Fortuna Mining Corp. (FVI) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the Fortuna Mining Corporation Q1 2025 Financial and Operational Results Call. [Operator Instructions]. Please be reminded that this call is being recorded. I will now turn the conference over to your host, Carlos Baca, Vice President of Investor Relations. The floor is yours.

Thank you, Jenny. Good morning, ladies and gentlemen, and welcome to Fortuna Mining's First Quarter 2025 Financial and Operational Results Conference Call. Hosting today's call on behalf of Fortuna are Jorge Alberto Ganoza, President, Chief Executive Officer and Co-Founder; Luis Dario Ganoza, Chief Financial Officer; Cesar Velasco, Chief Operating Officer, Latin America; David Whittle, Chief Operating Officer of West Africa. Today's earnings call presentation is available on our website at fortunamining.com. Before we begin, please note that statements made during this call are subject to the reader advisories included in yesterday's news release, the webcast presentation or management discussion and analysis and the risk factors set out in our annual information form. All financial figures discussed today are in U.S. dollars unless otherwise stated. Technical information in the presentation has been reviewed and approved by Eric Chapman, Fortuna's Senior Vice President of Technical Services and a qualified person as defined by National Instrument 43-101. I will now turn the call over to Jorge Alberto Ganoza, President, Chief Executive Officer and Co-Founder of Fortuna Mining.

Hello to everyone, and thanks for joining us today. Q1 was another great quarter for us at Fortuna. After a record set in Q4, we kept the momentum going with a second straight quarter of record free cash flow from operations. We're making the most of strong gold prices, keeping our costs under control and continuing to grow our margins. Cash flow was a standout again this quarter. Free cash flow from ongoing operations hit a record $111 million, beating our Q4 record of $96 million. That puts our free cash flow margin at 38%, up from 31% in Q4. Net cash from operations before working capital changes was $138 million, or $0.45 per share. If we adjust for the San Jose mine divestment that jumps to $144 million or $0.48 per share. Another nice setup. What's driving this simply put discipline on cost control in a strong gold price. We brought our cash cost per ounce down to $929 on a consolidated basis from $1,015 in Q4 and our consolidated all-in sustaining costs came in at $1,640 well below last quarter's $1,772. That kind of discipline is paying off. Net income from continued operations came in at a strong $61.7 million or $0.20 per share, a big jump from $11 million or $0.04 per share in Q4. That kind of financial strength gives us flexibility, whether that's for investing in growth, returning capital to shareholders or navigating market shifts. On that note, we continued buying back shares. In Q1, we repurchased and canceled just over 900,000 shares at an average price of $4.53. On growth capital and exploration, we're staying focused on high-impact opportunities across the portfolio. We have budgeted $51 million for 2025 for exploration and new project programs. We're going strong with targeted work at the Kingfisher and Sunbird deposits at the Seguela mine, the Tongon North prospect in Northern Cote d'Ivoire and the Diamba Sud project in Senegal and the Arizaro gold porphyry at the Lindero Mine in Argentina. These are exciting projects and prospects with long-term upside, and we're putting capital to work where it counts. In 2025, we're also advancing with key capital projects that will enable the Seguela mine to expand production in 2026 to approximately 180,000 ounces of annual production. David Whittle, our Chief Operating Officer for West Africa, will expand on that later on the call. During the first quarter, we continued to actively optimize our asset portfolio, divesting of assets with high costs or limited life of mine. The sale of the San Jose mine in Mexico closed in April, marking a key step in streamlining our operations. San Jose had become our highest cost mine and was nearing the end of its mineral reserves. So this was a timely and strategic divestment. As for the Yaramoko mine in Burkina Faso, we announced its sale on April 11. Like San Jose, Yaramoko is approaching the end of its mine life with mineral reserves expected to be depleted by early 2026. The decision to sell was driven by a compelling offer and gives us a prudent exit from a country where we are no longer investing in mineral exploration. and where the business and security environment continues to present challenges. The sale provides for cash consideration of $70 million and is subject to the payment of cash dividends by Roxgold Sanu, owner of the Yaramoko mine to Fortuna in the amount of $57.5 million prior to closing. We expect the sale to close in May. Taken together, these two sales allow us to reallocate approximately $50 million in capital and management focus away from mine closures and towards higher value opportunities that better align with our long-term strategic objectives. On the safety front, I'm pleased to report that we had 0 lost time injuries in Q1 and our total recordable injury frequency rate improved to 0.98, down from 1.33 in the fourth quarter. That's a strong result, and I want to thank our team for their continued diligence and dedication to safe work practices. However, this progress was overshadowed by a tragic incident in February at Seguela, where a subcontractor lost his life while performing ancillary activities. This is a heartbreaking reminder that safety must remain our highest priority always. Our commitment to zero harm workplace is unwavering. In Argentina, I'd like to comment that we continue to see positive economic policy changes. The government has started easing capital exchange rate controls and introduced a managed floating exchange rate. This opens the door for us to repatriate 2025 dividends, plus about $38 million currently in country, and we're targeting the second half of the year to begin that process. On closing, Q1 2025 was a strong quarter on all fronts. We hit back-to-back free cash flow records, improved margins, strengthened further our balance sheet and continued to optimize the portfolio. We're in a great position to keep delivering for our shareholders, our people and the communities we operate in. We'll now move on to an update from our Chief Operating Officer, who will start with West Africa. David?

