Aura Minerals Inc (AUGO) 2023 Q2 法說會逐字稿

Okay. Good morning all, and again, thank you for being here with us so that we can explain and go through the quarter's results. As we already predicted, now we go through this was a very important quarter for us despite a weaker production that was already projected. We generated cash flows. We are moving significantly forward on the projects that I'm going to share with you.

But first, going to the results and the production by itself. As we already released in early July, the production of this quarter was close to 48,500 gold equivalent ounces, and that is lower than the first quarter, mainly because of EPP when during the last quarter, we assessed lower grades. This was already projected since the beginning of the year. So we knew that this quarter would be weaker in EPP and that we will be reaching higher grades in Q3 and then Q4, significant higher grades. I'm going to show you that exactly what happened in 2021, in 2022. Now in 2023, we should also have a strong Q3 and even stronger in Q4, not only by higher grades in EPP, but also with the -- we should -- we expect the start of commercial production for Almas very soon, plus a gradual increase in Honduras and stable production in Aranzazu.

Going -- so we maintained the guidance for EPP despite this weak quarter as it was already planned. Again, for those that are investing now recently, mining gold, different from other -- for iron ore, for example, sometimes you reach higher grades and lower grades. The grades are not very spreaded out equally on the site. So sometimes, you will have higher and lower grades. So this is very common in gold companies. And of course, the more assets you have, this will be smoothed out, and we are growing number of assets and producers. So we should be this movement smoothing out along the next years.

In San Andres, we had -- we continue to increase production. We continue to improve the productivity in the site. If I reminded everybody, the last quarter of last year, we produced close to 12,000 ounces. First quarter of this year, we produced 14,000 ounces. And this quarter, slightly over 16,000 ounces. So we are gradually improving, and we should continue to do so, move to 18,000 to 20,000 ounces of production now in Q3 and also Q4.

However, as we had a more challenging start of the year in San Andres, this ramp-up is according to our expectation, but we started at the lower range. So in the end, this will affect our production guidance for the year. So we are changing the guidance of the year for San Andres around 10,000 ounces. So now with the guidance used to be close to -- between 62,000 and 69,000 ounces for the year. Understanding then that we will continue to improve in the Q3, Q4 will be higher -- should be higher production than Q1 and also Q2.

In terms of EBITDA, then Kleber will go more details. We reached $26.6 million, which is lower than last quarter, mostly because of EPP that we reduced production by grades. And San Andres, we increased production and Aranzazu, we are very stable as well.

In terms of all-in sustaining cash cost, we had a few different variables that affected the all-in sustaining cash costs. Number one, the lower production affected our all-in sustaining cash costs. So it increased by 3% of our guidance, on the middle of the range, because of the lower production expected for the year in San Andres.

On the other hand, the valuation of dollar against mainly peso Mexican, in Brazilian reals, Honduras is more linked to the door. There was no significant devaluation. But in Mexico and also in Brazil, there was a devaluation of the dollar that also affects our cost and it increased, impacted by projected for the year by 6%.

So we are reviewing the guidance of our all-in sustaining cash costs on the middle of the range by 9%, being 3% due to lower production in San Andres and then 6% because of exchange rate. But as the metal should react once you have on the top line, if we increased the cost in U.S. dollars because of the valuation of dollars. On the other hand, the gold and copper prices has also appreciated compared to what we had forecast in the beginning of the year. So in the end of the day, either gold and copper is working against protecting the valuation of dollar and also inflation.

Despite this weak production that we projected for this quarter, when you see the results, we continue to have a robust cash flow from operations, and that gave us an opportunity to fulfill our commitment to our shareholders to pay the dividends, which we paid $10 million in June as a dividend to our shareholders. And now according to the Q3 and Q4 results, we should also be paying by the end of the year a new dividends as we are now committed to pay twice per year our dividends to our shareholders.

