Aris Mining Corporation (ARIS) Earnings Call Transcript & Summary

Good afternoon, and thank you for joining us today. My name is Alina Islam, and I'm a mining analyst here at Red Cloud Securities. I'm very pleased to introduce Aris Mining to you today, a mid-tier gold producer with 2 producing mines in Colombia. For the webinar today, we have with us Tyron Breytenbach, SVP Capital Markets. Tyron will provide an introduction to the company, including an overview of its Marmato and Segovia operations. After the presentation, we'll take your questions live. Please send us your questions via the chat box, and we'll get through as many as we can. Before we get started though, I do need to mention the disclosures. For Aris Mining, there may be some forward-looking statements made on this call. I would direct listeners to the cautionary note on Page 2 of the Aris Mining corporate presentation located on the company's website. For Red Cloud Securities, I would highlight that this webinar is for information purposes only and should not be considered a solicitation to purchase or sell securities or a recommendation to buy or sell securities. We note that this call does not take into account the particular situation or needs of individual investors. Participants should rely on their own investigations and seek their own professional advices before investment. Please see our most recent research located on our website for Aris Mining specific disclosures. With that, I'll hand it over to you, Tyron. Please take it away.

Thank you very much, Alina, and thank you, Red Cloud, for hosting. So as Alina mentioned, I'm SVP Capital Markets here at Aris. I joined the company about a year ago. I have a 10-year background in capital markets where I was an equity research analyst. Before that, I was a geologist in the exploration and mining industry, but really excited to be back on this side of the wall. So at Aris Mining, we're building a new Latin American focused gold producer. Anyone watching the space will have noticed there's a ton of consolidation. Pretium has been taken out. We've just seen Newmont and Newcrest execute a merger. Yamana has been gobbled up. So we think the sector is short on mid-tier growth stories. And when I was an analyst running around meeting institutional buy-side investors, I found that that's where they wanted to be positioned. So we're creating a company to fill that point. Please do read our disclaimer, our technical report and any other relevant information is easily accessible on our website. So our company in a nutshell is built on 4 pillars. The first pillar is growth. We want to be a growth story. And I think what's unique about our asset base is each one of our mines, on its own, can do 200,000 ounces a year. That's a big number. Assets like that are rare in this market, and we've got 4 of them. We don't need to take exploration risk. We have over 20 million ounces in our inventory when you look at all categories. We've got a robust balance sheet and funding profile despite the fact gold is floating with 2,000 ounces, again, the markets are volatile, there isn't a lot of equity capital out there. We don't need to worry about that. We have USD 230 million in cash. We have $260 million in project funding and our mines generate free cash flow. So we're really insulated. We can grow. We don't need to worry about the market. We've got a proven team. Our Board is who's who of mining pedigree. I will -- our CEO, Neil Woodyer, built up Endeavour Mining from a single asset. Ian Telfer did the same thing with Wheaton Precious. These guys are entrepreneurs. They know how to build a business. They know how to do deals and you are co-investing with proven mining entrepreneurs. And then the fourth pillar is our strategy to unlock value while we wait for a higher gold price. We all believe the gold price is going higher. We don't control the gold price, but if we grow from 250,000 ounces this year to 400,000 ounces 2 years from now, which is our plan, our fully-funded plan, we believe our stock is going to go up even if the gold price is flat. I'll just skip a few slides here and try and keep it tight. So today, we're already producing around 250,000 ounces, we're doing that at very low cost. Midpoint of our all-in sustaining cost is $1,100 an ounce. We got a lot of reserves and resources, and we're primarily focused on Colombia, and we do have a big advanced development project in Guyana as well, but we are focused on Latin America as a geography to grow our business. Zooming in on Colombia, we are the largest gold mining company. Our 2 producers, Segovia, our big producer and Marmato, which is a small producer that we are turning into a big producer, those are both located in established gold mining regions. These regions have hundreds of years of mining history. We have our social license there. Soto Norte is more of a [indiscernible] geography. It's going to be more of a permitting puzzle, but we believe that our credibility that we've built at places like Segovia, Marmato, we can transport that template over to Soto Norte. But we believe the geological potential in Colombia is exceptional, and we are very well positioned to exploit those resources to the benefit of our shareholders, but as well as the local communities. Segovia is our flagship. This slide really some Segovia but in a nutshell. So it has a history of cash flow. The mine has been around for 100 years. It's produced over 1.5 million ounces. It has very high grade, so there's a lot of free cash flow. And that steady, consistent free cash flow is very important because it opens up different funding routes. It's not often you see a