Aya Gold & Silver Inc. (AYA) Earnings Call Transcript & Summary

Good morning, everyone. I will now turn the call over to Elisabeth Hamaoui, Aya Gold & Silver's Director of Corporate and Financial Communications. Please go ahead.

Thank you, operator, and welcome to Aya's Second Quarter 2026 Earnings Conference Call. Joining me today are Benoit La Salle, President and CEO; Ugo Landry-Tolszczuk, Chief Financial Officer; Elias Elias, Chief Legal and Sustainability Officer; Raphael Beaudoin, Vice President of Operations; and David Lalonde, Vice President of Exploration. We will refer to a presentation available via the webcast and on our website. As we will be making forward-looking statements during the call, please refer to the cautionary notes in the presentation, news release and MD&A as well as the risk factors in our annual information form. Technical information in the presentation has been reviewed and approved by Raphael Beaudoin, Aya's Vice President of Operations; and David Lalonde, Aya's Vice President of Exploration, both qualified persons as defined under National Instrument 43-101 Standards of Disclosure for Mineral Projects. And following the presentation, we will have a Q&A session. I would now like to turn the call over to Benoit La Salle. Benoit?

Elisabeth, thank you very much. Welcome, everyone, to our Q2 2026 conference call. It is another very strong quarter for Aya. We have pre-released the production results for the quarter. You recall that the production for Q2 is 1.7 million ounces of silver equivalent, which is a 61% increase year-over-year, and it's a 12% increase quarter-over-quarter. That translated into very strong financial results. So our revenue for the second quarter of 2026 stands at $97 million, which is an increase of 151% year-over-year. Our net income for Q2 is at $35 million, which is also a very strong increase from the previous year. And our cash flow is at USD 48 million, which is a 522% increase from the previous year, Q2 2025. So we have a very strong quarter in revenue, strong quarter in profit, strong quarter in cash flow. And this, as we all know, due to the seasonality in Morocco, Q1 is always a little bit lighter because of the weather. Q2 comes out of the winter and is a stronger quarter. Q3 is stronger than Q3 -- Q2, sorry, and Q4 has been historically our strongest quarter. So we're very pleased with the first half of the year as we will review some of the numbers. Now for the KPIs, the key performance indicator of the mine, the Zgounder mine has performed extremely well. The mining rate continues to improve, and it's up 7% quarter-over-quarter. And I'm pleased to say that the mining rate on a daily basis achieved 4,900 tonnes a day. You recall that the plant was designed for 2,700 tonnes a day. And one of the key elements was to make sure that the mining rate was going to be aligned with the nameplate of the plant, which was supposed to be 2,700. We know now it's a lot higher, but the mining rate is at 4,900 tonnes a day. We had record performance achieved from the underground and the open pit. So we're extremely pleased with the outcome, the grade through the plant was 141 gram per tonne, which is right where we wanted it to be. And another element, which is important is because we're mining more than we're processing, we have an ore stockpile of 374,000 tonnes. That is extremely important. It's the buffer that is there if we reduce mining rates for more development, especially on the underground, where we want to go to the lower levels, we have 374,000 tonnes of ore stockpile. At the plant, we have record milling rate in Q2, which again reflects our strong execution. Q2 average is 3,900 tonnes a day compared to the previous quarter at 3,600 tonnes a day and to last year, same quarter-over-quarter was 3,000 tonnes a day, and that we know the nameplate was 2,700. So we've moved in the ramp-up from 2,700 to 3,000 last year, started the year this year at 3,600 tonnes a day and are now at 3,900 tonnes a day and expect this to grow up a little bit again for Q3 and Q4. Strong recoveries as well at the plant and other KPIs, above 90% recoveries and above 90% availability. So all of our KPIs are green. We manage them on a daily basis, on a weekly basis, on a monthly basis. Currently, everything is in the green. We've also brought in a temporary crushing contractor to improve the throughput, and we're adding a new crushing section to the plant, and that should be ready by the beginning of 2027. Moving to the next slide, which is the selling price throughout the quarter. You recall that Q1 was exceptional as silver reached $120 per