Hochschild Mining plc (HOC) Earnings Call Transcript & Summary

Good morning, and welcome to the Hochschild Mining plc preliminary results investor presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Eduardo Landin, CEO. Good morning, sir.

Good morning, and welcome to our full year 2023 results presentation. We have a very good year during 2023. On ESG, we have a very, very strong performance. Our revenues were $694 million, our EBITDA was $274 million, and all-in sustaining cash cost, it was $1,454 below our revised guidance that we presented during the year. In terms of growth, we have been able to put into production Mara Rosa, which is the Brazilian project that we acquired 2 years ago. That project has been developed on time, on budget. We have finished the construction on the 31st of December, and we have the first pour in the 20th of February. Today, we are in the ramping up process. We expect to get commercial production on H1 2024. Also on the Royropata project, we are progressing with the permitting, and we expect to get that permit on 2026 and start production on 2027. And also, we have signed a new option for Monte Do Carmo project in Brazil. I will tell you later about this project. The best news that we could have during 2023 is that in August, we received the environmental permit for Inmaculada that unlocked the whole geological potential of the Inmaculada for the next 20 years, and that will let us to implement our brownfield strategy in that place. In terms of capital discipline, we have cash for $89 million, we have a net debt of $258 million, and the company is focused on debt repayment growth and capital return for the investors. In terms of ESG, we have an excellent year. We have very good results on safety. For the first time in history of the company, we have been able to reach 0.99 in frequency rate, which is below 1, and that's world-class results even, I mean, for our open pit mines and of course, for underground mines. In terms of our performance in environment, we have been able to reach 5.67 sorry, 5.66 (sic) [ 5.67 ] out of 6 in our ECO score. And I mean backing on safety, I mean we have been able to build Mara Rosa project, I mean, without one lost time accident. We have increased the workforce up to 59%, and we continue with investment in the communities. We have tried to simplify the strategy. Basically, what we do today is focus on the core assets in Latin America. As I said, we have Inmaculada, our flagship mine, with 20 years permit in order to extend its life of mine and be producing 200,000 ounces for the next years. Now we have Mara Rosa production. It's a new 10-year Brazil mine, which has a very strong geological potential. We have San Jose, which is a high-grade Argentina mine, which is -- it has a very good track record of replacing resources. And today, with the new macroeconomic situation in Argentina, we believe that we could have an upside. As I mentioned, Royropata is the new high-grade Peru project, which is within the existing infrastructure of Pallancata Selene, so it would be really simple to develop a project and to put into production in the near future. Monte Do Carmo, which is an option that we secured to acquire an exciting project in Brazil. Our strategy is very simple. I mean, we have 4 pillars. We have the brownfield, which generates long-term value, extend the life of mine, and we are focused on mineable resources. Then we have the operational efficiency. We need to have a lean philosophy across the company. We need to have a process optimization across the whole company also. We have proved that we have the capabilities in order to develop projects on time and budget. On ESG, we want to drive responsibility and respect. We have world-class safety results. We have established on our KPIs on ESG for 2030. They are already in place, and they are part of our long-term objectives. Also, the fourth pillar is the disciplined capital allocation, which funding organic growth. We need to focus on debt repayment, capital return and, of course, value accretive M&A as we demonstrate with the option that we have signed with Monte Do Carmo. Going to the production, we present that at our Capital Market Day in October. That represents the projections on production for the next 3 years. That represents a 20% increase in production and 20% a reduction in cost. On 2024, as you can see, we have $110 per ounce as part of our costs, but that could be -- I mean, that was part of the CapEx that we didn't invest during 2022 and 2023 due to the cash restrictions that we imposed to the company until we got the environmental permit of Inmaculada. Inmaculada, as I said, we are investing $45 million on cap deferrals on the TSF expansion, waste rock facilities, a new plant, reverse osmosis plant and mine development, and that's included on the all-in sustaining cash costs on the figure that we present on 2024. The idea with Inmaculada is to maintain 200,000 ounces of production and in 2025, return to the level of cost of $1,300 to $1,400. In the meantime, we have a lot of initiatives to reduce costs even further than the figures that we present. Basically, we want to eliminate the spare capacity, trying to increase the throughput of the mine, trying to implement mechanized mining methods all over the place, and of course, implement improved productivity and new technologies like telemetry, ventilation on demand, pumping automization, different efficiency projects that we are implementing. The brownfield potential at the Inmaculada area is very impressive. We have a huge land package and now we have the 20 years permit. Our objective is to maximize the life of mine, and we have an objective to increase resources by 2027, 4 years, really, between 2 million and 2.4 million ounces of gold. I mean the actual area where we are working and we start already drilling is Eduardo Belt where we found a couple of years ago Angela Northeast, which is a vein with [indiscernible] hybrids. And today, we are working at Nicolas vein that the initial results are very, very positive. Going to Royropata. As you know, we have an existing resource