Aura Minerals Inc (AUGO) 2023 Q1 法說會逐字稿

Good morning. Welcome to Aura's Conference Call. I am Natalia and today, we will be presenting the company's First Quarter 2023 Results. I have here with me 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, known and unknown risks, uncertainties and other factors, many of which are beyond our ability to predict or control and could cause actual results to differ materially from those contained in the forward-looking statements. By the end of the presentation, we will have a Q&A session, and you may send your questions through the Q&A icon below.

Now I'll give the floor to Rodrigo. Rodrigo, please.

Good morning all, and thank you for being here. (foreign language) As very usual, I will do this in English, and there is a translation also to Portuguese and the presentation is going to be out available on our website for everybody. As always, I will give a quick overview of how was the quarter on a broad high-level numbers and also on strategic level. And then Kleber will go through the results in more detail and the revenues, EBITDA, net debt and so on.

So all in all, I think this was a very, very important quarter for Aura, not only by the results that we could achieve despite the lower production, but also in projects that we are moving forward in a project that's for us very important to increase resource reserves and also increase production. So in terms of production, as we already disclosed a couple of weeks earlier, we reached a 53,000 gold equivalent ounces. This is lower than Q4 last year, mostly because of mine sequencing when we did not mine high-grade zone in EPP as we are going to see in the next slides, but very much in line with our yearly plan.

Looking ahead, we see Q2 should not be very strong, but stronger production will come within our own operations plus the production of Almas to the Q3 and Q4. But despite having a lower production compared to Q4, 20% below last part of Q4, we had the same EBITDA from basically because we had a higher gold and copper prices, we could contain a lot of the costs, and we also had a profit adjustment on the contract of Aranzazu that we had negative last year, in this year in this quarter now, we have positive as we are now moving up on prices, either gold and also copper. So our EBITDA reached $36.6 million, very much in line with the last quarter despite the lower production showing how much we can increase our EBITDA as we should be improving production along the year, including the new gold prices, that is close to the record high level and copper price has also recovered from last year in terms of our total price per pound.

All-in sustaining cash cost a little bit higher than last quarter, but very much in line with our estimated because of the lower rates that came mostly in Aranzazu, we have this increase in all-in sustaining cash cost, but we should be decreasing our existing cash cost above the year to reach our guidance. On net debt, now we increased from $77 million to $89 million. This is $12 million increase despite having invested $22 million in development, mostly development of Almas, which is now entering in ramp-up, $6 million in exploration and also onetime payments $10 million in Aranzazu.

That's the high-level results travel going today. But I would highlight though, other very important milestones that we are reaching now during the first month of first quarter and the last month, such as we promised the market that we would generate value by increasing resources and reserves, which is the total growth that we have within our operations. And number 2, we also will be increasing production, and if you see what happened in the last couple of months that we released AIF annual information form, that includes declaring significant new resources and reserves of gold. I would invite everybody to take a look on those numbers and see that we are starting to harvest some results of our exploration program that has been pacified during the last 2 years.

And the very important milestone is the ramp-up of Almas. We built almost within the budget. We changed the time line that we've projected in less than 16 months. Now we are ramping up, and we expect commercial production by Q3 this year. This is the first greenfield project that we built. And we continue to work very hard to be in the commercial production by Q3, but that's very important that shows to the market to investors that we can build projects within the budget we think at the time line that we projected despite all the challenges that we had during the last 2 years such as high inflation, proven sourcing equipment and so on.

So next slide. As we also highlighted in terms of safety during this quarter, we had 0 lost time. The objective that we have every year is lost time in all the operations. This part is difficult to achieve, but we want to achieve this, and we reached this a very important result during this quarter. We also constantly, partially, if not more than a partially basis, we do a monitoring of our geotechnical structures with satellites, with images, radars and consultants, external consultants that goes and visits also our structures and all of them are in satisfactory level and according to the rules.

So as we can see here in production on the right side of this slide, the production came from 68,000 gold equivalent ounces last quarter of last year was very high, particularly in EPP when we were mining 2.53 grams per ton in Ernesto pit. And as we projected this year, Ernesto pit has mostly been already mined. So we go back to grades that we usually mine in EPP 1, 1.2 and according to the mine sequencing, we knew that this would be a lower production. So that's mostly the decrease that we had from Q4 to Q1 this year. However, EPP should also have a bigger production, mostly in the second semester of this year, taking us to be at the guidance that we released to the market.

