Hochschild Mining plc (HOC) Earnings Call Transcript & Summary

Good morning, and welcome to the Hochschild Mining plc Final Results Investor Presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you over to CEO Eduardo Landin. Good morning to you, sir.

Good morning, everyone, and welcome to our presentation of the results of 2024. Charlie, you can help me going through the slides. Okay. Just a very quick reminder of what we said back in November 2023 about our strategy. We set a strategy, a very simple one for delivery and for growth. I mean this strategy has 4 pillars. Brownfield is the way that we are going to bring new resources to the table, generating long-term value, extended life of mine, and of course, focus on mineable resources. The second one is the operational efficiency, online leadership. We have to be close to the sites, lean philosophy across the company, cost optimization programs, and of course, our proven development record as we demonstrate in Mara Rosa. ESG is on top of our head. We have a world-class safety performance. We are doing a lot of things on water management, a new community approach. We didn't have any blockages. We have been able to get the easements. So this new approach is working. An effective talent management, and of course, all our KPIs are in place for 2030. And finally, the disciplined capital allocation. Through our balance sheet, we fund our organic growth. We pay our debt. We establish capital returns. And of course, if there is an opportunity, we will do M&A if it's value accretive. Let's go to the next one. We said also in November 2023 that we'll be focusing on core assets. That's the reason. Finally, we have sold Crespo, Azuca and Arcata with our pending Volcan. But our core assets are Inmaculada, which is our flagship with 20 years permit. Royropata is a new high-grade project that we have in Peru. We have Mara Rosa with 2025, the first full year production. We have Monte Do Carmo, a new higher-grade gold project in Tocantins, and we have San Jose, which is a high-grade mine in Argentina. These are our results. We have the strongest financial over a decade. We have produced nearly 350,000 ounces. Our revenues went up 37%, nearly $2 billion. We have an adjusted EBITDA of $421 million, our net debt today is $216 million. We have paid $40 million, and we end up the year with $97 million cash. We have restored the dividend. Also, we have introduced a new dividend policy just approved by our Board of Directors. Finally, we have a record resource addition of 2.8 million ounces of gold. What is going to go in 2025? We have an exciting year, year ahead. It will be the first year of full production of Mana Rosa. Royropata is progressing with the permitting. Monte Do Carmo has its installation license. We are going to produce between 250,000 and 370,000 ounces. We will continue with ongoing cost efficiency programs. And of course, ESG, as I said, is one of our first priorities in 2025. Next. ESG, as you can see, safety, we continue with very good safety performance, a frequency rate around 1, which is a world-class level. And also our ECO score is at the excellent level. As I said, we have added 2.8 million ounces of new resources across our sites. As you can see on the first graph, back in November, we said that from 2023 to year '30, we would add between 3.8 million and 5.2 million ounces. I mean just to reflect the good results in 2024 is we are comparing that 2.8 million with that 5.2 million. So in a year, we have nearly reached 50%. On the rest of the graph, you can see the individual additions in all the sites, 1 million ounces in Inmaculada, 1.3 million ounces in Royropata and nearly 250,000 ounces in San Jose. Costs are extremely important for us, and that's the reason we are aiming to achieve savings during the year. We have established a very robust plan of how to get lower cost. Let me mention some of them. I mean we are developing new high areas in Inmaculada. We are doing some projects to see if we can increase recoveries. In San Jose, we are repeating the SWAT project that we did in Inmaculada in 2024 with very good results. In San Jose, we are exploring the possibility of doing heap-leaching for some open pits that we are exploding at the moment. In Mara Rosa, we have increased the size of the fleet in order to be more productive. And also, we have been doing some improvements on the plan to increase recoveries. And also on corporate level, we have ceased supply chain activities to make -- I mean to be able to acquire some goods with better price for the whole -- I mean, for the 3 countries. We are doing some processing improvements at corporate expenses. And of course, this year, we are exploring all the artificial intelligence options to try to automize as much as possible our corporate processes. Inmaculada has beaten the guidance then again. As I said, we had 1 million ounces of resources discovered in 2024. It has produced 220,000 ounces 2024, and we have our guidance for 2025 around 200,000 ounces. Royropata projects. As I said, we have added to this project 1.3 million ounces in 2024. Royropata is a very important project for us. It could be the new Inmaculada. And the most important item this year, 2024, has been that we have agreed with the communities all the easements required to progress with the permits. Brazil, 2024, we produced 63,000 ounces. And in 2025, we are planning to produce 100,000 ounces. And most important, we have been able to add 200,000 ounces of new resources in 2024. Monte do Carmo is a project that we acquired for $60 million. It's 1 million ounces of gold. This project is already fully permitted. In 2025, we are going to do all the detail engineering to go by the book. We will purchase the long lead time items like the ball mills, for example. We expect to spend $19 million on budget, and we expect also to update the economics of the project by the end of 2025. And in Argentina, in 2024, we increased capacity with $9 million up to 2,000 tonnes per day. And we have plenty of 2025 efficiency projects in order to try to reduce costs since we have a very conservative budget. Going to the financial flexibility, I pass the presentation to Eduardo Noriega, our Chief Financial Officer.

