Aura Minerals Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 5, 2023

Key Takeaways

  • Despite a ~20% decline in Q1 production, EBITDA held steady at $37 million thanks to record-high gold prices and recovering copper prices driving margin gains.
  • The Almas greenfield project was completed on time and on budget in under 16 months, with ramp-up underway and commercial production expected by Q3 2023.
  • Net debt rose from $77 million to $89 million in Q1, reflecting $22 million of expansion capex and a $10 million one-off tax payment.
  • The company recorded zero lost-time safety incidents this quarter and maintained geotechnical monitoring, underscoring its operational and ESG discipline.
  • Mineral resources and reserves climbed significantly, with ~600 000 oz added and 742 000 oz of proven & probable reserves newly recorded, supporting the plan to boost production toward 450 000 oz/year.
AI Generated. May Contain Errors.
Earnings Conference Call
Aura Minerals Q1 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

But despite having Lower production compared to Q4, 20% below last part of Q4. We had the same EBITDA Basically, because we had higher gold and copper prices, we could pay all the costs And we also had

Speaker 1

a product of

Operator

Arpanza Azul that we achieved Last year and this year, we had positive prices, either gold and silver. So already This is Paseko, very much in line with the despite the lower production. So how much we can increase our EBITDA as we should improve in production along the year, Including the gold prices that is on total record high level and copper price that 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 We are extremely positive because of the lower rates that came mostly in other Zazu, we have this increase in all in sustaining cash cost, but We should be decreasing obviously steady cash flow throughout the year to reach our guidance. Net debt, we increased from $77,000,000 to $89,000,000 this is $1200,000,000 increase despite having invested $22,000,000 And development mostly development of Almas, which is now entering 1,000,000 in exploration and also one time based $10,000,000 in Almas as well.

Operator

That's the high level results that we're going to pay, but I would highlight that all the very important milestones that we are reading in all of our studies last the 1st month of and the last month, And such as we promised that the market that we will generate value by increasing resources with the total that we have over the last 4 years. And number 2, we also will be increasing production. And if you see what happened the last couple of months, we released our AIF Annual Information Form. We are already starting to harvest some salt of our exploration program that has been applied during the last 2 years. And a very important milestone is The ramp up of ALMA.

Operator

We built ALMA within the budget, within the time line that we projected in less than 16 months. Now we are ramping up and we expect commercial production by Q3 this year. This first degree is still probably built And we continue to work very hard to be a commercial production by Q2, but that's very important that all our shows to the market to investors that we can build projects We think the budget, we think at the time line that we projected despite all the challenges that we had during the last few years such as high inflation, carbon sourcing, equipment and so on. Next slide. As we also highlight in terms of safety during this quarter, we had Zero loss time.

Operator

The objective that we have every year is zero loss time in all operations this quarter. It's difficult to achieve, but this year we want to achieve this and we reached these Very important results during this quarter. And we saw constantly partly, if not more than on a partly basis, we do a monitoring of our Geotechnical structures with satellites, within images, radars and consultants, external consultants That goes and visits also or structures and all of them are according 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 Gold Equipment Analysis last quarter of last year was very high, particularly in EPP when we were mining 2.53 grams per tonne in Ernesto pit. And as we projected this year, Ernesto pit has mostly been already mined.

Operator

We go back to grades that we are usually in line in EPP, 1, 1.2, and according to the mine seekers, we knew that this That would be 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've listed in our guidance. So, Andres, still below Q1 last year, but high than last quarter last year, we continue to do improvements in the PPP in Southern address to increase production to also reduce the cost. I hear now in Honduras Now with the owner of the plant, Tom, we believe that most households during the second semester, we will be able to show a high production should be continuing to increase Production of our Q2, Q3 and also Q4.

Operator

And as we had a lower production mostly because of lower percentage of mines, we see EBP already mentioned Next is live. In terms of how in sustaining cash cost, we saw an increase Slightly increased from Q4. Q1 that mostly mine sequencing from add ons as well. We could reduce a little bit in Honduras CPP a little bit the same despite the lower production. That's because of the accounting rules that we have in the inventory.

Operator

But as we also We'll be moving forward along the year with higher production. Also, almost a project to have a lower always sustaining cash cost compared to our average debt company. So we should see During the year, we have been lowering our sustaining cash costs while increasing production and being able to actually reach our guidance that we released at the market earlier this year. Just before I turn forward here to Trevor, again, very important for us building our on time budgets And now, of course, running up on time and also on budget, we are doing a lot of effort on running up this mine. We have over 12,000,000 As you know, in OTC, we value a lot of local labor in order to have the maximum possible local labor despite this area has been Never a mine jurisdiction.