San Andres. Still below first quarter last year, but higher than last quarter last year. We continue to do improvements in San Andres to increase production, to also reduce the cost. I am here now in Honduras reviewing the plan. So we believe that mostly also during the second semester, we will be able to show a higher production should we continue to increase production around Q2, Q3, and also Q4. We had a lower production mostly because of lower grades according to our mine sequencing in EPP, I already mentioned to you.

Next slide. In terms of all-in sustaining cash cost, we saw an increase slightly increase from Q4 to Q1 that mostly mine sequencing from Aranzazu. We could reduce a little bit in Honduras EPP a little bit the same despite the lower production. That's because of the accounting rules that we have in the inventory. But as we also will be moving forward along the year with a higher production, also Almas we project to have a lower all-in sustaining cash cost compared to our average of the company. So we should see during the year we will be lowering all-in sustaining cash costs via increasing production and being able to reach our guidance that we released to the market early this year.

Just before I turn here to Kleber, again, very important for us building our own time on budget. Now of course rubbing up on time and also on budget, we are doing a lot of effort rubbing up this mine. We already have over 1200 employees, as you know, in Aura 360. We value a lot of local labor and we want to have the maximum possible local labor and despite this area has been never a mine jurisdiction. We are the first one to go there.

We could train, take a lot of a local labor to our mine in operation Mato Grosso in EPP so they could learn, they came back. So we had intense training program with over 50,000 hours, so that we could have a local labor and then starting the ramp-up already with the 57%. It's very important, but we believe that we want to go significantly higher than this during the ramp-up. And also the first year of operation will be progressing in this number.

Rodrigo's camera froze. If you can wait a little bit until it comes back, please.

I am back. Okay. Sorry. I think I had some minor issue here in the connection. So I was talking about Almas. I would invite everyone to follow up how we progress, also the ramp-up very important milestone. And we should be declaring commercial production by Q3 this year. We expect to have between 25,000 ounces to 30,000 ounces of production this year, which is half of the year. And then next year is a full year.

And we continue also to move with the Borborema project. We are now finalizing all the feasibility study, converting the feasibility study that was done by Australian [rules], Canadian rule the 43-101. And we would like to inform the market how we progress on this project by June and perhaps start the construction in June this year.

Again, just as I mentioned, very important partner for us on the strategic level that we advanced in Almas, we are advancing Borborema. And also we released the annual information form AIF with new resource and reserve. So we could increase inferred by almost 600,000 ounces. And we converted more than 100% of the inferred into M&I and P&P. So that shows that our capacity should be constantly creating inferred and converting them into resources, and then also reserves. We increased measure indicated by close to 700,000 ounces. And then we also increased our P&P proven probable reserves by 742,000 ounces.

So we are very much in line advancing with our plan and delivering results, increasing production, moving forward with the project, and increasing resources and reserves, which is our main objective for the next years.

Thanks, Rodrigo. Good morning, everyone. Thanks for attending our earnings call today.

We start with a summary of the main financial KPIs for the quarter and each of the previous reporting quarters of the company in the last 12 months at the end of each reporting periods. On this quarter, we are reporting $97 million in revenues, a decrease compared to $106 million in the last quarter, mainly due to reduction in production, as Rodrigo was explaining, due to mining sequencing in Aranzazu and in EPP. Although we see a reduction in revenues, our margins have increased as results of higher gold and copper prices on this quarter. And we see our EBITDA achieved $37 million in this first quarter. So we are able to keep the same level of EBITDA we reported in the last quarter.

In terms of net income, our net income increased this quarter to $19 million compared to $12 million on the previous quarter. I'm going to go over detail more on next page on the net income. Finally, in terms of cash and net debt, our net debt had a slight increase as expected from $77 million at the end of Q4 '22 to $89 million at the end of this first quarter as we invested almost $30 million in the expansion of the business, mainly the final phase of Almas construction, and we had a nonrecurring annual tax payments in Aranzazu of $10 million on this quarter.

Next page. On this page, we explain more details the items impacting our net income. As we saw before, our adjusted EBITDA reached $37 million in this first quarter. I'd like to highlight the very strong performance in Aranzazu, almost $24 million in this quarter, and also highlight the performance of Minosa. Although Minosa is reporting only $5 million, which is below its potential, we see some improvements compared to the previous quarter when the EBITDA of Minosa was just $1 million, which means that we are seeing a progress both in terms of operational results and also financial results in San Andres.