Thank you, Eduardo. Our balance sheet is very strong together with the results that we saw in 2024, with cash at $97 million and total debt at $312 million. Our net debt was $216 million, a reduction of around $40 million from the net debt we had in 2023. Our net debt-to-EBITDA ratio was 0.5x, in the lower end of the range that we communicated in 2023. So we are seeing the reduction of indebtedness is that we committed to. We also like to mention that we have -- we closed a new debt facility that give us additional financial flexibility to execute on our debt reduction but also on our growth plans with very competitive terms, as you can see in the presentation. Finally, we have hedges that were placed in 2023, early 2024 when we were completing the construction of Mara Rosa, and we are using our balance sheet to do that. We are very proud to announce a new dividend policy, a dividend policy for the first time in the history of the company. The policy is -- will be paying between 20% and 30% of attributable free cash flow generated in the year with a minimum what we call base dividend of $10 million regardless of the free cash flow. This dividend will be distributed in 2 installments, around 30% as an interim dividend and 70% as a final dividend. In 2024, with this policy frame -- or this dividend framework, we are announcing a $10 million dividend. And we should keep in mind that 2024 was a year in which we invested around $100 million between the construction of Mara Rosa but also advancing the Monte do Carmo project and permitting and exploration, and finally, the Royropata Project. We're also very proud, as Eduardo Landin pointed out earlier on, of the capacity of this company to execute on the strategy that's outlined in 2023. And in terms of capital allocation, our first priority, brownfield exploration, we invested $34 million in 2024. And with that investment, we achieved an impressive incremental resource of 2.8 million gold equivalent ounces. Second priority, we completed the construction of Mara Rosa, for which we invested $17 million CapEx. And we also advanced on the Royropata project in Peru, our silver project in Peru, and invested $33 million, mainly permitting and care maintenance, administrative and exploration works. Debt repayment, number three, we reduced our net debt by $40 million. And we have, as I said before, this new financial facility that give us flexibility. For capital return, we announced a $10 million dividend and a new policy in place. And finally, number five, M&A, we completed the acquisition of Monte do Carmo for which we invested a total of $51 million, including acquisition costs of $45 million. But we also divested non-core assets, as we said in our strategy, selling Arcata, Azuca and Crespo. Crespo was sold in Q1 2024, and the sale of Arcata and Azuca was recently completed in February 2025. So very proud again of the capacity of the company to execute on the plan that we outlined. In terms of valuation metrics, you can see from analyzing our peers that in all metrics, we consider ourselves undervalued, and we believe that there is room for the market to consider not only the current metrics that we show as a company but also the growth projects that we have with Monte do Carmo and Mara Rosa -- sorry, Monte do Carmo and Royropata.

Thank you, Eduardo. Finally, the conclusion is that, I mean, we continue to focus on the core business. We have a world-class ESG performance. 2025 is going to be the first year of full production of our new Brazil mine. Inmaculada is outperforming. Monte do Carmo project has been recently added to the pipeline. We have a record brownfield resource addition in 2024. Royropata to deliver 100,000 ounces from year 2028. Disciplined between capital allocation strategy, dividend restore. And also, we would like to announce that in June 2025, we will have a session on brownfields to explain all the potential brownfield exploration that we have in our properties. Thank you very much. And I pass the presentation to Charlie Gordon. If you have any questions -- yes. you have the questions? Okay. Sorry, sorry. Okay. Go ahead, please.

Thanks very much, Eduardo. I've got a number of questions there. The first one is, the pipeline of future assets look strong. What can you provide about the cost profile of the company when the future assets enter production?

Well, I mean, today, I would say that we are around $1,500, our all-in sustaining cash cost. But I would say that Royropata and Monte do Carmo could bring production with lower costs. So average, it could be lower. That's what I can say at the moment. I mean we don't give any guidance on future costs, but of course, Royropata is a very powerful project and Monte do Carmo is an open pit. So the reality is that costs should go down a little bit when those units we enter into production.

Thank you. The next question is, your cash flow statement shows $213 million in CapEx for PPE, et cetera. How much of that is sustaining CapEx versus development or growth CapEx?

Thank you, Charlie. So as reported, our sustaining CapEx for 2024 was $172 million. And those -- that number, that $172 million includes around $30 million of projects that are not executed annually. I'm talking about the tailings dam capacity increase and reverse osmosis plant in Inmaculada mainly. So from those $172 million, $30 million are those -- the projects that I just referred to.

