Hochschild Mining plc (HOC) Earnings Call Transcript & Summary

Thank you for joining the Hochschild Mining's Q1 2025 Production Results Call. [Operator Instructions] I would now like to hand the call over to Eduardo Landin, Hochschild's CEO. Please go ahead.

Good afternoon. Hello, and welcome to our conference call to discuss our first quarter production results. I am here in Lima with Eduardo Noriega, our CFO; and in London with Charlie Gordon, our Head of Investor Relations. Gold production in the quarter was almost 80,000 gold equivalent ounces. Production was lower from the fourth quarter and reflect the impact of a very heavy seasonal range in Brazil on the shorter quarter of San Jose in Argentina due to the scheduled 2 weeks holidays that they take in February. However, Inmaculada has had a very solid start to the year despite it also being a rainy season. Output in the quarter, almost 35,000 ounces of gold and 1.4 million ounces of silver, which is in gold equivalent ounces of 52,000 ounces equivalent. Grades were slightly lower but this was offset by the higher-than-expected tonnage. In Argentina, I mentioned that San Jose is always impacted by seasonal vacation in February, you should also remember that we increased the capacity of the plant last year up to 2,000 tonnes per day to process lower rates. So tonnage in this case, is higher than this time last year and grades are lower. Production was almost 23,000 gold equivalent ounces and we should see output increase for the rest of the year. Turning into our Mara Rosa operation in Brazil, as you may have seen from this morning's announcement, we have had heavier than usual seasonal rains starting in December and continuing into this month of April alongside carry over delays in waste removal from last year. Additionally, we have encountered operational challenges related to our mining constructure in an environment of increasing pressure on the availability of skilled labor due the gold prices. This has, of course, been partially driven by elevated metal prices. These factors have affected mining activity at the operation with production just over 16,000 gold equivalent ounces in the period. In response, we have implemented a series of measures -- since the start of the year, this includes the expansion of our waste removal fleet, doubling the capacity from 1.5 million tonnes per month, up to 3 million tonnes per month. And this new fleet includes additional of 6 CAT 777 trucks and Hitachi 2600 excavator. I should add that this measure has not an extra CapEx to the company. This equipment has been provided by the mining contractor. During the second quarter, we remain focused on accelerating waste removal from these delays to production in future is expected to remain broadly in line with Q1, but we remain confidence in the growing recovery in production during the second half of the year. In terms of our annual forecast, we are sticking to our existing guidance in terms of production and cost, but naturally, we will update you at the half year results in August when we will have almost 8 months of production. On the exploration side, our brownfield program has just got going. So we will have results in -- I mean the starting result will be available in Q2. Our balance sheet remains strong. We have approximately $83 million in cash and the net debt figure of $248 million, the ratio of net debt-to-EBITDA is 0.6x. This figure reflects a series of negative cash movement in the first quarter, including the LTIP, performance bonus, agreement with communities, trade payable deferred from 2024 and inventory. So I would expect that the cash figure to recover over the next few quarters with these high metal prices and some better cash generation from our operations. With that, I would like to open to questions. Thank you very much.

[Operator Instructions] we will now take our first question from Marina Calero of RBC Capital Markets.

I have a couple of questions on Mara Rosa. The first one is, what throughput levels do you see in the plant can achieve in the second half of the year, considering what you've learned in the first quarter? And the second is your release mentioned some issues with the performance of contractors. Would you consider moving from a contractor to mine own model now that you are potentially building Monte do Carmo?

Well, let me go to the first question, Marina. We have proved that the plant can reach 8,000 tonnes per day. That does really depends today on the mine and the quality of the ore that we are able to bring to the plant. So I would say that we have demonstrated that the plant -- it could be at 8,000 tonnes without any problem depending on the materials that are coming from the mine. Remember that the nominal capacity is 7,000 tonnes, but I mean, we have proved that at 8,000 tonnes, we get very good recoveries that at the end of the day, that's the key -- I mean, the key performance that we measure once we increase the capacity above the nominal capacity. And the second question was that if we are thinking to move to own mining operation. And I will say that, I mean, the answer is no, that would need a very important increase in CapEx. And we believe that we come with a very professional contractors. Probably it's one of the best contractors in Brazil. I mean, the thing is that we need to, I mean, get used to each other and coordinate between the team in, the mine, the planning team and the contractor and ensure that without rain and in better conditions, I mean the contractor with the new equipment, I mean, they will be able to reach these 3 million tonnes per month and recover the waste removal rate that we need to reach our expectations.

