Hochschild Mining plc (HOC) Earnings Call Transcript & Summary

Good day, and welcome to the Hochschild Mining Q1 2022 Production Results Conference Call. At this time, I'd like to turn the conference over to Mr. Ignacio Bustamante, CEO. Please go ahead.

Thank you, Emma. Hello, and welcome to our conference call to discuss the first quarter production results. I'm Ignacio Bustamante, CEO; and also on the line is Eduardo Noriega our recently appointed CFO, and in London is Charlie Gordon, our Head of Investor Relations. Group production in the period was almost 81,000 gold equivalent ounces or about 5.8 million silver equivalent ounces. We had a good start to the year at our key operation in Peru, Inmaculada. This was partially offset in Argentina, where we had a combination of seasonal vacations and COVID causing employee absenteeism. Of course, we remain on track to meet our full year guidance of between 360,000 to 375,000 ounces. And I should point out that we are using a 72x ratio to convert the silver ounces to gold equivalent. At Inmaculada, we achieved higher-than-expected recoveries as well as higher gold grades. And this contributed to a solid period with production of 38,000 ounces of gold and almost 1.5 million ounces of silver, which is gold equivalent production of about 58,500 ounces. In Argentina, as I mentioned, San Jose was impacted by COVID as well as the usual seasonal vacations that happen every time in the first quarter of the year, which led to less staff availability. And consequently, tonnage through the mill was lower in the period. Output was 1.6 million silver equivalent ounces. The good news is that we are now back to full capacity, and we remain on track to meet our full year production targets. Over at Pallancata, we produced just short of 800,000 silver equivalent ounces in the quarter. And of course, we have hedges in place for 4 million ounces of silver this year at a price of close to $27 per ounce, so we're in a very good position. In terms of costs, we are on track to hit our 2022 guidance, which if you remember, is between $1,330 and $1,370 per gold equivalent ounce. As you may know, on April 1, we completed the acquisition of Amarillo Gold in Brazil. We are really excited by the prospects for the Mara Rosa project. And this week, together with the management team, we will be visiting the project in Brazil again. We are aiming to start construction at site in the second quarter with other key line items, such as the power line, already commenced. At the Snip project in Canada, we recently announced a major increase in resources. And since then, we have begun a new drilling campaign and can expect results to come over the next few months. We are working towards prefeasibility and have appointed Ausenco Engineering to work on it. Our 2022 brownfield program also started during the quarter. And whilst we have had a few intercepts from Pallancata and San Jose, we expect to see the bulk of drill results in the next few quarters, including those from Inmaculada, where the latest results are still pending. Turning to our balance sheet. We remain in a strong position with $367 million in cash at the end of the quarter, which was right before we paid for the Amarillo acquisition, which we completed on April 1. So to finish my summary, first, we are on track with our operational targets. Second, we're aiming to be in construction of the Mara Rosa project in Brazil in the second quarter. Third, we have started drilling at Snip and are moving into a prefeasibility stage during the remainder of the year. And with that, I would like to open up for any questions that you may have.

[Operator Instructions] We'll take our first question from Daniel Major from UBS.

Yes, a couple of questions. Yes, first of all, from a sort of political backdrop in Peru, it seems still quite volatile. Can you make any comments on kind of risks of disruption around sort of any of your assets? And then the second thing, the time line on the expected extension of the environmental impact assessment of Inmaculada, when do you expect to receive that? And when does the current EIA expire? And what's the tenure of the expected sort of new EIA?

Sure Daniel, thank you very much for the questions. So regarding the political risks, what we are seeing now is a complex environment in which the political situation continues getting complex. And the social situation in the country also continues complex. You may have been following what happened with Cuajone from Southern Copper, for instance, or the new stoppage from Las Bambas again. So that's the situation that we're seeing all over the country. In our particular case, fortunately, we have been operating nonstop without any incidence. So that's positive. But I would say the entire social and political environment in the country is complex, and we cannot rule out any kind of actions. But so far, what I can tell you is that we're operating at full capacity without any social disruptions. In the case of the timing for the modification of the environmental impact statement for Inmaculada, we continue targeting Q3 of this year. The current environmental impact statement that we have goes until the end of 2023, so we have about 2 years with that one. But we continue targeting to obtain this one in Q3 of 2022, so we should have plenty of time to go -- to wait for that new increase of timing. And that should allow us to go and continue operating for the next 20 years. So that will significantly increase the permitted time for Inmaculada. So we're looking forward to it, and so far, things continue moving along.

Okay. And then next question on Brazil. I forgot what you've renamed the project to. But the circular and the technical sort of report published in early March, I guess, reiterated the key parameters that you'd previously given to the market at the time of the acquisition. I guess 2 questions: What's the next bottleneck and the key thing you're waiting for to commence full-scale production? And where do you see is the kind of bottleneck in the production -- sorry, in the construction? What's the just kind of key item or the critical path?

Sure. So yes, it's not that we renamed the project. Posse one is one area of the deposit, it's one particular area where most of the resources are from. And Mara Rosa is the area where the project is located. So we have decided to name the project Mara Rosa going forward, and Posse will continue being one of the areas of the Mara Rosa project. So I'd say the key bottleneck at this point in time is in the few remaining permits. We have 4 remaining permits that are currently bottlenecked to be in construction. We're expecting to obtain 3 of them in the next 1 or 2 weeks, and the last 1 within the next 1 or 2 months. So we continue targeting to obtain all the permits in the second quarter of the year, so we can start construction at full speed as soon as we get them. And other than that, we are not foreseeing any kind of bottlenecks, so we continue guiding that we are planning on beginning construction in the second quarter of this year and beginning production in the first half of 2024.

Okay. And then just last question for me. Just on Argentina, can you just remind us of the process for taking cash out of the country? I mean it looks like you're sort of getting a quite substantial haircut on the free cash flow you generate at San Jose to take it out of the country. Can you remind us of kind of, yes, what the process is? And what we should be expecting in terms of the actual cash you can extract from Argentina and from San Jose?

Sure. Sure, Dan. I'm going to pass this one to our CFO, Eduardo Noriega, to cover this.

Thank you, Ignacio. Dan, so yes, there is -- we are able to take cash out of Argentina. And yes, the cost to do that is higher, the FX -- the cost is higher than the -- sorry, so we access to an international FX rate that is higher than the official one, and it represents a cost of approximately 40% of the cash that we are able to take out. But we are able to do that. And we plan -- we haven't sent cash out of Argentina in Q1, but we will certainly do that in the coming months. So yes, in terms of how much, it will depend, of course, on prices. But we will send cash out of Argentina.

Right. But we should be expecting that sort of sort of 40% reduction to kind of be the base case going forward.

Yes. That's what we have seen in the previous year in 2021, and what -- that's what we're seeing so far this year, so yes.

[Operator Instructions] It appears we have no further questions for the moment.

Okay. Thank you very much, everyone, for participating in today's call. And should you have any additional questions, please feel free to contact Charlie Gordon directly at our London office. Thanks again, and have a great day. Goodbye.

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.