Hochschild Mining plc (HOC) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Hochschild Mining Q2 production results call. I will now hand the call over to your host today, Mr. Ignacio Bustamante, the CEO. Please go ahead, sir.

Thank you very much, George. Hello, and welcome to our conference call to discuss our second quarter production results. I'm with Eduardo Noriega, our CFO; and Eduardo Landin, who will take over from me as CEO at the end of next month. We also have Charlie Gordon, our Head of Investor Relations from London. Let me first talk about where we are with Inmaculada Modified Environmental Impact statement, or as we call it, the MEIA. We have reached the final stages of the process and are continuing to work with SENACE on its final review. To remind you, SENACE is a government department that coordinates the process. We cannot give you a more precise date for completion as this is in their hands now, but we do believe that all work on our site has been completed. Turning to production. Group output in the quarter was just over 72,000 gold equivalent ounces or 6 million silver equivalent ounces, which is a solid 12% improvement from the first quarter and brings the total half year results to almost 137,000 gold equivalent ounces or 11.4 million silver equivalent ounces. At Inmaculada, output was just under 31,000 ounces of gold and 1.3 million ounces of silver, which is a gold equivalent total of 46,300 ounces. The delay to the MEIA decision did continue to impact mine development in the second quarter, although this was offset by higher grades. Production for the first 6 months of the year was almost 93,000 gold equivalent ounces. In Argentina, after the customary short first quarter, which contains the staff's seasonal vacations, the operation increased tonnage and grades in the second period with output increasing by 54% to 2.9 million silver equivalent ounces. This mine has always been weighted towards the remaining quarters of the year, and we expect the same to happen in 2023. Over at Pallancata, production was 664,000 silver equivalent ounces, which is slightly better than the first quarter, reflecting a smaller increase in grades. The existing mining operation area is close to completion. And as we have stated before, we do expect to place the mine on care and maintenance later in the year. Moving on to our guidance for 2023. Without MEIA, we are not in a position to present revised forecasts, but we will do so as soon as the decision comes through. I have just mentioned that the delay is impacting mine development at Inmaculada, and you should take that into account going forward. Turning to our Mara Rosa construction project. We have had another solid quarter of construction with a total project progress now at 88%. We have already started pre-stripping and assembly. The plant has also advanced quickly whilst the power line is very nearly complete. We remain on time and on budget, and it's exciting to remind you that commissioning is now just a few months away. Our brownfield exploration plans will depend on the receipt of the MEIA, so we will aim to give you a fuller update in the near future. On the financial side, we have approximately $94 million of cash, which translates to net debt of $227 million and a net debt to the last 12 months EBITDA of around 1.04x. The cash balance, obviously, reflects capital expenditure at Mara Rosa, but has been boosted by some strong cash generation in the quarter. We have also given you details in the press release of some additional hedges we have executed at strong prices for a portion of the next few years of production in Brazil. This will help us to guarantee some good cash flow from the new mine in its first few years. So to sum up, a solid quarter of production, and we are hoping for the MEIA process to be completed so that we can start to concentrate on an exciting future and prospect over the next few months. And with that, I would like to open up for questions that you may have for me or for the rest of the team. Thank you.

[Operator Instructions] The first question is coming from Mr. Richard Hatch calling from Berenberg.

Ignacio and team, and well, firstly, just to say good luck for you, your future role, and congratulations to Eduardo as well for the -- his appointment. Just to ask on Inmaculada tonnes. They've kind of come off a bit over the last couple of quarters, and I guess that's down to the fact to the development, but kind of down here at 260,000 tonnes for the quarter in Q2. Is that a sense of our place for us to kind of think that where tonnes move over the next half and then gradually ramp back up to that kind of 1.3, 1.4 level over time? Or is there any more granularity you can sort of help us out just in terms of throughput? Or is there any other sort of quantification you can give us just on how much sort of development is being impacted by the MEIA's delay?

