a new Mandala by the -- by Aura Day last year, but I would invite everyone to take a look and see how we make our decisions on that Mandala.

Natalia, if you jump through, then there you go. For those that didn't see on the Aura Day, we upgraded the communication of Mandala to facilitate everyone that's working with us to see the values that we preserve. The way we do in Aura, as some of you already seen, we decentralized a lot of the decision. So we empowered the local managers to make technical decisions and improve operations. But however, they need to make sure that every decision they do, that we understand the impact of the employees, community environment, and the company. And considering all the developments here.

In terms of safety, we had two lost time injuries. One in Aranzazu, and one on San Andres. Not severe, was just one day out of work and then they could return right after. We do not have any injury, lost time injury in EPP. Of course, we always project. We've always worked to have zero accidents every quarter. But we will continue to improve also our standards and all communication with our employees about the importance of working in a safe environment.

In terms of structure, all our geotechnical structures are satisfactory understanding that it's not only us that do the monitoring of our geotechnical structures. But also, we have external consultants that review the numbers and visit the operations on a regular basis. And this report comes from those third parties to the committee that we have in the company.

So now moving a little bit more into the production. As we could see, we had the second-highest production on a quarterly basis with 68,000 ounces of gold equivalent. Last quarter of 2021, it was 78,000, but it's an improvement compared to Q3, Q2, and in Q1. And this is mainly when you see on the right side of the chart, Aranzazu, we had higher grades, as I mentioned. San Andres more challenging quarter. And EPP with the higher grades of Ernesto we could drop more than 50% in production, so reaching 68,000 ounces of gold equivalent.

In terms of cash cost, we had a quarter with $826 gold equivalent ounces for the full year, $897 per ounce, which is on the high end of the guidance, mainly because of the lower production in Honduras. While Aranzazu and EPP, we were very much in line with the guidance.

So as I mentioned, in terms of production, we are now projecting to be at 254,000 to 292,000 ounces of gold equivalent, again, mainly because of Almas that comes online now in April and our commercial production by July this year. And cash costs, we project to have a decrease from $897 to be between $860 and $927 for gold equivalent. However, as Kleber was going to mention, there is accounting change on some of the costs due to the new mine contractor -- contract that we have in EPP where it's considered as a leasing.

So this is not a cash cost, but it will go through the -- as an investment, capitalizing as an investment. That change, although reduces our cash cost per gold equivalent, it doesn't change and doesn't affect the all-in sustaining cash cost that considers everything that you spend to produce of 1 ounce.

So last year, we were between -- we were 1,118. This year, we should be between slightly over 1,000 to slightly below 1,200 which is -- and now we will show with you -- which is a second quartile when you compared to the average of the industry.

The last chart on the right, in terms of CapEx, we see a decrease from $109 million in 2022 to be between $80 million to $93 million this year. It's important to highlight that in '22, we had most of the CapEx for Almas. We still have some remaining CapEx for 2023. We are not including 2023 the construction of other two projects, which we will add once we have proven the Board, which we expect to do by the end of the semester.

In the sustaining cash cost, you see an increase from -- to be between $34 million to $40 million, mainly because Almas that is now joining as a production, and so that increased the CapEx related to Almas is the one that's pushing the sustaining CapEx to be higher.

So here, you can see the details we will. We are not changing how we continue very strong to meet our guidance to be at 400,000 ounces by '24 annualized and over 450,000 ounces of gold equivalent by the end of '25. That will come through the execution of Almas, Borborema, Matupa, and also some improvements in the operations that we currently run.

Almas, so we are looking forward to start the commissioning. We are now, as I mentioned, 92% completing the project, 100% on perm, 100% engineer, 100% of procurement, and construction 85% completed. So we expect to start commissioning and the ramp-up in April this year and also commercial production by July.

All-in sustaining costs of Almas, we had an increase compared to the feasibility study mostly because of the inflation that happened during the last two years. However, it's still below our average. So with the projects coming online, either Almas, Borborema, and Matupa. We will also be able to improve our cash cost compared to where we are today and moving more favorable in the table that I'm going to show you on the next slides.

