Aura Minerals Inc. (ORA) Earnings Call Transcript & Summary

Well, when it comes to mining stocks down, all of them have kept pace with the underlying commodity. One exception to that, especially compared to its peer groups, is Aura minerals. So it's a little bit smaller cap, but it has outperformed the broad global gold index. It is also one of those rare stocks that pays a dividend. It sports a 6% dividend yield at a time where it is looking to grow its production. It's split between 60% production in gold, 40% in copper. To talk about the Aura Minerals story, we've got the CEO, Rodrigo Barbosa joining me now.

Rodrigo, thank you so much for joining me today. Let's talk a little bit about that recent outperformance that we've seen in your shares. Are you feeling like investor sentiment is finally giving your company, but the mining sector, in general, kind of a fair shake.

Thank you very much. It's a pleasure to be here. Yes, but if you put it in perspective, our share price has been down for a long time and has recently appreciated around 20%, although we still consider significantly undervalued because Aura has been increasing significant production, we've been increasing our margins, gold price is up, and we will continue to increase along the next years as well in terms of production. So we expect, of course, our share price to continue to appreciate.

You've got assets in Honduras, Brazil and Mexico. I mentioned you've got copper and gold exposure. When you look at where growth is coming from, which side of the equation do you expect the greatest amount of production growth?

Mostly, it's coming from gold. We have a copper mine that is in Mexico, 2/3 of the production there is copper, 1/3 is gold. And then we have an operation in Honduras, gold. We have one operation in Brazil, Apoena, that's in production. Almas, the second gold production that came in online last year in Brazil as well. We are building the third one in Brazil, which is Borborema that will come online next year. And then we have another project to build that we should start during the second semester, Matupa. So most of the growth that we're going to see now are from the next 2 or 3 years. It will come by significant increase in gold production.

Borborema, you mentioned, is one that is under construction. We've seen certainly with other producers, this has been a difficult couple of years to bring something online with respect to delays, inflation, both on the goods side and the labor side. What's your experience been? And are you on track with Borborema?

Correct. So before I talk to Borborema, I would just highlight that we just built one project called Almas, on time, on budget while we've been seeing increasing costs and difficult to hiring people. Aura has been able to manage those situations. So we built Almas on budget and on time. We actually built Almas in 15 months, and we've ramped up in 5 months, setting new benchmarks in the sector. So we expect also Borborema continue to perform on time, on budget. It's a similar project compared to Almas, but bigger. So there's no much more complexity. We chose to go and investing in simple projects ever. So those projects allow us to be more on time, more accurate on budget, and we have an internal system, very accurate, in order to keep track of the construction. We are now, in Borborema, on time, on budget, close to 22.5% in advancement. We expect to start commissioning by the end of the year and start production by early next year.

And is that, as you're becoming a bigger company, I think there's questions about, does size and scale matter when you're a mining company. And so as you expand, are you finding that your size and scale does matter in terms of being able to lower your cost?

It does matter for 2 different reasons, to lower the cost, so you have a scale again, but also in terms of multiples when you are trading in the market. So companies in the size that we are producing 250,000, 300,000 ounces of gold equivalent per year, trading normally at 0.3x to 0.4x NAV. Company that goes beyond 0.5 million ounces, about 700,000 or 800,000 ounces, then the multiples start to go in to 6x to 7x -- 0.6x, 0.7x, 0.8x NAV. So we expect more appreciation of our shares coming from scale, gain, synergies, reduction on the cost. Actually, all the projects that we are building are greenfields, has a lower cash cost compared to where we are right now. So we should have a decrease in our cash costs while you will see an increase. So we expect -- we also want to change the multiples. We are now going with the project that we have, but we are going to be close to 450,000 ounces of gold equivalent production, coming from 235,000 ounces last year. That was going to happen in the next 2 and 3 years. But we want also to go beyond the 450,000 ounces. That's why also, M&A has been an important part of our strategy moving forward.

Well, let's talk about that part of it. Are you seeing attractive opportunities? Or with this rally that we're starting to see in the juniors, might you have to pay up a little bit more?

No of course, the rally increase expectations of anyone that has a gold project. So it's normal to see that they will gradually price that in on the shares. Although yet, if you see in the market, a company that's producing cash flows such as, has been benefited by the market to have the share appreciation in the last, actual 3 or 4 months. While the junior mines that also need to raise capital to build a project, they are still far from construction, 2 or 3 years, those has not yet appreciated. So I think that there's some interesting plays that you can do when you combine a company that produce cash flow such as ourselves. Cash flow is not only enough to fund the project to grow. But as you mentioned, we are also paying one of the highest dividend yield in the world, but we can also do acquisitions to include more production in the upcoming years.

Yes. Let's talk about that decision, to pay a dividend at this stage where you're still a growth company. What kind of edge do you think that gives you?

Well, I think it's just been very cautious on capital allocation. When we saw our strategic plan and our 3 projects, greenfields, that we already built one. We are building the second one, we will build the third one by next year. We could see that we could do that with our own cash flows and still would have excess of cash. So we believe that our investors is paid to manage cash. And every time we see excess of cash, we will also pay those to our shareholders. For example, in 2021, we paid 13.5% of dividend yield. In 2022 and 2023, we paid 6% of dividend yield, including share buybacks. In the meanwhile, we have built one greenfield operations. We are building another greenfield operations while we maintain our balance sheet significantly deleveraged. So the process that we are coming in online has a short payback, high returns and give us an ability to recycle our balance sheet very fast so that we can grow and pay dividends.

The majors are looking for growth as well. They're looking for both gold and copper growth, which you have, and a manageable debt load. You talked about M&A conversations that you're having to grow, but I wonder if you've had conversations from any of the interested majors looking to scoop up Aura Minerals?

Well, I think every company watches what the other one is doing, right? So there's always conversations going back and forth between one company and the other. That's very healthy for the sector. But yet, we are so undervalued, and we have so much to do in the upcoming 3 years that I see that's very difficult for someone to come and offer a price that's a reasonable that we think is our correct price. So we have a very long-term project that we want to develop.