of 700,000 ounces of gold. It has -- I mean these results has very strong economic figures. I mean the good thing about this new deposit is that it has a high grade and also the average width of the deposit is 5 meters. So that will let us introduce massive mining methods like long hauls. And with that, we expect to get production on 2027 100,000 ounces per year. I mean, the level of CapEx to develop this deposit will be between $55 million and $65 million, so just a little CapEx to have a new mine. The average all-in sustaining cash cost, it will be between $1,000 and $1,100, and the return is very high since the CapEx is low, and we'll have very good production from this deposit. But it's not only that. I mean, in Pallancata area, we have an important potential, geological potential. I mean we believe that we can double the existing resource, adding 50 million ounces of silver equivalent in the Royropata belt, what we call today Marco extension. But also, we have Pacapausa system, Pallancata Northwest and Bolsa system that we need to continuing with our broad strategy in order to extend its life of mine. Mara Rosa, for people that know, are familiar, is located in the state of Goias. It's our new mine. It's an open pit. 10 years life of mine. We are in the process of looking for optimization and exploration opportunities in order to improve the economics. We have the potential to increase the plant capacity by around 10%. So today's figures doesn't include those -- that additionals, but the idea is to produce around 100,000 ounces for the first 4 years and the all-in sustaining cash cost would be around $1,000 per ounce of gold. So very, very interesting project that today is -- it has its first pour, and we are ramping up to reach commercial production. I mean going to the first pour, that was achieved on the 21st of February. I have to say that we have been able to develop this project on time, on budget. That's unique in the industry. I mean we have a study. The last 10 years in Brazil, the gold Brazil projects, we are the only one that has been able to complete a project on time and budget. We are at the moment in the ramp up to commercial production. We believe that we'll achieve that on H1 in 2024, and I would say that the most important figure in this project is the 5.5 million hours that we have been able to develop the project without one lost time accident. In terms of ESG, we have a lot of visits to the knowledge trail, something that we implement during the construction. We have had local purchases of around $9 million for the villages, so they are really totally tuned with us. We have a very good relationship with them. And we have created 320 works for the people for Mara Rosa and Amaralina, which is the maximum that they have. So they are, I mean, very pleased with the presence of Hochschild Mining in the area. Mara Rosa has also a lot of potential in terms of brownfield exploration. As you can see on the right-hand side of the map, Posse is the [ yellow ] top there, is the actual deposit. But on the same shear zone, we have different possibilities like Passo, Pastinho, Posse South. We have already started drilling in the area in order to bring -- in the next 6 years, we have the objective to double the actual resource. Going to Monte Do Carmo option, today secured, is an option that we have paid $50 million. We will have 12.5 months in order to drill and to see if there is additional brownfield potential. Today, Monte Do Carmo project has 700,000 ounces of around 1.6 grams per tonne, and we believe that in the next 12.5 months, we'll be able to drill it and bring more potential. It could be a big possibility to have another project with a similar production of Mara Rosa of 100,000 ounces for the next 10 years. It will be a reserve of 1 million ounces. The good thing about this project is that it is in Tocantins, which is a state which is totally mining-friendly. It's very close to Goias, and we can use our internal competencies and the actual management that we have in place in Brazil in order to grow as a country. Finally, we have the financial flexibility. As you can see on the graph on the right-hand side, that's the -- our net debt-to-EBITDA ratio. We have increased that ratio to 0.9 during 2023 since we have been investing the CapEx for Mara Rosa development. We have in place some hedges in order to make sure that we have the floor of $2,000, but that's only effect of around 30% of our production. We are aiming to distribute value through the investment cycle. And we believe that we could reconsidering capital return following the Mara Rosa production start on H1 2024. Finally, I would like to say that we are focused on the core business, focused on increasing production and focused on lowering costs. We have a world-class ESG performance, especially on safety and environment. We have this new low-cost Brazil mine now in production, and we will reach commercial production before the end of H1 2024. We have been able, through getting the permit at Inmaculada, to derisk these important assets. And it will be -- I mean, we have this permit for the next 20 years, so we can unlock a lot of value through brownfield exploration. We have the new Royropata deposits that could deliver 100,000 ounces per year from 2027 with a very good all-in sustaining cash costs. We will continue with the brownfield explorations. It's a pillar for us, very, very important pillar in order to extend life of mine, and that's the reason we have allocated $33 million on the budget for -- in 2024. Today, the -- we have secured the option to add a new project in Brazil into the pipeline similar to Mara Rosa. So we believe that we can use our current resources in Brazil in order to develop this project. We have implemented a very disciplined capital allocation strategy. As you know, we are new -- we have a new management in place. But I mean me and my team, we are in Hochschild for many years, and we have all the experience from the past. So with that, I finish this presentation. Thank you very much to be here today. We could open the session for Q&A. Thank you.