So as you can see, we are now disclosing all-in sustaining cash costs. We are now at the second quartile with close to $1,100 of all-in sustaining cash costs. The industry is moving up because of inflation. We had impact of inflation, but we are offsetting partially this inflation, which is helping us to move to the second quartile. We were closer to the third quartile three, four years ago, and now going to the second quartile. And we expected to further improve these during the next three years with a project that's coming online with a more favorable condition to operate in a lower cash cost.

So Kleber, I will now turn the floor to you, and I'll come back with the answers and Q&A.

Thanks, Rodrigo. Good morning, everyone. We start with a summary of the main financial KPIs for the company for the last few quarters. As we can see Q4 2022 is showing a recovery of the main financial numbers of the company with net revenues exceeding $100 million in Q4 2022, achieving $106 million in the quarter and adjusted EBITDA increasing back to $37 million as Q4 2022 coming from $17 million in the previous quarter.

Important to highlight that metal prices in the last quarter of last year were below where they are today. The average price per ounce of gold sold was $1,730 and gold prices are currently trading above $1,800 and copper price, the average price was $368 in Q4. Now it's about $4. So if metal prices remain where they are or above, we should see an upside coming in the next quarters as well.

In terms of net income, positive net income of $12 million this quarter compared to -- close to 0 on the previous quarter. And finally, in terms of net debt, we see a reduction in the net debt in the fourth quarter compared to the previous quarter coming from $81 million to $77 million despite the payment of $10 million in dividends and despite the investment of over $30 million investments in what we call expansion that is mainly Almas, but also acquisition of mineral rights in Borborema and that was a quarter where we invested more in the exploration activities.

The next page, we can see a bridge explaining the differences between the adjusted EBITDA and the net income for the fourth quarter of the year. As you saw on the previous page, adjusted EBITDA was $37 million. The main item impacting the net income in the quarter was amortization depletion that came at $18 million in the quarter. This number is higher than the average. We're reporting the previous quarters, which were close to $9 million or $10 million. So this $18 million is more or less $8 million above the previous quarters.

That's because of two reasons. One is a higher production in EPP because EPP produce more ounces -- more COGS hit our P&L and accounting wise more depreciation. And the second impact is the depreciation of capital leases also in EPP. EPP in 2002, in the middle of 2002, signed a new mine contractor agreements. This mine contractor agreement is different from the previous one. It has two components. One of the EPPs charge according to the services provider that tonnes moved. In the second portion of the agreement, EPP is invoiced by the equipment, it's leased combined in operations.

According to IFRS rules, the portion EPP's invoice related to the use of equipment to go in our -- should be capitalized and therefore, hit our COGS through the depreciation. So that explains another $4.5 million in Q4 2022. And going forward, we expect in 2023 to see the depreciation being higher because in '23, we expect to capitalize on about $14 million of these lease payments in EPP and also explain why accounting-wise, the cash cost in '23 reduces compared to '22, as Rodrigo was mentioning in our guidance page.

Financial or the other items, financial results or the results, income tax expenses came in pretty much according to our expectation and in line with the numbers and bringing our net income to the end of the quarter to $12 million.

Next page. On this page, we bring a detailed analysis for the changes in the cash position throughout the fourth quarter. On this left side of the page, far left side, we have the cash position at the beginning of the quarter at $121 million. In this left side of the page is what we call the adjusted free cash flow of the firm. That is the cash generated by the three mines in operations without including any investments in expansion and also in exploration to find new deposits such as [Serenas] or to increase the life of the mines.

We saw it was a strong quarter. The adjusted free cash flow to firm was $47 million in Q4, besides the EBITDA of $37 million, we see a significant amount of cash, $22 million were generated by a reduction in working capital. That comes both from reduction of stockpiles in EPP, which was part of our strategy to stockpiles and also improve the trade terms in all business units.

In the middle of the chart, the $30 million referring to related to investment for growth, mainly Almas, but also we see exploration expenses was relevant this quarter and then to the bright side, the main item was the dividend paid of $10 million bringing the cash to $128 million at the end of the quarter and an increase compared to the cash at the beginning of the quarter.

And then finally, on the next page is the same analysis but for the whole year of 2022. We see the free cash flow or adjusted cash flow was for -- was $82 million and then the investment for growth, '22 was when you we invested significantly for the growth of the company, consuming $140 billion in cash mainly due to the acquisition of Big River $54 million and hold investments to develop Almas and exploration, which was partially financed by proceeds from new credit lines of $73 million. And also, we had a $30 million payment in dividend stock repurchasing last year. That explains the change in the cash for the year.