So if we move a little bit from the results in the quarter and then we see what is happening on the project or development, on the value creation that we're doing to our shareholders during the quarter. This was very important. Number one, we finished in Q1, we finished the construction almost on budget and on time in a moment that the whole world was scarce of products and labor and many projects was delayed that we could fulfill our commitment to be on time and on budget.

Not only that, the ramp-up has been very satisfactory, and we are already operating above nominal capacity in only less than 4 to 5 months when we should be declaring commercial production for Almas very soon. We are already operating at nominal capacity. And also, the recoveries on gold has been also above 90%, 92%, sometimes 93%. So we are feeling very comfortable to declare commercial production very soon.

So Almas is going, moving forward as expected, and we should be delivering the results and commercial production soon and will be added to the result in EBITDA for the second semester.

Number two, Borborema is also moving forward according to our expectations. We are wrapping up the numbers for feasibility study of this project, and we should be announcing soon. Not only that, we already started some land works to prepare the site for -- to receive the investments. Two, we are closing the funding very soon to study -- to the construction.

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To the market as we move forward in the exploration process for all our projects.

Before I get to the numbers, in terms of safety, very important. We continue in Q2 to have 0 lost time injury as we had in Q1. Either in Almas, in EPP, it's been 1 year with no also -- lost time injury. In terms of stability of the structures, we -- every month, we have external review on our geotechnical structures and all the geotechnical structures audited by a third party has been at a satisfactory level for all our structures.

So when we compare on the left side of this slide, the production. We had the Q2 49,000 gold equivalent ounces. But as you can see, in Q4 '21 and Q3 '22, Q4 '22, we -- once we reach higher grades, we will be increasing production by Q3 and then Q4. So we should expect now the lowest last 12 month and then we start going up in the upcoming quarters.

On the right side, as I mentioned earlier, we see that the decrease compared to Q1 production gold equivalent ounces from 53,000 ounces to 49,000 came mostly exclusively by EPP when we reached the lower grade. So EPP came from 13% to 7% and then we should be reaching a higher rate above should they expect to be 20,000, 25,000 gold production on the upcoming quarters, if not more.

In Aranzazu, we have very stable production despite changes in the prices of gold and copper that affected negatively. The production was somehow increased so that some offset this lower production. So we are very even in terms of production of Aranzazu. It's continued -- it should continue to be very stable. In San Andres, again, we're coming from 12,000 ounces of production per quarter, 14,000 last quarter -- first quarter this year and then now 16,000, and this should be reaching 18,000 to 20,000 gold equivalent ounces in the upcoming quarters.

In terms of all-in sustaining cash cost, as you see in Q2, we had an increase compared to Q1. This increase comes from 2 variables. Number one, this is lower production in EPP as we could see, 7,000 ounces. And this will be reduced as we will increase the grade during Q3 and Q4. And the second variable is the devaluation of the dollar. So that also impacted our all-in sustaining cash cost. Mostly EPP and then devaluation of the dollar.

So in terms of the guidance and here we gave a lot of information. I'm not going to go through all the numbers here, but everybody feel free to access this presentation that will be on our website. I'll give the main message that we are reviewing the guidance for the year for consolidated production exclusively by the challenges that we had in San Andres in the beginning of the year and the ramp-up now it's at the lower -- started with the lower production, but now it's moving according to our plans, and we should continue to increase. So we'll be -- we are revising the guidance by 5% only for the year despite the challenge that we had in Honduras.

That lower production in Honduras has impacted our cash costs. We implemented significant measures to reduce cash cost and somehow offset the higher cost coming from lower production. So if you use only the same exchange rate and compare our all-in sustaining cash cost is increasing by 3% only while the production was 5% lower. And then we have the impact of exchange rate, either in Brazil and also in Mexico. That impacted again additional 6%, as I mentioned earlier, in terms of all-in sustaining cash costs. So now we are projecting the guidance for cash costs from $897 million to $973 million and all in 1,162 and 1,261.