mining company issue $300 million worth of bonds at a 6.8% coupon. We were able to do that because of Segovia's cash flow. So it's a funding tool. It's our ATM machine. Just as important, Segovia means we have a presence in a community, the town of Segovia which is invest with the mine. We invested $12 million last year into the community. We figured out the artisanal small-scale mining challenges in this community. And it basically proves that we're a good citizen, we're a good neighbor, and that's important as we grow our business in Colombia. So Segovia itself is made up of a number of small underground mines, [indiscernible] central processing facility. That processing facility was recently expanded from 1,500 tonnes a day to 2,000 tonnes a day. What's notable about Segovia is the grade. So we're currently averaging sort of 10 or 11 grams. Our key improvements in recent years have been the addition of a polymetallic plant. So we are now recovering zinc and lead, which are previously being deposited on the tailings. Not only does that generate another USD 10 million a year in revenue, it also means that our tailings are more benign, cleaner and they're actually used for construction projects locally. So I would say that our track record here proves that this can be a significant source of free cash flow and any improvements going forward are going to be incremental improvements around the edges of this operation which has been very stable historically. I like this slide, it shows how it steadily grown production. We're sort of averaging over 200,000 ounces a year now. I also like how stable the cash operating margin has been. When you have a high-grade operation, you're fairly resistant to inputs like labor, electricity, diesel. So again, we think of this as our ATM machine. One of the, I think, very unfair criticisms we get is our short mine life. So we currently have about a 3-year life of mine on reserves, okay? But we've had a short mine life for 20 years. It's just one of these assets where because of the geostatistical profile you have to drill very tightly to get to reserve status. Now that would be a problem if you were breaking ground on a new mine, but we've been operating here for decades. We know how the ore body behaves. And I will add that we've replaced our mined ounces every year, and we've actually grown our resource base, and we know it's a formulaic calculation to convert resources to reserves. So I personally think we are going to be in business at Segovia for 10 years plus. To emphasize that point, I'd like to show our regional exploration map. So there are over 30 veins that have been mapped by our artisanal partners, bio geologists at site or we've hit them in a drill hole. We're currently only mining 4 of these known veins. So there's a huge campus here, and we're actually spending $17 million in exploration at Segovia. So I think, again, we're going to put out some very interesting results, replace our reserves, hopefully grow our reserves and continue to add to our resource base and our flagship asset. Segovia is, I think, the template in Colombia for dealing with the artisanal small-scale miners. I've seen some research that there were over 300,000 informal miners in Colombia. The way this has been dealt with in Segovia by our predecessors GCM is to partner with the artisanals. so typically, an agreement would look like us purchasing their ore. We're getting 96% recovery at our process plant versus their typical 40% to 50% recovery. And that revenue means they can be even more profitable even after Aris takes its cut. We provide geological support. We can help with managing explosive delivery. We look after safety. And when the ore is going through our mill it means there's less affluent in the local streams and there's been a measurable decrease in the toxins in the local drainage basin. So 5 years ago, there was one artisanal agreement. We now have over 68 that covers over 3,000 people. These are 3,000 new taxpayers who now have a bank account. This formalization effort is a priority for the new Colombian government, and I think we're going to be a really strong partner in that regard. And doing this, gives us the credibility to go and permit things like Soto Norte in our opinion. So Marmato, I think, is the exciting part of our story. Building Marmato turns Aris into a 400,000 ounce a year producer. We are already active at Marmato in the upper mine. If you look at the cross section on the right, you can see that Marmato is porphyritic intrusive. So it's a big bulky intrusion system with an epithermal vein system coming off of the porphyry. Historically, we've only mined the epithermal veins system. That's a small mine produced around 25,000 ounces last year. We're not there for the epithermal system. We're there to go after that big porphyry, which has over 8 million ounces of established resources. And because we're expanding an existing operation that lowers the permitting hurdle, I think it lowers the estimation risk. We know what it costs to hire miner in the town of Marmato. We know what it cost to ship a ton of cement to Marmato. It's a much lower risk expansion, and it's fully funded while we're talking about it. So our most recent study on Marmato was completed in September of last year. So these numbers are very fresh. And what we're looking at is expanding the processing rate from 1,500 tonnes a day to over 5,000 tonnes a day. We're going to stick in a new ramp, build a new tailings facility, a new processing plant. And when the lower mine is up and running, the project will average over 160,000 ounces a year and at its peak will do 180,000 ounces a year. We're