We'll now take our next question from Richard Hatch of Berenberg.

I've got a few follow-ups on Mara Rosa. The first one is just on the grade. So the grades moved nearly down 50%, 1.42 to 0.89. Obviously, recoveries have picked up, but just intrigued as to what is driving that significant drop in grade? Is it access to high-grade areas in the pit as you talked to in the release? Or is there anything else there, dilution or grade rec or anything like that?

Yes. I mean, as you have seen, exactly, I mean, the grades for the Q1 is like 0.88 and the grades at last quarter last year, it was 1.4. Well, remember that we did an effort last year, the last quarter to try to reach as much production as possible because we want to get as close as possible to the guidance I mean, in that effort, the operation concentrates on getting that grades, but the waste removal rate was very low. And the consequence of doing that is not to have the ore available. I mean you have to go to -- I mean you have to mix a low ore with the one that you get from the mine. And the result is to get 0.88. If we are able to open the mine and get those 2.5 million tonnes per month of waste removal, we will be able to open the mine and to leave -- to let the high-grade ore available to go to the plant. So I don't see, I mean, any problems. It's no dilution. I mean it's a very simple operations in terms of taking out -- I mean, mining the ore from the mine is not a difficult because it's a good rock quality. And the good thing I have to say is that even with 0.88 grams of gold recovery showed a very good level.

Okay. Understood. So then I think when you had your site visit last year, you mentioned that the strip ratio of the mine was about 6:1. So would I be right in saying that the strip ratio in Q1 has been a lot lower than that. And the strip ratio as we move into the back end of the year and into Q2 will start to pick up as you start to move more waste?

That's exactly right. I mean if you take the year as a total, we will finish 1:6, but if you compare Q1 with Q4, I mean, we are going to have a Q1 that is 1:3 and on the Q4 that is 1:10. That's true. But I mean, the total for the year, it should be 1:6 because we -- I mean, we have the objective to be at the same place that we designed through the planning of the mine at the beginning of the year in our budget.

Okay. That's really helpful. Okay. And then, I mean, is there a consideration here that if you can't get things right with this contractor that you just have to move contractors?

Of course, I mean, the contractors have some clause at the contracts. If they don't perform, I mean, we can, of course, change the contractor, but we believe that we have a very good contractor. I mean remember that the heavy rains affect a lot and we have rains for 4 months. And that's even if you have the fleet -- I mean, during the day, there is a lot of storms and you have to stop the operation, yes, for safety reasons. So that's the reason. I mean, they haven't been able to work, let's say, 24 hours a day. They have been working like 12 or 13. I mean it's not their fault. It's basically the weather. But I'm sure that once the rainy season stopped that I believe it will be at the end of April. We will have like 7, 8 months of dry season the contractor will perform. And also, I have to say and remember to everyone that we pay the contractor per tonne extracted. So at the end of the day, it's in their interest to get the tonnes out of the mine to reach their financial objectives.

Okay. And then -- and then just on -- you've mentioned that you think your Q2 production for gold at Mara Rosa will be about the same as Q1. So that kind of works to about 32,000 ounces of gold. I mean that would imply that your H2 is about 70-ish percent of your annual guidance, right? So it has to be really strong. What kind of grades should we be thinking about for H2 then? Is it kind of more like 1.6 grams or is it...

Exactly, I mean if you go back to our results in October, November and December, where we reached between 9,000 and 10,000 ounces, the grade should be 1.6. I mean, there is available grades at the mine at certain levels that they have even 2 or 2.2, so the thing is that you need to open the mine to be able to reach those areas and be able to mine. It's true that, I mean, it's going to be a very disciplined exercise the second semester. But I believe that if we are able to remove the waste, I think we will be able to achieve the -- I mean, at least the lower level of our guidance in Mara Rosa that remember it is 94,000 ounces.