Understanding then -- now with either Almas, Borborema and Matupa, all of them has all-in sustaining cash cost below the average that we have today. So we should see the new projects coming in and moving these all-in sustaining cash costs at a lower production. But these numbers already would put us on the second quartile. We want to be even lower, but the whole industry is moving up, and we have been able to somehow control our cash cost to keep our company -- keep our -- at the second quartile.

In terms of CapEx, we had a previous guidance, $80 million to $93 million. Now we have $85 million to $95 million. We are already planning some expansion in Almas and some other mine developments for Almas so that increased a little bit. That is what we've been delivering in Almas.

We already have over 1,000 employees. 55% comes from the very close area, 80% from the states and the regional states from -- we have been investing significantly in training local team. We also took some of the managers to EPP to learn, and they came back and they are running this plant of very, very satisfactory (technical difficulty) and occasionally due to evaporation, we will access water from the river, but that will not be more than 10% of the total water that we use.

The started ramp-up was in April. 16 months, actually it was 14 because the first 2 months we waited because of the heavy rains. And now we are -- which is among the fastest plants to be in the mine to be built in the world. And two, now we are above the theoretical floor in terms of ramp-up also setting new benchmarks to the market once we should be declaring commercial production in the upcoming weeks.

So as we can see in the numbers on the left side, the production per week at the plant. So we are ramping up very fast since June -- late June, we already reached over 20,000 tonnes and then gradually improving. And now in July, above 25,000 tonnes, 26,000 and last month, 24,700. The nominal capacity depends a little bit on the month but it will be around 25,000 tonnes per week.

In terms of tonnes per hour, the nominal capacity is closer to 160 tonnes per hour. As you can see on the right side, in the last 1, 2, 3, 4, 5, 6 weeks, we are already operating above our nominal capacity in terms of tons per hour, which is now -- then we started increasing the grades and to see the reaction in the recoveries. And we've been seeing the recoveries at 90%, 92%, 93%, very much in line with what we expected. So that gives us comfortable to maintain and look carefully in the next 2 weeks and then declare commercial production if that continues to be very stable. So Kleber, I'll turn the floor to you.

Okay. Thank you. So good morning, everyone. So now we're going to share a summary of the main financial results. On this page, we have -- we bring the main financial KPIs the company tracks. We have the results for the current quarter, the last few quarters and accumulated last 12 months at the end of each reporting period. And in line with what Rodrigo was explaining was a more soft part in terms of production mainly due to mine sequencing at EPP, and we see that reflecting in the results of the quarter with revenues achieving $85 million and adjusted EBITDA of $27 million in the second quarter.

Despite the challenges, we still reported a positive net income of $11 million on this Q2. And regarding the cash and net debt position of the company, we still ended the quarter with a strong cash position of $110 million. After paying $10 million in dividends in June and investing $21 million in expansion during the second quarter, the net debt achieved $114 million at the end of this quarter. And we'd like to highlight again, this is probably -- we're seeing the peak in terms of the relationship of net debt and adjusted EBITDA. Now with almost very close to declaring commercial production, which is going to add additional cash and EBITDA for the company. And also with improvements of grades at EBITDA in the next few quarters, we should see the trend changing with a reduction in net debt and improvement in the EBITDA.

Here, we present an analysis showing the main items between the adjusted EBITDA and net income of the second quarter. As we saw previously, adjusted EBITDA was $27 million for the second quarter. We highlighted again the performance of Aranzazu has been consistently strong performance, both in terms of production, cash cost and also EBITDA was our highest EBITDA in the quarter, $18 million. Another positive note on San Andres in the last 2 quarters because of the ramping up of production. The EBITDA was very low. Now it's back to $11 million, although it has not reached its full potential, but already at a positive note. And EPP, $3 million in EBITDA despite the lower production due to mine sequencing.