Thanks, Jorge. Seguela and Yaramoko delivered a successful first quarter with strong results from a production and operational perspective. Safety remains a core priority, and we continue to advance our goal of achieving zero harm across all operations. Yaramoko maintained an excellent safety record with no major injuries and continues to operate more than 4.5 years without a lost time incident. During the first quarter, Seguela produced 38,500 ounces of gold representing a 9% improvement compared to the previous quarter. This exceeded the mine plan and supports expectations to achieve annual production at the higher end of guidance. Yaramoko also delivered strong performance with gold production of 3,373 ounces, reflecting a 12% improvement over the prior quarter. At Seguela 477,000 tonnes of ore were mined at an average gold grade of 2.53 grams per tonne, along with 5.47 million tonnes of additional material resulting in a strip ratio of 11.5:1. The plant processed 444,000 tonnes of ore at an average grade of $2.76 grams per tonne gold. Production was sourced primarily from the Antenna, Ancien and Koula pits. The processing plant operated efficiently with an average throughput rate of 216 tonnes per hour, exceeding nameplate capacity by 40%. Third lift of the tailing storage facility is on schedule for completion in the second quarter. The completion of this $8.5 million project will provide tailings storage into 2029, allowing Seguela to fully capitalize on increased throughput capacity and achieve our stated guidance of 160,000 to 180,000 ounces of gold per year from 2026 and beyond. All of the capital projects are advancing in line with schedule and budget. Seguela's performance resulted in a cash cost of $650 and an all-in sustaining cost of $1,290 per ounce. Continued exploration success at the Kingfisher, Sunbird underground and other deposits supports long-term production growth and strengthens the positive outlook beyond the feasibility study targets. At Yaramoko, 144,000 tonnes of ore were mined at an average grade of 7.1 grams per tonne gold. Ore was primarily sourced from the 55 Zone underground mine with 21,000 tonnes from Bagassi South at a grade of 8.99 grams per tonne. The 109 Zone open pit began contributing during the quarter, with 31,000 tonnes at a grade of 1.1 grams per tonne. The plant processed 135,000 tonnes at an average grade of 7.8 grams per tonne gold. Yaramoko recorded a cash cost of $1,059 and an all-in sustaining cost of $1,411 per ounce, aligned with guidance expectations. In the first quarter, Fortuna entered into successful discussions with Soleil Resources regarding the potential sale of the Yaramoko mine and exploration assets in Burkina Faso. These discussions concluded positively, resulting in a signed agreement. Final go for by Fortuna occurred on April 14, with closing anticipated in early May. This transaction represents a strategic step aligned with our objectives and provides continuity for the workforce at Yaramoko. Thanks a back to you, Jorge.