ounce in January. Of course, since then, we've seen a strong correction. So for Zgounder, the average selling price for Q2 2026 is $68.29. So it's $15 less than Q1. And -- but it's very close to the average of the quarter. You understand that the average of the quarter is very hard to meet in a decreasing price environment because you don't sell every day. So in a decreasing price environment, you're a little bit below the average. The average for the quarter is a little bit above $70, and we're at $68.29. We were above the average in Q1 because it was increasing at the time. So that was a little bit easier to be above the average, but it's still an extremely good selling price, knowing that Q4 last year, we were all very happy with $59.23. So again, a strong selling price in Q2 for Zgounder. And actually, the selling price at Boumadine for some just reason was a little bit better at $70 an ounce, but we have a payability there of 50%. So the selling price was net at $35 because you remember, Boumadine, we're selling tailings, which has a lot of difficult elements. So when you look at the cash cost, we were expecting cash costs to come down at Zgounder because we are now on a steady rate increasing actually the throughput, but on a steady rate. And yes, we're very pleased that for Q2 2026, the cash cost at Zgounder is at $17.69. That's something coming from $18.64 in the previous quarter and $20 in Q4 of 2025. So again, these are small details, better efficiency, and we are working on cash costs. But at $17.69, knowing that this is a brand-new plant, the development cost, the additional cost, sustaining costs are extremely low at Zgounder. It's probably $3 an ounce maximum, not even that in Q1 and in Q2. So you're looking at a cash cost of $17.69, which is a very, very good position to be in. To the next slide at Boumadine. Just quickly, Boumadine is a bit of an add-on to Zgounder. We're processing the old tailings. It's a reclamation operation. It had no CapEx, very low cash cost at $10.58 an ounce. It just generates cash flow. We're a little bit lower on the production front, and we knew Q1 again, that -- when you have a lot of rain in tailings, of course, it's a bit more complicated because it's slushy. So Q1 and Q2 were a little bit lower. We knew Q3, Q4 are going to be a lot higher, but we still managed to produce 187,000 ounces of silver equivalent, and we made a margin of $20. As I said, we sold it for $35 an ounce. Our cash cost at Boumadine is $10.58. We made $20 an ounce, so 20x 185,000 ounces of production. It's still $3.6 million of free cash flow coming to Boumadine to pay for the operation and for the drilling. So it's a very nice add-on to Zgounder, which we have in operation and accelerating in Q3 and Q4. Looking at the next slide is the cash position at quarter end. We started the year in January 1, we had $136 million in the bank of free cash. We always have $16 million of restricted cash, which is part of the EBRD loan package. We started with $136 million. And in the first 6 months of the year, we generated $119 million of operating cash flow. So $136 million, we add to that $119 million of operating cash flow. We have $38 million of exploration and sustaining CapEx, $38 million. We paid down $33 million of EBRD in the first 6 months. We had one payment, and we also paid down a $15 million short-term debt that we took last year on Boumadine, just it was available, and we took it on. That was paid back. So we paid $33 million back. We've invested $38 million in exploration and sustaining CapEx. And we finished the quarter with $183 million. Of course, we report in U.S. dollars. So $183 million, and we have $16 million in restricted cash, which technically gets applied to the EBRD loan at the end if we want that. So we had a strong cash flow H1. We have limited CapEx as we know. We have a large exploration program, but that's part of our value creation strategy. We did an early repayment of the $15 million to EBRD, and we're left with $183 million that is ready to go to the development of Boumadine, which will start towards the end of this year. So very, very strong quarter. On the next slide, just a summary of the first 6 months. If you look at the operational performance, as a company, we produced 3.2 million ounces of silver equivalent at a consolidated cash cost per silver equivalent of $17.59. Zgounder did 2.8 million and Boumadine did 0.5 million. So if -- and we will talk about the guidance, but we're already half year and half the way to the guidance. So we are totally aligned with the guidance that we presented to you at the beginning of the year. We're