Moving to the other items, amortization, depletion expenses at $11 million in financial results of $3 million came according to our expectations and pretty consistent with what we have seen in the last few quarters. In terms of other results, the company is recording a positive $3.4 million gain in the second quarter, which is associated with a promissory note or has in its favor. The outstanding value of the promissory note is $12 million between principal and accrued interest, which we expect to collect this month of August. Before or ahead recorded in its balance sheet, $8.6 million associated with the expected receivable of this promissory note. And now we're now considering we're very close to collecting it, we are recording the additional $3.4 million.

But again, more than the accounting impact, the positive note is there will be a nonrecurring inflow of $12 million to the cash of the company during this third quarter. Net income tax expenses of $2 million, consistent with the results, bringing net income of -- to $11 million at the end of the quarter.

And finally, we bring again as every quarter, a detailed analysis with the change in the cash and equivalents of the company throughout the quarter. On the far left side of the page, the cash position at the beginning of the quarter at $103 million. In this left side of the page is what we call adjusted free cash flow to form which is the free cash flow to form generated by the 3 mines in commercial production, not including investments in expansions of the business. That portion of the business despite a weaker part in terms of production, we did generate $15 million. Then in the middle of the charge, the investments for growth, we invested $7 million in exploration. As a reminder, this year of 2023 is the year we're investing the most in exploration to increase our reserves and our resources, the life of mine of the company. So we're seeing substantial investments quarter after quarter.

Expansion CapEx of $21 million, which is mainly related to the final phase of construction of Almas and capitalization of ramping up costs. This number should reduce significantly for Almas from Q3. And more to the right side of the page, the financial items, proceeds from that of $30 million related to the ongoing liability management of the company and the dividend that we paid at the end of June, $10 million, bringing the cash position to $110 million at the end of the quarter. And with this, we end our presentation open to questions. Thank you.

(Operator Instructions) We also received questions from the webcast. Our first question comes from Mr. Edgar Souza, Itau BBA. Please proceed.

So my first question is about Borborema, I know that you are still working on the feasibility study. But if you could give us some qualitative information about the projects, it could help. So are you already proceeding with preconstruction works at the site? When do you expect to start with the construction? And how long do you expect the construction to take? And still on Borborema, if you could please provide some color on the expected time line for the CapEx of the project. How should we model the CapEx for the project? I mean, which percentage of the total CapEx is expected to be disbursed in 2023 and in 2024? And then my second question on Honduras, congrats for the stabilization of the production in Honduras. I think this is an important milestone for this operation. My question goes more to the medium term. At which levels do you expect production in San Andres to stabilize ahead?

Okay. So first, Borborema, we cannot yet disclose the precise numbers. We are wrapping up the feasibility study. It's coming in the next couple of weeks. So then we will be releasing all the financials of this project. And then later on, we will file the full report on 43-101. What I've been sharing, and it's very important to mention is, number one, we already and as you asked, we already started the land works preparing the site, and we continue to do land works preparing the site for the investment. We also ordered the mill because the mill was the bottleneck in terms of delivery, that would be what would be struggling if we were not ordering. So the mill will be delivered by the end of '24. So then production coming in at the end of '24, but mostly now in '25th.

In terms of -- we will also add because there is -- I saw there's a question that from Roman about the CapEx. We are an inflationary pressures, right? We could see some of this movement inflationary pressures and also impact on exchange rates on the CapEx. But as we did for Almas, we are working very hard in order to optimize the CapEx so that we can maintain or if not reduce what had a big river project earlier. So we are now in this direction. We already revised the mine plant so everything is coming together as we expected. And we'll be releasing the feasibility study together with the pre-economic assessment of extension on production. So all the feasibility study has been done for 2 million tonnes per year. However, as I mentioned to the market, this project has already close to 900,000 ounces of reserves, but could be double of this if we remove one road, a few kilometers and also get more water access. So we are doing feasibility study with the 2 million tonnes with 900,000 ounces of reserves despite over 2 million ounces of our resources and reserves.