Operator

We are the first one to go there. We could train, take a lot of local air to our mining operation in Mato Grosso in EPP. So if you learn the KVAC, with this, we have intense training program with over 8000 hours that we could have a lot of labor and then Starting the ramp up already with 57%. It's a very important, but we believe we want to go significantly higher than this during the ramp up and also the 1st year's operation will be Okay. Sorry, I think I had some minor issue here in the connection.

Operator

Tom was talking about Alma's. Would invite everyone to follow-up how we progress also the ramp up, very important milestone and should we be trying to compare production by Q3 this year, We have between 25,000 to 30,000 ounces of production this year, which is half of the year and then next year. And we continue also to move with the board body projects. We are now advancing all the feasibility study, converting the feasibility study that was done by Australian rules to Canadian rule, the 4031 101. And We would like to inform the market progress on this project by June and perhaps start the construction in June this year.

Operator

Again, just as I mentioned, very important quarter for us is on the strategic level We could increase by almost 600,000 ounces And we convert more than 100% of the inferred into MP and P. So that shows that capacity should be constantly creating inferred and converting them We increased measure indicated by close to 700,000 ounces And then we've increased our P and P equivalent product reserve by 742,000

Speaker 2

ounces.

Operator

We are very much in line with our plan and delivering results, increasing production, moving forward with the projects and increasing resource and reserves, which is our main objectives for the next years.

Speaker 2

Thanks, Rodrigo. Good morning, everyone. Thanks for attending our earnings We start with a summary of the 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 $97,000,000 in revenues, a decrease compared to $106,000,000 in the last quarter, Mainly due to reduction production, as Rodrigo was explaining, due to mining sequencing in Erez del Sur and in EPP. Although we see a reduction in revenues, our margins have increased as a result of higher gold and copper prices on this quarter.

Speaker 2

And we see our EBITDA achieved at $37,000,000 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 On the Q1, I'm going to go over detail. Next, based on the Americas. And finally, in terms of cash and net, our net debt had a slight increase as expected from $77,000,000 at the end of Q4 'twenty two to $89,000,000 at the end of this first quarter As we invested almost $30,000,000 in the expansion of the business in the final phase of our construction, and we had a nonrecurring of tax payments of $10,000,000 on this part.

Speaker 2

Then on stage the next page, please. Thank you. On this page, we explained more the items impacting our net income. As we saw before, adjusted EBITDA That was we reached $37,000,000 in this Q1. I'd like to highlight the restaurant performance in Arendez do almost $74,000,000 in this quarter And also highlighted the performance of Minoza.

Speaker 2

All of us is reporting only $5,000,000 which is below its potential. We see some improvements compared to the previous quarter when the EBITDA of Mineroz was just $1,000,000 which means that we are seeing a progress both in terms operational results and financial results in San Andreas. Amortization and ambition of $12,000,000 Since The last of last year, we are accounting also the depreciation of capital leases of EPP, which accounted for $2,000,000 this quarter. Finance expenses and other expenses of $4,000,000 $1,000,000 respectively came according to Our expectation when compared with the last few quarters. And on this quarter, we reported a low income tax expenses, Mainly because we reported again deferred income taxes.

Speaker 2

So Some upside also because of the appreciation of the Brazilian Real during the 1st part of the year. When that happens, we recognize Again, a non cash gain in our books when converting the balance sheets from Brazilian reals to U. S. Dollar consolidated base, Bringing then our net income to $19 heading in the quarter. And finally, as ever, Carter, we bring What we call adjusted free cash flow to firm, which is free cash flow to firm generated by the 3 business units, which were in operation during the Q1, Not including investments in exploration expansion.

Speaker 2

We see a robust cash of almost $20,000,000 generated by the 3 business units, despite the annual tax payments of $10,000,000 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 highlight the investment for growth of $28,000,000 6 of which invest in exploration to keep with our strategy to continue increasing the mineral reserves and mineral resources of the company, Expansion CapEx of $22,000,000 most of it's related to the final phase of ALMA's construction. And more to the right side of the page, Financial items, mainly the we highlighted the $13,000,000 debt payment term debt, Which was already expected to happen in this first quarter, bringing the cash to $103,000,000 at the end of the first And with this, we end our presentation and open to questions. Thank you.

Speaker 3

We're going to start our Q and A session now. We will have the first question from Edouard of VITAUR. Edouard, please.

Speaker 4

Hi, Rodrigo. 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.

Speaker 4

I just want to have more color on this given that 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 start up of the construction? And still on Borborema, how do you expect to find a cap production

Speaker 2

last year, but we saw

Speaker 4

a slight improvement? 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

Operator

Thank you. It's got I will answer it about Porvorema and then I'll go back Thanks about our orders. So Bamborema is a project that is already fully permitted with the full feasibility study already So we'll be ready to start construction. We have not yet started the construction because most of the studies was gone under the Australian rules because this Project used to be the loan to Australian company. And as always, we are listed also in TSX.

