Hochschild Mining plc (HOC) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our presentation of our H1 results. Here with me is Eduardo Noriega, our CFO; and Charlie Landin in London. Charlie, we can go to Page 3. Okay. Well, first, let me say that we have on H1, the strongest ever half year financials. We have produced 150,000 ounces, a little bit more. Revenues went up 62%, up to $844 million. Our adjusted EBITDA went up 119% to $492 million. The EPS went up 208% to $0.37. Our attributable all-in sustaining cash cost was 2,448 per ounce call equivalent. We end up with $309 million in cash, and our net cash position is of $51 million. The dividend that we have established following our policy is $0.04, equivalent to $121 million. What do we have to do with the rest of the second half? Well, Mara Rosa reorganization is on track. We will talk about during this presentation. Royropata, the environmental permit was submitted through the Peruvian government at the date that we plan to do so. We continue working on Monte Do Carmo on engineering and the decision of the FID will be at the end of the year. We continue having a strong ESG metrics, and we have also reviewed our all-in sustaining cash costs for the end of the year, and the new range is between $2,280 to $2,500 per ounce. Basically, the reasons for this review is being FX in the different countries that we operate and also the price, the gold and silver price that affects directly to work profit sharing and royalties, for example. So -- I mean, the guidance stays -- in terms of production stay as it was defined at the beginning of the year. And the all-in sustaining cash cost is the figures that I just gave it to you. Okay. I pass the presentation to Eduardo Noriega to go through the financial results. So Charlie, if you can go to Page 5, please. Go ahead, Eduardo.

