Mineros S.A. (MINEROS) Earnings Call Transcript & Summary

Good morning, and welcome to our presentation of the financial results of Mineros S.A. for the first quarter of 2024. I am Maria Ellaida and I will be the operator for today's call. [Operator Instructions]. Keep in mind that this is recorded. This consider that this conference is conducted in Spanish with simultaneous interpretation. We remind you that if you have any difficulties to visualize website, please maximize the slide window. From this moment on, I'll give the floor to Alan Wancier, CFO of Mineros. Mr. Wancier, the floor is yours.

Good morning, and welcome. And the original language of this call is Spanish, however, the option to listen to the call in English is available. Before we start, it is important to advise that this call and the presentation may contain forward-looking information about the future performance of the business and that for various reasons, these predictions may or may not be realized as planned. For this reason, we warn investors that we should exercise caution when making investment decisions and not rely solely on the information presented here. It is also worth mentioning that this presentation contains non-IFRS measures, such as cash cost, all-in sustaining cost per ounce of gold sold average price per ounce of gold sold, adjusted EBITDA and net debt. Additional information regarding these measures is found in Section 10 of our MD&A published in Canada and can be found on SEDAR under the Mineros profile. Today, I am joined by Andrés Restrepo, President and CEO of Mineros, Ana Maria Rios, VP of Business Development; and me, I am the Financial and Administrative Vice President. Additionally, joining us by telephone are Ana Isabel Arteaga, Vice President, Legal & Sustainability; Santiago Cardona, VP of Colombia and [ Fernando Vida ], VP of Nicaragua. With this, I will turn the call over to Andrés Restrepo, President of Mineros.

Good morning. Thank you. Thank you for joining us today in the report of the results of the first quarter of 2024. We are going to develop this agenda about highlights financial results, results of operations, review of operations, challenges and opportunities. The first quarter of this year was quite positive, mainly by a 2% increase in production and higher gold prices which were almost $186 higher than last year's price. We've had a very efficient cost management of [indiscernible] cost management and this increased to higher payments for artisinal miners and the strong revaluation of the Colombian peso. That was 17% during the year. The comparative results versus the ones from last year are positive. During the first quarter of 2024, we continue with our exploration campaign as a proven project in Nicaragua. And our plan is to push the model update in the first half of 2024. We're going to see the next slide about the highlights. Okay. About the dividends, [indiscernible] meeting of shareholders, an annual dividend of [ $0.02 ] was approved distributed in a primary dividend of $0.075 annually payable quarterly of $1.88 and an extraordinary annual dividend of $0.025 that is also paid quarterly. In this same shareholders' meeting, three members of the previous board were reelected and six new members joined. Those new members that are part of our board are people with experience of the mining business, and we welcome all to our Board of Directors. All these members have extensive experience and the necessary qualifications to carry out this important work in a year like this, in which Mineros has a lot of opportunities to take advantage of. During the first quarter of 2024, the price of gold has had a positive performance, trading at 6.4 % above the close of Q4 2023. We closed at $2,195 per ounce. And as some of you may have seen in the last days, this continues with that trend. It's like we can see the minimum and maximum price of last quarter, in this first quarter, the fluctuation of the price of gold was possibly affected by the regional complex, such as the one of Israel and Gaza or Russia and Ukraine that also have increased the geopolitical risk worldwide. And also because positive data of United States, economy has led the Fed to keep rates sustainable, which also generally influences the gold price. With this, I will turn the call over to Alan, who is going to explain our financial results in this quarter.