Yes, Richard, thank you very much for the question and for the messages. We appreciate it. Regarding that question, unfortunately, at this point, we cannot give you any further guidance because it's going to be highly dependent on the timing, on the MEIA decision. So we're refraining on purpose from giving any kind of guidance. We should expect the decision to happen in the next -- or shortly, as we have said. And so what we were planning internally is that, I think, that the best thing for purposes of the market is to wait until the time in which we announced our results, our H1 results. And by that time, we -- and based on the information that we have on the MEIA at that time, we're going to be in a position to give some kind of indication to the market in terms of if we don't have the permit by then, what the market can assume in terms of potential impact in tonnage and in production for a certain period of time in which the MEIA decision continues getting delayed. Hopefully, we don't get up to that point and we have something before that. But if for whatever reason because it's a process that is right now not under our control, we believe that we have submitted all the information that is required. We cannot control that. So if the decision comes sooner than late, we're going to be giving the market update as soon as we can. But if for whatever reason, it continues getting delayed, hopefully not the case, but if that were the case, then by the time we announce our H1 results, we are planning on giving some guidance on impact to production for any potential additional delays. But at this point in time, Richard, we are refraining from giving any further guidance.

Okay. And then can I just ask perhaps just if say, for example, you've got your -- the MEIA's approval tomorrow, what are the key work streams that you need to do to get that development back up and running?

Yes. So once we get that permit, the situation starts moving relatively quickly. There are certain things that we can start doing right away, certain other things that require the final construction permit from the Ministry of Energy and Mines, and -- but that is considered into our calculations. So I would say, once we get this MEIA approved, we're ready to go back to plan and continue delivering on our targets for the year. However, we need to take into account -- but we need to take into account, Richard, that this has already had some impact in the month that we have not gotten so far. So what we're going to try to do is we're going to try to minimize that impact. As I have said, it's already had an impact on the mine development. So we're going to try to minimize its total impact for the year and try to catch up as quickly as we can. But again, that's some additional guidance that we're going to be giving to the market either when we get the MEIA decision, or at the latest, once we have to announce our H1 results.

Okay. Great. And then last one is just on the hedge. I mean hedging at very attractive active gold prices. Would you put any more hedges on here on top of those 50,000 ounces that you've pushed in over the next sort of '25, '26, '27 period? Or do you think 50,000 is a decent sort of level to hedge out and then you'll see how you go?

Yes. We believe that with the information that we have as of today, Richard, that's a good hedge position that we have. We believed it was important. It's not a guess or a view in terms of that we believe that prices are going down or whatever, but we did believe that at this point in time and the information that we have, it was good to secure an important amount of the cash flow of this new project. And that's why we decided to do it. With information that we have as of now, we believe that we have hedged the right amount, and we are not contemplating currently any additional hedges. That could obviously change if market conditions change. But at this point in time, with information that we have, we are not anticipating to do any further hedges at this time.

[Operator Instructions] We'll now move to Daniel Major of UBS.

First one is what is the -- I mean, what is the hard stop when you have to stop actually producing mining processing in the event that there's further delays to the permit?

So the current -- Dan, so the current permit goes until the end of December.

So you can mine -- there's not a ramp-down period, you can pretty much keep producing right till the end of the permit, is that correct?

So what happens is that there's already -- as I mentioned, there's already some mine development that is delayed. And if we continue having those delays, we are going to continue having delays in mine development, so we're going to start having impacts on production. We're not going to be able to produce at the same rate, but we can continue -- from a permitting standpoint, continue to produce as much as we can from the permitted areas until the end of the year. So it will impact production, and that's why we are planning on giving further guidance in case the permit continues getting delayed by the time we announce our results. But so we have the permit to continue operating until the end of the year, but it will have an impact on production because of the delay in mine development. The longer it takes, the more the delay is going to be on the mine development.

Okay. And then second question, what's the dialogue with your lenders? I mean, you must be, I guess, discussing the various different outcomes that you already approached the subject of the scenario that you do not get a permanent renewal and what that would mean for your lending facilities, covenants, et cetera?

Sure. So we have a permanent dialogue with our banks, but I'm going to let Eduardo Noriega, our CFO, give a little bit more color on that front, Dan.