[Operator Instructions] Just while the company takes a few moments to review those questions that are being submitted today, I'd like to remind you a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard. [Operator Instructions]

Thanks very much. We have a question here. Could you expand on the strategy to reduce existing debt levels in the medium term and hedging?

Well, I would like to pass this question to Eduardo Noriega, which is next to me. He is our CFO. Go ahead, Eduardo, please.

Thank you, Eduardo. For our strategy, it's based on execution at this point. So we are focused on completing the construction of Mara Rosa and achieve commercial production. And with incremental cash flows that we are seeing from the project together with the strong performance of our operations and the strong performance of metal prices, we will be able to reduce our indebtedness ratios.

Thank you very much. The next question is, can you talk us through the [ brand ] of potential existing assets?

Yes, of course. Well, I mean, we have stated this budget of $33 million from 2024. I would say that we have a huge potential in the land packages that we have at Inmaculada. Today, we have the 20 years permit, so it does unlock a huge possibility to bring new resources. And I would say that the initial results on Eduardo Belts are very, very positive. And for sure, we continue drilling during the year, and we will bring some news later in the year. Also San Jose, as an existing operation, it has also a very good land package. Remember that San Jose is 30 kilometers away from Cerro Negro, which is a Newmont operation, and we have all the mining properties between those sites. So we believe that continuing with the brownfield exploration program, we could also bring new resources to San Jose and able to extend its life of mine. As I mentioned, Posse, which is the current Mara Rosa deposit, it has a lot of targets in the same shear zone, and we are already drilling there. So we believe that we can double the existing resource. Going to Royropata, we have an existing 50 million ounces of silver equivalent, and we believe that we can double that also in Royropata, and we are already drilling. Monte Do Carmo also is an area that has 83,000 hectares and has a lot of potential on brownfield. So as you can see, our strategy of brownfield, it has a lot of phases, a lot of land property, mining property that we have. And the idea is to continue with the strategy, drilling and bringing new resources to extend life of mine across our operations.

Thank you. The next question is, given the financial results and the outlook for 2024, what are the key priorities in achieving those targets? And what external factors need active management?