Amortization and depletion of $12 million since the last part of last year. We are accounting also the depreciation of capital leases of EPP, which accounted for $2 million this quarter. Finance expenses and other expenses of $4 million and $1 million respectively came according to our expectation when in pair with the last few quarters and on this quarter we reported low income tax expenses, mainly because we reported again in deferred income taxes due to temporal difference in some of the sites and also because of the appreciation of the Brazilian real during the first quarter of the year. When that happens, we recognize again a noncash gain in our books when converting the balance sheets from Brazil real to U.S. dollar on consolidated base, bringing then our net income to $19 million at the end of the quarter.

And finally, as every quarter we bring a detailed analysis on the change in cash and cash equivalents of the company throughout the quarter. We see in red at the very left side of the page the initial cash opposition at the beginning of the quarter of $128 million. Then more to this left side of the page, what we call adjusted free cash flow to firm which is a free cash flow to firm generated by the 3 business units which were in operation during the first quarter, not including investments in exploration and expansion. We see a robust cash, almost $20 million generated by the 3 business units, despite the annual tax payments of $10 million in Mexico, which we don't expect that amount to happen again for the rest of the year.

Then, in the middle of the chart, we highlighted the investment for growth of $28 million, $6 million of which invested in exploration to keep with our strategy to continue increasing the mineral reserves and mineral resources of the company, expansion CapEx of $22 million, most of it related to the final phase of Almas construction and more to the right side of the page, financial items. And mainly we highlight the $13 million debt payment term debt, which was already expected to happen in this first quarter, bringing the cash to [$103 million] at the end of the first quarter of the year.

And with this we end our presentation. We are now open to questions. Thank you.

We are going to start our Q&A session now. (Operator Instructions) We will have the first question from (inaudible) of Itau.

Can you hear me?

Yes.

Okay. Rodrigo, Kleber, congrats for the startup of Almas. So I have two questions. My first one is regarding Borborema. You just mentioned, Rodrigo, that you expect to start up the construction in June or July. I just want to have more color on this given there are only a few weeks until June or July. So which were the last developments regarding the project and how are the preparations for the startup of the construction? And still on Borborema, how do you expect to finance the CapEx?

And then my second question on Honduras San Andres, we saw that production was constraining last year, but we saw a slight improvement in this quarter. I just wanted to have more color on how do you expect production to improve this year? Are you confident that you will reach the guidance for the year? And still on Honduras, what do you believe that could be a sustainable production level for San Andres in the midterm? Do you believe we could go back to those strong levels in 2021, for example?

We'll start answering about Borborema and then Kleber can talk about the financial Borborema and then I'll go back to answer about Honduras. So Borborema is a project that is already fully permitted with a full feasibility study already done. So we'll be ready to start construction. We have not yet started the construction because most of the studies was done under the Australian rules. Because this project used to belong to Australian company and as always, we are listed also in TSX we need to have a feasibility study before we publish any numbers about them under the 43-101. Basically the rules doesn't change much significantly on the numbers particularly in resources reserves, so this is being converted now for 43-101 and as we did with Almas we are looking understanding the engineering, see if we can access upsides in terms of to reduce CapEx and/or also mine sequencing in order to improve the internal rate of return and the payback of the project.

So we are progressing very much in line very well in this conversion, we expect to have some preliminary numbers to discuss internally with the Board by the end of this month, so then we can start and if things goes according to our plan start a construction either June or July, most likely June, and now I cannot give a lot of more information, I wish I could disclose more what we are understanding about the CapEx and also the cash flow of this but we first need to have these reports and review by the experts under the 43-101. Kleber, if you want to talk about the finance and then I'll go back to Honduras.

We are planning, as we have been indicating some accommodation of debt and cash from the shareholders or in Dundee, we're targeting around between 50% and 60% some kind of banking debts or financing. so far we spoke at length with many banks the company has relationship, we have indicative offers which we are discussing with our Board of Directors, we haven't made yet any commitment but we are already exploring the alternatives.

So going back to Honduras, we saw last year typically the final, the second semester challenges we had in operations that we reduced production going to slide over 60,000 ounces production last year coming from now over 90,000 ounces back in 2021. 2021, we reached higher grades, very high recoveries during the year. Comparing to last year, we are gradually improving as you could see already Q4 now and Q1 this year and Q2 we should also to continue to improve as we are now, it's a long process as I showed you before, between mining and producing gold it's a long lead time, it takes a while to adjust once it is destabilized, to stabilize back it takes a lot of time and we are stabilizing and the production is increasing.