Thank you. We'll move on to Latin America. Cesar, do you want to give us an update?

Sure. Thank you, Jorge, and good afternoon to everyone. So let's begin with our Lindero mine in Argentina. Lindero delivered strong production results this quarter. We placed 1.75 million tonnes of ore on the leach pad with an average gold rate of 0.55 grams per tonne containing approximately 30,543 ounces of gold. Our mining operations extracted 1.46 million tonnes of ore, achieving an efficient stripping ratio of 1.8:1 which positively influenced our cost management. Gold production for the quarter reached 20,320 ounces. While this reflects a decrease of 24% compared to the previous quarter of 2024 primarily due to an 8% moderate reduced ore grade and the timing of leach in essence. It's important to note that this production level aligns with our planned mining sequence for the year. A major highlight at Lindero was the highly successful completion of the leach pad expansion project. This expansion was delivered at a total cost of $51.8 million and supports 10 more years of mine life. I would also like to provide an update on solar plant project at Lindero. As of today, the project is 97% complete, and we have begun pre-commissioning activities. The project continues to advance on schedule and well within budget with full operations expected by the third quarter of 2025. This solar plant will represent a significant 42% reduction in diesel consumption for power generation. Lindero continues capturing cost reduction from several initiatives, such as the changing of the whole truck fleet from 90-tonne commerce trucks to 45-tonne Scania trucks and optimizations on the crushing circuit plant reagent consumption and drilling equipment, to mention a few. Turning to costs at Lindero. The cash cost per ounce of gold was $1,147 compared to 1,063 in the fourth quarter of 2024. This increase is largely attributable to the appreciation of the Argentine peso and the volume of ounces sold. The all-in sustaining cash cost per gold ounce sold was $1,911 slightly up from $1,873 in the previous quarter. This reflects the capital investment associated with the completion of the leach pad expansion and the bulk of the peak of stripping taking place during the first half of 2025. However, we anticipate the AISC to progressively improve in the next quarter as we expect to gravitate towards a mine with an epic of $1,400 by the end of the year. Now let's move to our Caylloma mine in Peru. The team there also delivered outstanding results. Silver production reached 243,000 ounces from 137,000 tonnes milled maintaining a consistent average head grade of 67 grams per tonne. We also achieved significant production of lead and zinc with 8.8 million pounds and 13.8 million pounds produced, respectively. The average head grades were 3.21% for lead and 5% for zinc. Production of all 3 metals remain consistent when compared to the fourth quarter of 2024, in line with our mine plan for the year. Regarding costs at Caylloma, which are reported on a silver equivalent basis, the cash cost per silver equivalent ounce sold was $12.8 compared to $16.53 in the fourth quarter of 2024. All-in sustaining cash cost per ounce of payable silver equivalent decreased to $18.74 down from $28.10 in the previous quarter. These cost adjustments reflect consistent cost savings and lower capital investments for the period, offset primarily by slightly lower silver production in the period and the benefit from the higher realized silver price on the silver equivalent calculation. In conclusion, our Latin American operations demonstrated a strong first quarter in 2025. We maintain a focus on excellent safety performance, achieve key production targets and successfully complete strategic projects like the Lindero leach pad expansion. We remain committed to optimizing our operational efficiency and delivering sustainable value to our stakeholders. Back to you, Jorge.

Thank you. Now we'll go to the CFO report.