Well, we have established the production and the all-in sustaining cash cost, and we need to focus on delivering those productions from the units. We need to be very focused on cost management and cost reduction. We need to continue implementing a lean philosophy across the company. And I would say that the external factors that could affect the performance of the company, it would be macroeconomic situation of Argentina, for example. But we believe that with the new government and with what we have seen in the past 3 months with the reduction of inflation, that could be an opportunity. So I mean, we have budgeted only 10% between the valuation and inflation, so we believe that, that could be an opportunity. Working in Brazil has been a very good situation for us. The experience has been very positive with the local governments and with the state governments, so we don't see any problem working along during 2024. And in Peru, we can see that the government is willing to bring new money and investment to the country. They are willing to be very positive on the mining industry. And I mean, the Prime Minister has been in Canada promoting mining, so we believe that, that could be -- I mean, the environment for 2024 looks like very positive for us.

What is your criteria for future M&A? Can we expect anything further in 2024?

Well, I mean, our criteria for M&A is to bring things similar to Mara Rosa. That's the size of the project that we believe that we can develop. We are talking about of a purchasing price of around $100 million and CapEx of $200 million. I mean, today, we have the option of Monte Do Carmo. Monte Do Carmo is a very similar project of Mara Rosa. So that could be the criteria. We have an M&A team that they are looking every single time for new opportunities, and they are analyzing all the opportunities -- I mean, that they are available in Latin America. I mean our target in terms of internal return is 50%, and that could be taken into account at the time that we review an opportunity on M&A.

The next question is, would there be any synergies between bringing San Jose and Newmont's assets together? And might this be desirable?

Well, I mean, we -- I mean, San Jose has been there for many years and also the Newmont operation there. We've been talking on synergies for some time. Sometimes we have been able to help them, and sometimes they help us in terms of logistics, but there is no conversation of any other collaboration at the moment between the companies.

Thank you. The next question is, any chance that the time frame for production at Royropata could be brought forward?

Well, today, we have been able to finish the engineering -- I mean, the basic engineering and the feasibility study for Royropata. I mean, this year, we have the aim to finish the baseline studies, so that's 2024. Once we present those studies to the government, the government will review all this information during 2025. Officially, they have 90 days, but we know that it will take a little bit longer. But we believe that on 2026, we will be able to get this permit if everything goes right. And of course, we would need some time to develop the mine. It will be a short time because mineralization is next door. But I mean, we believe that 3 years from now, it will be an optimal time to get this permit.

I think the final question is the company is clearly prioritizing ESG. What progress was made last year? And what are you planning to do to evolve this further in 2024?

Okay. As I said, we have a very, very impressive results on safety. Frequency rate below 1, severity, 37. Also been able to develop Mara Rosa project on time on budget with 5.5 million hours without a lost time accident. So I would say the safety is there. Of course, our objective on safety is to have 0 accidents. On the environmental part, we have been able to perform really well on the ECO score. This year, we want to focus on having the best possible relationship with communities in Peru. That's part of our strategy. And we have a new team in place. The strategy there is to get closer to communities to understand their needs and to be able to work with them and work with them for the best future possible of them. And I would say that in terms of ESG, in general, the KPIs are set for 2030 in every single sense. And they are -- today, they are part of our long-term objective. So that's the plans for ESG.

Thank you very much. Alessandro, I think that's all we have at the moment.

Perfect. And thanes for answering those questions from investors. Of course, the company can review all the questions submitted today, and we'll publish those responses on the Investor Meet Company platform. But just before redirecting investors to provide you with their feedback, which is most particularly important to the company, Eduardo, could I just ask you for a few closing comments?

Well, basically, as I said, we are focused on strategy, I mean, to be on top of our core business, the core assets. We want to increase production, to find new opportunities, to bring a lot of value through brownfields to lowering costs. We believe that we can bring a lot of value to investors through this strategy. It's very simple, very simple to understand for everyone and to -- internally, very simple to understand. So we believe that we have the right strategy to bring a lot of value to investors. Thank you.

Perfect. And thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will then take a few moments to complete. [indiscernible] be greatly valued by the company. On behalf of the management team of Hochschild Mining plc. We'd like to thank you for attending today's presentation, and good morning to you all.

Thank you very much.