And with this, we end the presentation and open to questions.

(Operator Instructions) [Edgard], Itau.

Hi, guys. Hi, everyone. Good morning and congratulations for the results. So my first question is regarding your growth projects. In the last conference call, you mentioned that the construction of Borborema could start in -- maybe in the first half of 2023. Do you still expect to start the construction of the projects until June this year? Do you have some color of the potential CapEx for the projects? And then regarding Matupa, which timeline can we think for the project as well? So if you could give us a little bit more color on Borborema and Matupa, it would be great.

And then my second question is regarding this exploration permitting Carajas. Can you please give me a little bit more color on the rationale behind the acquisition of the copper exploration permit in Carajas? What are the milestones for the projects, which are the upsides you highlight from this acquisition? It would be great.

Thank you, Edgard. So first, you asked about Borborema and Matupa. Borborema, we continue to expect to start construction by the end of the semester. We do not have yet -- we have internally, but we cannot yet disclose the CapEx. We are now narrowing down. We got the studies made from Big River during the last two years, and we are now updating this [140 to 101]. And also seeing where we could improve our returns by optimization of CapEx or mine sites. So this is already ongoing discussions internally testing models, and we expect to be able to disclose this by the end of the semester.

Then you asked about Matupa. Matupa, we continue to evolve in exploration. We have already engineering also done. But we should, as we would like to sequence the projects in order not overload our internal team. We expect to start construction of Matupa yet we generally make a decision, but it would be early next year. So with these two projects coming online, so we're starting Borborema construction by the end of this semester. It should go online by the end '24 and then Matupa goes online by the end of '25. That's why we have the projection should be at 400,000 ounces by '24 annualized by the end of the year and 450,000 ounces by the end of '25 annualized.

And then you asked about the [indiscernible] that we announced yesterday. This is very much in line with the strategy. If I recall our investors, we are growing 82% -- 86% during the next three years to the execution of three greenfields projects. All of them are in gold. We -- today, we are called 70% gold, 30% copper, with the projects of gold will be lower and copper will be [15% or 20%]. We would like to maintain 30% to 40% on copper. So -- and not include new greenfield projects to be built in the next two years.

So this is very much moving to be able to start a new investment in a new project by the end of '25 or '26. So we will have the next three to four years, exploration efforts in order to find and announce the resources and reserves in that project and then do all the engineering and just construction.

This is a mineral rights, exploration rights that come with a very interesting results with nine holes that was made by Anglo in the past or the nine -- the nine drills or the nine holes that they did in the past. All of them has confirmed mineralization yet it's still soon to think about of grades and size. We expect this to be -- could be potentially a very interesting and large product for us to develop in the future. But yet, we need to now focus on exploration and see what is the real potential of this project.

(Event Instructions) [Guilherme], Citi

Good morning, everyone. I have two questions here on our side. My first question is about your expectations of the ore grade in the first quarter for EPP and throughout 2023, given that the fourth quarter was a very strong quarter? And my second question is about the production target for 2024. We noticed that there is an improvement from Almas as it's going to produce a full year but I would like to understand about the management targets that you show in the chart provided in the presentation. So I would like to understand which mine should improve the production in order to meet this guidance?

Thank you, Guilherme. So for -- we don't disclose on the quarterly basis, the guidance, but you should not expect to have such higher grades that we had in Q4 in EPP so still have some remaining high grades that was mined already in January. But you should now expect EPP going back to the regular and average grades that they were mining before their Ernesto pit.

For '24, we -- as we were mentioning, we will have a full production of Almas. We will have some production also coming from Borborema and particularly by the end of the year, the last quarter. So when you analyze that with some improvements that we are projecting to have in EPP and also in Honduras, that we will reach the guidance of 400,000 ounces. In Aranzazu, we are the very maximum capacity at this moment. Grades should continue to be at the same level with a slight improvement we are working in recoveries, but that's more marginal in terms of growth. So we're seeing some improvements in EPP, some improvements in Honduras, but mostly Almas and then Borborema.