Thank you, Andres. Let's start with the income statement for the quarter. Just a reminder that the figures are expressed in millions of dollars. Revenues grew by 15%, reaching $114 million, largely due to a higher average price of gold sold of 10% in comparison to the first quarter of 2023 by a greater amount of ounces of gold and by the 92% increase of silver sales, about $2.7 million additional versus 2023. The increase in the cost of sales is due to higher costs or purchases of artisinal materials given the higher price of gold for about $5 million and due to higher depreciation and amortization by 1.1 million and in conjunction with a revaluation of 17% of the Colombian peso. Both gross profit and adjusted EBITDA increased by 8%, thanks to the increase in revenue. Net operating income remained stable, benefiting from the increase in revenues and gross profit, partially offset by a higher exchange rate difference of $2.1 million, higher administrative expenses and lower other income of $3.2 million. On the cash equivalent, it was reducing $11 million, closing in $46 million, this is explained by outstanding accounts receivable rated to shipments completed late in the quarter. Cash flow from operations was mainly composed of income from sales of gold and silver by $88 million net payments to suppliers, $67 million, payments for employee $14 million and tax payment,$9 million. Cash flow used in investing activities is explained by investments in property, plant and equipment by 10 million and intangible and especially exploration projects by $1 million. Cash flow used in financing activities was largely composed by the payment of dividends [indiscernible] and payment of financial obligations by $5 million. Let's look at the adjusted EBITDA. This had an increase of 8% due to a greater number of ounces sold in addition to an increase in the average price of gold sold. And last, let's see the net debt, a reduction in net debt is explained by a lower balance of credits and loans by $32 million, combined with a higher balance of cash and cash equivalents, $46 million. This reflects a solid cash position of the company, and this provides us with cash flows to meet our obligations and pursue our growth projects. As part of our financial strategy, we monitor the market in search of opportunities in order to be prepared when cash needs required. With this, I will turn the call back to Andreas, who is going to talk about the operating results.

Thank you, Alan. So let's start with the proportion average price on gold pricing costs. This chart, on this slide summarizes operating performance for the last 5 quarters. As you can see in the bar graph, production in the first quarter increased 2% in comparison with the same one from 2023. The increase in production is mainly due to 7% higher production as the [ Michielubia ] property, explained by higher volumes and similar production in [ Hemco ]. Cash cost per ounce of gold sold increased by 14%, largely due to the higher cost opportunity in the artisanal mining as it is paid in export price at this higher cost is due to the increment of the gold price as well as the strong revaluation of the Colombian peso that was 17% at the beginning of this year, and it influences some of our costs incurred in that currency. The AI as per ounce of gold sold increased by 14% due to the increase in costs already mentioned and by the 20% increase in sustaining CapEx per operations given changes in vehicle fleet in maintenance. The average price of gold sold over the quarter increased by 10% reaching -- hold on a second. So it reached $2067 per ounce. Before starting with the next slide, I would like to talk about these very stable figures. We [indiscernible] against commercial company and you see all the quarters look quite similar. What happens is that the mining operations work on the top. So we try to maintain our plans and our equipment on the top and that's why variations are very small. There are variations in the -- you see there is an indicator that is used in the [ market ] because this indicator includes capital investments for sustaining. And these are more [ variable ] between 1 quarter and the other. But what you see is a very flat operation. When can we expect changes when you incorporate an additional operation or a project that adds or rigs or ounces, what we can expect from mining companies, they are doing well is that this is stable. So what happens in other businesses and that you consider this like a positive signal in the mining sector, it is. Because it shows that Mineros is a very consistent and solid company and consistency and solidness when you're selling [indiscernible] is part of our -- is used as a refuge. It's something very good. Okay. So now let's see the detail for our operation. Let's look at Colombia and Colombia production in the first quarter was 19,000 ounces, which represents an increase of 7% compared with the first quarter of 2023. Remember that in 2023, we had the situation by the social situation in the country. We had a good first quarter, and we had better quarters. As you can see in Q2, Q3 and Q4 from past year and this year, we are trying to work to elevate these volumes. Also, there are is [indiscernible] elevations and you see here higher and lower production in some zones, and that's why we have this in the slide. We can see that in the slide. When compared to the first quarter of last year, the income increased by 16% due to an increase in personnel costs. Remember that the salaries increment in Colombia was 11% and that added our peso revaluation of 17% makes it higher in terms of costs. Also higher tax prices and also depreciation and because of that peso revaluation, the gross profit increased by 5%, reaching $12 million, given the increase in cost that we previously mentioned. And now we say this thing, this is a very constant operation. We see variation in the AISC, but it's not as big in the cash cost because it's based on the cost and it does include CapEx. So in general, we see a very, very solid operation. Let's move on to Nicaragua. Cost production for the first quarter was 33,000 ounces, 33,000 or 32,000, 27, 34, 33, and this one of 27 ounces from the third quarter last year, that was when we stopped in order to intervene and with the plant. So what we usually see is the plant working on its full capacity. The AIS per ounce of gold sold increased by 15%. This is mainly explained by the increase in the price of gold that we mentioned before and greater artisanal materials as well as for increase in sustaining CapEx. That increment of 64% is also normal. We had a greater mining development. When you operate in an underground mine, you have to perform these developments, moving this barring material and that is accounted in the sustaining CapEx and also completing the commissioning of the electrification plant for the tailings of the process increased by 8%, mainly due to greater silver sales, we are having a substantial increment on silver sales, which is very interesting. There is slowing from our mining property in Nicaragua and has silver presence of -- that is unusual, not only so that we are going to turn or become a silver mine, but it has very good or interesting findings and -- or for our operation. [indiscernible] what are the challenges? And we wait to see how the costs are and how the production will be made before in 2024, we will have a reduction between 209,000 and 220,000 ounces. Our cash costs will be between 1180 and 1270 and our AISC will be between 14.30 and 15, respectively. And we are reaching the goal of problems. In relation to growth, our focus will be to continue with the [ Permania ] project where we want to complete the visibility stage during the second half of this year and focusing on -- and about the revenue and deposit, we will expand the minimum resources identify new targets around the main deposit. Mineralogical studies are underway, we want to conduct the work for custom geopolitical anomalies starting in the third quarter of 2024. This year, we are planning to perform 8,000 meters of drilling or preparations in Nicaragua. Which is a very interesting exploration campaign. 6,500 of these leaders will be in this target that is called [ Guidermina ], with this, I finished the presentation, and we open the session for the Q&A.

