Aura Minerals Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

There are 9 speakers on the call.

Operator

Good morning, ladies and gentlemen. Welcome to First Quarter 2024 Earnings Call. This conference is being recorded and the replay

Speaker 1

will be available at the Company's website at oraminerals.com/investidores.

Operator

The presentation will also be available for download. This call is also available in Portuguese. To access, you can press the globe icon on the lower right side of your Zoom screen and then choose to enter the Portuguese room. After that, select mute original audio. We would like to inform that all attendees will only be listening to the conference during the presentation and then we will start the question and answer section when further instructions will be provided.

Operator

Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding the company's business prospects, operational and financial projections and goals are the beliefs and assumptions of Aura's Executive Board and the current information available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore depend on circumstances that may or may not occur. Investors should be aware of events related to the macroeconomic scenario, the industry and other factors that could cause results to differ materially from those expressed in their respective forward looking statements. Present at this conference, we have Rodrigo Barbosa, President and CEO and Kleber Cardoso, CFO. Now, I will turn the conference over to Rodrigo Barbosa.

Operator

You may begin your conference.

Speaker 2

Well, good morning, Paul. We are very proud to be here. Thank you for being here with us to watch the Q1 results of 2024. We are very proud to release the results that we did yesterday for a few main reasons and then we'll go to the presentation. Number 1, this is the 5th quarter in the world without no lost time injuries in our operations setting that we are among the best companies to work related to accidents.

Speaker 2

And that's it's interesting to see that normally, investors to see, accidents and safety comes together with a good production, good cost efficiency and good results. Number 2, this quarter, we also increased compared to the Q1 of last year, 28% in production. We increased 45% in terms of EBITDA and yet not fully including the recent run for the gold prices and copper price. Comparing to the Q1 of last year, gold price is close to 9.8 percent and copper price actually has decreased by 6%. So, if you include fully priced of gold and copper, you would have imagined that our results would have been even higher compared to the Q1 of last year.

Speaker 2

So Natasha, if we now go to the first slides, as always, I'll do the summary of the results, some main milestones achieved during the quarter and then Clever is going to step in and go more specifics on the results. So again, very proud to have another partner without any lost time in years. And that's I thank all the team and all the leadership within our operations. That comes from a hard work for a long time. It's been years that we've been working in hazing our safety standards and the results that we have are now at 15 months without lost time incidents.

Speaker 2

In terms of production, so we increased production by 28%, reaching 68,000 gold equivalent ounces, very similar to last part of last year, significantly higher compared to 1st part of last year. That mainly comes from higher and recovery production in MINOSA that's now becoming stable. And also, ALAMAS that was not in production for sematin last year, now at full production producing 12,000 ounces of gold good in the quarter. So, we also continue to pursue a cost efficiency in all operations, the gain of productivity in Minoassa together with also gaining recoveries that comes from hard work from the team as well to reduce our cash cost on average. Although for Almas, for example, we still have some room to continue to decrease.

Speaker 2

And the thing is of all in sustaining cash cost, the results of this cost efficiency and gain of productivity, we could bring the all in sustaining cash cost to $1287,000 which is below the guidance, although we believe that we will be within the guidance for the year. So strong production, slightly increasing gold prices, which will become more will be more efficient during the second quarter and low cash costs or significant increase on our EBITDA. And we should expect this EBITDA to continue to increase as gold and copper price has significantly increased since we finished the last quarter. Another very important milestone, which is Borborema project. As we built almost on time on budget, Borborema is heading towards the same milestones, achieving production at the on this capital that we believe, which is 1st part of next year and within our budget.

Speaker 2

We are now 25% advanced in the project. All the land work has already been done. We are now doing starting the civil works and also getting some of the parts to start building the parts within the plant. We also entered the process to move the road in Guaporemo, understanding that the current feasibility study and the results NPV and general rate of return that we published are limited only to 814,000 ounces of gold and reserves, but we can more than double that once we move the road and the process of moving the road has already been started. Then we expect this to be granted the license within 1 year.

Speaker 2

And then it will take another 2 years to do all the construction on the process. So we believe that we can start increasing our resource, our reserves within this year, but then adding in production only in 3 4 years. We also, during the quarter, updated our mineral resources and our mineral reserves, adding 2,400,000 ounces of gold equivalent ounces and merit indicated and 0.9 improvement in product, which is a major milestone and a result of the exploration investment that we are doing within our operations that we're now starting to harvest the first results. I would remind that, for example, very important milestones that we'll be sharing with the market, Apoena, where we had and we still have a shorter life of mine compared to dollar operations. We started we wrapped up this mine in 20 16, 3 years only life of mine.

Speaker 2

We already operated 6 years and now increased to 5 years a life of mine. So, we are building life of mine in our operations as we move forward in the future. And as a subsequent event, 2 things. 1, we have the buyback program in place approved by the board and also by the regulator, which we could not start within the blackout period. So, we should start with this process after the blackout period finished, which is right after the results were leaving, a few days after.