If you'll see the resource and reserves we have here we should not reach higher grades as we had in '21 but we should not have the same problems that we had last year with the 60,000. So the guidance for this year is to be above 70,000 ounces, this is why we're working in the year that we are already improving. So you should see higher numbers next year. But I don't think we'll be close to the 2021 year. Only if we can then invest and increase capacity, then we will be able to reach those numbers back again, which could be part of our plan. We are analyzing a lot of possibilities to reach that level again.

Now we have the second question from Guilherme of XP. Guilherme, please.

Hi, everyone. Can you hear me?

Yes.

This is Guilherme Nippes from XP, and thanks for taking my questions. I have 2 questions here on our side. The first one, if you could comment on CapEx guidance for 2023, is around 80 to 93. And this quarter came slightly above expectations. It came around $31 million, most of it explained by the extension. But I would like to understand your expectations on how it's going to be in the coming quarters. So as a third of it came on the first quarter this year. And my second question is on EPP cash costs that came also below expectations, mostly due to lower inventory costs from Ernesto. So if you could also comment on that, how do you see cash costs for the next quarter? And if there is something else for Q2?

Yes. So on the CapEx, Guilherme, not including Borborema yet, it's not part of our guidance because the project has not been approved. So we expected to deliver on guidance. The reason why the CapEx was proportionally higher in the first quarter was because of the final phase of construction of Almas. Out of the $31 million in CapEx, more than 50% was Almas construction. So that was according to our expectations, not including yet new projects, the CapEx should reduce for the rest of the year and we should meet our guidance. But again, if our Board makes a construction decision of Borborema, then we would review the guidance and any CapEx related to Borborema construction.

Your second question was on the cash cost of Apoena. So Apoena has some stockpile a few months to 3 months of work in progress inventory. Because the grades in the fourth quarter of last year were very high coming from the Ernesto pit, accounting wise, it reduced the cost of the work in progress inventory. Accounting wise, we have to do weighted average cost of the inventory. Going forward for the next few quarters, we don't expect to see that impact anymore as the grades are going to be more close to historical numbers than the one we've reported in the last quarter.

The next question we have is from Rabi of National Bank.

Nice to see the update overnight. Most of my questions have been answered here. But just speaking about Almas, it's impressive, the work you've completed in 16 months. We're looking forward to it coming online soon. I see that the CapEx in the quarter was $16 million. And if I'm tallying things right in previous quarters, that brings a total of $73 million now. So, could you tell us a bit about what's going on, on site in the final quarter as you're getting up to commercial production? And then tying into that, this is your first greenfield build. Seems like it's gone exceptionally well. Could you tell us a bit about what you've learned from this experience that maybe you're kind of taking onwards towards Borborema?

Yes. So, Rabi, the line was cut off a little bit. The final question I did understand, but the first question about Almas, when you mentioned some numbers. Can you repeat that?

Right. If my tally is right, you're reporting $16 million CapEx on Almas this quarter. And if I'm adding things up correctly, that brings a total, as of this quarter to $73 million that's been spent at Almas. Could you tell us a bit about what's expectation for Q2? What kind of work is going on as you're in the final stages to commercial production? And then also, obviously, your cost control there has been impressive. I'm also curious to hear a bit more color on how you've managed that and what you might take forward into as you get into Borborema next year.

Right. The total CapEx, it's close to $78 million for Almas for the completion, which is very much in line. It's slightly above our initial budget, but non material. So I totally agree that it was outstanding job for the local team. And then you ask how we did that. I think it's as we did with Aranzazu and other operations, a lot of discipline, either on studying, analyzing, making sure that what we are targeted is what we can achieve.

And number 2, you have a lot of challenges during the construction, a lot of inflation. And the system that we work on the managerial side, which is under the Aura 360 to empower more local team, to give them more autonomy to make decisions. They become much more fast, of course, through under the guidelines that we give to them.

But they were very creative, very innovative doing building the planting part before assembling them in one local place and renegotiating contracts with the providers, reanalyze specification of a product so that with all of that they could manage and contain significantly the inflation. And that's how we work in Aura, right.

We have a decentralized decision making process, while we have a central ethical values under the Aura 360 meritocratic environment to our employees. And we've been able to attract and retain very, very strong talents. And then the same team that has built and learned, because we also make mistakes, we learn from the mistakes, will be the one that is already there in Rio Grande do Norte analyzing and preparing Borborema to start construction. So we should expect a very strong team to be at site. Don't expect will be the same CapEx near the same timeline. Once Borborema, it's a bigger project, although we'll be within what we have been disclosing to the market.

The next question that we have is from Taylor of Red Cloud.