Thank you very much, Eduardo, and good morning. So this strong set of financial results, as Eduardo described as a record half year results are mainly characterized by strong metal prices, but also strong operations and the recovery of our operational capabilities in Brazil. Revenue was up 62%, and it was mainly driven by higher prices, gold and silver prices, that was partially offset by scheduled lower ounces produced. Cost of sales went up 11%, mainly due to, as I said, schedule a higher tonnage, including waste movement in Mara Rosa to recover our operational capabilities. We also had the impact of higher prices in royalties, workers' profit sharing export tax in Argentina and other items directly correlated to prices. And also, we saw stronger local currencies in Peru and Brazil and net inflation in Argentina. I would say all those effects are closely tied to the stronger gold and silver prices. In terms of administrative expenses, the increase versus last year is mainly driven also by the performance of the company prices impacting LLP, but also works on profit sharing and bonus provisions. In others, we recorded a higher adjustment to our mine closure provisions of $6 million and also the impact of higher prices on some items in other expenses like the social contribution that we have in Argentina. Finally, attach rate, effective tax rate was 35%, mainly including special mining taxes. And the FX appreciation in Brazil and Argentina, especially mining taxes and royalties are in Peru, and also the impact of FX movements in Brazil and Argentina. Excluding these effects, our effective tax rate would have been 32%. We didn't record any exceptional items in the first half of the year. If we can go to the next page, please, Charlie. Here, we have the cash evolution, and I would just like to start saying that the free cash flow was very strong in the year and accounted for around $156 million in total. You can see that the cash that we were able to generate in Inmaculada and San Jose, very strong, the first one $288 million, the second one $149 million. In Mara Rosa, we used $80 million to fully recover our capabilities and build a thickener -- install a thickener and open the pit. We invested $16 million in brownfield exploration. Our corporate overhead was $30 million. In terms of tax paid, we paid $129 million from which most of it is in -- went to Peru and Argentina. We reduced debt by $80 million. We paid $84 million in dividends, $26 million to Hochschild shareholders and the rest PTA to our joint venture partner in San Jose. We had temporary movements in working capital negative of $37 million. We executed our current maintenance, and main closure budgets and invested $70 million as we pay interest -- net interest of $8 million. In addition to those elements, we invested in Monte Do Carmo to advance in our permitting process in -- sorry, in our engineering process. In Royropata $6 million. In Atara, we made a capital contribution of $9 million in Q1, and we had other investments in $3 million, mainly the expenses that our -- the rand company investing in the project. So with that, our ending balance of cash and short-term investments was $309 million. Again, a very strong free cash flow generation in the first half of the year. Despite high in temporary movements like the working capital, and also, I mentioned in the tax line, around $80 million were taxes that belong to the previous year 2025 that were paid in March and in May, the regularization of 2025 taxes. If we can go to the next page, please, on cost drivers, in the all-in sustaining cost at the Hochschild operations was $2,448 per ounce. In Inmaculada, the cost was $1,953 per ounce and that cost included the impact of the scheduled lower grades, but also the impact of higher prices in worker profit sharing and other items of the cost. We also had a stronger solid local currency in Peru, which had an impact. And we had scheduled sustained CapEx increases mainly to develop new areas and do execute our in-feed drilling program. In San Jose, our all-in sustaining cost was $2,944, and those -- that cost include the impact of lower grades from the border areas that we're mining and also the impact of higher prices in royalties and export tax. We also observed a local net inflation in Argentina. We were expecting more a devaluation, but we saw in this first half, a net inflation of around 7%. In the case of Mara Rosa, the only sustaining cost of $3,551 per ounce is -- includes the -- all the efforts and investment that we have made to recover -- to successfully recover operational capabilities in the country. And also, in Mara Rosa, we also had the impact of the stronger real versus the U.S. dollar. I would like to highlight that the company has made strong efforts implementing a cost reduction and efficiency projects that has helped us mitigate the impact of general inflation in the mining industry associated to higher metal prices. Again, a very good performance. And as Eduardo pointed out, just would like to reiterate that the adjustment that we have done to our retaining cost guidance is mainly associated to higher prices and its direct impact in our auditing costs and also the impact of stronger FX rates locally and net inflation in Argentina. All the rest of the inflationary pressure have been offset by our efficiency projects. We can go please to the following page on capital expenditures. We have maintained our guidance of between $210 million and $225 million for the year. In the first half, we invested $105 million in sustaining CapEx on a consolidated basis. In Inmaculada, we invested $69 million, and this number mainly includes mine developments and projects like the expansion of the tailings dam, where we invested $10 million. We also executed our infill drilling campaign and other support CapEx. In the case of San Jose, our CapEx was $15 million, mainly related to. And in the case of Mara Rosa, the $21 million invested in the first half is mainly associated to all the programs that we explained before to recover the mine operational capabilities, mainly the thickener, but also the opening of the pit. On the following page, please, on the balance sheet, we had $309 million in cash and short-term investments, as stated before. And the cash generation of $156 million free cash flow is reflected in our -- the transformation of our net debt position by the end of 2025 of $20 million to a net cash position of $51 million. The interim dividend went up 300% to $0.04 per share. And our net cash to last 12 months EBITDA was minus -- sorry, the net cash was 0.1x, much below our target of between 0.5x and 1.5x net debt to EBITDA in preparation for the investments where we are scheduled to do in Monte Do Camo and Royropata. Eduardo?