Speaker 2

And we also and Clement then will give a little bit more information. We, at gold price, has brushed above our expectations. So we have heavy progress put and falls that we now that will now clear all the need for margin falls in this province relating all the cash from operations to benefit from the upside in the gold price, which we believe that can continue to appreciate in the near future. Next slide. Well, again, already mentioned, very proud on safety standards that we are achieving a very important milestone and precedent milestone for Aura, which is 45 quarters without any last time incident.

Speaker 2

And 2, as we do monthly monitoring consultants, we're using the highest procedures and technologies. Our structures, your technical structures are within the standards and very satisfied for our level. So, we continue to monitor these and continue to enhance all these structures when needed. Next slide. So I would call for attention from the investors and the analysts on the slides on the left side, on the bars, you have the quarter production.

Speaker 2

On the line above the bars, you have the last 12 months of production. So as we mentioned, after Q2 and during Q3, we flattered last year. We flattered the curve after almost start of production and also addressing the loss of productivity in immunosuppe, we could start increasing the production of last 12 months and we will continue to do that for the next quarter as well. If you see, we already have 3 quarters of 60,000 to 70,000 ounces of production and the last one comes from 49,000. So the next quarter, you can easily think that if we manage to do the same production of Q1 2,004, we will add additional 20,000 ounces on the last 12 months of production, which will put us on the running rate at 270,000 ounces of gold equivalent ounces of production.

Speaker 2

So that's very important because that will come together with a combination of higher gold prices, higher copper prices and stability on our cash costs. So when you move then to the right side of the slide on the two bars on the partly production per unit, We see a slight decrease in Aranzazole. This comes very much in line with our mine sequencing. As I mentioned in our top to investors and analysts, the nature is not homogeneous. It varies in grades and very characteristics of the ore body.

Speaker 2

So we knew that this quarter we would have a slightly lower production in Arenas Azul, which can continue to be significantly stable operation for us. 2, Apoena also, as we projected, not a significant part of Ernesto high grade beef anymore. So now we see the production decrease to 15,000 to 12,000. And Minosa, that's also we continue it's the 5th consecutive quarter that we're increasing production in Minhasa, starting last year with 12,000, 14,000, 16,000, 18,000 now 19,000 now achieving a very stable production in Winona, perhaps. And we continue to but we continue to explore opportunities to also gain efficiency and reduce the cost.

Speaker 2

In almost, we produced we had a below expectation production in the last part of last year due to the low productivity from the contractor. We sold that productivity, but we sold it at the higher cost, but now achieved the 12,000 ounces of gold. And with the partner, we are now focused on decreasing the cash cost of that operation. So we are already in place many initiatives, including making the contractor changing contractor with a more efficient level so that we can now reduce the cost while maintaining the production in our house. Next slide.

Speaker 2

So in terms of OV in sustaining cash costs, this is the second quarter that we are reducing OV in sustaining cash cost that comes from a combination of internal initiatives to reduce cost, but also gaining efficiency mostly in MENALSA. This is that's we understand now, we will continue to work on reducing our in sustaining cash costs, but I believe that we are now in a more reasonable levels. And that shows, Oura can control its costs and can gain efficiency in operations. And we are very much focused on that. And the problem we had in the past is because we are very focused reducing our cash costs.

Speaker 2

We change the contractors, we lose efficiency, then we work and regain efficiency, and then we can recover or even gain in cash cost. So while inflation is going up, we've been able to reduce our cash cost. Next slide. In terms of comparing the guidance, we reiterate our guidance for the year. We had good results in the first quarter, of 68,000 equipment ounces.

Speaker 2

We maintained our guidance at 244,292, of course, with the strong results. If we continue to have strong results around the year, we should be more to the top level of the guidance in terms of production. And of cash costs, we are much within the guidance, slightly above the lower part of the guidance and all in sustaining cash costs even below the lowest part of the all in sustaining cash costs. Although, for the year, we we expect to be within the guidance in all in sustaining cash cost. Of course, if we move our production to the top level of guidance, then all in sustaining cash cost could be on the bottom level of the guidance.

Speaker 2

And in terms of CapEx, although the charts might indicate that we will not achieve the guidance of CapEx for the year, but that's not considering that most of the expenses of Goporema comes during the 2nd semester where we'll be mounting the parts and finishing the construction of the project. Again, that's, I think, with the highlights the importance of this project of Borboren. On the left side, you'll see pictures that we already did all the land work. It started preparing all the ground for the civil works. Actually, the other base is already being built.

Speaker 2

And very much in line with the expectation, 25 percent achieved, 80% of the CapEx has already either been disbursed or negotiated. And then we don't expect any surprise in terms of CapEx for the project, neither achieving the schedule that we promised to the market, which is to start running ramping up the production by the first part of next year. And second, next slide. Very, very I would highlight to investors that this is a major project for Aura. It's important.

Speaker 2

It's big and has very interesting margins, very interesting returns, even without considering more than doubling the reserves, which is absolutely feasible after we achieved the licensing and moving the road. So, we started the we published the BEILD study last year before initiating the construction of this part with 800 and 12,000 ounces of reserves, only $182,000,000 of NPV, 22 percent return and 40% of leverage return on rate of return. And that was with the gold price at 17.12. If you use the same study that we published last year and apply the current gold price that can go even higher, the $2,300,000 We are talking about increasing NEPV by 143 percent, going closer and we got $440,000,000 of this project, leverage the return for the whole life of mine of 74% per year in U. S.