Again, most of my questions have already been covered, but I guess one. I know this is more of a concern for the exploration stage companies, but there's been some recent mining law reforms in Mexico. Has that had any impact on your operations?

No. We are reviewing, analyzing, but most of these changes goes to new projects and new licenses, which is adequate enough to world standard levels in many areas for those that operating already under the highest environmental ESCG rules and with all the permits in process, should not be impacted.

The next question that we have, we've received from [Vegner] of Safra from the Q&A icon.

Congratulations on the good quarter and the advancements in new projects. Could you please give us more details on the price adjustments in Aranzazu from the Trafigura offtake agreement? And the second, the capitalization of mining costs due to the IFRS 16 standard. Also, is there a decision on the startup order between Borborema and Matupa?

Okay, I think I can start with the first 2 questions.

So, in Mexico, under the agreement between Aranzazu and Trafigura, which is the buyer of the copper gold concentrate, at every shipment, it's issued a provisional invoice and payments are made by the clients based on the provisional invoices, which has an indication estimate of gold, copper, silver contents and other metals, and it's paid according to the spot price. The contract, the agreement states that up to 4 months there should have a review to make sure that all metal contents were delivered. In fact, according to the provisional invoices, if there is higher or lower metal content, it's adjusted and also up to 4 months when the definitive invoice is issued. It's taking consideration with spot prices at the time the definitive invoice is issued, which is 4 months later. If you recall, in the third quarter of last year, we reported a $10 million negative impact of price adjustments in Aranzazu because copper prices went from above $4, $4.50 per pound between first and second quarter of last year to around the $3.50, $3.40 in the third quarter.

So 4 months later, we adjusted all the price of the shipments 4 months before with a negative impact at the time. Now, what we're seeing this first quarter of the year is the opposite. Since the third quarter of last year, copper prices and gold prices have been improving, and we're closing and issuing definitive invoices from shipments from concentrate shipped 4 months ago. And then we're seeing a positive price adjustments in favor of Trafigura because of higher copper and gold prices.

The second question on the IFRS 16. Since the second semester of last year, Apoena EPP signed a new agreement with the mining contractor. This new agreement has 2 different invoices. One is the contractor issues for the services provided, and the other one for the lease of the equipment. According to accounting rules, the lease of the equipment should be treated as capital and not as cost of production.

So we changed that criteria since the fourth quarter of last year, it has been included in our guidance for this year. The impact on the cash cost, it doesn't impact all-in sustaining cash costs, because we capture it. But there is kind of a positive impact of $14 million expected for this year in the EBITDA for this change of criteria.

And I think that the last question is with Rodrigo.

Yes. Before the acquisition of Borborema, we were planning to start the construction of Matupa during the first semester of this year '23. However, with the Borborema, we sequenced the construction, and we are giving priority to Borborema to start the construction of Borborema first and then during early next year Matupa. But the decision will be made with the Board by the end of this month or early June.

We do not have any more questions. I am going to give the floor to Rodrigo for his final considerations.

Well, thank you very much for being here.

And as I mentioned, this very important part of Aura, that we could generate good results and good cash flow from operations despite lower production. We should increase production during the Q3, Q4, slightly, Q2. So if gold prices, copper price maintain at this level, reaching highest ever, we should see a boost in our results for the next quarter in the year.

But not only that, we made significant steps towards our strategic review. If I remind everybody, we have 3 very clear path to build value to our shareholders; #1, it's increased production from [400,000 ounces] to over 450,000 ounces of production when all the process comes online; #2 is the increase in resource and reserves. And #3 is go beyond 0.5 million ounces to change the multiples.

So if you look what we have, what happened during this quarter, despite the cash flow from the operations, we made significant steps towards the growth. We could start the ramp up. We finished the construction. Started ramp up of Almas. We are advancing on Borborema to start the construction hopefully in June. We release annual information form with new resource and reserves showing that we can increase resource and reserves within the mine. We are just in the beginning of this process.

We just intensified 2 years ago the exploration program. And we continue to look alternatives in terms of M &A so that we can push our production above 0.5 million ounces during the next 2 years so that we can also reach higher multiples. I remind everybody here that the multiples of the companies in our size is between 0.4x, 0.5x. And multiples of companies that goes beyond 0.5 million ounces, which is 0.7x, 0.8x. So there's a significant value chain walk to our shareholders also through the multiples growth, increased resource and reserves and also change the multiple. That's objective for the next 2 years. And I thank you all. And this is very important quarter that we can show that we are consistently moving forward with the project that we disclosed with all the shareholders by the IPO in Brazil. So thank you all.

Thank you.