Thank you very much. Charlie, we can go to Page 11. Okay. Just to remember what we defined 3 years ago, it was a strategy that pursue the delivery and to reach the growth. Yes. Basically, we defined 4 pillars. The first 1 was a brownfield to bring long-term value, basically expanding our life of mine in each of the sites that we operate, also to be focused on resources that would end up mineable. It's not -- it's important to bring mineable resources and also to continue expanding our land packages in all the countries that we operate to maximize the chances to bring new resources. On the operational excellence, of course, we have a lean philosophy across the company, looking for cost efficiencies, also would like to go by the book on the project development. That's why we are working on Monte Do Carmo at the moment. And of course, it's very important for us to build all the sites and to have a leadership that is present with the people. On ESG, we need to continue to focus on safety. Safety is the most important thing for us, but of course, as you know, water is something that is very delicate today in the world. So we like to focus on water management. As you know, we -- 3 years ago, we implemented a new community approach, especially in Peru. And -- I mean, the result has been that no blockages or whatsoever during the 3 years, and of course, talent management. And on the fourth pillar is the disciplined capital allocation, where we are looking to produce capital returns to our shareholders. But of course, through our balance sheet, we need to fund in organic growth, so also to be able to pay debt. And of course, if we do any M&A, this M&A has to be value-accretive. If we can go to the next page, please. Two years ago, also, we classified the assets on core assets and noncore assets. So today, we are focused on our 3 core assets, which is Inmaculada, Mara Rosa and Jose. We also focus on the projects that we have on the near term, Monte Do Carmo and Royropata. And also, we have been working very hard on getting value out of those noncore assets. And the best samples you have is that today and has a value of $300 million. And was sold. If we go to the next page, please. As Eduardo Noriega mentioned, we need to be very focused on cost and looking for efficiencies. Today, we have more than 50 initiatives in place to be able to control or to offset the inflation that we are living in the mine industry. And that inflation has been able to set -- I mean, to set off with these initiatives. So the only reason why we have reviewed the new guidance -- cost new guidance is because we had the FX and also the price related cost. In this page, you can see different top initiatives that they have been implementing in each site. We believe that we will be able to achieve the guidance in terms of cost and also in terms of production applying these programs. Going to on Page 14, please, charlie. Voimacula, as you know, is our flagship operation. The guidance for 2026 is between 174,000 to 185,000 ounces of gold, and we are in -- I mean, we are in that path to be able to achieve these results. Certainly, I have to say that we have a contractor fatality in June, but we have done an extensive investigation on what happened and apply all the lessons learned from this situation. Also, I would like to mention that, as you can see, the production profile, it goes a bit down, yes. But I have to say that this is the -- I mean, the results of having higher prices that let you pass through the planned lower rates. If we go to the Page 15, I mean this is -- Inmaculada has been a fantastic story. We started in Inmaculada back in 2015. And if you remember, we used to have 1 million ounces of gold equivalent. It was 80 million ounces of silver equivalent. In the last 10 years, we have been able to discover veins and bring a total resource of 5.2 million ounces of gold. What is next in Inmaculada? Well, in Inmaculada, we are trying to do exploration at the south of the deposit. That is something that we haven't tested yet. Also, Minascucho, we just got the permit, and we are waiting for social permitting that's at the northwest of the deposit. We have found well, some new pains that could be potential resources in the next years. And also, we believe that we will be able to bring around 250,000 ounces this year or resources. But as you can see, I mean, this year, our focus is to try to bring potential -- resources potential new areas to be able to expand again the resource in Inmaculada. Going to Page 16, we have Royropata project. We have a great new here and is that we have been able to file the environmental permit with the new Peruvian government. Also, as you know -- I mean, we have been able to build this document. We have worked with specialist consultants. We closed our agreements with the communities back in 2024. And today, we believe that we have a year of revision, and we could be seeing the permit granted next year around of us. That's the plan. I mean, the thing about Royropata