going to do that at a very low cost. Our estimated all-in sustaining cost is about $1,000 an ounce, and that's after accounting for the Silver Wheaton royalty. And then most importantly, the CapEx, which again is a very fresh number, we're very confident in that number, is USD 280 million that is easily covered with our current cash, our cash flow and our streaming agreement with Silver Wheaton. The final thing I'll say about Marmato is we have a 20-year mine life on reserves alone, our reserves of 3.2 million ounces. If you look at the resource addition to the reserves, this could be a 30-, 40-year mine life. So this is a foundational asset. And I think getting this into production is the next big catalyst for our company. We're currently in the final stages of permitting. We are hoping to receive that permit in late June, early July, and that will allow us to hit the ground running. We've got the team. We've got the study, we've got the capital. So that's the next major catalyst for this company. So our third project in Colombia, and I think to me the most interesting is Soto Norte. So some of Red Cloud's listeners might remember this project under the name of its former owner Ventana Gold, this is one of the first discoveries in Colombia when they open their doors to Western exploration. It's a very high-quality project. So a feasibility study outlined a mine that will produce 450,000 ounces a year at $471 an ounce. It's compact. It's high grade. It's bulk mineable. And I think it's one of the last great ore bodies out there in the space. However, it's unpermitted. It's in an emerging region. And so we need to approach this cautiously. We currently own 20% with the right to go to 50% after we get the permit, and despite being the minority owner right now, we are the operator and the CEO of Aris, Neil Woodyer, is also the CEO of [indiscernible], the subsidiary company. So we are the face of this joint venture in the country of Colombia. I'd like to point out that Ventana was acquired for $1.5 billion. I think the value the Street gives us for Soto Norte is 0. In addition to acquiring Ventana for $1.5 billion, the former owner, AUX, which was a private company based out of Brazil, they borrowed $2 billion from Mubadala. So a lot of capital has been attracted to this asset. So I think we were able to pick it up at a very interesting value. But to unlock that value, we need to now move it forward, apply for a new permit and get this approved. So just setting the stage to talk about the permitting plan and path forward. In Colombia, there's a protected area that's called the Páramo. It's defined by a topographical elevation contour. And above this level, it's sensitive because that's where the water collects. It's the start of the Drainage basin and eventually flows into the watershed of places like Bucaramanga. And rightly, you want to protect that water and not expose it to any sort of harmful industry. So mining is ban in the Páramo. A couple of other operators in the last cycle with projects in the Páramo, they are never going to have a mining license. So the first comment I want to make is that we're not in the Páramo. I think there's a lot of confusion about Soto Norte. And I still hear comments that it's located in the Páramo, it's not. We are however located very close to the Páramo and because of that, we're taking a very specific and cautious approach to the design. So not only we're going to mine underground but we're going to put the crusher underground. So all of the dust, noise and vibration that's usually associated with a big mine is going to be hidden underground. And we're going to have an access tunnel that transport the ore, pops out 7 kilometers away in a more agricultural industrial area. We're also designing a dry stack tailings facility, so there's no risk of tailings failure. We are going to recycle our water, and we're actually talking about putting in a grout curtain between us and the Páramo. And then finally, our process plant will produce a concentrate -- 2 concentrates, and we will ship that off site. So there will be no mercury or arsinic in the region. So that's a very, very expensive way to build the mine. But this project can handle it, just because the economics are so darn good, and the grade is so good, and it's the right way to build this project to balance the environmental and economic objectives. And then when I think about this logically, I have to point out that if you look at the satellite photo, I'll even get this cursor going, if you look in this area, I'll clear it now. You can see some disturbance, some roads, some sort of white bold areas of devegetation. What's going on there is you've got active artisanal informal mining, this mining is illegal. It doesn't follow the environmental standards and rules in Colombia, and they're only getting 40% recovery, right? So it's just not a sustainable situation. And part of the government's priority going forward is to formalize minus across the country. And so we are well positioned to work with these groups. We already have a dialogue going. We already have a proposal. And one of the things we could look at doing is actually helping them be efficient, profitable, safe and clean and maybe move those ore tons back to Segovia. So I think it's that plan, that means we're best positioned to permit this asset. That being said, you are not paying for Soto Norte now. I believe, based on the most recent analyst reports, Aris is trading at 2x cash flow on Segovia alone, okay? So you're getting this as a free option. And when it's permanent, I think it's worth billings. So I think that's the way to think about Soto Norte