Operator

We need to have a feasibility study before we publish any numbers about that Under the 40 three-one hundred and one. Basically, the rules doesn't change much significantly on the numbers, particularly in resources and reserves. So this is being converted Now to 42-1 hundred and one. And as we did with ours, we are looking, understanding the engineering, see if it can access upsides in terms of to reduce CapEx and or also mine sequencing in order to improve the generator return and the payback of the projects. So we are progressing very much in line, very well in this conversion.

Operator

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 as we are according to our plan, Construction either June or July. Now I cannot give a lot of more information 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 42.01. Klebert, if you want to talk about the financing, then I'll go back to all of this.

Speaker 2

Yes. So, Edouard, we are planning, as we have been indicating, Some combination of debt and cash from the shareholders or in Dundee. We are targeting around between 50% and 6%, some kind of financing that's our financing. So far, we spoke With many banks that have strategic, we have big offers, which we are discussing with our Board of Directors. Yes, we haven't made yet any commitments, but we are ready from the alternatives.

Operator

So as we got going, we saw last year, particularly in the second semester, We had in our crude operations that we reduced our production, which was right over 60,000 ounces reduction last year, coming from Now over 90,000 ounces back in 2021. 2021, we reached high rates and very high recoveries during the year. And so we are compared to last year, we are gradually improving as you could see already Q4 now in Q1 This year, in future, we should also continue to improve as we are now it's a long process, I tell you before, Between mining and producing gold, it's a long lead time. It takes a while to adjust once it is stabilized. Should stabilize back, it takes a lot of time and we are stabilizing and the production is increasing.

Operator

If you see the resource and reserves we have here, We should not reach higher grades as we had in 2021, 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. So this is what we're working in a 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 that we will be able to reach those numbers back again, which is It should be part of our plan. We are analyzing a lot of our possibilities to reach that level again.

Speaker 4

Okay, great. Thank you. Thank you, Rodrigo. Thank you, Eduardo.

Speaker 3

Thank you, Edgar. Now we have the second question from Guilherme of Citi. Guilherme, please.

Speaker 1

Hi, everyone. Can you hear me?

Operator

Yes.

Speaker 1

Yes. Okay. So good morning. This is Guillaume Nippes from XP. And thanks for taking my questions.

Speaker 1

I have two 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, you came slightly above expectations. You came around $31,000,000 most of it explained by the expansion, but I would like to understand your expectations on how it's going to be in the coming quarters.

Speaker 1

So as a third of it came on the Q1 this year. And my second question is On EPP cash costs that can also be low expectations, mostly due to lower inventory costs from M and S. So if you could also comment

Operator

on that, How will you

Speaker 1

cash flow for the next quarter and if there is something else for Q2?

Operator

Blaber, that's on your

Speaker 2

Yes. So on the CapEx, Guilherme, not including Berbodema yet. It's not part of our guidance because the project has not been approved. So we expect to deliver on guidance. The reason why the CapEx was proportionately higher in Suezmax quarter was because of the final phase of construction of ALMAS.

Speaker 2

Out of the $31,000,000 in CapEx, more than 50% was on 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, we if we make if our Board makes the construction decision on Burbodema, then we would review the guidance And any other CapEx related to Burbuermo Construction? Your second question was on the cash cost of Apoena. So Apoena has some stockpile, a few months 3 months of work in progress inventory because the grades in the Q4 last year were very high from the Ernesto peaks.

Speaker 2

Accounting wise, it reduced the cost So the work in progress inventory is accounting wise. We have to rate the average cost of the inventory. Going forward for the rest of 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.

Speaker 3

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

Speaker 5

Hi, good morning, Rodrigo. Good morning, Clever. Nice to see the update overnight. Most of my questions have been answered here. But just speaking about Palmas, it's impressive the work you've completed in 16 months.

Speaker 5

We're looking forward to it coming online soon.

Operator

I see that the product

Speaker 5

order was $16,000,000 If I'm tallying things right in previous That brings a total of 73 now. So could you tell us a bit about what's going 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. It 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 to Rescorp or Emma?

Operator

Yes. So, Ravi, the line will cut off a little bit. The final question, I did understand. But the first question about Alma's, when you mentioned some numbers, can you repeat that?

Speaker 5

Right. If my tally is right, you're reporting $16,000,000 CapEx on Almas this quarter. If I'm adding things up correctly, that brings the total as of this quarter to $73,000,000 that's been spent at Almas. Could you tell us a bit about what's the expectation for Q2? What kind of work is going on as you're in the final stages to commercial production?

Speaker 5

And then also, I mean, 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 Boroberema next year?

Operator

Right. Yes. The first of the total CapEx, it's close to $78,000,000 for Almas for the completion, Which is very much in line, slightly above our initial budget, but not material. So I totally agree that it was outstanding job for their local team. And then you asked how we did that.