Speaker 2

Dollars and then leveraged a payback of 2.4 years. And again, considering only 812,000 ounces of reserves in all that study, if we move the road, we can more than double the result of the goal is already there, has already been measured, has already been studied and it's very similar to continuation of the overall. There's no secret. The mine plan has already been designed. It's just merit of licensing and then accessing this.

Speaker 2

So, I would invite everybody to think what can happen with NPV of these projects if you add more than the level of the reserves into the cash flows. Next slide. So, very proud of these results. Now, I'll turn the floor to Kleber that will talk more about the results specifically in details and then we come back for the Q and A. Thank you.

Speaker 3

Thank you, Rodrigo. Good morning, everyone. So I'm going to go over the main financials for the quarter. As we can see on the page, the main financial KPIs for this quarter reflects, especially on the net revenues and the only EBITDA, what Rodrigo was representing on the operational side of the business. If you see our net revenues will also increase by the 3rd quarter in our road now.

Speaker 3

We are reporting $132,000,000 in net revenues on this quarter. And now we are already exceeding $450,000,000 in the last 12 months in our net revenues. When it comes to adjusted EBITDA, also the 3rd increase in a row on this quarter, we were reporting $53,000,000 EBITDA, which comes from a combination of keeping production levels at the same that we reported last quarter, more favorable gold prices and lower cash costs as Rodrigo presented. And it's important to highlight again that gold prices on the Q1, the average gold metal prices in general, they're significantly lower compared to where they are today. Gold prices were the average during the Q1 at $2,070 and in copper prices at only $3.86 Now copper price is up over $4.40 per pound.

Speaker 3

When we look into the net income, the story is different, which is mostly explained by no cash losses related to the need following accounting rules to do a market to market. So the outstanding gold derivative is in our books. This is the same we saw in the previous quarter. So in the Q4, you might remember, we incurred a $20,000,000 non cash losses because gold prices came from below $1900,000,000 by the end of Q3 to above $2,000 by the end of Q4. Now during the Q1, gold prices moved as well.

Speaker 3

We ended the quarter at $200,000,000 So we recognized another $20,000,000 in no cash losses, which combined in the last two quarters accumulated $40,000,000 which again is important to understand that this is not expected to become cash losses in the future out of this $40,000,000 considering current metal prices, we would expect those to translate in only about $2,000,000 to $3,000,000,000 cash losses in the next few years. And then when we come to the cash and net debt, we see that we ended the quarter again with a strong cash position, dollars 214,000,000 at the end of the quarter. There was a slight increase in our net debt in the quarter to $105,000,000 to $105,000,000 which was expected, mainly because of investments in the portfolio projects, and also nonrecurring working capital consumption during the quarter, which I'm going to explain in the next few pages. Yes. Now on this page, we show the many items that explain what's between the adjusted EBITDA and net income for the quarter.

Speaker 3

Starting with the EBITDA, what I highlight is, out of those $53,000,000 that we reported, We see a good balance among the 4 business units. Arunza Zul, once again, was the main contributor to the quarter, with reporting EBITDA of $18,500,000 With Minoza, Apoena and Alma, all of them reported EBITDA above $10,000,000 each in the quarter. So we see was the balanced quarter and was a strong quarter, not only for Aurora as a whole, but also for the each of the individual operating business units. Looking at the depreciation and amortization, we are required an expense since above $16,000,000 in this quarter. Until last year, we used to have between $12,000,000 $13,000,000 in amortization expenses every quarter.

Speaker 3

From this year on, we should see that number increasing. It should be more around the number we're reporting this quarter, basically because now we have hours in production and we are starting to depreciate its fixed assets. The financial expenses is mainly $34,000,000 is mostly explained by what I said in the previous page is related to the non cash flows, is related to the derivatives. We also had recorded $3,000,000 FX expenses in the quarter due to the appreciation of the Brazilian real. Income tax expenses at $11,000,000 came pretty much as expected, considering the strong results by all business units.

Speaker 3

And then some small other expenses bringing our resulted short net loss of $90,000,000 which again would have been positive, would have been $12,000,000 positive if we excluded the non cash losses related to the gold derivatives. Next page. And then here we bring as always, we're bringing a detailed analysis explaining the change in the cash and the pressure equivalents during the quarter. In the far left side of the page, we see our starting cash position at $237,000,000 at the beginning of the year. In this left side of the page, is what we call adjusted free cash flow to Fermi, which is the free cash flow generated by now by the firm minus production, not including how much the amount we're investing to grow the company.

Speaker 3

That side of the business generates strong cash, dollars 19,000,000 in the quarter despite, 1st, no recurring increase in working capital. We consumed $13,000,000 in the quarter. Part of that is explained, for example, due to the Easter holiday in Good Friday in Mexico where we couldn't ship our concentrates. So while that was $30,000,000 a good portion, we expect to recover in the next quarters this year. And also, the first quarter is the part where we pay most of the taxes.