is that we have 3.3 million ounces of gold equivalent. As you can see, the grade is 412 grams of silver and 1.5 grams of gold. And the average width of the deposit is 30 meters. Also, you know that we have a plan of 3,000 tonnes ready to receive this material at our Selene plant that is in current maintenance since 2023. So we believe that we have a huge value to bring to the company developing this new project. And also, if we can go to the next page, you can see that we brought a lot of resources from 2007 to 2025, but between 2027 and 2030, we believe that we can look for new resources to extend Marco Bain. Good news for the company is that we just got the semi detail permit that let us drill from 40 platforms, and we are going to target the extension of Pallancata vein and also the new areas that we believe that we can bring new resources. So I believe that in a couple of years, we can have a new fantastic asset that will complement the production in Peru with at least 100,000 ounces per year. If we go to Page 18, you can see our land package between colada, Pallancata and Selene. It's 152,000 hectares is a huge land package. We have been able to add 6 million ounces of gold equivalent to date. And we are using the most advanced exploration tools that are available in the market. The latest thing that we are doing is micro gravities through wave. And we are testing current veins with these models, and we believe that there is a very good correlation. So between this micro gravity and also the long haul reading, we believe that we have the tools to explore all this area and continue bringing resources to our plants at Inmaculada and Seligi. Okay. Going to Page 19, we fly to Brazil to Mara Rosa, as you know, it was an asset that we acquired in Brazil, our first asset. During 2025 and 2026, we have been working on a reorganization, and finally, we have finished that. We have sold all the filtering issues. We have a new contractor in place. And our guidance, we keep our guidance for 2026, between 67,000 and 80,000 ounces. If we go to the next page, I believe that the most interesting thing is the graph at the bottom of the page, the run rate performance. And as you can see, in August, we have the crushing in and filtering plants nearly to our nameplate capacity. Good news is that we were able to implement the thickener that now is fully commissioned and working in record time in 3 months. And the most important thing is that today, we come with a very competent mining cost structure, and we are doing many, many improvements at the mine. So I believe that the second half for Mara Rosa is going to be very good for the company. I mean, we have finished all this work. If you can go to Page 21, Charlie, please, you can see the open pit there. You can see the futures. You can see the dry stack on the right upper corner of the page. That is, I mean, state-of-the-art in terms of stability and everything. The thickener in place, you see the ore stockpile, full of ore and also the filtering plan with the ceilings ready for -- I mean, with the roofs ready for the brining season. If we go to Page 22, we can see the Mara Rosa new mine program to add new resources. As you know, I mean, the place where, which is Mara Rosa is placed is organic trend that extend for 20 kilometers. And we have many mining concessions along this trend. Currently, we are evaluating a structural corridor with 3 [indiscernible], Poe, Ararasand set. We believe that we have promising results from drilling at the north of pose. I mean, the idea is to continue bringing as we establish in our strategy is continue bringing new resources to current assets. If we can go to Page 23, we can see Monte do Carmo is our new project in Brazil that we acquired in 2024 for $60 million is 1 million ounces of gold, located in a very mining-friendly Tocantins state, which is north of Goias. I mean, this project is fully permitted, and I have to say that has an excellent infrastructure in terms of paid highways, hydropower plants, airports, cities, big cities, that I'm sure you will attract very good talent once we start the operation. Today, we are working on waste rock facilities are prestripping engineering, going to detailed engineering. The plant engineering done by Ausenco is nearly finished. Of course, we continue doing some pile drilling. And of course, we have been able to talk to suppliers in order to talking about the orders for mining, crushing, power lines and filtration to make sure that the lead times of those equipments are ready for us. We expect to present to the market an updated economic and go to our Board of Directors for FID at the end of this year. And I mean, at that point, we will have finished 100% of our basic engineering. And through H1 2027, we will go, I mean, to perform the digital engineering, all the components. Basically, we -- once you have a basic engineering you can apply a fast track construction strategy, developing detailed engineering during construction. That's debut -- I