Operator

I think it's As we did with Aranzazu and all the operations, a lot of discipline, either on studying, analyzing, making sure that what we are budgeted 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 Dollar To empower more our local teams, to give them more autonomy to make decisions, so they become much more fast, of course, Under the guidelines that we give to them, but they were very creative, very innovative, doing building the planting parts Before assembling them in one local place and renegotiating contracts with the providers, We analyze specification of our products, so that all with all of that, they could manage and contain Significantly, the inflation, and that's how we work in order, right? We have a decentralized decision making process, while we have essential Ethical values of 100 and 30.60 meritocratic environment to our employees. And we've been able to Okay.

Operator

Track with very commercial talents and then the same team that has built and learned because we also make mistakes, we learned the mistakes, will be the one that is already We are not analyzing and preparing both for them to start construction. So we should expect a very strong team to be Headside, don't expect it will be the same CapEx needed at the same time line once Autorella is a bigger project, Our goal will be within what we have been exposed to the market.

Speaker 3

Thank you, Rodrigo. The next question that we have is from

Speaker 6

Good morning, Rodrigo and Claver. Again, most of my questions have occurred, 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?

Operator

No. We are reviewing, analyzing, but most of these Changes go through new projects and new licenses, Which is adequate now to world standard levels in many areas for those that are operating already under the highest Environmental ESG rules and all the permanency process should not be impacted.

Speaker 6

Okay, perfect. Appreciate that.

Operator

Thank you, Daniel.

Speaker 3

The next question that we have we received from Victor of Safra from the Q and A Hi, Kum. Congratulations on the good quarter and the advancements in new projects. Could you please give us more details on the price adjustments in Erinsazu 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 start order between Berberina and Matopas.

Speaker 2

Okay. I think I can start with the first two questions. So in Mexico, under the agreement between Aranzazu and Trafigura, which is the buyer of the copper gold concentrates, 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 in up to 4 months, They should have a review to make sure that all metal content are delivered in fact So according to the provisional invoices, if there is higher or lower metal content, it's adjusted. And also, up to 4 months is 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.

Speaker 2

If you recall, in the Q3 of last year, we recorded a $10,000,000 negative impact of price adjustments in Arensaso Because copper prices went from above $4.50 per pound between 1st and second quarter of last year to around the $3.50, $3.40 in the 3rd quarters. So 4 months later, we adjusted all the shipping the price of the shipments from months before with a negative impact at that time. Now what we see in this Q1 of the year is the opposite. Since the Q3 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.

Speaker 2

Since the 2nd semester of last year, APO and APO Sign a new agreement with the mining contractor. This new agreement has 2 different invoices. 1 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 Since the Q4 of last year, it has been included in our guidance for this year, the impact on the cash costs.

Speaker 2

It doesn't impact all in sustaining cash costs because we capture it. But there is Kind of a positive impact of the $14,000,000 expected for this year in the EBITDA for this change of criteria. And I think that the last question is with Rodrigo.

Operator

About Matupa, yes. Before the acquisition of Bolborena, we were planning to The disruption and we are giving priority to Borbolema to start the construction of Borbolema first and then during early next

Speaker 3

We don't have any more questions. I'm going to give the floor to Rodrigo for his final considerations.

Operator

Well, thank you very much for being here. And as I mentioned, this very important part of our data, we Good. Generate good results and good cash flow from operations despite lower production. We should increase production During the Q3, Q4, slightly in Q2, so if gold prices, copper price maintained at this level, which is highest ever, We should see a boost in our results for the next quarter in the year. But not only that, we made significant Towards our strategic review, if I remind everybody, we have 3 very clear path to build value to our shareholders.

Operator

Number 1, it's increased production from 242,000 to 150,000 ounces to 450,000 ounces of production when all the products Number 2 is the increase in resource and reserves and number 3 is to go beyond the 500,000 ounces to change in multiples. 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 or finish the construction, start the ramp up of Almas. We are advancing on board Borama to start the construction hopefully in June. We released annual information form with new resourcing reserves showing that we can increase resourcing reserves We think they're mine.

Operator

We're just in the beginning of this process. We just intensified the 2 years ago the exploration program and we continue to look alternatives in terms of M and A So that we can push our production above 5,000,000 ounces during the next 2 years so that we can also reach higher multiples. Remind everybody here that the multiple of the companies in our size is between 0.4, 0.5 times and multiple of companies that goes beyond 500,000 ounces, €67,000,000 is €700,000,000,000,000,000,000,000,000,000,000,000,000, so there's a significant value chain mark to our shareholders also through the modules. Growth, increased resource and reserves and also a change in the module. But that's our objectives for the next 2 years.

Operator

And I thank you all and this is a very important part 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.

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