Thank you. I will be mostly making reference to Q1 2024 as a comparison period, where we have excluded San Jose for comparability purposes. As Jorge has mentioned, attributable net income from continuing operations for the quarter was $61.7 million or $0.20 per share. This compared to $0.09 in Q1 2024. Our strong financial performance in the quarter was a result of record high metal prices and high cost -- I'm sorry, cost per ounce aligned with our guidance for the year. Our average realized gold price in the period was $2,880 per ounce compared to $2,087 per ounce in Q1 of 2024. Our cash cost per gold equivalent ounce was $929 and all-in sustaining cost was $1,640 per ounce, again, both aligned with management expectations. A few comments on the financials. Depreciation and depletion in the quarter was $61 million, which we'd like to remind includes $18.5 million in depletion of the purchase price related to the acquisition of Roxgold in 2021. General and administration expenses were $25.3 million, an increase of $8.5 million year-over-year, as shown in the breakdown we provided on Page 10 of our MD&A. The increase comes mainly from stock-based compensation associated with a 42% rise in our share price during the quarter. Our effective tax rate was 25% for the quarter compared to 34% in Q1 2024. The decrease is a function of the appreciation of the euro versus the U.S. dollar in the quarter. At current metal prices, we expect our effective tax rate to be in the 28% to 30% range and our current tax rate to be in the 32% to 35% range. Moving on to the cash flow statement. We reported $111.3 million of free cash flow from ongoing operations, which excludes new development projects and growth initiatives. We should note that we expect to pay over $60 million of taxes in 2024, of which the bulk will be paid in Q2 and Q3. As a result of this timing effect and everything else being equal, we should expect somewhat lower free cash flow in the next 2 quarters. In the investing section of our cash flow statement, we recorded $39.5 million under additions to property, plant and equipment, consisting of approximately $33.3 million of mine site capital, which includes $6 million of brownfield exploration and $6.2 million related to the Diamba Sud project and greenfield exploration. Moving on to the balance sheet. We closed the quarter with a cash position of $309 million and the net cash position after financial debt of $137 million. Our total liquidity was $459 million, including the full undrawn amount of our $150 million revolving credit facility. Thank you.

Carlos, questions.

We will now open the call to any questions that you may have. Jenny, please go ahead.

[Operator Instructions]. Your first question is coming from Mohamed Sidibe of National Bank Financial.

I just had a question on capital allocation priorities following the sale of the San Jose mine and Yaramoko mine that is expected to close and specifically as they relate to potentially inorganic opportunities that you may be looking at. What are some of the criteria that you're looking at in terms of size, jurisdiction, stage of assets.

Yes. First, let me stress before I speak about inorganic growth, we believe we have strong opportunities to fuel growth organically which are high impact. One is the expansion, we reiterate the expansion of the Seguela mine which today is our lowest cost mine. On this first approach towards an expansion, we're moving from about 140,000 ounces of annual gold delivery to a range of 160,000 ounces to 180,000 ounces with opportunities for more. We continue to see a lot of continued exploration success there as evidenced by the discoveries of the Sunbird deposit, the Kingfisher deposit, the extension of Sunbird deep for underground mining. So we're very encouraged by that and the continued opportunities for growth at our lowest cost operation. Second is the Seguela -- the Diamba Sud project in Senegal. Diamba Sud is in advanced stage exploration -- late-stage exploration, advanced stage development, that's how I would read it where we have a well-funded program in 2025 where we're advancing exploration concurrent with permitting environmental studies and engineering studies as well. So we continue to approach the advance of Seguela -- sorry, Diamba Sud on a fast-track approach. That's organic. Then when we think of opportunities outside the farm, we are very focused on the two regions where we are already established, where we have established management teams, strong local expertise. So you will see us active in West Africa and general region in Latin America. We favor primarily countries where we already have operations within these regions, of course, but we will move within the regions and projects that come into the pipeline are preferred although we will see -- we were -- more than chasing ounces, we'll be chasing value. We're chasing value. So you will see us keep disciplined. If we see -- we look at the full spectrum of opportunities from earlier stage to post-discovery, predevelopment, we see a lot of opportunity there. We still see an identified value in some of the opportunities that we track. What are we looking for, projects that can deliver over a decade in the longs and at costs that sit at or opportunities to go below the average cost curve and meaningful production that for us means anything north of 120,000, 150,000 ounces of gold production. We believe that we have a clear path to support production in the range of 400,000 to 500,000 ounces between what we have in the portfolio and opportunities that we see out there.