mean, really the first thing is to make sure that based on basic engineering, we have a very strong project, even at very conservative prices. That also is established on our strategy to make sure that any M&A has to be value accretive. I'm going to San Jose, and San Jose is doing very well in terms of production. Unfortunately, I mean, inflation has went down in Argentina. Today, we have up to 16%, but unfortunately, we didn't have any evaluation. So -- I mean, cost is increasing. And it's incredible how many efficiency in projects we have done in order to control those costs. But I mean 16% of cost increase is a lot. So I mean, we believe that we will be able to finish the year inside the new ranges that we have presented to the market. And of course, be able to accomplish with our guidance. In terms of exploration, if we can go to Page 25, I mean we believe that San Jose has -- still has a lot of potential in terms of new resources. In 2026, we have been drilling in West in Agena Made. We are also using micro gravity that has been completed 70% in areas that we believe that it could have new resources. And of course, also, we are working at the San Jose province where we have some mining properties, and we believe that we can bring more value to the company. Okay. Changing the subject. If we go to Page 26, I believe that we have -- I mean, we need to talk to the new Peruvian government. As you know, we have elections on July 28 and was a appointed as a new President in Peru. I have to say that a new cabinet has been appointed, and I would say that it's technical and investment friendly. At the annual address, it was center basically on restoring stability, confidence and growth. We believe that these early moves that give us signals of continuity and pragmatic market-oriented tonne. On the economic team, we are very happy because Julio Velarde has been reappointed to the Central Bank. You know that the Peruvian soul has been the most establish effects in Latin America. And this -- Julio Velarde will continue as a coverer the Central Bank has decided to extend his leadership until 2031. Also, as a Ministry of Economy, Elmer Cuba has been appointed, and he is macro economies, very well reputated respected macroeconomies and also former Central Bank Director. We expect to have a growth of 3.5% GDP in 2026. I -- at the mining and minister, Guillemocino has been appointed as a minister. He used to be Vice Minister of Mines, and it's a person that has a lot of experience on the private sector also. And I believe that the Fujimori platform for the -- for our sector, is try to formalize mining, tackle illegal mining and also simplify permitting. So I believe that while it's important this news for investors is because -- I mean, we have an improvement sentiment with renewed expectations to have faster permitting, and I'm sure that the country is going to be attracting new investments. And so -- I mean, I know that permitting remains challenging overall because, I mean, we need to have -- I mean, we need to implement a lot of changes on regulations that the Fujimori's government has presented, but I mean, of course, we have the Royropata permit now with this government, and I believe that's very good news for the company. I insist that Royropata is -- it could be the new flagship of Hochschild Mining. And we need to continue developing this project. If we go to Page 27, again, I mean, this slide is always on our presentation is that we believe that we have a valuation opportunity. Now, we have Mara Rosa that I believe that on H2 is going to perform. Inmaculada continues having a very strong performance. And today, Royropata, we have already presented the permit. And Monte Do Carmo, we believe that at the end of the year, we are going to be able to present the FID. So with all these news, if we compare ourselves with our peers, we have still a very low value. So that's an opportunity to buy our share, and the expectation is that the value is going to grow in the future. As a conclusion, well, 2026 H1 has been, as we said, a record performance in terms of financial. I am extremely happy with the execution that we have been able to implement as Mara Rosa in its turnaround. We have very strong Peruvian and Argentina cash flows. The dividend is going to be $21 million. And also, as we established in our strategy, Kiran and Aclaris investments now are valued at more than $300 million. And what is coming is Monte Do Carmo project advancing with FID, as I explained. We believe that our brownfield program will deliver new additional ounces. Royropata project to deliver more than 100,000 ounces gold, started production in 2028. And of course, we will be keeping our disciplined capital allocation strategy to make sure that we pay debt that we have the cash to continue investment and for sure to give returns to our shareholders. With this, I have finished the presentation. And of course, please I would like to open the Q&A session. Thank you so much for being here today.