So -- and then on the year 3 or 4, after we projected, and we're already taking all the initiatives in order to ask and get more access to water and also to move the road. So we believe that in 3 years, they will be accomplished. So then the PEA, we will access ore 3.5 million tonnes, more or less, of production on year 3 and 4, and that will significantly also increase our gold production that year. So this is coming in line becoming very satisfactory. And then the precise numbers, Edgar, we'll be disclosing to the market in the next couple of weeks. And I ask you to stay tuned. And then we also do a call with the analysts to explain in more detail about this project, which is very important for our growth path.

Then you asked about San Andres. San Andres, we should continue to increase production to 18,000, 20,000 gold equivalent -- gold ounces per quarter. As you compare to 2021, we are now somehow lower average grades compared to 2021. So we should not see on running rates if we don't expand capacity with this capacity, we have already reached 80,000 to 90,000 ounces of production. We should not be at that level on the running rate as we are today. So we should be around 70,000 to 75,000, 65,000, 75,000 gold ounces -- ounces of gold. However, we are doing now start some exploration in other areas to understand the potential to access higher grades and two, understanding the potential also for to expand the capacity of the plant so that we could then increase ounce of production. But that these running rates at the capacity that we have now, that will be at the range.

Our next question comes from Victor Shan Safra.

Okay, great. I'm not sure if the camera is working, but I'll go ahead. Rodrigo and Kleber, I have a question on Almas. I had a few technical issues. So sorry if a question is a repeat. But -- so Almas is close to reaching commercial production. And I'd like to know how is the operation ramping up? Is everything according to expected. And we have the production contribution for Almas for 2023, but I wanted to know what we can expect for the annualized production for Almas, if possible to disclose? And my second question is on Borborema. You guys mentioned in the release the longer-than-expected delivery times for ball mill, which is pushing the startup of Borborema to the beginning of 2025. I'd like to know some more detail on that because it seems like this was not your fault. This was due to external factors. So I just wanted to -- for you guys to touch on that. And on the subject of the withdrawal of the 2024 production guidance, was this delay in Borborema the only factor? Or were there any other factors in that decision of the withdrawal of the 2024 production guidance?

Okay. So first, Almas, yes, it's actually the ramp-up is above our expectations in terms of the last 3, 4 weeks in terms of production and also recoveries. So that makes us very comfortable to think about the commercial production very soon. Actually, we were expecting to do that by the Q3, as we projected, end of Q3. Now we can push more to do this now in August. And so the production on Almas, the project and the feasibility take us on the annualized production of 50,000 ounces of gold to be yearly per annual production. But as we could -- I mentioned earlier, we could see -- we already saw some opportunities to increase production. So we are now investing so that we can see what could be a higher production for next year. But yet, the 50,000 is the annual annualized production for Almas in the first 3, 4 years.

But after expansion, that can increase. Then you mentioned about Borborema. The sole reason that the production is pushed to very early '25 is the delivery time for the mill. That should be delivered by the end of '24, then you need to install, start some preliminary tests so that we can start the operation and the ramp-up in '25. The single reason that we would drill the projections for '24 is exactly this. It's only because of Borborema being delayed by 2 or 3 months, and we were projecting to start production by late '24. Now it's early '25. That's the only thing that affect. But also, we are reaching close to the '24 guidance. We are now by the end of '23. And -- but when we finish the result of Q4, then we will give the guidance for '24 as we do an annual base. But the reason that we will drill is exclusively because of the Borborema lead time for the mill.

Our next question comes from the webcast from Roman Rossi. I have a couple, if I may. Regarding Borborema, you mentioned that you are expecting to make the investment decision shortly. Are you expecting to have the finance in place during 2023. Also, can you give us some more guidance on CapEx or how it compares to the existing technical report, particularly considering the FX and inflationary pressures.