Speaker 3

We pay the $9,000,000 in cash and taxes of which half was related to special mining duties in Mexico where we pay just once a year. So moving forward, on one side, we would expect to see the cash flows increasing with more favorable metal prices, but we have some one off cash consumptions in the Q1 that we shouldn't repeat in the next few quarters. Investment for growth, that is the cash we're putting into increase reserves and resources and expand our business. We invested $23,000,000 in the quarter. Most of it, the investments for the Burbodemo project, $17,000,000 That trend shows continuing for the rest of the year, giving increasing the amount to put in Bergamo project for the next few quarters.

Speaker 3

And then on the right side of the table, you can see the financial items. The main item here is the interest paid on debt, which, consumed $11,000,000 of our cash in this quarter, which was, above our recurring interest payments, basically because every month of January, we pay interests for the ALMA's inventories in Brazil. So in Q2, the number should also go lower than according to more what we've seen in the last few quarters. And with that, we ended the quarter with $214,000,000 in cash and equivalents. And finally, we reported also subsequent events as we've anticipated.

Speaker 3

We negotiated in the month of April with the banks that hold our growth hedging programs. The elimination of what's called credit support agreements, which is mainly the ability for the banks to call margins. So for a fee, the banks agreed to exclude that portion of the agreements. And regardless where will the prices go in the future, There will be no margin pause. Again, Aura, that's also we highlight as important accomplishment center and shows how our debt is strong in terms of credit with the main financial institutions.

Speaker 3

With this, we end our presentation and open to questions. Thank you.

Operator

We are going to start the Q and A session for investors and analysts. Our first question comes from Edgardo de Souza with Itau BBA.

Speaker 4

Hi, Rodrigo. Hi, Kleber. Congrats for the consistent results. So my first question would be regarding Borborema. It seems that conversations for the road reallocation are advancing.

Speaker 4

So I would like to understand how long how should we think about CapEx for this expansion after you move the road? How long it would take to move the road? And after you move, how can we think about the CapEx of this expansion compared with the greenfields that you are doing now? And how long do you think it will take until you start producing in the expansion? This would be great.

Speaker 4

And then my second question may be regarding your growth projects, if you could bring any news regarding the investment in Matupa, if you are advancing with the financing of the project and when do you expect to start up the construction, if it is on track and on budget? And also on your other growth projects, if, you have any news on discoveries in Serra da Estrella, for example, it would be great. Thank you very much.

Speaker 2

Thank you, Edgar. So first, Borborema, we exactly we already entered the first conversations to get the license to move the role. We expect to have the license within, I would say, 1 year. After you have the license that you still have to do the final drawings, engineering by the land what is appropriate and then do the roll. I think that will take additional 2 years until we get that finished.

Speaker 2

Once we get the licensing of the to move, we already can consider measure indicated as a reserve. So, of course, then you need to draw and understand what how many ounces are going to be out of the pit and so on. But then we will publish an update on the feasibility study, including that ounces. The CapEx to move the road, we don't have the final numbers yet at Garbata, will not be relevant compared to the CapEx as we have today, will not be meaningful compared to the cash that we generate after that. What we will have to invest then is we are building the plant for 2,000,000 tons per year, flexible as we give with Almas to increase capacity by 50% or more as we move the road.

Speaker 2

So the plant is already being flexible and designed to support a high production. But once you get the license, then you need to invest more to increase production because we don't want only to increase the life of mine of Gabor Vebreira once you have this increase in reserves. So we want to increase production. And to increase production, we will have to invest. And that to but we can start doing that after the licensing.

Speaker 2

So everything that we believe that we can increase production on the year 4, 3 or 4 ahead of as we are today. Then your question about Matupa. Matupa, we are now on the final process of licensing. All the conditions has already been met. We already delivered to environmental agency.

Speaker 2

We expect that the preliminary license should be issued by June, July. This is when we would right after the start and make the decision to start the construction of the core project. We're still going very much in line with expecting to continue in the meanwhile, do exploration in Cenas, do exploration with X1 and do exploration actually very near mine X1, which we believe can potentially add the new resource and reserves. But yet, we have not disclosed. We have consolidated some information so that we can disclose an M and P.

Speaker 2

Also looking alternatives that if you're they have to remind either almonds and matupa smaller plants, but deposits that many deposits that can feed to the plant. So we are actually booking a benefit to increase new deposits to ex one so that it can also guarantee a longer life of mine from Atua or to also to increase production. So we are booking alternatives also to bring more gold from other deposits very close to the mine. And then you asked that also about the new project to continue to grow. We continue to actively look M and A here.

Speaker 2

We have a list. We know we have targets that we are looking. We know what we want. Of course, we also have to combine what you want to what is available, but that's a lot of efforts within our company is to look for new opportunities to continue to grow and pathway for us to be above the 500,000 ounces of gold equipment production within the next 2 or 3 years.

Speaker 4

Okay. Thank you, Rodrigo. Just a follow-up on my first question. Do you have any idea of how much CapEx efficiency we will have given that it is a brownfield project compared if you would build a new plant with 1,500,000 tonne capacity, for example, in Borborema? I mean, how much of cost efficiency, CapEx efficiency could we think that you will have given that it's just a plant expansion and not a new project?