totally aligned with the guidance. Zgounder has a cash cost for the first 6 months of $18.18. Boumadine has a cash cost of $18 -- sorry, $10.85 per ounce. So we're fully aligned, and we'll review the guidance in a minute, but we're half the way into the year, and we're half the way into our guidance. The revenue for 6 months stands at USD 205 million. The net income is USD 84 million. The basic EPS is at $0.58 and the operating cash flow for 6 months stands at USD 119 million. The guidance, which you have on the next slide was presented to you at the beginning of the year. Our production guidance is 5.2 million ounces to 5.8 million ounces at Zgounder. And at midyear, Zgounder is at 2.8 million ounces. So you see that we're tracking right on our Zgounder production guidance. Boumadine is at 1 million. We're at 0.5 million right now, 400,000, but we know that Q3 and Q4 for Boumadine are going to be a lot easier, no rain and much, much, much easier warm weather. Boumadine currently is between 40 and 50 degrees some days. So it's very dry, so easy to work on tailings. The Zgounder average cash cost, we had guided at $21.50. We knew that Q1, Q2 would be a bit lower because of the strip in the pit and the strip has a direct effect on our cash cost. So we're not changing our guidance there. On Boumadine, we were at $10.10. We're at $10.40. So we're very, very close. The sustaining and growth CapEx is at $36 million. It's about half and half, half is sustaining, half is growth, new crusher, new installation, and ore sorter and different things that we're putting in, which are really growth CapEx and sustaining is the development of the underground. And exploration expenditure is at $60 million. That hasn't changed, maybe a little bit more due to the new assets that we've acquired, the new permits, which I'll review in 1 minute. So the guidance is confirmed. We're well into it at the midyear point, and we continue to be very positive about what's coming in Q3 and in Q4. So going forward on the strategy and the operational priorities, at Boumadine, which is the main now leg of value creation for Aya, all the independent consultant firms have been engaged on all key feasibility work stream. So metallurgy, energy, water supply, logistics, TSF location, feasibility study, all of that is now ongoing and will be ready next year, feasibility study. At the same time, the updated PEA is being completed as we speak and will be ready for publication early in September as we all come back from Labor Day weekend. So we're into it right now. We are into the mine plan. We are into the financial model for the PEA review. At the same time, feasibility is being completed. And we've already started the RFP process on mining, on construction, on electricity. So all of that is ongoing. So the investment decision has been made. The project is extremely profitable. We will also confirm CapEx in the revised PEA, which will be available in 1 month. And so Boumadine is a strategic project for us, and we're working on this thoroughly and to come with the revised PEA in September. At Zgounder, you saw its optimization of the Zgounder mine. It's working well. The open pit, the underground, the grade control, all of that is going extremely well. We've put in additional ventilation. We've put in additional safety equipment. We had to complete the first phase of the TSF because we were putting through more material in the tailings due to the fact that we went from 2,700 tonne per day planned in the feasibility study to today 3,900 tonnes a day, even 4,000 tonnes a day. So of course, the direct effect of that is the TSF gets filled much sooner than expected. We've completed the first phase of the new TSF, which is the same one, but just with bigger capacity. That's been done. We actually did it on time and below budget. And the new crusher expansion is being installed. It's going to get commissioned this fall, and it will be ready for early 2027. On the exploration front -- and that's Slide 12. On the exploration front, we do spend USD 60 million a year. We are drilling 200,000 meters at Boumadine. We're drilling 30,000 meters at Zgounder. As of now, the drilling at Boumadine is at 93,000 meters. We know that the first half of the year, again, winter, Ramadan is a little bit slower. We have a third contractor coming in with 3 machines or 3 drills. We are going to be up to 15, 16 drills turning at Boumadine, and we expect to complete the 200,000 meter program as we have. And if everything goes well, maybe a little bit more. The big highlight of the quarter was the new zone that we discovered parallel to the main zone