Let's start with the first question, Antonio Mejia asked, given the changes in the shareholders composition with Savaria Mercantil Colpatria, how is the new shares composition should you updated for ASA shareholders? We acquired 22.5% of Mineros and that participation was sold by Colpatria. Colpatria ] has about 7.9%, almost 8%. The other shareholders maintain the historical composition. So there hasn't been any difference or there is no change in that. So this information was communicated as a highlight and is also visible on our web page. Okay. We are waiting for more questions. Any other question? Andres Vergara. Can you please explain how is price composed when you buy the goal to the miners, does it work as a formula in which you maintain the margin over the international price? If so, which margin? We pay them artisan miners a percentage of the past of the date, but that percentage is not the same all the time. They bring an ore that varies in gold content. That is called -- that is the amount of gold that it contains. And when they have a higher grade, we will pay a higher price where they bring a lower grade mineral, we will pay a lower price because all minerals have the same processing cost. So mineral with a high grade that's more cost efficient for us to process, that's why we paid it at a higher price. That is a variable formula in which we pay over the international price, it needs a good -- it doesn't create a good margin. The margin is similar to the one of our own mining. But artisanal mining has less needs of investment in terms of capital. So the AISC is better in their artisinal mining rather than in the traditional mining, but we should see growth for strategic reasons, we have our own ore production, and we buy to the artisanal miners that are organized in different associations or guides. I could also add here that this price will rise from the purchase of the ore or minerals when the price of gold is high the cost will increase, but it has a positive net effect on profit. And when the gold price is low, it also helps us to have like a natural coverage against that risk. Another question from Carlos Quintero about the sentence from the court about the usability of the royalties. What is the impact of the results projected at the beginning of the year and -- versus what happens currently? And as a second question, what's the progress rate of the exploration project in Chile. Carlos we'll respond to the first question. The decision from the court is not as affected as our financial statements yet. But if it quit what we are seeing currently is that, that is not a very material like figure. So we are expecting to know the decision from the court and about the progress the exploration project in Chile, that is in a maintenance like a moment or a speech. So they invest a minimum to keep it active. Why is it that? Because we were the partners of Yamana, it was sold now. We are partners of an American Silver, and this is a project that at the end of the priorities of the American Silver, they made a decision about what to do with this project. We are expecting that we have 20% of share of participation and the decision is made by the greatest partner or the greatest shareholder. Nicolas Alvarez asked, I had understood due to the Gualcamayo operation, the cash cost and the AISC will be the reason for that. There are two main reasons, and that's what we are seeing today. First of all, the gold price continues to increase and this affect us in the case of the artisanal mining in Nicaragua, and that's number one. Number two, the prices revaluated versus the price from last year, and this also affects the costs in Colombia. The increase in the cost of artisinal mining, it's not a bad -- it's not that bad news, because as we are paying more, we are also receiving more. And in relation to the Colombian peso revaluation, it has been for almost 10 years. But last year, it's regulated. But we have to wait and see what happens with the Colombian peso in the next months. From Andres Vergara, I understand that artisanal mining, we have a natural hedge price. I have seen that you use coverage a derivative of the gold price. What's the percentage of production that has covered price with derivatives and what is the plan for this coverage. And historically, we have had this whole coverage but up to now or up to date, we only had covered 4,100 ounces of gold, ,1,500 ounces per month until June. So up to date, from now on, we will have a very good exposure to this gold price, and we don't have any other external target in this moment. To add something else. Then please