Speaker 2

It's not a new project, Porvoo Reims. It's just a brownfield expansion.

Speaker 4

Yes.

Speaker 2

The base is there, all the infrastructure will be there, power lines, water, also some of the buildings is going to be already built. So it will be it's not an insignificant CapEx. It will be meaningful, but not compared to what we are doing now to $288,000,000 We should expect to be significantly lower $288,000,000 There's a lot of efficiency doing just this increase in the plant capacity instead of just building a new plant. It's not going to be the CapEx of building a new plant for sure. It's going to be just a profit expansion of the current plant.

Speaker 4

Okay. Thank you.

Operator

Next question from Guilherme Nippes with

Speaker 5

Hi, guys. Can you hear me?

Speaker 2

Loud and clear.

Speaker 5

Okay. Thanks Rodrigo, Kleb and Atash for the opportunity. Congratulations on the results. So I have two questions here for EPP. Costs were the main highlight in all of you, and you already started production at the Lagrines and as to see pits.

Speaker 5

So could you give us any update on the production and costs that you're already seeing these 2 new pits? And my second question is on Alma's operations. So, when do you expect the cost reductions to normalize so the company would be on track to deliver the guidance for costs in 2024. So when we could expect the issues faced by the contractor during Q3 and Q4 to impact costs? These are my two questions.

Speaker 5

Thank you.

Speaker 2

I will start with the second question, then I'll pass to Cleaver to answer the first one. On Almas, so we are right now as we speak transitioning a contractor. This month, So we will be as a transitional, we do not expect any significant cost reduction during this quarter. But then for Q3 and Q4, yes, we expect this gaining productivity. We also have perhaps have some gaining rates and also gaining cost efficiencies for Q3.

Speaker 2

Q2, probably the same cash cost on almost for this year. We might even have some slightly lower production because of the transitioning. You'll lose a little bit of productivity, but then setting up the stage to a very good results during Q3 and Q4. Well, Claver, if you want to talk a little bit about Apoena. As you know, you can see Claver is much taller than I am, so we'll have to play a little bit of the

Speaker 3

game. So, basically, our expectation for car planning and the other also the other business units, but it's to deliver our guidance for the zinc and some cash costs. We know that by the end of last year in this first quarter, we had some remaining ounces from their mesopage, which is a high grade material that usually drives to a lower cash cost. So it was expected to see some positive impact on this quarter. The new bids, they don't have the same kind of material for the rest of the year.

Speaker 3

So what you should expect to see until we are in this for us to be within the guidance for the cash

Operator

Our next question comes from Flavio Bica with

Speaker 1

taking my question. I have two questions by my side. First one, is increases expected in NPV for Berberama related to gold price increase already net from collar hedge loss? And second one is about taxation reform. What do you have you expected some critical changes or have you done some calculation about that?

Speaker 1

That's my both questions. Thank you.

Speaker 2

Yes. So to Porvarema, let's remind that the loss that we had was accounting loss, not cash cost loss. That is because we have to market to market the auctions, the call that we sold to buy the books because the calls, the strike price are $2,400 and above. As we did the simulation at $2,300 gold price, there's no lose at all. And the gold price up to 2,400, it's fully priced and can be fully absorbed by the NPV in Porvoo.

Speaker 2

After that, for the 1st 2 years, then we were locked and moved up the production to the 24 100. So still have even room to increase gold prices and benefit in terms of returns in the project up to $2,400,000 So that's that there's no losses at all up to 2,400 gold price in gold, whatever. Actually, if the gold beyond that is not that we are losing, it's just that we are not getting the benefit in most of the production of Porvarema. We will get the benefit in the other productions. And then the other question was about the tax the tax revenue.

Speaker 2

We don't have any information yet to believe that there will be a significant impact in our production and our taxes. There might be some, but yet not we don't see any meaningful changes for taxes within operations in Brazil.

Speaker 1

Thank you.

Operator

Next question from Riccardo Monengaglia with Safra.

Speaker 6

Two questions. Can you hear me? Okay. Hi, guys. I have two questions.

Speaker 6

The first one, on production. What do you think are the main risks to reach the high end of your production guidance for 2024? And maybe if you could share with us after first two figures and part of the second queue past us, are you more confident now on reaching the high end of the guidance than you were at the beginning of the year or at the time that you released the guidance? And my second question is on shares liquidity. If you could give us some color on the latest initiatives to increase the liquidity of Faroe shares would be interesting.

Speaker 6

Thank you, guys.

Speaker 2

Thank you, Ricardo. So many ways to not achieve the guidance is always related to the instability of production that comes from a few different reasons. It can come from tractors problems. That means we had the loss of performance at the mine or severe weather beyond what we project. We already project a high rainy season and non rainy season and rain above the average and rain below the average, we all do that.

Speaker 2

But if there is a 5% scenario the OpEx is operating in some of the operations that might also impact and slow our production. And also, our issues with the contractors are go we are ready all the contracts are in line. And the one that we are changing now in ALMA is the one that we operate in Apoena. So we are we know very much in, we know how to work. And actually, the mines in Apoena is more complicated to operate than ours.