Okay. That's helpful. And then -- so I've just got a couple more to go. Just the first one is just on the production of gold versus the sales volumes. So sales of gold were lower than produced at Mara rose. Is that just a pure timing issue and something that should catch up in Q2?

Yes, it was a timing issue where we weren't able to sell the [indiscernible] production. Eduardo, I don't know if you want to make or anything else?

I just want to confirm that it was a timing situation.

Yes. Okay. Clear. And then my last one is just on San Jose. So a very big drop-off in grade in Q1 versus Q4. How -- what's the reason for that? And how should we think about grade progression into the remainder of the year?

Eduardo, do you have that...

Yes. Richard, thank you for your question. Yes, in San Jose, we had -- remember that in Q1, we have a low production quarter in San Jose, mainly due to the holiday -- vacations, the 2-week vacations that we have at the mine. So typically, we use that -- we take that opportunity to process low material -- low-grade material that we have in our profile. So the grades expected for the coming months are certainly going to be higher to the levels that we saw in 2024.

We'll now take our next question from Felicity Robson of Bank of America.

Could you provide an update on how your cost efficiency program is progressing and maybe what we can expect to see in H2?

Eduardo?

Yes. Thank you very much. The program is progressing well. Certainly, we had to pay more focused than expected in Q1 in Mara Rosa to resolve the situation generated by the strong rainy season, so it's -- we are including to the plan that we had this other plan to resolve Mara Rosa's challenges. But I have to say that the progress is of the plan -- general plan is moving along well. We expect to have more information in H2. We have projects like the ones that we have in our corporate presentation, including the use of artificial intelligence, mapping of the supply chain or the value chain of the business to identify opportunities there as well as operating opportunities in terms of accelerating the mine cycle as well as increasing efficiencies at the plant level. So we have more color to provide during H2.

We'll now take our next question from Ian Rossouw of Barclays.

Just a question on Inmaculada. I mean, if you look at previous years, I mean you've always been able to push a little bit harder at Inmaculada to make up for some of the lost volumes at some of the other operations. I'm just trying to get a sense within the guidance of 199 to 209, how much ability is there to push a bit harder to get towards the upper end or maybe above that to offset some of the production problems you've had at Mara Rosa -- and then maybe tied to that, if you can give us a...

Yes. Let me say that based on the fact that we brought last year like 1 million ounces of inferred resources. I mean we have new areas Inmaculada, and we could do some push and get some ounce additional to our budget. But I mean, the idea of [ Hochschild ] this year is to try to get 200,000 ounces from Inmaculada, I mean, reach the guidance at Mara Rosa and we will work very hard for that.

Okay. I mean could you give us a sense of just great expectations at Inmaculada for the remainder of the year?

Sure. The grade that we have will be between 3.3 to 3.5 grams per tonne for gold and between 130 and 140 grams per tonne of silver, that's the average grade that we expect for Inmaculada.

And on the throughput, I mean, I suspect a slightly better year than last year, which was around 1.2 million tonnes.

Yes, slightly better than that.

Yes. Remember that we did this program with the team and a consultant, we increased the throughput and that measures are still in Inmaculada.

[Operator Instructions] and we will now take our next question from Tim Huff of Canaccord.

Just a few for me follow-on questions on some of the questions that have already been asked. I guess on -- firstly, on Mara Rosa I mean I hear what you've got to say regarding this year's first half versus second half seasonality and a bit like Richard was saying, I mean you're going to have -- it looks to us like you're going to have like 30%, 35% of your volumes in the first half a lot in the second half. Are you -- I mean, if you're going to be going for the higher grade in the second half of the year? Or are you going to be maybe putting at risk the first half of '26 production again where you're probably going to have to -- when you're going to be again in another rainy season, and you may have to go lower grade throughput higher recoveries just to get where you are right now because that guidance for the second quarter leaves at a very lopsided profile with a pretty a pretty tough sort of second half to hit. It's not that you can't. You've got the increased throughput, and you have the grade recovery as well. But I'm just wondering if you're going to be taking anything away from the first half of '26?