where we put our heads down and work diligently through the permitting process. Our fourth asset and our first one outside of Colombia is Toroparu. It's located in Guyana. Since getting control of this asset, we have reworked the geological understanding. We put out a new resource. We did bring the resource down, but there's still close to 7 million ounces here, at 1.4 grams. That's a good advanced project. And so we are doing our engineering work. We're trying to figure out what the ideal mine looks like. And we're going to focus on Marmato for now. We're not going to build Marmato and Toroparu at the same time. But this is a great project. It has a lot of value. We just need to see where it fits in with our capital budget. What I do like is how much infrastructure is going into Guyana since the big offshore oil discovery, I believe Guyana's GDP is growing at 40% a year. There's a lot of money coming into the government coffers, and these oil rigs don't employ enough people. So they are reinvesting that into the interior into mining. So I think it's a pretty interesting second jurisdiction for us. We do have an asset in Ontario. I'd say this is noncore. We won't be spending a lot of money here, but 2 million ounces in the Abitibi that has value, but we don't even really get a chance to talk about this because I think some of our other assets are not reflected in our share price. So if you look at our profile, I think we can surprise investors by how many ounces we have in the ground. We have 15 million ounces in M&I, about another 8 million ounces in inferred. We have one of the best balance sheets in the space. So that's made up of $230 million cash, and we have another $260 million in streaming commitments from Silver Wheaton. And as soon as we get our permit for Marmato, we then releases the first payment. We've got a great growth profile. I think gold stocks are growth stocks. And I'm showing the growth profile here over the next 3 years. If you looked out over 5 to 6 years, I think we would be even more attractive versus the group. We currently have a market cap, this slide is a bit outdated. Stocks at around [ $3.30 ] today. We probably have a market cap of [ $450 million ]. I'll go through some valuation in a second, but you're getting a lot of gold per ounce here very tight capital structure and something I'm very proud of is the fact that the management team owns about 6% of the company. We're starting to get some analyst coverage, average analyst share price is around $7.5. So lots of blue sky given where we're trading at today. And management's average cost base is around $4.50 a share. So again, if you buy the stock today, you are going to make money before the management team does. And I will flag that our CEO bought about $1 million with the stock over the last 2 days. So we're out there buying in the market right now on this weakness because at Segovia, we're making a lot of money even at $19, $19.50 an ounce. The Board, again, lots of big names here. Ian Telfer took Wheaton from a $20 million shell to a $50 billion market cap at one point, a bunch of company builders like Neil Woodyer, Peter Marrone. I also wanted to highlight some of our Colombian Board members, Mónica de Greiff, she used to be the Justice Minister in Colombia. She used to work for the utility in Bogotá at the time when the current President was Mayor. So she's respected in country. She also understand the politics, and we've got a lot of representation here from Colombia on our Board as well. So just to summarize before I actually want to show you 1 or 2 slides in the appendix is we're a proven team. We own our own stock. We've done this before. We don't need to raise capital. We're not going to dilute our stock. Three years from now, we'll probably have the same number of shares outstanding. We're going to be there when the gold ready happens. We're growing. Yes, Colombia comes with risk, but we believe the risk is priced in, and we are best positioned to manage the risk. So that's the story in a nutshell. But I did want to hit on this slide. So this is from our friends at Comox Securities. Just -- I mean all of our research is great. This is just the most recent one I read. So this is a chart of price to net asset value and price to cash flow with all of the mid-tier producers. And we are not even on the chart, right? We're down here at 2x cash flow and 0.28x NAV. So I do think we're inexpensive, even if you discount all of our assets. Another interesting slide that's a new addition to our presentation is, please bear with me, just a reminder about how special Soto Norte is. So when I was an analyst, one of the things Portfolio Manager would often ask is about the ounce per vertical meter because it's not just about grade, it's about geometry, right? If you've got 15 grams in a 1-meter wide zone and 10 grams in a 20-meter wide zone, I can tell you the latter is going to be more profitable. And some of the investment banks in the space did a peer comparison. And both Soto Norte and Marmato have some of the best ounces of vertical meter in the space. The only thing close to Soto Norte is actually FDN, which is the flagship asset for Lundin Mining and is obviously generating a lot of cash flow. They're paying a big dividend. So I think it's easy to get caught up in some of the pushbacks. I know the gold space, actually a lot of sectors on catching a bid right now. But again, we're well financed. We own our own stock. So when the market comes back, we've got a fantastic asset base and are one of the few growth stories out there. So I appreciate the time and attention. And I will hand it back to Red Cloud at this point.