We have the next question from Rabi. (Event Instructions)

Hi, Rodrigo. Good morning, everybody. This is revenues on the from National Bank it just stopped. I see, but you reported a C for the first time and that's very much appreciated. Could you just clarify for us what is going into that figure it appears to be a mine level number. Could you clarify that, please?

And secondly, and you have your AF coming out later this quarter, could you guide us a bit on where we might see more or less changes in the reserves and resources by asset.

Okay. Kleber, if you want to take the first one, I'll take the second one.

Yes. Yes. So they only start from the cash costs, which was a KPI that we used to report, and we added three additional lines, which was the sustaining CapEx, including in the equation. The lease payments, especially now that EPP is going to become relevant, that's included as well in the all-in sustaining cash costs and all the G&A that are incurred by the business units and the sites. And in the MD&A, we would have -- we also are providing a reconciliation that between the financials and in this KPI that brings us three additional lines.

So Rabi, thank you for the question. And for those that doesn't know Rabi, it's an analyst from National Bank. They just released a new equity research report on us. There was a couple of weeks ago. I would invite any of the investors that if they haven't seen yet, please take a look because it's a new report refreshing also all the updates that we are doing in Aura.

Your question about AF, as you -- as we're now increasing investment in exploration since 2021, and we should start seeing some of the first results in resources and reserves, particularly in the mines that we increased our exploration efforts, which is EPP, and Aranzazu, while in Honduras we are only this year, we will increase a little bit more the exploration efforts of the results of this comes in the next one or two years. So that's where you should see some changes and we should be releasing by the end of March AF. I would invite everyone also to keep the eye on it, but it will be important report showing that we can increase resources and reserves.

(Operator Instructions) We don't have any more questions. Thank you, Rodrigo and Kleber. Now I'm going to give the floor to Rodrigo for his final considerations.

Well, thank you all for participating on this. I'm very glad to be here, informing you that the results, not only the results, but also the strategy and the project that we are moving forward. If I remind all the -- our investors, we have a very clear three areas to deliver value to our shareholders. Number one is execution of our greenfield projects to grow over 86% during the next three years, putting the projects online and on budget. So I'm glad to see Almas moving forward according to our expectations. This is very important, and we hope to do the same with Borborema and also Matupa.

The second one that we have very clear to deliver to our shareholders is increasing resourcing reserves. Always a covenant that has been underinvested in terms of exploration. We have over 650,000 hectares of mining rights to explore a randomized that we are operating are the ones that we're going to build in only in the last two years, we increased our exploration efforts in order to increase resource and reserves. So now we should see life of mine increasing during the next two or three years.

And the third one, is through we know very much that the multiples of the sector where the companies that produce 300,000, 400,000 ounces are close to 0.4, 0.5x NAV. Companies that produce 60,000 over 500,000 ounces, they tend to have a multiple of 0.7x, 0.8x of NAV, which is a significant improvement on the multiples if we go beyond the 450,000 ounces. So we know very much how to get 450,000 ounces, but we want to go beyond. And that's why we have just acquired this mineral exploration rights in the Para State in that very world-class jurisdiction to explore and be able to grow further than the 450,000 ounces.

But we are not limited only to that. We continue to see and look for opportunities or M&As in order to push our production beyond the 450,000 ounces in the next three or four years. So I thank you all. We continue to move. We did all of this also paying dividends. We paid 13.5% of dividend yield, over $85 million in 2021. It's close to $30 million between share buybacks and dividends last year, 6% dividend yield. We can -- we expect to continue to maintain our policy of 20% of EBITDA managed recurring CapEx.

So we are delivering despite some challenges we had in operations now, we are continuing to deliver results and the project to our shareholders since we announced this new growth pipeline during the IPO.

Well, thank you all. And final thing that I would just invite you is a few things that are coming up, right? That state, you should be aware. Number one is decommissioning and the start to ramp-up of Almas. We have also, by the end of March, the new AIF with new resources and reserves of the company. Then we have the construction of -- initial construction of Borborema and the feasibility study by the end of the semester -- feasibility study slightly after they start the construction. And then also Matupa narrowing down to start construction by early next year.

So there a lot of things going on for Aura this year very important with the project coming online which is delivering the growth that we promised to the market. So thank you all, and see you soon.