And if I could just maybe follow up on that. As you look at your current portfolio right now, should we expect maybe any potential rationalization? I'm just looking and I think Seguela is very clear. You have a ton of excitement and opportunities and in Lindero, you have some opportunities as well. But Caylloma maybe -- like how do you think about that asset? And how do you think about your current portfolio?

Yes. Caylloma is certainly the smallest mine in the portfolio. It was our first mine. And I always say there is no headache-free mine, but if there is one mine that gets close to that, is Caylloma. The team there does an excellent job. Today, if you account for resources and reserves, we can see a mine operating for close to a decade. It's a mine that every year generates free cash flow for us. So it gives us a strong presence in an exciting mining jurisdiction with a deep-rooted mining tradition, like Peru. So we see Caylloma as a fit in our portfolio today.

Your next question is coming from [David Sine] who's a private investor.

My question is with an excellent quarter results hitting $0.20 profit per share. I just want to know how is it that financial analysts can have such influence over the stock price, which is presently trading down just shy of 12%. And you missed their expectations by $0.01 a share, and it's created a 12% deficit for today. I just don't understand.

Perhaps that's a question for the analysts. But I -- we focus on what we control. We believe, as I stressed in the call that this is a record quarter. We're delivering where it matters the most in free cash flow, where we're controlling our costs, and we're fully capturing the benefit of higher prices. I believe that Fortuna is put together a rock-solid balance sheet, is generating very strong free cash flow, is managing the operations, controlling the risks, and we are set to continue benefiting from this price environment for precious metals. Price swings in the stock, difficult to comment on. We're looking at it, and we also I have to admit, scratch our head a bit, but markets come and go, prices go up and come down. The important thing is the fundamentals of the business and Fortuna has never been as strong as it is today. The balance sheet, the property portfolio, the cost management, the execution, operational excellence, so again, I have never seen in 20 years Fortuna as strong as it is today with the capabilities to continue delivering for shareholders, right?

Your next question is coming from Adrian Day of Adrian Day Asset Management.

Just had a quick question. I haven't earlier asked part of the question, but I was also wondering how greenfields exploration fits into your picture, both solo greenfields and also partnerships.

I did not quite get the very beginning of the question. It's about...

Yes, greenfields exploration. How does that fit into the way you look at growth?

Let me first give you a refresher on our growth initiatives. This year, we have increased our exploration and new project budget to $51 million, up from $41 million in 2024. So we're expanding our exploration initiatives. You know, Adrian, we're quite active with exploration in our key projects, key properties. And to the point of your question, greenfield, sometimes we don't speak about or stick enough about our early-stage exploration initiatives. And let me go into some of them. Right now, we have an active drill program in northern Côte d'Ivoire. It's a Tongon project. We have a 5,000 meter -- sorry, a 10,000-meter drill program ongoing there. It's a large land package north of the Barrick's Tongon mine in northern Côte d'Ivoire. And it's early-stage exploration on the right rocks on the right structures with strong geochemical signatures on surface from over and soil work. So we are excited about that program. It's advancing. We -- I would say we're 1/3 advanced with the drilling there. And we look forward to report on that in the coming weeks, start reporting on Tongon and being able to talk more about ongoing in the coming weeks. In Mexico, we have currently 3 -- we're entering or looking to enter into 3 joint venture opportunities, option agreements for joint venture opportunities. So we continue to seek opportunities in Mexico. Those are greenfield initiatives, early-stage type projects. In Peru, even though our work centers, mainly in the Caylloma mine and the vein system around the Caylloma mine, we have within our property package 2, I would say, different type projects for disseminated -- the targets are disseminated silver or disseminated gold are the Antacollo and Santa Rosa projects. So even though they are within the Caylloma land package, which is quite extensive, these are projects that would be new, would not necessarily feed the Caylloma plant. These are disseminated gold and silver type targets. So we are gearing to start drilling and testing those targets towards midyear, second half of the year. And we also have initiatives in Argentina. in Senegal, going back to West Africa, we talked about Diamba Sud and we speak of the Diamba Sud as a project, but we have a very large land package in -- around Seguela, and we are also -- our work has focused initially at the project level at Diamba Sud, but now we're starting to move out into the peripheries and boundaries of our concession packages. So all in all, my message is we're very active across the jurisdictions on our greenfield initiatives. And sometimes we don't speak a lot about them. But as work progresses and those mature -- some of them will mature, we will start communicating more, right?