Thank you, Roman. We cannot yet disclose the numbers. We are wrapping up. But as I mentioned, there was some inflationary pressure. There's some impact on exchange rate on the CapEx. On the other hand, we saw opportunities to optimize as we did in Almas. So we don't still major changes compared in terms of CapEx compared to the latest number that big River disclosed. But we also revealed the mine plan. So we also looked in other alternatives in order to optimize. And most importantly, we also could see -- and we will prepare this plant, and as we did with Almas, very flexible with the 2 million tonnes and then to increase to 3.5 million and more in the year 3 and 4. Then there was a second question you made that I forgot here. Can you -- Did I cover everything?

Hedges, no?

Oh, Hedges, yes. What we do, Roman, is as we did with Almas, we like to guarantee the payback of the projects. So in Almas, we could see the payback on equity in 1 year and the payback on the full project, including the debt in 2 years. So then we hedged the first 2 years of production in order to guarantee that either their equity investment is going to have the return and also the debt is going to be paid. And then we should apply the same logic to Borborema to guarantee the payback of this project at a reasonable levels of price of gold. We normally do hedges as our 0 cost collars, and that's the idea that we are already exploring to do for Borborema. In terms of funding for Borborema, yes, we should announce construction together with the funding guaranteed for us to proceed with the project. So that will be a full package that we are preparing with the feasibility studies funding and also the return to the product.

(Operator Instructions) Our next question comes from Terrence. Can we speak about inflationary picture on operation, labor and for supplies and services.

The inflationary pressure that we felt mostly was '21, '22 and '23, it seems to be more the impact we had on the cost was mostly because of the devaluation of dollars, and we published the numbers in dollars while part of our costs in reals in Brazil and part of the costs are in Mexican peso. But we don't see very high inflationary pressures now along the year of '23. Kleber, do you have anything to add?

No, agree. I think that pressure in '21, '22, where we implemented also the initiatives to fight back inflation. What we are seeing is less inflation more FX impact, the appreciation of the Brazilian real and the Mexican peso, which is, on the other hand, being partially caused by a weaker dollar, which is also contributing to the increase in metal prices as well. So other that that, I think no major inflationary pressures.

Our next question comes from Philip Lean. How is the debt amortization schedule being addressed? We see a significant amount to be paid off in less than 1 year.

Yes, so -- it's our -- we work with local banks and we different banks in jurisdiction. Historically, we have had a significant portion of the maturities in the short term that has been even improving in the last 3 or 4 years. Every year, we have been able to push the debt a little bit longer by doing liability management with the local banks. What we are doing right now, as we speak, with Q2, I showed that we raised $30 million for the liability management, we keep doing the same program. Working with the local banks, each jurisdiction, so that we can take advantage of both the capital IRT and the tax shields and doing the liability management in each term that we do the liability management, we push the debt a little bit longer. That's not a concern for us.

Thank you for the questions. Now I pass the floor over to Mr. Rodrigo for his final considerations.

Okay. So thank you all for the earnings call. And we reinforced despite a weaker production, as we predicted for this quarter, we produced a healthy cash flows from operations that allow us to continue to invest and also the paid dividend. As I reminded our case, since the IPO we did in Brazil is to generate value to our shareholders by, number one, growing production and implementing the greenfield projects. Number two, increase resources and reserves in all the mines that we operate. And then number three, while we can also pay dividends. So we've been growing production. The project is being delivered, how much is there. We started the ramp up on time on budget, and we expect very soon to declare commercial production. So we are moving forward with the Board Volemaproject. -- numbers should be coming in and published very soon and why we continue to develop Matoso long-term project, despite this 5% review on guidance, the long-term view in the company it's been very consistent, and we reaffirm our guidance to be at the 450,000 ounces of gold equivalent production annualized by end of 2025. So I thank you all. And then I would invite you to stay aware, stay tuned. We hope to be delivering neos in the upcoming weeks. Important news as we were question here several times about Borborema and also about Almas. Thank you.

Thank you. We now conclude the ARS conference call. Have a nice day.