Thanks a lot, Tyron. That was a great presentation. So we can start the Q&A portion of the webinar now. Just as a reminder to everyone on the line, you can type your questions into the chat box at any time. So we do have a few questions. Tyron, maybe starting with Segovia. You had a bit of a challenging quarter in Q1 with the fire. Have throughput levels returned to normal there?

Yes. So we had a very challenging quarter. So remember, right after we closed the deal with GCM and Aris, the merger, we had expanded the mill to 2,000 tonnes today. And as part of that expansion, there were some hiccups about caught on fire, and we had to do some repair work. So the mill was down for a number of days. As of today, we're back up at sort of 2,000 tonnes a day. The grade did dip as well a little bit, but I think it's natural when you go from 1,500 tonnes a day to 2,000 tonnes a day, the grade is going to come down a little bit. But net-net, you're producing more gold at lower costs. And remember that we are continuing to grow our artisanal partnerships. And so having a bigger model is never going to hurt us because it allows us to potentially do more deals and draw more ore from the artisanal sources. And sometimes these artisanals are sending us material at like 20 to 40 grams a tonne.

Okay. So then no impact to your guidance for this year?

Look, we sort of check in on this month to month, right? We're still a ways away from the end of Q2, but we did not change our guidance or warned that our guidance was at risk. So our guidance remains unchanged. But definitely, it's looking like the lower end of a big range.

Okay. So you talked about Segovia, the $17 million you're spending there. Are those on the existing veins?

Great question. It's split. I don't know exactly what the split is off the top of my head, I'm going to say 70-30, okay? So I think this might be the first year where we not only replace reserves but add reserves. And we broke it out in our last quarter on sustaining and expansion capital, but we're actually looking at new areas as well, could we open up a new ore face, a new underground access point at some time, yes.

Okay. So switching over to Marmato. What's the plan to fund that $280 million in CapEx?

So we have $230 million right now, okay? I think our cash is at a low point. Last quarter, we made a $50 million payment to Mubadala for our interest in Soto Norte. Now we can start to build our cash position again. okay? Last year, Segovia did $80 million in free cash flow at to mine level. But even without free cash flow, we have $120 million due to us from Wheaton Precious Metals. So they buy half the Silver from the ore body. They owe us another $122 million. So I would say between current cash and Wheaton where we're overfunded plus we have cash coming in from Segovia and at some point from Marmato as well.

All right. So just another question here. Porphyry deposits, they show a lot of potential. Do you have any plans of exploring other types of mineral deposits?

Yes, look, our neighbors, collective mining have made a wonderful discovery. It actually looks like it could be an earlier Marmato. I think that shares a lot of the region. We have tons of targets like as a geologist, that's one of the frustrating things for me is people are watching our production, they're watching permitting, right, which are not the splashiest things. But if we wanted to explore, we could put up some really big numbers. It's just we've got the gold, right? Our board wants to build and produce, and so we're going to do that. But at some point, I would love to talk about that. And actually, we've got a verifying site on our web page for Soto Norte and Marmato. And I would encourage and I want to dig into those assets to go through that, set up a call with me. But yes, at some point, there will be tons of additional targets over and above our existing resource base.