Speaker 2

So we don't expect a significant losing productivity perhaps during 1 month. Slightly losing with the transition and then good partners on the Q3 and Q4. And you mentioned about where we at the start of this quarter, we expect to be within the guidance and where the guidance. The Q1 came off of what we expected. So we should put that in perspective.

Speaker 2

Yes, we believe that we will be within the guidance, but now we are moving towards the high end of the guidance in the production and the low end of the guidance in terms of sustaining ongoing cash flow. As I mentioned, if we if you replace the 2nd quarter production, so the production that we expect, if we maintain the production of Q1 to Q2, you are adding 20,000 ounces on the last 12 months. So we are ready if you replace the Q2 with the Q1 production of this year, we are already at $270,000,000 and above of production, which put us more to the higher level of the guidance and the lower consequently lower level of their all in sustaining cash flow and also cash flows.

Speaker 6

Thank you, Rodrigo. Just one follow-up on the first question. If you could share which operations or which mines do you think there are higher risks of reaching the maybe the high end of the guidance by mine. So just to understand, I know the risks of not reaching were very clear, but which operations do you think there is the risk of having operational issues or maybe that you still depend on some factors to improve like operation efficiency to improve so you can reach the high end?

Speaker 2

Let's call mind by mind. Right? Those has always been stable for many quarters of the world, actually years, right? We ramped up this mine in 2019. We increased capacity and we are operating very stable, very much in line since then.

Speaker 2

Apoena is the mind that we have ups and downs depending on where you're entering, but it's a known variation. So that is already putting in perspective in our projection. Almost probably where we are transitioning in contractor, that I would say that has some risks because a new contractor is coming in and we need to make sure they will perform according to the expectations. And Honduras with the 5th improvement in the role in terms of quarter, so very stable reaching now very good levels of production. We that was the last mine that we implemented the OR360 future, which is the way we make decisions, they centralized very a lot of connections within the employees and communication.

Speaker 2

And this team has been rebuilt since we changed the general manager, the director of operations built on there. They have consolidated a very strong team that we believe we can keep this stability in terms of production for the upcoming quarter. So one operation that I would first one that would pay more, we would pay more efficiently is this transition contracting norms. In Acuena, there's always some variability change in one piece to the other one. So we need to make sure that we are okay at good stability in that operation as well.

Operator

Next question from Hapi Nizami with National Bank Financial.

Speaker 7

It's nice to see a strong Q1. I noticed that it's a significant proportion of guidance compared to the last couple of years. So my first question is basically on that. Can you give us some more thoughts on your goals to achieve more steady, more predictable production and costs? And specifically, thinking about if you can give us some guidance as to how you're thinking about quarterly performance through the year with that in mind.

Speaker 2

Not sure if I understood the question. So, if we expect to continue to have stability in terms of production and cost and what is your expectation for this semester, is that right?

Speaker 7

Yes. Basically, for for a point, it has a variable production history and you're looking at your annual guidance and Q1 looks great. Can you tell us a bit about what factors will affect Q1 versus Q2, Q3, Q4, just the ups and downs that will balance out to reach the full year?

Speaker 2

Yes. Buena, it's very much in line of the guidance that we gave initially. First quarter, we still had some high grades from Ernesto. We don't expect this to happen in the second quarter. Then Q3, Q4, you will wait to notice.

Speaker 2

So we will have some balances within one and other quarter, but yet very much in line to what we disclosed in the beginning of the year. Overall, on consolidated basis, we expect Q2 to be very similar, slightly below, slightly above Q1, not a significant change. And hopefully, as we've seen in Orem during the last 3 years, but not with that lapse change, but we should expect some improvements in Q3, in Q4 in terms of production. So that's why we are already running rig at 270,000 ounces if we replace Q2 of last year to the Q1 of this year. And then we can go to 100 and above in terms of production.

Speaker 2

But yes, we are in the beginning of the year. As you mentioned, things change, weather change. So, we are very conservative in maintaining the same guidance that we gave on the early this year.

Speaker 7

That's where we go. And is it given that Ernesto is exhausted and it looks like some of the stockpile effects have also been lessened. Can we expect longer term grades to be closer to reserves or rather to ask a simpler question, will stockpiles continue to be a significant portion of the feed this year?

Speaker 2

It could be, guys. It can be in stock buy. When the grades, we should expect us returning to what the company was producing before the net. At the same time, also strip ratio, the net was high and now also strip ratio returning to the levels we had 2 or 3 years ago when before we started going to an estimate. So yes, reduction in grades, reduction in strip ratio, one thing partially offset the other.

Speaker 2

But we should see as we get to the guidance, we are already producing in Aquinas 60, 65,000 ounces of gold. We should not see that in the near term again. It goes back to the level that we projected earlier this year.

Speaker 7

Thanks Rodrigo. And if I may ask another one, on the gold, the hedges and the credit support agreement that you've resolved recently, can you give us some background on was this agreement tied solely to the Bovarema collars or was it based on overall credit thresholds for Aura overall.

Speaker 2

Overall, 100% of our That's right. Yeah. A 100% of the our hedge program, both does not have any more need for margin calls.