Thank you very much. I think we've covered this one in the presentation, but let's just repeat it so that everyone understands it. This question says, how does the new dividend policy work? And what conditions must be met for dividend distribution?

Go ahead, Eduardo.

Thank you, Charlie. The dividend policy will apply between 20% and 30% to our free cash -- attributable free cash flow. And with that, we will calculate the dividend for the year. That dividend will be paid in 2 installments: one, an interim dividend paid in the current year of cash -- of the free cash flow and 70% after we close our books. We will have a minimum dividend of $10 million, and the dividend will be paid if we are below 1.5x net debt to EBITDA. We think that with this policy, we'll be sharing the value that we are generating from our operations and at the same time, will allow us to keep investing in the future of the company as well as reducing our indebtedness levels.

Thank you very much. And can I just add that at the back of the financial review, which is in the press release we issued today, the last table at the back of the financial review will give you the detailed calculation that you need or that we have done to calculate that $10 million that we've announced today. The next question is, what is the plan for Volcan? Any update?

Well, basically, Volcan has been defined as a non-core asset, basically because, I mean, it's a profitable project with many, many millions of gold equivalent but -- ounces. But I mean at the end of the day, CapEx is extremely high, and there is some issues regarding water and permits. So we are looking for strategic options for Volcan. We continue looking for strategic option for Volcan basically to sell the asset.

Thank you very much. This is on the gold prices. When do you expect the benefit of the high rise in gold price to come through in our profits?

Well, I mean, I believe that is being reflected on our results in 2024. And of course, it will be reflecting in 2025 if prices keep at the same level. I mean, of course, it will be reflected in our P&L.

And just remember that this year is the first year where we have a full year from our new mine, Mara Rosa.

Exactly.

So that's exciting.

Thank you very much. The next question is, how significant is the brownfield exploration program? A lot of resources were added in 2024, but what should we expect in '25 and beyond?

Well, our plan is to continue drilling at the same rate. I mean we have a very similar budget, around $30 million for 2025. And the idea is to continue adding resources as much as possible because our idea is to increase life of mine across the whole operations. And of course, it will be -- I mean, this strategy will have a limit. But at the end of the day, I mean, bringing inferred resources is something which is not very costly. And then you have your basket full, and you can choose where you want to convert those inferred resources to measure indicated and reserves and give you a lot of flexibility on production.

Thank you very much. The next one is, I understand that Monte do Carmo is in the initial development stage. But are you able to outline what this potential line looks like in terms of production and AISC and the time lines?

Well, let's start with the time lines. I mean, as I said, is fully permitted, and we could start building Monte do Carmo today. But we would like to go by the book, and we would like to finish detailed engineering this year. When we finish that detailed engineering, we'll present a new economic assessment to the market. And we expect to start building Monte do Como in March 2026. Let's say that we have 18 months of construction. So we are looking at the end of 2027 and start production on 2028. In terms of production, we believe that it will be something similar to Mara Rosa in terms of production and in terms of cost. So you have the actual production for 2025 of Mara Rosa and the actual cost for 2025 in our guidance, I believe that Monte do Carmo could be more or less the same.

Thank you very much. This is a question -- we've got a couple of these, but just on hedging. How much of our total revenues or our production is currently hedged?

Thank you, Charlie. For 2025, we only have 30% of our production hedged. And for 2026 and 2027, that amount -- that percentage is reduced to around 13%. And right now, we have -- we're not having discussions to hedge -- to further hedge our production in the future.

Thank you very much. And the final question here is, do you expect any unusual disruptions in the future like political issues and so on?

That's a difficult question. But I mean it depends on the country. Let's talk about Peru. Peru has a pre-electoral year this year. Election will be next year. I mean the truth is that Hochschild Mining has been working with many governments in Peru for the past 60 years. So we expect to continue working in Peru. Argentina with the President Milei is going in the right direction. I mean we expect to have some major changes after the midterm elections in Q3 2025. So we don't expect any major issues in Argentina. And in Brazil, it is a federal country, and we feel extremely comfortable working in Goiás and Tocantins.

Okay. Thank you very much, indeed. That's all the questions we have at the moment.

Perfect. Thank you very much for answering those questions from investors. Of course, the company can review the questions submitted today. We will publish the responses on the Investor Meet Company platform. Just before redirecting investors to provide their feedback, which is particularly important to the company, Eduardo, can I just ask you for a few closing comments?

Well, yes, I would like to thank everyone to be here today in this retail presentation. I believe that we have presented a very robust set of results. And I have to say that the company is doing really well, is sticking to the strategy that we presented back in November 2023. And we will continue trying to reduce cost, which is the most important thing at the moment, and of course, maintaining our ESG standards in terms of safety, environment and so on. Thank you very much. Nothing else from me. Thank you.

Thank you once again for updating investors today. Can I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order for the management team to better understand your views and expectations. 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.