where we had an intercept of 51 meters at 890 gram per tonne silver equivalent. That is clearly not currently in the resource model. There's additional drilling that will be done this year on this. But this is a significant discovery parallel to the main zone. We've also continued to drill the Main zone and the Tizi zone, and we've increased the length of the structure now to 5.4 kilometers. So that keeps increasing. And we're -- we've many other targets where we're doing mapping, we're doing prospecting to support future drilling programs on the Boumadine large project, which is over 1,000 square kilometers of ground under the exploration license and the [indiscernible] license of 600 square kilometers. So we have a very large land package at Boumadine, and we keep increasing the land package. At Zgounder, there's 30,000 meters. As of now, we've done 10,000 meters. You saw some results in June. There'll be more results coming out in September. Zgounder is steady state, drilling is giving us always very good results. We continue to see the high-grade mineralization. The structure is much wider than originally anticipated. So when we came in, we thought it was a 20-meter wide structure. It isn't, it's much wider. We're now pushing to the west to see under the fault. We are going to be drilling there in the next few weeks, few months to see if it's continuing under the West fault. We're also drilling to the Northeast. So it's a very, very strong project. Geology is getting to be better understood. We are using AI extensively to understand the regional play. And there will be some regional drilling ongoing this fall, and we're going to be looking hopefully for some very positive results. And to close, I'd just like to talk about the acquisition that we've announced last week. We've announced the acquisition of 259 square kilometers. We've always been saying that in Morocco, there's tremendous potential. Some families have ground, some families have many projects, and they have done very little exploration. They've walked the ground a little bit, done very little exploration, mainly have done a lot of the infrastructure work, but did not have the expertise to do the exploration work. So we were able to acquire from 2 families, a 259-kilometer portfolio a district called Zagora, which has the potential for copper, lead, zinc and silver. Agadir Melloul, which is copper, silver and gold and some probably rare earth as well; and Goulmim, which is lead -- copper, lead, copper, gold and silver. Those are very, very good projects. You should know that we look at projects every week. People come to us, show us ground we're very selective, very, very selective because we already have over 1,000 square kilometers of ground between Zgounder and Boumadine. But this is something when we showed that to the team, they said, "No, this is very, very interesting, and we should move and acquire this." We have acquired this for MAD 10 million, so USD 1 million. And the budget is about $800,000 this year to do what we always do, which is satellite imagery, spectral, stream sediment. We'll see if we do some geophysics a bit later. But this is low-cost acquisition, low-cost exploration. We have a team -- there was already a team, and we have -- some of our team is available to do this. We're not taking anybody away from Zgounder or anybody away from Boumadine because we'll have in total 18 to 20 drills turning. We will be producing 240,000 samples. So it's something that we're not taking away from these 2 assets to go and do the exploration on this new ground. This will have its own team. It reinforces our first-mover advantage in Morocco. We are with Managem and of course, ONHYM, the largest player in the country. These are all district scale exploration footprint. They're all put together very large packages of permits. And for us, it just creates a pipeline of opportunities for the future. You will see us acquire additional ground, very similar, some close to Zgounder, other close to Boumadine, but we are always looking at assets because we really believe that Morocco is underexplored. We know it is underexplored. We believe that there's more Zgounder, there's more Boumadine. There's more Imiter, which is owned by Managem, which is a world-class silver asset. There's more of that. There's copper deposits, there's more silver deposits, and we have our first-mover advantage, and you will see us continue making small acquisition like very small, but some very, very good ground that we like. So this completes the formal part of the presentation. I will turn it over to you, operator, for the Q&A period.