Speaker 7

I see. So this change has no implication towards future debt capacity or any other covenants. Is that fair?

Speaker 2

No change.

Speaker 7

Perfect. Okay. Thank you very much. And on the hedges, could you give us a little bit of color on in the next 12 months, some sense of what the distribution of the hedge downsizes in terms of the ceilings and the amounts that are applicable in the next 12 months? Yeah.

Speaker 3

So most of our hedges are related to either the ALMAS program or the Bergodema program. Now financials, we split the 2 programs. So for ALMAS, we should see all the callers. They are already expiring on a monthly basis. All callers should expire by the middle of 2025, by June 2025.

Speaker 3

And in July 2025, we start having the maturity of the Burbotema Gold hedges, which is going to mature between the middle of 2025 in June 2028. So it's going to be 3 years. For Borreba and Almas, we hedged 80% of the projected production. Borreba have just one strike price for the ceiling is $2,400. And for Almas, which is expiring, is going to expire for the next 12 months, The average ceiling prices are about $24.50 ranging from $2,300 to $2,800 But I would say most by now, by far, most of the program are for the Boremajeres, which starts maturing by the middle of 'twenty five until 'twenty eight, and all of them have a historic price of 2,400.

Speaker 7

Perfect. Thank you very much for the time. We appreciate it.

Operator

Next question from Steven Sangha with Arlo Investments.

Speaker 8

Can you hear

Speaker 2

me? Yes. Now, yes.

Speaker 8

Yeah, yeah, yeah. Thank you. Yeah, I'm a long time shareholder. So a couple of questions. You've been doing a great job.

Speaker 8

First thing, it's a TSX. You're not getting much value for what the company has done. And have you thought of moving more to an international exchange, like Chicago Board Exchange, where it's more on 7 exchanges and you get more reflection of value? The TSX, I find, is, you know, there's some shorting. This is very liquid, and the share price doesn't reflect what value you have.

Speaker 8

So this is my first question. My second question is, I'm a long time shareholder. So with Rio Novell, the Amos pit mine is quite large. And the Payoh pit we never could drill originally way down the bottom. The Payoh pit could expand my life mine, the mine of that, you know, the extension of that and significant resources for ALMA.

Speaker 8

And my third question, last question is, you're becoming a mid tier producer here. Do you think chances are a major might buy you out? Thank you for your time.

Speaker 2

Thank you, Stephen. Thank you for being here for a long time. So your question first about the liquidity and TSX, yes, I think we feel the pain of not having a stronger liquidity in TSX. That comes up a combination that we have a new story. Aura was not a very successful story in the past in TSX.

Speaker 2

So there's still some legacy of that image. And also, we've been able to raise capital in Brazil and outside Brazil, Mexico, significantly cheaper to any country that's raising capital in Canada. So we are not using Canada debt and equity capital markets because we've been able to find cheaper. Now we are raising capital at $1 +8,000,000 to $1.5 for 3, 4, 5 years more thermal, while many companies are above the 2 digit levels. And also in equity capital market, we don't have to use and we did an IPO in Brazil of CAD 200,000,000 while in Canada, TSX people were celebrating $30,000,000 to CAD 50,000,000 of issuance.

Speaker 2

So we've been able to find cheaper capital in other sources and that's part of why we don't get a lot of traction also in Canadian markets. Having that said, we've implemented several initiatives to increase liquidity in Canada, including more increasing investments in investors relations. Yet, I would say that the result is below what we expected. So, we are glad yes to consider other alternatives of listing. Aura, it's a company that will have a very strong cash flows and growth and dividend story, right?

Speaker 2

Not many companies, if any, in the sector can show the growth that we are having, while we can continue to pay dividend and be under leveraged. And Canadian vessels in general, they are more towards the exploration and the new acquisition or a new hole that you're going to drill and increase resource and reserves. So perhaps our story fits better in the United States or Europe as you already could imagine. Then you were asking about how much right, that's why we are not doing a significant investment exploration to increase the life of mine at the current week. And then you are completely right.

Speaker 2

The pit is completely open. We are we know that if we drill more down deep or on the side, we can increase reserves very easily. Although we already have 15 years life and 16 years life of mining armor. We don't need to expand the life of mining armor. So our effort is concentrated to an exploration in areas that we can then feed increase the feed to the plant, right?

Speaker 2

You don't increase the feed to the plant if you increase the reserves on the down deep, but we can increase the feed to the plant if you do the exploration satellites, satellite deposits, which is we have been doing and we've been having very interesting results.

Speaker 8

Well, thank you and no, thank you for that question. That makes sense. I know Veracy around, there's a lot of deposits you can bring in there. Anything for that Tolfrida, Colombia project? Is that just on hold?

Speaker 8

Or is that just an asset we will hold long term? Thank you for your time.

Speaker 2

No, we are doing very basic exploration in Philadelphia to see if we can expand the resources and reserves. And also, we still have some permitting license that needs to be renewed that is being discussion with the local and federal government. So that's more that's the bulk of my I think it's more long shot. Now we continue to monitor, we continue to work there, but it's a longer shot. I think we can easily put and we'll put Borboryme in production next year.