Thank you for the presentation. We have had a number of questions presubmitted and submitted live. Just as a reminder, if you would like to ask a question, please type them into the Q&A box situated on the right-hand side of your screen. I will now hand over to Charlie Gordon, who will be asking the questions for today.

The first question is on long-term value. What do you believe is currently the biggest gap between Hochschild's underlying asset value and its market valuation? And what specific actions will management take to close that gap?

Eduardo, you may.

Thank you, Eduardo. I think the most important value catalyst that the company has at this time is, one, the -- to prove our execution capacity in Mara Rosa. We have recovered operational capacity in our new asset in Brazil, Mara Rosa. And I think that is coming soon. Then, of course, we have our 2 new advanced projects in Monte Do Carmo in Brazil, very close to Mara Rosa and with also a great exploration upside. And finally, a very large silver deposit in Peru, our Royropata project. Once we are able to advance on those projects and prove our operational capacity in Mara Rosa, I think the value, the perception of the value of the company will recover fast.

Thank you very much. This next question is on costs and margins. Given the current gold and silver price environment, how confident are you that Hochschild can maintain or improve its AISC performance whilst simultaneously investing heavily in its growth projects?

Thank you, Charlie. Higher price environment is certainly a positive environment for the company given the stronger margins that we are able to achieve. However, higher prices also bring higher cost, not only because of general inflation in the industry, but also because of the direct correlation of prices with royalties, export taxes, workers' profit sharing in Peru. I think the -- our strong focus on cost efficiencies and cost reductions that we have proven to have to mitigate this general inflation together with the new production coming from 2 excellent assets like Royropata and Monte Do Carmo are the catalysts that will help us mitigate inflation even further and reduce our all-in sustaining cost in the future.

Thank you. The next question is, could you provide an update on the fatal contractor accident at Inmaculada in June? What corrective actions have been implemented?

Of course. Well, let me say that safety is our first priority. We want to make sure that every single worker that goes to our operations go back to their home safely. That was a very unfortunate situation. Rodney, our contractor, he was involved in a fatal accident basically because -- I mean, they have to develop a front with a race climber -- I mean, the explosion didn't go out, and they tried to go up and fix the front. And suddenly, the race climber cage stopped. Unfortunately, he decided to self-rescue himself and -- using a cable. It was 100 meters race. So I mean, he died in that attend. I mean, we have done a full investigation. Clearly, we can improve certain procedures like lock out of these race climbers, but also it's clear that we need to continue working on behaviors. At the end of the day, based on the engineering of the process, I mean, it was a safe process and the other guy that was with Rodney was rescued -- so I mean, nothing really happened, but I mean Rodney decide to take this action. So we believe that we need to continue working on things related to behaviors, mental health working with the psychologist at the site and make sure that people make the best possible decisions once they are alone. So that's -- I believe that that's the -- that's the trend that the industry in general has to follow.

The next question is, are you seeing any operational issues at Inmaculada or San Jose that investors should be aware of?

No, not for the moment. I mean Inmaculada is running really well. We are producing 4,100 tonnes per day from the underground mine. I mean, we have the flexibility. We have been doing the development to have different fronts with different grades. And I believe that from now on, I mean, the second semester is going to be very positive. That's Inmaculada. I don't see any issues. And at San Jose, the same. I mean San Jose, the only thing is that we are in the borders of the mineralization, as you know. And of course, I mean, there is some variability on the grades. But I mean, San Jose has been working also on make their developments make sure that they have the flexibility to reach the annual production goals.

Thank you. The next question is, congratulations on a very strong first half. What are your priorities for the second half? And what actions remain outstanding at Mara Rosa?

Well, basically, the priority for this year is to complete the turnaround at Mararosa and make sure that we have a second semester demonstrating to the market that Mara Rosa is working correctly. I would say that we need to continue working with Fagundes, our new contractor, to make sure that they do the pushback at the mine to give us the flexibility to have the different fronts with grades -- with high grades that we can process at the plant. I have to say that the plan is working smoothly, crushing area, milling, leaching, the thickener is in place today. Filtering is also working really well. We have been able to control the dry stack procedure. So today, I believe that the operation is totally stable. We need to continue working at the mine, giving us some flexibility to have different fronts with grades to reach the annual guidance that we believe we can do it.

Thank you very much. Next question is, with the share price having risen strongly? What do you think the market is still underestimating about Hochschild?

Well, I can pass that question to Eduardo Noriega.

Thank you, Eduardo. Really, our -- the 2 assets, the 2 projects that we have in front of us, Royropata, and Monte Do Carmo are the ones the assets that will actually transform the company and increase production materially to above 500,000 ounces of gold equivalent ounces per year. Those are the 2 catalysts, as I said before, for the value of the company. Those 2 assets will also prove Hochschild's capacity to build projects on budget, on time, which is something we have done in the past with Inmaculada and that we are prepared to do going forward. And also, we'll demonstrate our capacity to add further value through exploration. We should recall that the Royropata asset is an asset that was discovered through our brownfield exploration plan and that adds a lot of value to our shareholders. And in the case of Royropata, it was a strategic acquisition that took advantage of a specific situation of the target company right before the cycle of high prices. So I think in general terms, we are very happy with those 2 assets, and we are fully confident that we'll add a lot of value to our shareholders.