[Operator Instructions] We do have a question just come in. If you'd like to take it, it's from David Kranzler of the Mining Stock Journal.

Jorge, I think I'll see you later on Chris' podcast, Arcadia Economics. I think the market right now is kind of misunderstanding the results that you released. I just have a couple of questions here. How much will Fortuna save in closure costs from the sale of Yaramoko and San Jose?

Hello, Dave, and look forward to our conversation later today. $50 million on aggregate is what we would estimate is the capital that would need to be allocated to phase the mine closures of both Yaramoko and San Jose. And on top of that, those are $50 million that would be invested, allocated towards mine closure over a period of years, 4, 5, 6 years, right, because it's the closure plus monitoring activity that go. So the savings, I believe, are significant, but equally important is those are long-term projects that need to be managed and managed well. So management's attention I believe, is key here, and we're not only saving on the $50 million, but we're also being able to reallocate management and human capital, human resources towards those higher value opportunities that we have in the portfolio and across the other things that we're looking at.

Okay. And then my next question is, do you have a time line for the advancement of Diamba Sud construction decision?

Yes. We -- as I explained earlier in the call, we're advancing on 3 fronts. We aim to migrate the exploration concession we have at Diamba Sud into an exploitation concession by midyear 2026. So in order to do this, we are advancing our environmental studies or engineering studies. And concurrent with that, we continue drilling. So the objective is by mid-2026, we are in a position to be able to call a construction decision, mid-2026. Probably a construction decision will follow shortly after gaining the exploitation concession. Towards, I would say, second half of 2026, we should be in a position to consider a construction decision.

Okay. And then one last question. Do you have a time line yet for incorporating Kingfisher into the life of mine plan at Seguela?

I would expect that Kingfisher can be incorporated by end of this year. So we will be releasing our consolidated resource and reserve statements, mineral resource, mineral reserve statement in early 2026, and you should see Kingfisher in those mine plans in the reserve. So we -- all of this year, we are drilling aggressively this first half of the year. We've been drilling aggressively infill drilling. And we continue with that program, and now we are close to completion with the infill program and now we are also working on opportunities that we identified through the infill program to continue extending mineralization. So we're doing those two in parallel, infill plus growth within the Kingfisher deposit. But to go back to the basic question, you should see Kingfisher in the reserves in the mine plans by year-end reported early next year.

Our next question is coming from [Thomas Bonovitz] who is a private investor.

Yes, Jorge. I've been buying all the way down on the sell-off, and I really don't understand why. But my comment is I hope you're buying it with me because this is a fantastic deal as I'm concerned, that's all I have to say.

Thank you for the comment and well noted.

We appear to have reached the end of our question-and-answer session. I will now hand back over to the management team for any final comments.

If there are no further questions, I'd like to thank everyone for joining us on today's earnings call. We appreciate your continued support and interest in Fortuna Mining. Have a great day.

Thank you very much. That does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful rest of the day. We thank you for your participation.