Speaker 2

We can easily put them up by production. Also, and start construction very soon. Exploration in Serra del S data that was questioned before, it's been very interesting. We are building and putting the numbers together so that we can share with the market. So we have other focus in the company right now and bending to this licensing process to finish in Colombia so that we can then gradually start increasing investments there.

Speaker 8

Thank you for your response.

Operator

Our next question comes from Roman We have a couple of questions from Roman. The first one is, you've mentioned lower costs at Almas, thanks to some initiatives. Could you give us some color on what initiatives and in this cost reduction will be sustained over time?

Speaker 2

On our last, the main initiative is to change the contractor because we could this contractor did not perform according to expectations during last quarter last year when we reached the hard rock. So they lose productivity. We could fix the production by putting more equipments and investing more to offset their inefficiency. So now we're changing the contractors so that we don't need to put all these new equipment and invest in for them to be efficient. If you apply the efficiency they have in Apohena, 2 hours in excess, it's even easier to operate.

Speaker 2

We can easily understand that we can bring that cash cost now significantly more towards the Q3 and Q4 of this year. There was a second question.

Operator

Yes, there is we have 3 other questions. The second is increase in OpEx in Aranzazu beyond the appreciation in the Mexican peso and lower copper prices. Is there any other factor that pushed costs higher? The third question is ore mill and gold recovery are slightly behind the technical report in ALMAZ. What are you expecting going forward?

Operator

And the 4th question, looking at your

Speaker 1

That's just

Speaker 2

a quick because I won't remember. Let's do it. I'll

Speaker 1

go super hard for time.

Operator

Okay, sure.

Speaker 2

So the first one was Aranzazu I'll back towards the plan.

Speaker 7

Yes. So Lorenzo,

Speaker 3

also we did expect some increase in cash costs and all in this year compared to last year. That has been reflecting our guidance and our expectation is to deliver the guidance. There is 2 macroeconomic factors. The first one is that Roman indicated the effects. But also when we were looking gold equivalents, there is a conversion gold prices moving faster in Q1 than copper.

Speaker 3

Than when you do the conversion. It seems the cash cost was higher, but it's just a matter of how conversion, though. Then ideally, it's better to do the conversion on constant metal prices. And it's important to remember that in Arazo for this year, we expect Olin to increase compared to last year basically because there are some important agreements that we are renegotiating this year that even had the old inflation impact in the last 2, 3 years because there are long term agreements with fixed prices. Is natural.

Speaker 3

When we renew, we do see some impacts. So that's going to mostly explain together with stronger Mexican pesos and in the metal prices this increase in cash cost scenarios as of this year compared to the previous one.

Operator

Our third question is ore mill and gold recovery are slightly behind the technical report in ALMA. What are you expecting going forward?

Speaker 2

We expect production and recovery to be very much in line to the feasibility study. This change comes more from mine sequencing that we lost the productivity from the end of last year. And so we expect the grades and also recoveries to be very much in line. We don't have a major deviation from the feasibility study. It's more linked to the mine sequencing.

Operator

4th and last question. Looking at your CapEx guidance, it seems you have accelerate in the coming quarters. What expansion CapEx are you expecting in the coming quarters?

Speaker 2

We expect CapEx to be very much in line within the guidance. As I mentioned, we are now ramping up the speed in Borborema first to do the land works, which is the low cost. So now we should see a gradual increase and more latent increase in Q3 and Q4 this year in terms of CapEx. So most of the CapEx for Goglorema is disinverted and invested during the 2nd

Operator

answer section is over. We would like to hand the floor back to Mr. Rodrigo Barbosa for the company's final remarks.

Speaker 2

So thank you all for being here with us. The Q1 was very strong result, but I would invite the analysts and invite the investors to look ahead, to see what is going to be this company with a combination of putting Amazon for production for the whole year, putting a lower cash cost and higher gold price, right? The Q1 is just assigned what we can do during the year. And the Q1, again, we did perform a gold price for $2,070 We are now running at $2,300 and imagine continue to grow with this gold price. And now in next year, we will continue to grow.

Speaker 2

That doesn't stop this year. This year, we already increased 28% of production. The year is already moving to 107,000 ounces of production or above as we calculate together here. And next year, another project that's meaningful for us. It's close to 90,000 ounces of yearly gold production that are in the 1st 4 years that will start ramping up Q1 next year in a mine that is not only big, but also has a lower cash cost compared to ourselves.

Speaker 2

So, we should continue to grow during this year, high gold prices, spot control and next year putting online a project that has 9,000 ounces of production and a lower cash cost compared to where EBITDA is right now. So, next year, you can expect at least, if you compare 90,000 ounces to 270,000,000 on average that we might be doing this year, it's additional 30% increase in terms of production combined with the higher gold prices and lower cash costs. And we will do all of that again while we will continue and we maintain our guidance in terms of dividends, our policy, 20% of Minerals' recurring CapEx, and we can continue to pay dividends, maintain the low leverage and build the products. So thank you all and we'll see you on the next quarter.

Operator

Aura's conference is now closed. We thank you for your participation and

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Earnings Conference Call
Aura Minerals Q1 2024
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