No, let me say something. I mean we are finishing the -- our life of mine exercise this year and to try to see '26 how it's going to be. But I think for 2025, the key is the waste removal rate. So if we're able -- I mean, not to be in the same situation as Q1 2025 in Q1 2026. We have to be able to remove all the waste during 2025, even part of the one that you're supposed to remove on 2026 Q1 and leave the mine ready only to extract the ore during 2026 or just, let's say, 50%, to make sure that the rainy season does not affect you as much as has been affected on Q1 2025. So -- and we have the capacity with the new equipment, we have the capacity I mean, to -- the target level of waste removal is like 2 million per month, yes. With this new equipment, we have up to 3 million per month. So we could -- in the next 6, 7 months, we can increase the waste removal and open the mine as much as possible.

Okay. That's good news. So I took it -- I was -- sorry, I was understanding that, that additional waste equipment, the additional fleet will be there for just the second quarter, but it sounds like they will be there permanently to address these issues in the fourth quarter of '25.

Exactly. -- at. I mean we have decided to have a bigger size, I mean more flexibility on the mine equipment in order not to have this kind of problems.

Okay. Okay. That's helpful. Another follow-up question on Inmaculada and what Ian was asking about the grade profile. I mean it sounds to me like you guys are going to be able to -- like he was saying with the higher throughput or maybe even just more consistent throughput because you didn't see a drop off going into the first quarter. But if you have that lower grade profile than you did in the first half of '24 and you've got the higher throughput. Are you looking at Inmaculada being a pretty consistent producer throughout the year, meaning quarter-by-quarter instead of that very lopsided production profile that you're going to have from Mara Rosa this year?

Our intention is that in Inmaculada to be, I mean, a very stable operation. It's an underground mine. And it's much easier and the range does not affect you as much as it affects you in an open pit. But saying that, it really depends on the rainy season because if there is a lot of snow, some signs could affect the performance of the plant, the performance of the -- I mean the speed of the trucks. I mean, there is many factors that can affect you. Remember the Inmaculada is at 4,700 meters of [indiscernible] level, yes. So -- but yes, our intention is to try to be as stable as possible quarter-by-quarter, yes, and try to produce these 200,000 ounces as stable as possible.

Okay. All right. That's helpful. And then the last question I had was more financial. Just on your net debt, obviously, a little bit higher than what I was expecting. You've got divi payments coming out. You obviously have another weak quarter at Mara Rosa. Do you think you're going to be able to deleverage much in the first half? I mean we've got much higher precious metals pricing. So you got that going in your favor. But I mean, usually with the working cap outflow and so forth. I was just wondering what the outlook is for achieving much deleveraging from the end of '24 to mid-year -- or do you think it's going to -- again, whether it's going to be a very sort of back half-weighted deleveraging year for Hochschild?

Thank you, Tim. This is Eduardo Noriega. The -- yes, so it's actually the second. We're expecting to have a stronger deleveraging of the company in H2, the first quarter was typically slow. And in this case, in particular in this year, in particular, it was low. In Q2, it's going to be a recovery in Mara Rosa and H2 is when we see the strong cash generation to delever the company. It's also important to say that in Q1, we have temporary payments that have to do more with working capital needs. We had to pay for workers' compensation bonds but also taxes from 2024. There were also payments that had to do with projects that were finalized in December and were transferred to 2025 Q1. So that is not expected to happen in H2 or in Q2, Q3 and Q4. So therefore, we should improve our cash generation profile in those quarters.

There are no further questions in queue. I will now hand it back to Eduardo Landin for closing remarks. Thank you.

I just -- I would like to say thank you to all of you to be here at the conference. And I would like to remark something. As you see on my comments on the press release, what we are trying is to be total transparent with information to be able to tell you the good news also the problems, also the solutions that we want to implement and for you to be with as much information as possible. What we are looking for is your trust as an investor or an analyst that the company is going to be -- is going to give you all the information. And of course, he's going to tell you all the solutions that we will be able to implement it. Thank you very much.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.