Thank you, Ignacio. Thank you, Daniel. As Ignacio pointed out, we are in permanent dialogue with our lenders, updating them on the status on the MEIA. As you know, we have a long-dated relationship with them. They are banks that understand well the country, Peru, and also the mining industry in the region. So we have talked to them. They are -- they have expressed their support to the company. At this point, we don't need to request anything to them because we're still waiting for the permit, but now they are prepared to, I would say, to support the company. That is what we have discussed with them.

Okay. And then last one, perhaps a bigger picture, I mean, the government, new government has only been in position since like back in the last year, start of this year. How's the dialogue progressing with respect to the mining sector and kind of broader higher level dialogue that you've been -- you can comment on?

Sure. What I can say is that the focus and the attitude of the current government has materially improved compared to the previous government. So the new government realizes and take very much into account how important the private sector is to the country, to the economy, how important, in specific, the mining sector is to the country. And from the very beginning, starting from the meetings at PDAC and the fact that they've seen so many high-level representatives to the PDAC in Toronto a few months ago, up to now, we have continued seeing a very important support to the sector and a commitment to accelerate all the projects that are in the pipeline and put them into construction or operation as quickly as possible. So we continue seeing that. It's an open dialogue. And we continue seeing a lot of [Technical Difficulty]

Ladies and gentlemen, we're just experiencing some interruptions in the conference. Just please stay on line while we are able to reestablish the line in few moments. Ladies and gentlemen, please do stay on line. We're just experiencing some interruption in the conference. We should have this situation remedied in just a few moments.Ladies and gentlemen, just please stay on line. I'm going to be dialing back to the speakers. One moment, please. Ladies and gentlemen, are you on line?

Yes, we're here.

Your line is open. Please proceed. Thank you.

I don't know if everything was heard on my end, but let me know if you have any follow-up questions.

I think that's good, guys. Good luck.

Thank you. Thank you very much.

Our next question is coming from Alfredo Schmutzer from Equinox Partners.

Ignacio and Eduardo, two very quick questions. One is just if you have any budget or -- on how much it's going to cost to put Inmaculada on care and maintenance in case the permit is not granted this year? And my second one is just to ask for any update on Royropata? And how do you see that permit?

Sure. Thank you. Thank you very much, Alfredo. So I'm going to let Eduardo Noriega to talk about Inmaculada and the cost in case we get to the level that we need to put in care and maintenance. And regarding Royropata, what I can tell you is that we are -- we have already started the dialogue with the government to begin the permitting process. There are certain definitions that are important to agree at this early stage of the permitting process. And the dialogue is open, is ongoing, and we expect to continue advancing as quickly as we can. So we are moving along well. We continue making progress on engineering. From a geological standpoint, it is looking amazing. So the process has started, and we look forward to continue updating the market on Royropata. In the case of Inmaculada, Eduardo, I don't know if you would like to comment?

Thank you, Ignacio, and thank you, Alfredo, for your question. The current maintenance expenses that we could have in Inmaculada is we're in that in a situation which we have to place it in that -- in care and maintenance is around $5 million per year. And the work that will be done during that stage will be mainly to maintain the equipment and maintain the monitoring the environmental -- monitoring of all the environmental measures that we have in the site. So that's the answer to your question.

We'll now go to Mr. Richard Hatch of Berenberg for his follow-up question.

Sorry, something just picked into my mind. What is your targeted or what is the optimal amount of development you aim to have ahead of you at Inmaculada? And where are you at the moment?

Yes, that's part of the update that we're planning on giving when we release our H1 update, Richard. At this point in time, we -- as I mentioned, we prefer not to get into the details. There are certain things that we're working on. And that's going to be an update that is going to come, hopefully, in a few weeks.

[Operator Instructions] Thank you. And we do not appear to have any questions coming at this time. Mr. Bustamante, I'd like to turn the call back over to you for any additional closing remarks. Thank you.

Thank you, George. Thank you very much to everybody for participating in this call. As usual, should you have any additional questions, please feel free to talk to Charlie Gordon directly, and I look forward to staying connected. Thank you very much to everybody. Have a great day.

Thank you very much.

Ladies and gentlemen, that will conclude today's presentation. We thank for your attendance. You may now disconnect. Thank you.