[Operator Instructions] Our first question comes from the line of Bryce Adams with Desjardins.

I just wanted to ask a couple of questions on the Zgounder outlook. In the disclosure, it talks to increased strip ratios in the back half of this year. So the question is, what do you think the strip ratio has increased to for Q3 and Q4? And then the same question for next year as well for 2027. Is that an accelerated stripping campaign next year? And then just similar on some of the outlook, you talked to slower mining rates in the underground. What are the expectations there?

Yes. Thank you, Bryce. Rapha is with us this morning. As you know, he is our VP of Operations. So I will let him answer this. The strip ratio for quarter 3 and 4, the life of mine strip ratio and why we believe there will be a slower throughput in the underground over the next few quarters. Rapha?

Bryce, yes, happy to comment on that. Let's start with the open pit. On the year-to-date in the open pit, we're around a strip of 10, and we're quite aligned with our 43-101 on the long term. We expect the strip to increase to around 16 in the next 6 months, and we expect to land the year closer to 13, which is quite aligned with our long-term expectation for the open pit. As for the pushback, we have several pushbacks planned through the life of mine for the open pit. And we have one coming towards end of year that is in our mine plan this year. We might push it earlier next year. We're taking our time to assess what's the best path forward. So the open pit is quite under control to the point that we have options. We can do it this year. We can do it a bit later in the start of next year. That is yet to be finalized depending on how things continue to progress. So the open pit on long term, we expect a 13 strip ratio, some months closer to 8 like we had in the beginning of the year, some months closer to 16 depending on where we're at and what's the best way to mine it as we go on the detailed planning on our rolling 3-month plan. As for the underground, I want to nuance that is, we are focusing on new zones, and we want to really focus on continuing to develop the infrastructure for the lower levels. We're on plan. We are closer to the 1760 level as we speak, and we need to go all the way down to 1625. We have a healthy stockpile. We're mobilizing extra crushing capacity that for the meantime, it's compensated by a crushing contractor. So we have -- we want to be comfortable on the ground. We are right now comfortable. We worked a lot in the last 2 years to get to that point, and we want to keep it. We want to keep it like that. So right now, underground, we have about 12 -- like 1,200 to 1,500 tonnes per day rate, which is fine. The reason why we would prefer to slow it down is because we have that option in hand, and we want to really focus on developing the sublevels to open more stopes and to be in this comfortable position. So as the open pit continues to sustain essentially a solid portion of the mill throughput with the extra crushing coming on hand, we have an ore sorter also coming that we want to commission later this year. So on the underground, it's not so much that we will reduce the throughput a little bit, yes, but it's to really sustain and even, I would say, accelerate the infrastructure development for the sublevels.

Okay. And I understand that you're still putting together the 2027 open-pit mine plan. At the minute, my model has a strip ratio of 20:1 for next year. Like do you think that, that is too conservative?

Yes. We're not planning for a 20:1 as strip ratio for next year.

All right. We can adjust for that. That should help our numbers. And then last question from me is just on silver sales. Sales lagged production a little bit in Q2. So Benoit, is that a catch-up for Q3? Has it already been caught up in July? And do you think that that's a tailwind for the next set of financial results?

Yes. Thanks, Bryce, for this question because I think that was something that the market was kind of puzzled with is the selling price. I'll let Ugo, who runs treasury and sales with the team, answer. He is with us. Because I think the market needs to have a clear understanding of why our selling price for some of you was a bit lower. And maybe, Ugo, you want to go ahead.

Yes, sure. So the average sale price of silver, if you will, the LBMA average sale price for the quarter was $73. We were a bit over $68 at Zgounder. We also have to look at the timing. And if you look at June specifically, price fell quite precipitously from over $70 to below $60 at the end of the quarter. And when we produce, we have to produce and then sell. So for sure, 1/3 of our quarterly production was sold quite low compared to the average of the quarter. So that impacted the revenue slightly. We're 6.4% under on average of the LBMA average price. And then on volumes, there's a few things. On Zgounder, we had a little bit of inventory, and we can see it in inventory. And on Boumadine, we sold less than if you take our about 1 million ounces and you divide that by 4 quarters, we sold less in Q2, but that's definitely going to be caught up here in Q3 and Q4. Things are going very, very well. And then the remaining of the inventory that we had at Zgounder is -- has been sold in July. And so yes, I think Q3 is looking good, especially at Boumadine, we'll see a significant catch-up from the first half just -- we were learning, it's our first time doing this reclaim. But I think now we've hit the wind in our sails now. So I think that will be caught up here in Q3 and Q4.

Yes. Thanks, Bryce. And maybe I can add just to what Ugo just said is, we can see the whole sector did not like the price in June. So like there was a lot of waiting and because we looked at other companies the way they've done it, and we all kind of got caught with that very quick deceleration or reduction of price. And hence, the average selling at $68 at Zgounder and $70 at Boumadine is -- like is a little bit below the average of the quarter. But in a decreasing market, it's very difficult to be on the average because you keep coming down as you sell, and it's much easier to be up the average on an increasing market. So it's -- but again, as I mentioned in my little presentation, we're very happy with $68 and $70. We preferred $82 in Q1, but with the cash cost at $18 or $16 and AISC plus 3 or 4, I mean, we're still very happy. And look, in 6 months, we generated $119 million of operating cash flow. So we like the silver price. We like where it is. We will prefer it in Q3 and Q4 to be much higher. But look, time will tell.