see the considers that we cover the most challenging operations with higher cost operations and with the sale of Gualcamayo, both operations, Colombia's and Nicaragua's have low cash costs. The AISC is high to demand Allen's response because we are investing a lot in Colombia and in Nicaragua, we are [ two ] investments in order to increase our capacity of grinding and dragging and to reach mine soon. So there is seasonality in the AISC. So if we don't have these investments, the cash cost of both of our [indiscernible] will be good. It would have considerable margin in relation to the gold price. And if there's no pressure to take this coverage. And it's good for the company to be exposed to the gold price, because it may generate a better result for U.S. shareholders because the coverage that we had taken had a base limit. So that's why we couldn't allow the price to go below this lower and it will also place a limit in the prices of gold. Pedro Castro wonders [indiscernible]. Congratulations for the financial management of the company. On the cash, we cover the financial obligations in the short and in the long term. They can also say that make CapEx investments and [indiscernible] my question is that due to the [ ounces ] production is down due to the operation sale in Argentina, what is the possibility of the growth projects when increasing the ounces produced by the company in 2024. Thank you, Pedro. [indiscernible] is a project and we published the [ feasibility ] of this project. So these projects we consider that will produce 60,000 or 70,000 ounces per year, and that would increase net production if we continue with that product are on a permanent of obtuse of purchasing, which is an opportunity that we saw things to be listed in the Toronto market. So people ask some question, some conversations they ask us, is it worth to be in the Toronto list? And yes, it did, and that's one of the great benefits is that we are in the same market with a large number of companies with whom we could have a fusion or small companies that we could acquire using not only cash, but also the Mineros share as a cash election. So we are permanently on the search of these projects in order to increase [indiscernible] we haven't closed any deal and there's relevant information to communicate about it in business that we continue starting for them. This is a good time to identify these type of projects, but also we are working on our organic growth. That is with the [ carbon ] project, the other variations are marginal. We have the positivity of increasing our team possibility capability in the Panama plant. We also want to have some of these rocks in Colombia and but that's starting to -- the growth will be seen when we reach -- we can finish a deal of acquisition or fusion when we continue with our projects. So we have no more questions. I would not like to leave this call without telling you that we see a good behavior of our [indiscernible] last 3 months. We are going to be very active talking to investors trying to maintain that 10 trends. Also, they have another question here. This is from Joanna Rivera. What are the strategies that you are planning to implement to mitigate the negative effect of stoppages in the processing Nicaragua? If you see Nicaragua, you will see its quite stable. And this Nicaragua plant is reliable, and it has a preventive and corrective maintenance plan. But also, we are creating this master plan because what we bought in Nicaragua is a plant [ 86 years old ]. And we are operating this plant and renewing that plant and that renewal improves the reliability of the plant. And we want to do this based on master plan. So we know that we are going to replace an old part with a new part, where would it go? So this turns into a more modern and efficient plant from the public situation, we haven't seen any situation that may raise a concern. We completed union negotiations or bargaining in both countries last year. And we have agreements with the unions that last for 2 years. So we don't foresee so far, any situation on that side. The public situation in both countries have been stable in duration, and we trust, and we rely that, that process will continue in that way Well, it seems we have no more questions. Thank you so much for your attendance. And we'll see you in 3 months time or we'll listen to each other in 3 months time. Thank you so much.

We are going to finish our conference today. Thank you for your participation. You may hang up now. Thank you so much. [Statements in English on this transcript were Spoken by an interpreter present on the live call.]